Spotlight

Spotlight: Curating a rewards portfolio to your budget

Hinda: Curating a rewards portfolio to your budget

For most loyalty programs, the biggest consideration is the construction of a compelling rewards offering. The reasons are obvious: The promise of a meaningful reward is what draws a consumer to consider your program and drives their continued engagement, while the rewards budget is the largest budget outlay for any program. In this spotlight article from Hinda Loyalty Group, Gregg O’Neill and Theresa Thomas outline the best practices for balancing reward engagement with the financial health of your loyalty program.

By Gregg O’Neill and Theresa Thomas

In the early days of loyalty marketing, managing reward portfolios was easy; we printed catalogues, mailed them to program participants, and hoped they didn’t redeem. Today, the advent of technology, mobile devices, data analytics, and savvier consumers have made the loyalty marketer’s job much more challenging. These complexities can, however, be offset by partnering with a rewards provider who offers a wide array of rewards coupled with data-driven personalization. When seeking a rewards provider, look for a partner who understands these key best practices:

Know your customers.

Some program operators attempt to make their loyalty programs all things to all people – but understanding differences in generation, gender, income, education, family size, and other data points is critical to successful rewards design. To build a compelling rewards portfolio, seek a partner who can marry general merchandising practices with data from past program performance – specifically, total redemption historical data. Use promotions to highlight new rewards; observe where members are browsing, “wish listing,” and redeeming; and use that data to refine your strategy. Such rewards analytics are essential to program success.

Be transparent.


Today’s savvy consumers can quickly break a loyalty program’s code – so be transparent in your earn and burn strategies. The first activity of an engaged loyalty program member is to calculate how quickly she will accumulate enough currency to reach the first redemption level. Your best customers typically look to earn a reward within the first 90 days – so design accordingly, and openly communicate the earn velocity early. When building your earning velocity rules, balance product profitability with a compelling case for participation.

Balance aspiration with engagement.


Once members have broken the “velocity code,” the next step on their journey is to select their reward wish list. This selection may be based on need, whimsy, or emotion – and it will change over time. Encourage members to build their wish lists, track earning activity towards their goals, and push targeted offers based on their browsing history. Most consumers dream big and select the trip to Hawaii or the 75-inch OLED TV; after 18 months, they instead redeem for the high-end food processor when theirs breaks down, and they’re equally happy with their choice. Most importantly, every time they use their rewards they’ll think of you – the program sponsor. Providing a balanced portfolio of aspirational and engaging rewards will power this journey.

“Amazonify” your rewards portfolio.


Today’s consumers expect an Amazon-like experience when they shop online. When they’re browsing your rewards site, that’s what they’re doing – shopping. That means they expect an Amazon-like experience: Intuitive searches; broad product lines in appealing, relevant categories; and a personalized portfolio driven by data analytics based on their profiles and web browsing activity. Automating the digital experience is only the first step, however; you must also incorporate strategy by curating a reward catalog specific to your program objectives. You don’t need a million items in your reward catalog; rather, curate a targeted assortment of rewards that catch your members’ attention while meeting your revenue and cost goals.

Manage your cost per point.


Managing your Cost Per Point (CPP) – the cost of rewards redeemed divided by the number of redemption points – is critical to program financial health. Important variables to consider include program maturity, accumulated point balances, vertical market, competitor programs, split tender offered, points expiration, and point burner campaigns.

Your vertical market, in particular, can drive costs up or down based on the perceived value of in-kind rewards. Airlines and hotels offer seats and rooms as rewards, for example, but also drive program revenue by supplementing travel rewards with non-core rewards that encourage them to pay cash for their seat or room. Reward credit cards, meanwhile, often offer cash back, but lose the allure of tangible rewards that foster brand stickiness while offering a lower CPP.

New loyalty programs should operate a fiscally conservative rewards strategy: Start with 60-80 basis points ($.008) until you have 18 months’ worth of redemption data to formulate a longer-term budget. Control costs by focusing on in-kind, merchandise, digital downloads, and gift cards. Add more expensive travel and experiential rewards later, and limit expensive device rewards to key marker brands such as Apple and Bose.

More mature programs should offer rewards in the 80-120 bps range by adding more attractive electronics, travel, and experiential rewards. For elite tiers, reflect their value to the business with rewards in the 250-300 bps range, including high-end travel, concierge services, and top-shelf electronics. You can also control costs by offering sweepstakes, auctions, and contests that drive engagement while reducing program liability.

Build an engaging redemption experience.

Building an engaging redemption experience is also critical to managing CPP. That experience begins with marketing campaigns and promotions that drive engagement while encouraging redemptions that control budget and reduce liability. Redemption tools that reduce friction, such as one-click, checkout, cart personalization, and expedited delivery can also drive engagement – but may add cost unless you charge for them or restrict their use to top-tier members. The reward delivery experience is also critical to engagement; personalized, hand-written notes, branded packaging, and on-time delivery creates a positive redemption experience that will jump-start the cycle of earning and redemption that leads to long-term loyalty.

Loyalty practitioners have many levers at hand to control program budgets while delivering an engaging rewards experience. Effective rewards design is both art and science, marrying the historical redemption data of your rewards provider with your own customer analytics. Seek a rewards provider with the experience to deliver on this promise, and together you will deliver a loyalty program journey that builds sustainable and profitable relationships with your best customers.

Theresa Thomas Vice President Strategic Solutions at Hinda Loyalty Group

Gregg O’Neill is Business Development Director at Hinda Loyalty Group.

Gregg O’Neill is Business Development Director and Theresa Thomas Vice President Strategic Solutions at Hinda Loyalty Group. This content is sponsored by Hinda Loyalty Group. For more information about Hinda Loyalty Group, please visit them here.

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