Structure of Loyalty Program’s Rewards

| Published | LAST UPDATED .

To understand the loyalty program, it is important to understand the role of rewards offered to consumers. Reward is directly related to the consumer's sense of satisfaction, so the structure of rewards should be in line with the task of producing it. To analyze the structure, it can be conventionally divided into such parts as type of rewards, size, frequency and representation.

Loyalty Program’s Reward Type

Loyalty programs offer a wide variety of rewards. It can be divided into two basic types of rewards: traditional and original. By traditional we will understand this type of reward, which is based on the principle of kickback, i.e. return of part of the income by agreement. This type dates back to the most archaic sacred practices, when part of the harvest, for example, was returned to the gods as a sacrifice (the first sheaf on the harvest festival was ritually burned). In modern loyalty programs, the reward based on this structure is routine and is most typical for everyday purchases of consumer goods - food, low-cost cosmetics, household goods. Reward has the form of bonus points, which are credited to the customer's account, then on these bonus points the customer can buy something of the company's goods of his choice, or exchange bonuses for a discount on another purchase. The second type of reward - original, based on the factor of surprise for the customer and does not imply discounts or arbitrary choice of goods. Usually this type of reward appeals to curiosity and is present in commercial strategies designed to attract new customers through the effect of novelty. This type of reward can complement the traditional one in the form of a temporary promotion. 

Further research into these types of rewards should be complemented by the question of whether the rewards are direct or indirect. Most traditional awards refer to direct benefits and include economic benefits that are preferred by consumers because they are clear and easy to use. The economic benefit of the reward may be imaginary, but the main thing is that the value of the reward is commensurate with the consumer's expenditure. Indirect rewards are usually presented in the form of additional services and privileges, which include intangible rewards such as privileged access to websites and newsletters for loyalty program members only. Original rewards are also often indirect - for example, for buying groceries from a certain firm you can get a TV subscription, but in order to take advantage of this privilege, the buyer needs to perform a number of additional actions to activate the reward, which can negatively affect the satisfaction of the loyalty program. 

The nature of the reward undoubtedly affects the evaluation of the program's consumers. Initial studies on this problem have shown that consumers tend to prefer direct rewards that are specifically linked to the supplier. For example, consumers who buy baby food are more likely to appreciate discounts on future purchases of baby food. Providing indirect gratuities, usually for extraneous goods or services, is not a good reward practice and may even harm the promotion of loyalty. Uncertainty about original indirect gratuities is a controversial field that requires further research. In particular, there is a need to understand how consumers evaluate one-off rewards (i.e. the exchange of points for one-off rewards) compared to sustainable rewards, which are accompanied by improvements in status and level. We need to know which type of consumers prefer preferential treatment and who wants to exchange points for goods or services. It will also be useful to know how the nature of rewards affects attitudes and behaviors within the program, and perhaps even attitudes towards the provider itself. A better understanding of the impact of the type of reward on competitive choice is needed.

Loyalty Program’s Reward Magnitude and Frequency

Reward points in loyalty programs are considered as a form of centralized virtual currency that can be used to purchase luxury goods. The idea of a bonus reward allows customers to spend a virtual sum to buy a product that they would never buy for real money. It is an attractive trigger for customer satisfaction, which helps them feel a more prestigious level of consumption. As a result, the amount and frequency of rewards available to consumers can directly affect their attitudes and participation in the loyalty program. Studies have shown that when consumer efforts are low, consumers prefer guaranteed rewards of low value. But as the effort required increases, consumers tend to prefer larger rewards, even if they are not guaranteed, as in the lottery. In addition, consumers who are satisfied with the supplier are happy to wait for high value rewards rather than receive more immediate, lower rewards. Alternatively, dissatisfied consumers prefer faster and lower remunerations. These results are consistent with the notion that low-involvement consumers prefer faster remunerations.

Of course, the impact of the value and frequency of rewards depends on the specific situation and for each loyalty program may have different values. Is the question to be studied whether consumers assess value simply on the basis of perceived monetary value, or do they accept a more comprehensive assessment? Does the way the award is presented and its characteristics (e.g. presumed sacrifice, preferential treatment, relationship benefits) influence the evaluation? What can be the impact of time and value of the reward on the actual buyer's behavior with the supplier? 

Loyalty Program’s Reward Representation

As a matter of fact, the question of representation of remuneration within the loyalty program can be considered as one of the most important, as it constructs the perception of the loyalty program in the eyes of the client. With what marketing communications should a rewards strategy be built to attract the optimal number of clients? Preliminary work in this area suggests that rewards are optimally positioned as "additional benefits", which are provided to loyal customers at the expense of the firm. This type of positioning manages client expectations and clearly positions the client as the recipient of the relationship. Although this may not be the case in fact, the representation built in this way is the most successful. Accordingly, firms must tailor all messages for loyalty program participants to emphasize their special status and recognize the importance of their relationship. Given the conclusion that the mere illusion of progress in the direction of remuneration can accelerate consumer purchases, loyalty can be enhanced by setting remuneration levels as close or fast approaching. This effect can be manipulated - in loyalty programs often make the simplified passage of levels, for example, reduce the number of stickers due to "gifted" from the firm. 

In addition, studies show that consumers actively assess their status based on a representation of the program structure, which suggests that consumers prefer a multi-level program. In particular, members of the elite are most satisfied when their number is relatively lower than at the lower levels. Framing effects, which originate in classical literature on behavioral economics, provide numerous opportunities for the experimental isolation of important loyalty factors, while evaluating the effectiveness of these factors in relatively natural conditions. 

Georgetta F. Palsen

Georgetta F. Palsen

About the author

Georgetta F. Palsen spearheads the Loyalty Programs Project, aiming to unravel the global impact of loyalty programs. Leading a dedicated team, she adopts an interdisciplinary approach to explore these programs' influence on consumer behavior and capitalism, offering critical insights for academics and businesses navigating the complexities of today's societal dynamics. More info


There are currently no comments on this article.

Add a comment

Enter your comment below. Fields marked * are required. You must preview your comment before submitting it.