Our Thinking

Different Strokes: Why Tailor-Made Customer Rewards Are Effective

By Ed Higdon. Posted in Uncategorized

November 19, 2014

Customer rewards programs have existed for decades. But not all programs are structured the same way, and need to be carefully designed to be successful. In worst-case scenarios, retailers lose money from these programs, and blame their industry — they argue that rewards simply don’t work for their product or customers.

The problem however usually isn’t with customers—it’s with strategy.

One Approach: The Tiered Rewards Program

Tiered rewards are a step-up beyond offering a general public discount. These programs sort customers into broad categories based on their spending habits to offer them custom rewards. While very popular with casinos, hotels and airlines – tiered reward programs cause most retailers to hesitate. Most worry they don’t have the means or right to tier their customers: Can you place frequent shoppers against less frequent shoppers, regardless of how much money they spend? Or do the big spenders receive preferential offers over loyal, but more tight-fisted repeat customers?

By creating a class-based hierarchy, retailers are in a sense grading their customers, and differentiating them into large, sometimes uneven groups.

Shoppers on the lower end of the tier, who spend less but still consider themselves loyal to the brand, may feel negatively towards a company if they’re not deemed “important” enough to earn the best deals. Conversely, top shoppers may feel snubbed if a retailer chooses to show preference towards lower-tier customers—specifically because they want to grow those customers from the bottom, rather than invest in their safe bets.

In either scenario, there’s the issue of price transparency. Retailers have to come up with a thorough strategy for determining in-store prices versus loyalty prices, and educate their managers to maintain that fairness and honesty about their practices, all while still understating the inherent value of the product itself. Too much price fluctuation can convolute the true price of a product for everyone.

A Better Option: Pay a Visit to the Tailor

Retailers embracing a tiered system are only meeting their customers halfway. Tailor-made rewards speak to customers on an individual level, and inherent to this dialogue is how much those customers spend.

Much like the loyalty rewards themselves, retailers need to approach their rewards systems individually. There’s no good “one-size-fits-all” loyalty program that every retailer is using. Everyone’s customers have different needs. The key to unlocking that potential is to first understand who they are, and retailers need a means to analyze customer data in order to design and implement a tailored program.

Loyalty rewards programs can flounder if they’re too broad, or a retailers’ margins are too thin to offer substantial discounts. Viewing customer rewards programs simply as a way to incentivize customers to shop, however, is missing the point: rewards programs are as much about gathering customer information as they are about keeping your customers engaged.

Once you’ve got customers’ information, you can stop viewing them as numbers, and start understanding them as people with personal tastes and individual spending habits.