Benefits and Drawbacks of Points-Based Incentive Programs

BY Lucy Fang
Feb 05, 2021

Whether for health and wellness, loyalty, channel partners, market research or something else, there are many different ways to set up incentive programs. One of the more useful tools for incentive programs is issuing points as “virtual currency”, which allows participants to keep track of their earned benefits. Typically, users receive points for reaching preset benchmarks that reward them with a selection of different incentives, which can include prepaid Visa cards, gift cards, digital rewards, goods, and services from the issuing organization. This could include bonus products, bonus thresholds, and channel partner opportunities. These loyalty programs are a fantastic tool for market research, automotive, health, and wellness, customer, employee, sales incentives programs and more.

Compiled below are a few of the Benefits and Drawbacks to help guide those considering developing their own points-based incentive program:

Benefits of Points-Based Incentive Programs

  • Commonly used and easy for participants to understand.
  • Offers major competitive advantage as earnings and rewards thresholds are simple to adjust 
  • Because points are more flexible and targeted in a brand management solution, these types of promotions are perceived by users as more creative for select marketing schemes.  
  • It eliminates the need for price discounting, especially for promotions on product brands that do not allow discounting.
  • It can be used to reward customers or employees.
  • Virtual currency can be resold to vendors to help support the program.
  • Points programs assist in collecting customer data for cross-selling and targeted promotions and targeted promotional opportunities.
  • Leveraging the difference between points issued and points redeemed (breakage) can result in a reduction of marketing costs.

Drawbacks of Points-Based Incentive Programs

  • The requirement of thousands of points to be earned to redeem for a reward can cause the “halo effect” devaluing the points programs concept.
  • Ongoing program management is required to reduce program fatigue depending on the community of users. This issue can be mitigated by working with a rewards program administration company.  
  • Ongoing investment in redemption opportunity are a requirement for program success.
  • Upfront investment, and it can be more complicated to put together without the right technology.  
  • Currency management and customer service required.
  • Need to put a contingency on the balance sheet for outstanding points
  • It can be more expensive than cashback if not using a self-selecting user marketplace to allow selection of items lower than the cost of cash

As you work through the benefits and drawbacks of points-based programs, you will discover that finding the right reward management solution provider is an essential component in driving a program’s success. All Digital Rewards (ADR) is a leading technology company specializing in customer loyalty and promotions, program development, design, and implementation. We can help you navigate through the pros and cons as they present themselves. You have a partner from beginning to end when working with the All Digital Rewards team.

For more information on Key Components of a Successful Loyalty Program, call us now at 866-415-7703 or click the button below to schedule a demo.