Pros and Cons of Implementing a Points-Based Loyalty Program

Marketers are constantly searching for new ways to attract and retain customers. Often, this involves using tried and true loyalty marketing methods.

From offering discounts on popular items to “buy-one-get-one-free” sales, marketing professionals typically stick with what works. However, these approaches can be costly. If the boost in sales doesn’t make up for the lost revenue, the programs can hurt, rather than help, the company. A points-based customer loyalty program offers a compelling, yet cost-effective driver of sales for any business.

How it works

The concept of the program is simple. Every time a customer or employee completes a qualifying activity, they earn a specified number of points. They are able to easily track the number of points they have earned throughout their time as a customer of the business. The prospect of earning even more points draws them back in.

Eventually, whenever the participant earns enough points, they can redeem them for a reward of some kind. This could include prepaid Visa cards, gift cards, digital rewards, goods, and services from the issuing organization. Other organizations may award participants in their points-based customer loyalty program bonus products.

In addition to driving repeat sales, these programs also create new channels through which organizations can reach new customers. To earn points, customers often need to submit their email address or phone number and opt-in to communications from the business. Once customers submit their contact information, businesses are free to send marketing communications to them by text or email. Organizations can use this data to inform participants in their points-based customer loyalty program of events such as new product launches, upcoming sales, and the opening of new locations.

Perhaps the best endorsement of these programs is their widespread adoption across a range of industries and for a variety of use cases. These loyalty programs are a staple for market research, automotive, health & wellness, and sales incentives to mention a few.

Advantages and Disadvantages of Customer Loyalty Programs

Before launching a points-based customer loyalty program, it’s worth knowing how they can benefit a company. Here are a few of them.

• Widely used and simple for users to understand.
• Offers greater competitive advantage because earning and reward thresholds can be easily adjusted
• 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.
• A points-based customer loyalty program can eliminate price discounting, especially for promotions on product brands that do not allow discounting.
• Can be used to reward customers or employees.
• Virtual currency can be resold to vendors to help support the program
• Points programs assist in the collection of customer data for cross-selling and targeted promotions, and targeted promotional opportunities.
• Leveraging the difference between points issued and points redeemed (breakage) can reduce marketing costs.

While there are many clear advantages of customer loyalty programs, there are also some disadvantages to keep in mind.

• Just another points-based customer loyalty program because of the proliferation of loyalty programs.
• The requirement of thousands of points to be earned to redeem for a reward causes the “halo effect,” devaluing the program’s concept.
• Ongoing program management is required to reduce program fatigue depending on the user community.
• Ongoing investment in redemption opportunity requirement for program success.
• Upfront investment and more complicated to put together.
• Currency management and customer service are required.
• Need to put a contingency on the balance sheet for outstanding points.
• Can be more expensive than cash back if not using a self-selecting user marketplace to allow the selection of items lower than the cost of cash.

As you work through the advantages and disadvantages of customer loyalty programs, you will discover 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!