1. Defining the Right Rewards and Benefits (1/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (1/8)
Several factors influence benefits of a loyalty programme in the view of the customer and create costs for the company
Each of the variables have an impact on the customer behaviour on the one side and on the financial business case of the loyalty programme on the other.
Entry offer
Ongoing Benefits
Entry
costs
Variables on the membership cost side
Variables on the benefit side for the customer
Long-term benefits
Annual fees
Costs
for exit
Short-term benefits
Win-back
offers

2. Defining the Right Rewards and Benefits (2/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (2/8)
The structuring of the point collection have different impact to the customer behaviour
Several point collection structurings are possible (see be-
low). Each of these curve has another impact to the
customer behaviour. This must be considered when
setting up the rewards and benefits for the different
customer segments.
Amount of benefits
Customer Defection Point
Time

3. Defining the Right Rewards and Benefits (3/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (3/8)
The costs and benefits must directly be linked to the target groups and the programme‘s positioning
With the support of a so called target group simulator,
each customer portfolio can directly be translated to the
benefits for the customer.
An European Telco for example uses the target group simulator for 21 different customer portfolios (e.g. portfolio 1 is a fixed line access with 50 US $ turnover per month; portfolio 19 is a household with two mobile phones and a fixed line with 230 US $ turnover per month). As a result, the provider gets the exact benefits of its point collection/ redemption programme for each target group.
Target groups

4. Defining the Right Rewards and Benefits (4/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (4/8)
The programme rewards and benefits
Range of rewards
Sharing value with the customer
Transmedia Card
Best practice companies use frameworks to evaluate their rewards from the customers perspective and then to seek other partners to develop a more robust offering.
American Express recognised this only after launching Membership Miles, and has successfully converted the programme into Membership Rewards to be able to offer a wider range of more achievable rewards than air travel.
Best practice companies offer a wide range of rebates, rewards and even recognition awards. What all of them have in common is that the range of rewards is carefully designed to match the aspirations of target customers and to encourage them to display the right buying behaviour for the company.
Barclaycard Profiles offers over 200 different rewards, some instantly redeemable, some only redeemable through partners such as Ford Motor Company.
The best programmes share the value of the customer’s patronage with the customer in explicit value-based relationships. The reward is inextricably linked to the profit creating behaviour of the customer. As the customer makes more purchases, the value of the reward increases, motivating the customer to make the next purchase.
A bad example is the Transmedia restaurant card which gives 25% off restaurant meals at 100s of participating restaurants in USA. The restaurant loses as there is nothing about the scheme that encourages the right buying behaviour as the reward is not dependant upon the amount spent.

5. Defining the Right Rewards and Benefits (5/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (5/8)
How does the customer evaluate the rewards available?
Increasingly, programmes are basing their rewards and
benefits on simple frameworks that show how customers
evaluate them
the cash value of the redemption rewards - how many USD must I spend to receive one USD in reward
the range and choice of rewards
the aspirational value of the rewards - exotic travel is more interesting than money off the next petrol purchase
the perceived likelihood of achieving the rewards - will I ever collect enough points to win my desired reward?
how easy the programme is to use
the psychological value of being a ‘member’ and of receiving ‘rewards’ for buying the company’s products - the feeling of participation, anticipation of future rewards and sense of belonging

6. Defining the Right Rewards and Benefits (6/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (6/8)
AT&T true rewards
Air miles - a success in Europe, a failure in the US
The rewards must be achievable for customers within their
normal buying behaviour. The AT&T True Rewards pro-
gramme lacks relevance for most customers as it will take
far too much long-distance usage to be able to win
anything but the most humble award.
They must also be convenient for all participants in the programme. Air Miles in the UK, Holland, Canada and Spain developed a wide network of merchants to gather points and redeem them, based upon swipe card technology and vouchers, and later transaction based relationships with banks. The programme failed in the US as merchants resisted spending on POS technology (the card had no credit or debit functionality) and customers tired of sending in receipts and vouchers to administration centres. The programme folded within two years of starting.

7. Defining the Right Rewards and Benefits (7/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (7/8)
The financial business case is mainly based on the given rewards and benefits
The given rewards and benefits to clients have the largest
impact on the financial business case of loyalty programmes.
Other elements of the financial business case, which have
to be considered are listed below. In addition it is very
important to make different simulations about the collecting and redemption behaviour of customers as well as with the penetration of the club programme as a whole.
Costs
Benefits
Typical Net Present Value Curve of a Customer Loyalty Programme
Benefits for
Customers
Securing the turnover of not churning customers
Net Present Value
Month
Penetration 50%
Penetration 35%
Penetration 20%
Operating
Costs
Less win-back costs due to higher loyalty
IT and
Fulfilment Costs
More turnover
due to cross
selling/ up
selling
Net present value
Assumptions

8. Defining the Right Rewards and Benefits (8/8)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Defining the Right Rewards and Benefits (8/8)
The cannibalisation of other marketing activities has to be taken into account when launching a customer loyalty programme
The customer loyalty programme is normally not the first
benefit or rebate given to customers. More often, it replaces
existing rebates. The combination of the different rebates must be considered, when pricing the whole offer (see graph on the left side).
The so called Price Waterfall Scheme gives an overall view of the rebates given to different stages of the distribution value chain (see graph on the right side). New loyalty programmes and benefits must be coordinated within the current price and margin structure.
Source: Marn/Rosiello, 1992
100.0
83.3
60.9
8.1
Standard
dealer
discount
2.0
Order- size- discount
National promotional discount
2.7 Exception discount
2.0 Cash discount
4.1 Co-op advertising
3.5 Promotional bonus
3.2 Product line discount
5.6 Annual volume bonus
Marketing allowance
2.1 Freight
Pocket
price
Invoice
Dealer list price
Price Waterfall Scheme
Combination of rebates