Reward Strategies of Customer Loyalty Programs:

Reward Strategies of Customer Loyalty Programs:

The Optimal Mix

Sample Paper Student Name

COURSE NAME HERE

UNIVERSITY NAME HERE

Running head: REWARD STRATEGIES

REWARD STRATEGIES

TABLE OF CONTENTS

Abstract 3

Introduction 4

Background 4

Problem Statement 4

Purpose of Study 5

Study Hypothesis 5

Review of the Literature 6

Altering Consumer Behavior 6

Cultivating Brand Loyalty to Increase Retention 6

Differentiation in Program Structure 7

Methodology 8

Survey Description 8

Data Collection Process 8

Study Participants 9

Findings 10

Summary, Conclusions, and Recommendations 14

Summary 14

Conclusions 14

Recommendations 14

References 16

Appendix A 17

Appendix B 18

Abstract

Customer loyalty programs with point accumulation only designs are not as effective or loyalty building as programs with reward tiers and differentiated rewards. Point accumulation alone does not create loyalty. This type of design increases customer spending in hopes of attaining a reward. Segmentation of customers and understanding the perceived value of the rewards and program is crucial to the success of these programs. A well designed program is able to identify top customers and reward them as such. It also promotes the rewards to encourage lower tier customers to achieve the next tier. In this way, the program is engaging and the reward attractive enough to increase customer spend.

Chapter 1: Introduction

Background

Look at your key chain. Pull all of those cards out of your wallet. How many loyalty programs do you belong to? If you frequent the same grocery stores, frequently dine out or shop at retail stores, there are likely a few programs to which you belong. Loyalty programs started as a way for retailers to reward customers for their purchases. The initiative has gained popularity and is available in several retail sectors- airlines, casinos, restaurants, casual dining, clothing, automotive and supermarkets. Loyalty (commonly called reward) programs allow members to accumulate points on their purchases or activity with a company, to be later redeemed when they’ve reached a reward level. By participating in a reward program, customers give personal information and in some cases, demographics. In order to gain points, each transaction has to be linked to the rewards account. By giving away a sliver of profits in rewards, companies gain access to collect customers’ transactional data and store it for use in data mining. The information gleaned from the data collected is used in customer relationship management, promotion, pricing and other strategic implementations. Given the value of this information, it is important that companies use program structures that not only attract and retain customers but ones that build brand loyalty as well.

Problem Statement

Customer loyalty programs will attract more customers who are loyal to the brand when the reward base is not solely reliant upon point accumulation.

Purpose of the Study

Companies expect that reward incentives cultivate brand loyalty but empirical data has shown that reward programs at best change customer buying behavior. If this is to be true, then taking the point value of item X away will also diminish the added value in purchasing it. Under this guise, point accumulation based reward programs do not promote pure customer loyalty. Instead, they alter consumer buying behavior by creating customers that look for opportunities to gain the most points with the lowest level of involvement. The findings of this study will reveal the optimal structure of a loyalty program that adds value and promotes brand loyalty.

Study Hypothesis

Customer loyalty programs that use a multi-faceted approach other than using only point accumulation have more active participants and higher revenues as a result.

Chapter 2: Review of the Literature

Altering Consumer Behavior

Taylor & Neslin (2005) find that points-pressure effect exists in customers who decide not to switch retailers in order to continue to accumulate points (p. 294). It is further pointed out that the evaluation of switching as a cost and lost opportunity is characteristic of forward thinking and causes increased spending up until the point of earning a reward (Taylor & Neslin, 2005, p. 294).

Drèze & Nunes (2011) concluded that the attainment of a reward led to successive attempts to earn another but warn that there should be some level of difficulty in reaching the point of redemption (p. 280).

Cultivating Brand Loyalty to Increase Retention

Wansink (2003) warns that companies overusing promotions can objectify and discourage loyalty customers (p. 303). Instead, loyalty programs should aim to align the brand’s personality with the interests and needs of customers through relational data gleaned from data mining (Wansink, 2003, p. 303). Koppalle & Neslin (2003) conducted a study in which the model showed frequency reward programs influence consumer purchases over changing customers’ personal preferences for the brand (p. 22). Youjae & Hoseong (2003) found that customer involvement, low and high, respectively relate to program loyalty and brand loyalty (p. 238). Low involvement customers were found to seek more immediate rewards, although the incentive may not have been relevant; while high involvement customers perceived incentives as an added value and could tolerate a longer period to receiving a reward (Youjae & Hoseong, 2003, p. 238).

Differentiation in Program Structure

Tanford & Malek (2015) suggest segmenting loyalty customers to reveal top and bottom segments in order to better reward top customers for their loyalty (p. 336). The authors also point out that the programs should have opportunities for customers in lower segments to move up as they see added value in the higher level rewards and aspire to attain them (Tanford & Malek, 2015, p. 336).

O’Brien & Jones (1995) emphasize the importance of value creation to the customer when designing a rewards program and how it can cultivate loyalty (p.79). This too extends to the type of reward(s) offered.

Chapter 3: Methodology

Survey Description

A single survey was created (see Appendix B) to capture the impact of a rewards program on buying behavior and gauge the interest in a tiered rewards program. Proving brand loyalty is a difficult task but if program loyalty can be established, it is a logical assumption that brand loyalty is non-existent. The questions sought to reveal the participants’ preference for the availability of reward programs and their membership affiliation. To simulate the degree of program loyalty and interest in a tiered reward program, the survey proposed hypothetical scenarios to participants. For segmentation purposes, demographic questions based on education, age, income level and gender were included. Positioned as a lifestyle clothing brand and known for being progressive, acknowledgement of transgendered reward members was also considered in the Gender identification question. To reduce nonresponse error, participants were offered a 75 point credit to their loyalty accounts as an incentive and appreciation for mailing a completed survey.

Data Collection Process

The surveys were delivered via email to reduce distribution costs, increase feedback turnaround time and to appeal to the more predominant technologically savvy customers of Forever 30. The 11 question survey emails accompanied by an email letter (see Appendix A), describing the survey and asking for participation, were deployed Saturday, April 25th, at 3am EST. Participants were given a deadline of May 2nd , 12am EST to complete and submit the online survey. A survey layout using the radio button was chosen for simplicity and easy choice selection.

Study Participants

Survey participants were a random sample of 10,000 Forever 30 Reward members who received a reward in the past 12 months and were emailable. These customers were selected from a pool of all 50 East Coast store locations. The sample was adjusted to 8,600 to account for bounced emails and unsubscriptions. The open rate for the email survey was 44.19%, with a response rate of 30.23%.

Chapter 4: Findings

Table one shows that across the age intervals, 60.19% of survey respondents were interested in a tiered rewards program. Age groups above 25 had higher proportions of respondents interested in a tiered rewards program. Table two shows that 73.27% of respondents would purchase an additional item to receive a reward rather than wait until the next retail visit. As income level increases, respondents were more apt to purchase an additional item to receive a reward.

Of the 2,600 respondents, the 25-30 age group and $50,000 to $69,999 income interval had a population of 1,300, the highest representation of all demographics.

Figure 1 measures the attitudes of respondents in their willingness to wait to receive a reward once earned and perception of available rewards programs at frequented retailers. The majority of Forever 30 Reward members have 3 to 4 reward memberships. The group with 5 to 6 reward memberships is more so willing to wait to receive an earned reward, which throws a positively correlated trend. Over half of the 3 to 4 memberships group shopped mainly at retailers who did not have a reward program in the past two months. Beyond this group, members shopped more at retailers with reward programs in the past two months.

Table 1

Responses to Tiered Reward Program Interest by Age Group

Total population 2,600 Age Group
Less than 25 25-30 31-35 36-40 41 and Older
400 1,300 500 300 100
Interested in tiered rewards program?
Yes 150 760 400 180 75
No 250 540 100 120 25

Table 2

Responses to Purchasing Additional Item to Obtain Reward

Total population 2,600 Income Interval
>$29,999 $30,000-$49,999 $50,000-$69,999 $70,000-$89,999 $90,000<
400 250 1,300 600 50
Purchase additional item to get reward?
Yes 80 200 1,050 530 45
No 320 50 250 70 5

Figure 1. Measuring attitudes based on number of reward program memberships. 100 respondents belong to 1-2 programs, 1,800 to 3-4, 300 to 5-6 and 400 to more than 6.

Chapter 5: Summary, Conclusions, and Recommendations

Summary

In summary, this study was conducted to prove that reward programs would attract brand loyal customers when structuring a reward program that is not solely based on point accumulation. The review of literature showed that there have been a number of studies conducted that establish a correlation between point accumulations based programs and increased spending. The studies also suggest a tiered structure with relevant incentives to attract high involvement customers. In this design, low involvement members will still be able to quickly earn a reward, as is desired by their segment.

Conclusions

The Forever 30 email survey revealed that a significant number of respondents were receptive to the idea of a tiered rewards program. In this instance, market research would have to be conducted to identify which incentives customers under the age of 25 value for them to become high involvement members. Further research should be conducted on respondents who belong to 5 to 6 reward programs and are willing to wait for a reward over the opportunity of immediate redemption once earned. This may be an indication that this group is so distracted by the noise between their total membership that they cannot closely monitor reward levels and distance to earning rewards.

Recommendations

While point accumulation can drive repeat purchases, it cannot create true loyalty. If the stimulus is removed, so is the value to the customer. A loyalty program that segments customers can identify who are frequent and top spending and reward them according to their membership level. Once a customer reaches a level in the program, the reward in the next tier should be relevant to stimulate attainment. The program design should also keep in mind what customers value. If a reward does not resonate with the customer, they will not participate.

References

Drèze, X., & Nunes, J. C. (2011). Recurring Goals and Learning: The Impact of Successful

Reward Attainment on Purchase Behavior. Journal Of Marketing Research (JMR)48(2),

268-281. doi:10.1509/jmkr.48.2.268

Kopalle, P. K., & Neslin, S. A. (2003). The Economic Viability of Frequency Reward Programs

in a Strategic Competitive Environment. Review Of Marketing Science11-39.

O’Brien, L., & Jones, C. (1995). Do Rewards Really Create Loyalty?. Harvard Business Review,

73(3), 75-82.

Tanford, S., & Malek, K. (2015). Segmentation of reward program members to increase

customer loyalty: The role of attitudes towards green hotel practices. Journal of hospitality marketing & management, 24(3), 314.

Taylor, G. A., & Nelsin, S. A. (2005). The current and future sales impact of a retail

frequency reward program. Journal Of Retailing81(4), 293-305.

Wansink, B. (2003). Developing a Cost-effective Brand Loyalty Program. Journal Of

Advertising Research43(3), 301-309.

Youjae, Y., & Hoseong, J. (2003). Effects of Loyalty Programs on Value Perception, Program

Loyalty, and Brand Loyalty. Journal Of The Academy Of Marketing Science31(3), 229-

240.

Appendix A

E-mail Letter

Forever 30 Rewards

345 Forever Way

Philadelphia, PA 19147

Ms. Danielle Cunningham

123 Test Drive

Philadelphia, PA 19148

Dear Ms. Cunningham,

Your opinions are important in our ongoing efforts to make the Forever 30 Rewards program yours. Your input will help us measure the degree of brand loyalty and spending due to participation in the rewards program. The results will help us add relevant reward incentives and gauge the importance of our rewards program to your shopping experience. The survey should take 7 to 10 minutes to complete. The link and case-sensitive password are provided below. Please submit by 5/2/2015 midnight EST.

You were selected based on a random sample of Forever 30 Rewards members who have received rewards in the past 12 months.

We need the opinions of customers like you to ensure that we continue to enrich your Forever 30 Rewards membership experience. Since you have received a reward, you are familiar with the program, point accumulation and reward redemption. You are an authority in earning rewards and your feedback is much valued.

The information provided in the survey is strictly confidential and will not be shared with any third party companies. Your responses will only be used for the improvement of the rewards program and its relation to the shopping experience. Our brand cares about the privacy of our customers. If you have any questions or concerns, please call us at 555-111-2222, or email service@4ever30.com.

Upon receipt of the completed survey, 75 points will be added to your rewards account as a token of our appreciation for your time and efforts.

To complete the survey, visit 4ever30survey.com and use “30survey” as the password to enter the survey. Be sure to complete and submit by 5/2/2015 midnight EST to receive 75 points on your account. Again, if you have any questions, please contact us.

We sincerely thank you for your time and continued patronage at Forever 30!

Allyn Fowler

Appendix B

Loyalty Program Survey

1) Thinking about your retail purchases in the past 2 months, would you say the majority of retailers offered a rewards program? Y N

1A) If yes, was the opportunity to earn rewards based on purchases a reason you chose to shop at a specific retailer over a comparable one? ○N

1B) If no, do you feel that not enough of them offered rewards programs? N

2) On a scale of 1 to 5, with 5 being the best, rate your satisfaction with the Forever 30 Rewards program incentives. ○5

3) On average, how many different rewards program memberships do you have?

1-2 3-4 5-6 More than 6

4) On a scale of 1 to 5, with 5 being very interested, how interested would you be in a tiered rewards program that has better incentives for more frequent and higher purchasing customers? ○1 2 3 4 5

5) Suppose you are 20 points away from earning a reward, would you add a $20 item to your purchase to get the reward or wait until your next visit?

Get the reward Wait

6) On a scale of 1 to 5, with 5 being the most important, how important to you is the wait time to redeem a reward upon earning (Think instant availability versus getting mailed the reward)? ○5

7) Who do you shop for most at Forever 30? ○Self Partner Kids Other Family Friend

8) What is your highest level of education? ○High school/GED equivalent 2yr Associate’s Degree 4yr Bachelor’s Degree Master’s Doctorate

9) What income interval do you fall beneath? ○Less than $29,999/yr $30,000/yr-$49,999/yr $50,000/yr-$69,999/yr $70,000/yr-$89,999/yr More than $90,000/yr

10) What is your age? ○Less than 25 25-30 31-35 36-40 41 and older

11) What is your gender? ○Female Male FTM MTF


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