Do Instant Rewards Drive Purchase in a Loyalty Program?
Our researchers analyzed the purchase behavior of consumers who belong to the Air Miles Reward Program, a coalition loyalty program. We looked at the difference in spending between two matched groups of consumers, one group that elected to participate in an instant rewards program, the other group which continued to save Air Miles for delayed rewards.
Loyalty programs have generally been proven to increase spending and engagement, but in an increasingly crowded marketplace of programs, it is difficult for a brand to differentiate itself and encourage purchase. The Air Miles Reward Program decided to experiment with instant rewards in addition to its well-known delayed rewards program. We wanted to know, do instant rewards drive purchase?
|Action Items for Marketers
Customers who declared a goal resulted in increased purchase behavior.
The increase in spending ranged from a low of 22% and a high of 68% for each of the two-week periods analyzed over the eight-week period of the study.
Loyalty Programs should allow customers to choose how he or she would like to receive rewards and designate that some rewards must be instant and some delayed.
Low-spending customers can be activated by inviting them to declare their instant reward preferences.
Increased purchase behavior was strongest for the lowest spending customers and weakest for the highest spending customers.
Loyalty programs should consider a tiered reward model. For example, if a firm could project what a customer’s accumulation rate would be (e.g. high, medium, or low) based on demographics when he or she signed up (e.g. gender, age, location, etc.), the firm could immediately offer the kind of reward (e.g. instant or delayed) that would most effectively motivate loyalty.
Those who set longer term goals, rather than instant cash ratios spent more than those whose goals were more instant cash oriented. Among those making a declaration of the way they want to enjoy the rewards it appears as if the greater spending happened with people who continued to favor saving for Dream Rewards.
Customers who choose to earn half of their loyalty points in delayed rewards proved to earn the greatest number of Air Miles during the test period.
This insight provides caution to marketers not to go overboard in providing only instant rewards, but continuing using loyalty programs to develop long-term customers.
It could be that the reason for the change in spending is the customer engagement itself; that the declaration for instant rewards is a bigger driver than the benefit of receiving instant rewards.