How to set loyalty program reward point values.
What’s the Point?
by Vanessa Aves
Have you ever wondered why points are used in a loyalty program?
The answer is that all loyalty programs need a currency that can be applied to various types of participant behaviours, selling or purchasing activity. However, that currency also needs to link to your business objectives. The use of points meets these criteria. A value can be assigned to the number of points given for an activity; and an actual monetary value (dollars, pounds, cents) can be assigned to each point.
The advantages are:
· Points can be assigned to a variety of rewarded behaviours
· Points are flexible
· Points can be assigned any $ value
· Points are measureable
· Points can bedivided, subtracted, added and used to create a financial report
But how many points should you award your B2B loyalty program participants?
Check out our Five Point Plan for setting the value of a reward point:
1. Determine the business case. How much is your company prepared to give away for a rewarded behaviour, in other words what percentage of the sales price? We call this the ‘margin contribution’ – how much margin are you prepared to invest in the loyalty program?
2. Assess the ‘effort advantage’ associated with the activity or sale – the ‘effort advantage ratio’ is the amount of effort a program participant has to make in order to earn a certain number of points. The participant needs to feel it was worth the effort to be awarded those points
3. Assess what your competitors are giving away. Loyalty programs must be competitive in terms of points awarded otherwise participants will join a rival program that’s more generous
4. Use conservative estimates for base points in the program. It is much easier to design a program that awards fewer points initially to avoid blowing the budget or making ROI unachievable. If you still have excess budget further down the line, you can always offer double or triple points – on the other hand, it’s very difficult to halve points, if you have given away too many in the first place
5. Once you have set a conceptual point value, make sure you run an estimation model using past sales and performance data, as well as forecast data. This will determine your commercial exposure within the program and if initial estimates will drive the desired ROI.