While innovation, new technology, and changing consumer demands will fuel the next generation of reward design, some truths remain eternal: Customers are motivated by recognition and rewards; Some customers are more valuable than others and thus deserving of special offers and service; Real relationships are built on a foundation of trust, commitment, and reciprocity.

By better understanding how a person feels from receiving a reward as a thank you, an organization will be able to better understand how to structure their program and serve their audience's needs. In the coming years, "those marketers who know why consumers respond to rewards, rather than simply knowing how they respond, will win the battle for building real relationships," says Eric Monteiro, Chief Strategy and Analytics Officer at Aimia.
 
Rewards, benefits, added value - these are all key motivators to encourage customer loyalty with your company; not a bribe, but a mechanism to demonstrate your brand's ongoing interest in your customers' needs. And, according to an Aimia survey, 67 percent of marketing executives consider increased customer retention as the top goal of their rewards programs.
 
"We do understand one core truth: That customers respond to rewards with increased purchases, deeper share of wallet, and greater lifetime value," adds Monteiro. Updating your approach to the benefits customers receive is a vital way of gaining their attention and strengthening your company's relationship with them in the constantly evolving marketplace.
 
Why Rewards Matter
To cultivate long-term profitable customer relationships, savvy marketers know that reciprocity plays a critical role in establishing trust and commitment to their brand, and offering a benefit is essential because it helps facilitate a value exchange between your organization and your customers.
 
When your customers provide valuable data, feedback and insights, you can better position your company, drive more engagement, generate more sales and most importantly, facilitate stronger relationships with your customers.
 
Recognition and benefits can help trigger positive emotional responses from your most loyal customers, whether you are offering in-store coupons or points redeemable for tickets to a sporting event.  The process of thanking customers with a tangible benefit can help your business make personal connections at scale to impact the loyalty of your audience. Designing a system around your research, historical redemption data, competitive and cross-industry benchmarks, earn distributions and point modeling will help your organization create a program that drives tangible value.
 
“What we actually want is for people to use the points and the miles. And the reason for that is that once you use them, you get a great experience, and you earn faster subsequently. Velocity through the program is more important than breakage," says, Rupert Duchesne, Aimia Group Chief Executive.
 
Some of the top opportunities for advancing your reward programs include the following:
 
1. Developing an understanding of the psychology of rewards.
 
Understanding what factors drive a customer to earn and redeem within programs, and how redemption influences future buying behavior, will become critical to marketing success. What levers drive consumers to collect currency? How important is it to say “thank you?" How does a successful first redemption impact customer lifetime value? Are multiple redeemers even more valuable? By better understanding what drivers underpin loyalty program activity, we can improve both the outcome and the profitability of our loyalty programs.
 
But marketers increasingly need to understand the subconscious levers of behavior, the psychological drivers of emotional loyalty. Why do consumers act in the ways they do, what motivates them to make the choices they do – at a rational and subconscious level. Where is the element of fun and engagement in a program, the challenge of reaching different tiers and privileges? As behavioral economics becomes central to the way we understand the purchasing decisions that our customers make so we must tailor our programs to play to these cognitive factors.
 
2. Using a customer's experience with your organization as the reward itself.
 
There is the opportunity to broaden the definition of rewards to one that encompasses the use of data to improve the customer experience, personalize reward offers, and recognize valuable customer segments — next‑generation rewards that form the foundation of real relationships. To seize on this opportunity, leverage customer‑centric data to drive better product relevancy, improve the in‑store experience, and recognize top-tier customers. Rewarding your customers with an improved experience will build emotional loyalty that lasts.
 
For example, a coffee shop can offer free food and drinks based off of various actions different groups of users take, serving specific benefits to these customer segments based off their preferences. If someone usually orders a bagel, then rewarding them with a free bagel is the way to please them, instead of giving everyone a free latte. The distinction between a bagel and a latte may not seem that important, but these personalized offerings are the small details that make all the difference when driving long-term loyalty.
 
3. Focus on personalization when designing your rewards programs.
 
The era of “one-size-fits-all" reward catalogs is drawing to a close. The next era of reward design features a customized, personalized experience based on customer transaction, earning, and redemption data. Whether it is building an Amazon‑style recommendation engine into your catalog, delivering exclusive and tailored rewards to top customers, or leveraging your analytics prowess to offer rewards based on distinctive customer life stages, loyalty marketers now possess the building blocks to bring personalization of rewards to an entirely new level. Personalization should also extend to the redemption experience itself, so that customers receive rewards at the time and place of their choosing.
 
4. Don't neglect soft benefits as a way to reward your customers.
 
Marketers traditionally focus on the hard benefits side of the value proposition for the simple reason that currency programs and economic rewards drive short‑term behavior change. However, as best customers increasingly demand soft benefits — recognition, exclusive access and services, tiered benefits for top segments — the loyalty programs of tomorrow will feature renewed focus on the soft side of the equation. The power of recognition elements to build long‑term emotional loyalty will prove a difference-maker for the world's leading programs.
 
We all appreciate being thanked by the words, actions and rewards we receive from others, but this approach only works if these feel relevant and personal to the individual receiving them and if it recognizes the level of their commitment.
 
5. Experiment by designing new reward models to stay ahead of rising customer demands and industry changes.
 
The industry leaders of tomorrow will develop new models that take customer recognition and reward into the 21st century. Whether it is incorporating dynamic pricing in reward points value; to providing distressed inventories in real time; to building networks of local redemption partners; to building entirely new non-points based program models; to creating a true virtual currency; these and many other innovations in loyalty program design will help marketers build real relationships with their best customers.
 
Globally, there are some interesting viewpoints. Here's a look at what a few marketers had to say about the future of rewards in their respective markets.
 

  • Australia: “There's been a debate, more in the industry than by consumers, about the efficacy of cash-back rewards versus points programs. Cash-back programs seem to be growing, but actually cash-back seems the opposite of loyalty." — Principal, Marketing and Loyalty Agency
  • Brazil: “Brazilians want to fly and they want the upgrades. The programs are focused on higher incomes, so members use their points on flights, on restaurants, or on entertainment. We like to eat well. We like to live well." — General Manager, Relationship Marketing and Loyalty Agency
  • Canada: “Canadians love their loyalty programs. They love their points and miles. Coalitions are an expected way of life. The value of co-branding and coalitions are understood by both the vendor and the customer. In Canada, we get it." — Vice President, Marketing
  • India: “In its broadest sense of discounts, rebates, etc., cash-back is still very popular in India. But I would think that selling of points to create greater value for the customer would be critical to success. The largest loyalty programs are building co-branding relationships with some partners such as bank cards, hotels and dining." — Professor of Marketing and Consultant
  • United Kingdom: “Building real relationships is an ongoing goal. There is a movement away from the machine-gun approach to loyalty to collecting data that focuses more on lifestyle and life-stage and delivers appropriate offers. That activity builds trust." — Head of Loyalty Marketing and Insight
  • United States: “Using rewards to build real relationships is essential. Accountants see points as an asset, not as relationship equity between the issuer and the customers. This is wrong. The economic value of the loyalty is the emotional engagement." — Vice President, Loyalty

Key Takeaways: The Psychology of Rewards and Reward Design
 
The model for what makes a successful program is ever changing, which requires marketers to embrace new opportunities and develop solutions to face difficult challenges.
 
To best prepare your program for success, spend more time analyzing the psychology behind receiving rewards to better understand the outcome and profitability of your loyalty programs.
 
To increase the velocity of reward redemption for your redeemers, design your program with ease-to-value in mind to ensure your historical data is being used effectively to fuel real relationships that impact your bottom line.
 
These data points tell a story: Reward redemption encourages customers to interact in profitable, sustainable, and value-added relationships with brands based on their own unique preferences. If done right, the program is a win for all participants from start to finish.
 
With customers now expecting to be recognized and rewarded consistently by the companies they spend the most with, it represents a major opportunity for your business to cater to this palpable expression of a business to consumer relationship, the reward.

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