What kinds of rewards should I offer?
This is a common question we receive from our small business merchants. What kinds of rewards will be enticing enough for customers to continue engaging with your program, but aren’t hurting your business’s bottom line? Whether you’re just beginning your loyalty program or re-evaluating your rewards, this can seem like a daunting task.
Here are our top 3 recommendations when choosing the right rewards for your business:
1. Create both high and low point value rewards
Make sure you have a range of rewards when it comes to point values. Having all high point value rewards may seem like the most economical option for your business, but it will not encourage customers to continue participating in your loyalty program. On the flip side, having all low point value rewards may be detrimental to your bottom line if they’re redeemed too often. We recommend having a healthy balance of the two, with some medium point value rewards sprinkled in between.
According to the goal gradient effect, people will work harder toward a goal the closer they perceive themselves to be to it. In other words, if a customer sees that they only need to visit your business an additional two times in order to redeem their 15-point reward, they will likely come back to your business much sooner than if the first available reward was set at 50 points.
At the opposite end of the spectrum, many customers like to work toward a larger goal. In addition to a low point value reward, make sure you have a reward that is 100+ points and is of a higher monetary value than all other rewards. This encourages repeat behavior and increased visit frequency.
2. Understand your average visit frequency & basket size
One of the biggest concerns when choosing rewards is how much or how little to give away for each point value. Two things to consider are how often your customers visit your business and how much they spend on those visits. Besides low and high point value rewards, the rewards in between can be difficult to determine. The recommended number of visits for your medium point value rewards vary by vertical.
For example, a coffee shop sees their customers at a much higher frequency than a hair salon. Therefore, rewards after 7 visits may be appropriate for the coffee shop, but the hair salon may see more success with rewards after 4 visits.
What should the reward be? A great way to determine what dollar value your medium point value rewards should have is by understanding your average basket size. A rule of thumb is that your reward should cost 5-8% of what the customer spent in order to achieve that reward. Here’s an equation to help you determine the monetary value your reward should hold:
Reward value = (Average Basket Size x Number of Visits) x 0.08
Let’s take the coffee shop example to complete the equation and assume the average basket size is $3.75:
Reward value = ($3.75 x 7) x 0.08 = $2.10
This means that after the 7th visit to a coffee shop, a customer should be able to redeem a reward for something that costs $2.10. This can be a free small coffee or tea or a cookie. Since each visit with Belly is 5 points, the ideal point value for this reward would be 35 points. You can continue to repeat this process for rewards at 50, 60, 75 points and beyond.
3. Mix experiential and monetary rewards
Monetary rewards are enticing to customers and an easy to encourage repeat visits to your business. However, establishing loyalty is all about creating relationships with your customers. Show your business’s personality through your reward suite by incorporating some experiential rewards. In fact, 55% of consumers say they they’re interested in experiential rewards.
The bonus of these types of rewards is that they not only allow you to be creative and engage your customers, but they can also be at little to no cost to your business! To continue with our coffee shop example, you can create a 75-point reward that allows a customer to create and name a drink of their choice that will remain on your menu until the next customer redeems that reward.
Experiential rewards keep your customers engaged and get them talking, sharing, and posting about your business on social media.
When it comes to designing your reward suite, there are a handful of methods to create engaging and profitable rewards. Interested in learning more about Belly? Schedule a demo today!