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Does paying cash back
rewards really drive consumer
Behavior? Learn how paying micro-rewards increased
participation ten-fold. How Rainbow Rewards
did this and measured it.
What makes a loyalty program successful?
Developing a successful rewards program:
•Does it increase frequency and spend of
existing customers?
•Does it bring in new customers who stick
and become recurring customers?
•Strong and engaged member base
•Strong and engaged merchant base
•Insights into Customer Behavior/Data
•Leveraging brand association with quality
Merchants
•National network
Success for the Loyalty Program Operator
•Exciting deals
•Rewarded and recognized for their loyalty
•Save money/make money
•Affinity and Brand relationship
Success for the Customer/Member
•New customers who stick and become repeat
customers
•Repeat customers who transact more often
and spend more per ticket
•Foster long term customer retention
•Reactivate lapsed customers
•Reduce Churn
•Better customer profile
Success For the Merchant
•Knowing the customer – more detail
•More effect/targeted communication with customers
•Ability to customize offers to customer segments
•Ability to measure success of marketing ROI
•Turnkey marketing programs so merchant can focus on what they do best
•Sustainable over the long term and not dilute margins too heavily
Success for the Merchant (continued)
Groupon
Living Social
Airline programs
Bank Cards
Shop Kick
and more…hundreds and hundreds more
The Loyalty/Rewards Landscape
•In the newspaper biz it costs roughly
$50 to acquire a new subscription.
•In Cable TV its $525
•Where would you be (Think merchants as well) if
you had to spend that much year in year
out to retain those new customers.
Cost of Acquisition vs. Retention
•New customers who never return
•Existing customer converted to big
discount
•Does not change behavior in long term
•Not sustainable over long term
•Margin Erosion
•Loyalty, what loyalty?
Risks of Deals
Acquisition = Deals
•Deals are sexy, attract attention, bring in new customers
•Deals need to be customized to fit needs of different merchants (one size does not fit all)
•Deals are not sustainable over the long term as they erode margins
•Retention = Loyalty
•Every Day Cash Back is affordable and sustainable
Deals vs. Long Term Loyalty
What we tested
Hypothesis: “Members increase their transaction activity immediately after a reward
payout”
Methodology: We looked at those members who received a payout in 1 month and
compared them to like members who did not receive a payout in that same period*.
Test Group: A sample of members receiving a reward payout in August 2010 with a transaction frequency between 11 and 21
(328) in order to center the sample around the median for the universe of 16 transactions.
Control Group: A random sample of 328 verified members not receiving a reward payout in August 2010; have a transaction
between 7/3/2008 and 8/31/2010 (to equal transaction date range of test group); have a transaction frequency of between 11
and 21 during that date range (to approximate median transaction frequency of 16 for test group); and be verified . Note: The
Thanks Again RR member account was suppressed from the sample.
Test Criteria: The number of transactions generated in September 2010 following August payouts.
Reward Currency – what drives behavior
353%
increase
7%
increase
146%
increase
141% increase
Benefits across
all merchants
In the network
A 10x increase in Subsequent Spend
Reward Currency – what drives behavior
61% more
preferred
a check
Consumers want to be rewarded NOW and will forego substantial future benefits to achieve this. Consumers responded equally to the following offers:
• Free delivery now, but no discount vs.
• a 50% subsidy (discount) later
We are „present biased‟ and „time inconsistent‟ meaning we tend to accept something „lesser‟ today than a larger but uncertain pay-off later..further the more uncertain we are of the later pay-off, the more we value the present.
The Economist: Economics focus, Jan 2nd 2010
The Economist
•Consumers reacted with a marginal increase of $68/month in spending and an increase in debt of $115/month when rewarded with a 1% cash back reward averaging $25.
•Card holders who were not active and who do not carry debt had a larger response.
•The effect was persistent over the long run.
•Consumers also lowered their spending by a like amount from other credit cards that did not offer cash back.
• “..rewards are an effective tool to steal customers from a..competitor”
•Fed Reserve Bank of Chicago, Why do banks reward their customers to use their Credit cards? Dec 2010
Federal Reserve Bank of Chicago
Let‟s recap: A successful rewards program:
Must be a win for advertisers, readers and the provider by
offering:
•Customized Deals
•Everyday Rewards
•Sustainable
•Maximizes ROI
•Mitigates Risk
It works
Win-Win for Advertisers and Readers