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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.

Rewards program johnmoore

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Page 1: Rewards program johnmoore

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.

Page 2: Rewards program johnmoore

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?

Page 3: Rewards program johnmoore

•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

Page 4: Rewards program johnmoore

•Exciting deals

•Rewarded and recognized for their loyalty

•Save money/make money

•Affinity and Brand relationship

Success for the Customer/Member

Page 5: Rewards program johnmoore

•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

Page 6: Rewards program johnmoore

•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)

Page 7: Rewards program johnmoore

Groupon

Living Social

Airline programs

Bank Cards

Shop Kick

and more…hundreds and hundreds more

The Loyalty/Rewards Landscape

Page 8: Rewards program johnmoore

•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

Page 9: Rewards program johnmoore

•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

Page 10: Rewards program johnmoore

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

Page 11: Rewards program johnmoore

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.

Page 12: Rewards program johnmoore

Reward Currency – what drives behavior

353%

increase

7%

increase

146%

increase

141% increase

Benefits across

all merchants

In the network

Page 13: Rewards program johnmoore

A 10x increase in Subsequent Spend

Page 14: Rewards program johnmoore

Reward Currency – what drives behavior

61% more

preferred

a check

Page 15: Rewards program johnmoore

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

Page 16: Rewards program johnmoore

•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

Page 17: Rewards program johnmoore

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