Benefits of customer reward schemes as marketing strategy

The history of the reward scheme is as old as the era of exchange of goods for goods (trade by barter). Wise traders or producers, especially farmers, were fond of giving extra services and their products free of charge in order to retain customers. I remember that my late mother,  Beatrice Segilola Oyedele, a charcoal and wood seller, would give a discount or extra product to whomever came to buy from her to win the customer. She won so many customers with her ‘generosity’ that she was able to build two houses from her small business. Reward scheme or programme is a marketing approach that recognizes and rewards customers who purchase or engage with a brand on a habitual or recurrent basis. A company may dole out points or perks or gifts, and graduate customers to higher levels of loyalty the more they buy. It is a compensation for customers’ loyalty and can take the form of promotion, point-based, cash-discount or gift of products. Customer reward schemes are different from customer relations.

Reward programmes can take the form of discount loyalty cards, bonus tickets, buy-one-get-one-free (BOGOF) scheme, buy-two-get-one-free (BTGOF) scheme, gift cards, discount coupons, gift vouchers, raffle tickets and travel cards, etc. Loyalty programmes which are sponsored by retailers and other businesses, offer rewards, discounts and other special incentives as ways to attract and retain customers. They are designed to encourage repeat business, offering people a reward for shop/store/brand loyalty. More than 90 percent of business organisations have some type of customer loyalty programme. Loyalty programmes have proven themselves as one of the most effective tactics for increasing revenue and inspiring customer loyalty. Findings show that as many as 84 percent of consumers say they are more likely to stick with a brand that offers a loyalty programme, and 66 percent of consumers say the ability to earn reward actually changes their spending behaviour.

The most interesting finding in customers who are addicted to reward schemes is that they have affinity to buy services or products which have reward schemes even when they do not actually need them. The earliest references to ‘buy one, get one free’ is as far back as 1721, when Richard Bradley’s book, ‘A Philosophical Account of the Works of Nature’, published by W. Mears in London, was offered under a buy seven, get one free deal. Traditionally, Buy One, Get One (BOGO) deals are most commonly applied to food products and other low value consumer goods in supermarkets. Food vendors know that it costs a lot less to sell to repeat customers than acquire new customers, that is why brands invest in loyalty and rewards programmes. While they can be unique, customer loyalty programmes are nothing new. They fall into one of four categories: points, tiers, social media, and paid programmes. This is the reason some retailers are looking to shake things up and find new innovative ways to build rewards programmes and inspire customer loyalty.

Some customers are so tied to discount sales that they can buy anything on discount even while they do not actually need them. In a survey carried out on customers of Tesco, ASDA and Argos in the United Kingdom between July and August 2022 by Fame Oyster & Co, customers claimed they have bought goods they did not need in the past just to get the discounts on them. Rational customers will buy goods they may not necessarily need, or have immediate use for, just because they are cheaper. Only ‘shrewd’ buyers will consider the economic benefits of buying excess goods or products. A respondent claimed she is “addicted to reward programmes and will rather travel a long distance to patronise her traditional shop even when the cost of travelling is more than the amount of discount expected”. Reward is not only about the value; it is about getting recognition and feeling that a retailer or an organisation giving the reward is kind and caring. Some claimed they do not actually claim the gifts offered by “gift vouchers”.

There are four (4) types of loyalty programmes: (i) Tiered loyalty programme, which separate benefits into different levels, with more rewards offered to customers in higher programme tiers; (ii) Subscription-based loyalty programme, which is known by a variety of names, paid, premium or subscription loyalty programme. It is a type of reward system that requires customers to make some sort of upfront contribution to become members. For example, COSTCO supermarket membership subscription; (iii) Value-based loyalty programme: This type of loyalty programme differs from others because it does not offer any explicit rewards to customers, like discounts or other benefits. Instead, value-based programmes emphasise the organisation’s values and, ideally, also align with customers’ values. With this programme, an organisation pledges to donate a portion of its proceeds to one or more charities, enabling customers to choose the charity that best aligns with their personal values.

Organisations that use value-based loyalty programmes aim to facilitate deeper connections with customers; (iv) Points-based loyalty programme: Points-based programmes reward customers with points for each purchase, making them popular in retail environments, like restaurants and supermarkets. When customers reach a certain number of points, they can cash those points in to get a product or receive a discount on the next purchase. For example, some airlines like KLM, Air France, Transavia, Aircalin, Kenya Airways and TAROM, award customers points for joining its loyalty programme (Flying Blue), and for all purchases thereafter. When customers rack up enough points, they can get free flight or merchandise, among other rewards. It is interesting to note that more organisations are joining the bandwagon of loyalty programmes and more businesses are collaborating on reward schemes for customers. For example, “Diners Club” card is for different restaurant brands and airport lounge access.

All organisations need one form of reward scheme or another. The challenge is how to identify the appropriate reward scheme for one’s organisation. A successful loyalty programme means customers get value in it. To measure the scheme’s success, an organisation should monitor its reward programme’s use over time and ensure it converts enough customers. Once successfully implemented, loyalty programme benefits include enhanced customers’ data management. Loyalty programmes can capture customers’ purchasing habits and demographics, like location, age and gender, which provide valuable insights into the company’s customer base. Those insights can help identify a marketing campaign’s effectiveness so marketers can target customers appropriately to increase sales; improved distribution and improved products and services.

If organisations collect customers’ contact details, they can send promotions to encourage repeat purchases or notify them of new products or services. Other benefits include the fact that customer reward schemes drive repeat business because loyal customers are more likely to keep purchasing and come back for more; and customer esteem – when customers feel esteemed, they will patronise your brand even more and that would mean more referrals, more sales and more profits.

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