Tuesday, 13 January 2009

Money can't buy loyalty

I was intrigued by an article yesterday on plans UK entertainment retailer HMV has for a new loyalty programme. Matt Button, Head of CRM at HMV was quoted as saying "Rather than simply offering discounts on future purchases, which is how the vast majority of loyalty programs work, the aim of our rewards scheme is to more fully engage with our customers by giving them the opportunity to earn and redeem points against 'money-can't-buy' items, such as signed products, back-stage passes or invitations to special events. We believe this would make our scheme unique…"

Now the reason this peaked my interest was the inclusion of the phrase "money can't buy" and how it was felt this was a unique offering. Anyone who has worked in loyalty marketing will know the phrase "money can't buy" as its typically used by brands when they want to create a point of difference – offering rewards that only their brand can leverage rather than "me too" rewards you may get on other loyalty programmes or a simple discount off future purchases.

There are however a number of potential flaws with this approach. In a previous post I spoke about the three criteria any reward selection should meet which are that they should be Achievable, Desirable and Brandable:-

  1. Achievable - Contrary to popular opinion, money can buy almost anything you want. If I wanted a signed CD or access to an event, there is a good chance with the right amount of money I would get it. The laws of supply and demand state that where supply is short and demand is high, the price will go up – so I may have to pay a lot, but I'll get it. Let's take the example of a Girls Aloud CD – a quick search on Google tells me I can buy a mounted gold record with signed cover art for £159 – not cheap, but hardly money can't buy if I'm a fan – also not overly expensive suggesting not exceptionally high demand. However within a rewards programme this is either going to have to be expensive in points terms, limited in supply or made available as part of a prize draw. All options mean the reward is out of reach for the vast majority of customers and so won't be seen as achievable. Sure customers will have a punt initially in a prize draw – but watch that participation plummet like a stone when they constantly don't win.
  2. Desirable – Although back-stage passes and meet the star rewards sound great on paper, in reality they only appeal to a small segment of a brands customer base. Firstly I have to be a good customer – capable of buying/winning it, then I have to like the brand/celebrity/event, then I have to actually like meeting them. This is where it typically falls down… sure I like the band, I like the idea of seeing them – do I really want to have dinner with them? If the answer is yes I'm probably 14 or have stalker tendencies.
  3. Brandable – Is this type of rewards selection on brand? Well yes, they are an entertainment company and these types of rewards tie in well with the products they sell. However so do lots of other reward options such as pre-release access to new albums, having input on console game design (think Lego User Groups), selection of entertainment related merchandise or integrating my purchases offline with my use online (buy physical album have access to download it for free).

I've no doubt there will be more to the HMV loyalty programme than just money-can't-buy rewards – there will be options for the masses. However if you look at the Coke Zone programme in the UK currently, they appear to have taken a slightly different approach. Sure they've had signed merchandise - and if any brand can deliver money can't buy, Coca Cola is going to be somewhere near the top of the list - however what they seem to be using at the moment is the concept of a "leader" reward. A leader reward is an item which has mass appeal and tremendous pull to drive loyalty programme acquisition and usage. The idea is the same as what supermarkets call a loss leader or leader product such as selling milk or bread at below cost to attract customers into store.

For example the recent Coke Zone Christmas promotion used amongst other rewards an iPod Touch as a leader reward and the promotion appeared to work in two ways. Firstly they offered iPods at a quite obviously discounted points rate based on the number required - you still needed a large amount of points to purchase them, but no where near what would have been the equivalent retail price. At the same time they offered the same iPods as part of a prize draw so that for those customers without enough points to purchase the iPod, they could still take part in trying to win it.

This looks like an excellent approach as it would seem to provide a reward option which is very on brand – think mycokemusic.com – very desirable to consumers and actually achievable or perceived as achievable for a large number of customers. For those customers with high balances but not enough to redeem at this time, it would also send out the message to keep saving to take advantage of the next promotion.

I don't doubt that HMV will create a successful programme, but it won't be because of money-can't-buy rewards – it will be because they create a reward portfolio which appeals to the masses, is achievable by all good customers and is very on brand.

As an aside, money off future purchases also works pretty well – Tesco hasn't done bad on this score with over 95% redemption and recognised as a world leader in loyalty programmes – to misquote "money can't buy [loyalty] – but it improves your bargaining position" - however that's a whole different discussion.

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