- August 24th, 2015
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Death of Points Programs? What the Amazon Prime, Redcard Earn-Back Models Mean
Amazon’s Prime Store Card has some thinking about cash back. It’s got me thinking of marshmallows.
More specifically, it has me asking: What would be a better reward for buying $100 worth of Jet-Puffeds – 100 points, or $5?
Children of the famed Stanford University delayed-gratification tests (which used marshmallows as rewards) may opt for the points, but today’s consumers have major retailers second-guessing. This trend is evidenced in the recent launch of the Amazon Prime Store Card, which instead of awarding points to use tomorrow gives its members 5 percent back on purchases today. Prime Store follows the model of Target’s successful Redcard, which also rewards customers 5 percent back on all purchases.
Combine the two big names, and it could cause ripples across the retail loyalty pool. That Amazon, one of the most competitive merchants in the world, is adopting this format is cause for all retailers to consider whether the percent-back model of loyalty is a feasible alternative to traditional points-based rewards.
More likely, though, it is just time to reconsider how long we make customers wait. As a culture, we’ve broken the 12-second attention-span barrier – we can give only eight seconds these days, thank you. Having to wait months to earn a loyalty reward is just as good as handing it off to the next of kin. Or, if you are a child waiting for a marshmallow, forever. Not worth it.
The task for retailers with points-based reward programs is to make the process of earning those points more fulfilling. They must make the case why aspirational rewards are more relevant than immediate, incremental ones.
And they need to act fast, because overall loyalty program engagement is low. While the average U.S. household is enrolled in 29 rewards programs, the number of programs in which these consumers remain active is well below half – 12 programs, according to the 2015 . Somewhere after signing up, members are tuning out.
Yet at the same time, nearly half of all retailers – 46 percent – have identified loyalty programs as a top priority, according to a new report by Boston Retail Partners.
Up-front marshmallows work, but…
For those unfamiliar with the Stanford experiments, they were a series of studies through which psychologists tested whether children would choose to receive one marshmallow immediately or be willing to wait a short time and receive two. The overwhelming majority attempted to wait.
In Stanford terms, Amazon and Redcard are offering up-front marshmallows, and based on Redcard’s penetration number, consumers are opting for them.
According to Target’s 2014 annual report, its loyalty credit card penetration rose to 21 percent in 2014 from 13.6 percent in 2012 and 5.9 percent in 2010. Discounts associated with the programs amounted to $943 million, $583 million and $162 million in 2014, 2012 and 2010, respectively.
Similarly, the Amazon Prime Store Card rewards its users 5 percent discounts on their purchases. It’s like a never-expiring, 5 percent-off coupon. For the consumer who charges $2,000 a year, that nets out to $100. In terms of marshmallows, Target’s overall discounts could buy roughly 30 billion, enough to stack to the moon (providing a new meaning to Moon Pie).
This does not, however, mean the traditional, points-based rewards model is failing. Rather, the model may just require some reconsideration of the aspirational rewards, and how long customers should have to wait to receive them.
Aspiring for relevance
As any member of the Kroger Plus Card program could attest, several retailers do deliver timely rewards and often without requiring unusual purchases. A few regular shopping trips to Kroger, for example, could translate to 10 cents or more off a gallon at the pump. Other programs, however, could require members to wait years before earning a $100 reward.
A key distinguisher, it appears, is frequency. Retailers that are typically visited often can feasibly operate a model that rewards often – think Starbucks, Walgreens and PetSmart. They collect more regular data and can better understand their customers.
But there are ways retailers can make aspirational rewards just as relevant as incremental ones.
Focus your analytics: Retailers have access to more data than they know how to use – that is the challenge. By first determining what the brand stands for to its best customers, the company can narrow down the purchase and behavioral data to illuminate what its shoppers expect in return for their loyalty, the kinds of rewards or recognition they value and how often they want to receive them.
Be a regular: That said, retailers should assume their customers want recognition regularly. A well-timed video of the staff saying thank you, or a free sample (or coupon for one) are likely to get the customer back into the store or online. Offers also are an important element of recognition – if they are positioned correctly and reflect what the customer is buying or his or her life stage.
Add a fee: It may sound counter-intuitive, but when the fee supports special, ongoing perks – such as free expedited shipping (as is the case with Amazon Prime) – consumers see immediate value. Nearly half (47%) of Americans believe rewards in fee-based programs are better than rewards in free programs, according to a survey of 1,000 consumers by LoyaltyOne.
Lastly, know how to enjoy the marshmallows. Customer engagement should be the top priority for every merchant – immediately, in the near term and next year.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.