Using Loyalty to Incentivize Non-Transactional Behaviors

Keith Lu

November 11, 2017

Blog_UsingLoyaltytoIncentivize

Retailers typically approach the customer journey with three main objectives: Minimize the time customers spend pre-transaction, maximize the probability of a transaction and minimize the time customers spend post-transaction. Retailers already have a number of tools for incentivizing transactional behaviors, but a well-executed loyalty program can reach customers before and after a purchase, incentivizing meaningful behavior beyond transactions.

 

In today’s hyper-competitive market, retailers are using every tool in their arsenal to gain competitive advantage. Loyalty programs are one of the most commonly used tactics, and with good reason: When properly applied, they can add tremendous value to your business.

Most programs boil down to incentivizing customer transactions with rewards: Make a purchase, receive a point, free item or coupon. But if you look beyond the traditional system, there lies a big opportunity to enhance your customers’ overall shopper journey by rewarding them for nontransactional behaviors.

 

Impacting the whole customer journey

The customer journey can be simplified into three connected components: pre-transaction, transaction and post-transaction. 

All retailers approach this journey with three main objectives: Minimize the time customers spend pre-transaction, maximize the probability of a transaction and minimize the time customers spend post-transaction. In other words, generate, accelerate and repeat sales. A meaningful loyalty program can help you achieve all of these objectives.

Retailers already have a number of tools for incentivizing transactional behaviors, but loyalty programs offer the ability to reach customers at other times in the journey — incentivizing behavior in the pre- and post-transaction phases.

 

Measuring value

Once you’ve decided to expand beyond transaction-based incentives, the next step is to tackle the challenge of quantifying value. Quantifying the value of a transaction is straightforward — the value is guaranteed. But understanding the value of incentivizing nontransactional behavior in the pre-transaction and post-transaction phase is more difficult because the result of those efforts is expected value, not tangible.

Here are a few simplified examples of expected value in practice. A store selling widgets for 10 dollars attracts 100 potential customers and sells 10 units in a single week, implying that each customer has an expected value of one dollar. To remain profitable, an incentive value from zero to one dollars per customer can be used to increase foot traffic (and accordingly, sales). Another store also selling widgets for 10 dollars releases a commercial for one week that receives 1,000 views and is followed by 500 sales, implying each view has an expected value of five dollars. In this case, using a reward of zero to five dollars to motivate customers to watch the commercial might increase views (and sales).

It may seem illogical to reward a customer for walking into a store or watching a commercial, but nontransactional behaviors can indirectly impact sales. Quantifying the relationship between nontransactional behaviors and their potential sales value with the help of sophisticated statistical methods is the first step in helping retailers boost customer value.

 

Which behaviors drives sales?

How do you understand and uncover which nontransactional behaviors effectively drive sales? Your existing customer data is the best place to start. Does your data suggest that a group of customers are more likely to make purchases after sampling? Offer your loyalty program members rewards for trialing products. This incentive could accelerate customers in the pre-transaction phase and increase their probability of a purchase. Do you have customer feedback that indicates returns are driven by a lack of product knowledge and a failure to realize value? Offering rewards that incentivize the use of a product several times post-purchase could reduce returns by reinforcing the purchase and preventing buyer’s remorse. Are you seeing indications that millennials trust online content produced within their own networks over traditional advertisements? Rewarding customers who generate and share trustworthy online content on social media could be a more effective way to attract new customers and potential sales.

At the end of the day, encouraging customers to make a transaction is the ultimate goal, but there are several steps that you need to take before getting there. In fact, what you do before and after the point of purchase is fundamental to ensuring that transactions both occur and reoccur. Incentivizing nontransactional behaviors could unlock the opportunity to influence the entire customer journey and supercharge your overall performance.

Customer Experience

Loyalty

Customer Analytics

Retail

CX

About the author

Keith Lu

Keith Lu

Senior Business Analyst, Global Solutions

Keith is a strategy consultant at Global Solutions that specializes in loyalty design and customer strategy. He has worked with leading coalition programs, frequent flyer programs and retailers across a number of geographies such as North and South America, Europe and Asia, and has helped his clients create innovative business models to unlock and capture financial value.

Drawing from his experience in strategy, finance and marketing across several industries, Keith delivers robust solutions that are both strategic and tactical. He works collaboratively with each client to arrive at tailored recommendations that are forward-looking and sustainable.

Using Loyalty to Incentivize Non-Transactional Behaviors

Aug 28, 2018, 13:09 PM
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Retailers typically approach the customer journey with three main objectives: Minimize the time customers spend pre-transaction, maximize the probability of a transaction and minimize the time customers spend post-transaction. Retailers already have a number of tools for incentivizing transactional behaviors, but a well-executed loyalty program can reach customers before and after a purchase, incentivizing meaningful behavior beyond transactions.

 

In today’s hyper-competitive market, retailers are using every tool in their arsenal to gain competitive advantage. Loyalty programs are one of the most commonly used tactics, and with good reason: When properly applied, they can add tremendous value to your business.

Most programs boil down to incentivizing customer transactions with rewards: Make a purchase, receive a point, free item or coupon. But if you look beyond the traditional system, there lies a big opportunity to enhance your customers’ overall shopper journey by rewarding them for nontransactional behaviors.

 

Impacting the whole customer journey

The customer journey can be simplified into three connected components: pre-transaction, transaction and post-transaction. 

All retailers approach this journey with three main objectives: Minimize the time customers spend pre-transaction, maximize the probability of a transaction and minimize the time customers spend post-transaction. In other words, generate, accelerate and repeat sales. A meaningful loyalty program can help you achieve all of these objectives.

Retailers already have a number of tools for incentivizing transactional behaviors, but loyalty programs offer the ability to reach customers at other times in the journey — incentivizing behavior in the pre- and post-transaction phases.

 

Measuring value

Once you’ve decided to expand beyond transaction-based incentives, the next step is to tackle the challenge of quantifying value. Quantifying the value of a transaction is straightforward — the value is guaranteed. But understanding the value of incentivizing nontransactional behavior in the pre-transaction and post-transaction phase is more difficult because the result of those efforts is expected value, not tangible.

Here are a few simplified examples of expected value in practice. A store selling widgets for 10 dollars attracts 100 potential customers and sells 10 units in a single week, implying that each customer has an expected value of one dollar. To remain profitable, an incentive value from zero to one dollars per customer can be used to increase foot traffic (and accordingly, sales). Another store also selling widgets for 10 dollars releases a commercial for one week that receives 1,000 views and is followed by 500 sales, implying each view has an expected value of five dollars. In this case, using a reward of zero to five dollars to motivate customers to watch the commercial might increase views (and sales).

It may seem illogical to reward a customer for walking into a store or watching a commercial, but nontransactional behaviors can indirectly impact sales. Quantifying the relationship between nontransactional behaviors and their potential sales value with the help of sophisticated statistical methods is the first step in helping retailers boost customer value.

 

Which behaviors drives sales?

How do you understand and uncover which nontransactional behaviors effectively drive sales? Your existing customer data is the best place to start. Does your data suggest that a group of customers are more likely to make purchases after sampling? Offer your loyalty program members rewards for trialing products. This incentive could accelerate customers in the pre-transaction phase and increase their probability of a purchase. Do you have customer feedback that indicates returns are driven by a lack of product knowledge and a failure to realize value? Offering rewards that incentivize the use of a product several times post-purchase could reduce returns by reinforcing the purchase and preventing buyer’s remorse. Are you seeing indications that millennials trust online content produced within their own networks over traditional advertisements? Rewarding customers who generate and share trustworthy online content on social media could be a more effective way to attract new customers and potential sales.

At the end of the day, encouraging customers to make a transaction is the ultimate goal, but there are several steps that you need to take before getting there. In fact, what you do before and after the point of purchase is fundamental to ensuring that transactions both occur and reoccur. Incentivizing nontransactional behaviors could unlock the opportunity to influence the entire customer journey and supercharge your overall performance.

Tags :
  • Customer Analytics
  • Customer Experience
  • CX
  • Loyalty
  • Retail
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Author : Keith Lu
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