If you have an implemented or you want to start the loyalty program, you need the determine the value that your loyalty points hold. If you do not the value that your loyalty points hold, you will not know how much money that you are offering to your customers in the form of points. It is good to know that the number of points that you can offer to your customers is equivalent to money. When you offer your customers with points, you will be offering a value that can be compared to a cost. The only problem with points is that you will not realize their value immediately the way percentage or dollar off coupons are.
Below are some loyalty program guidelines that can assist you to determine the points that hold value in your business and how you set the point values for the different actions of the customers.
Calculating the value of points that are redeemable
The redemption value of your points is equivalent to money. Normally it is the value of the currency that your points hold. For example, if you can decide that in your business until when the customers have 5000 points is when you can allow them to redeem them for a $ 5 discount. In this instance, you have to divide your reward of $ 5 by the number of points that you have set (5000) so that your redemption value is set at 1 percent.
This will mean the value that the points hold will be arrived by multiplying the total points by 1 percent. You can also monitor the rate of redemption ( how many loyalty points that the customers redeem) so that it will be easier for you to estimate the amount of money that the outstanding points hold.
The actual and perceived point value
The loyalty points that you offer to the customers who buy goods and services from your business hold varying values. There is the redemption value (actual value) that they hold and the value that your customers perceive that they should hold.
If you decide to offer special gifts as a reward in the loyalty program, this will imply that the customers will see the points to hold a value that is equal to the value of that special gift that you are giving them. If the incentive that you offer is purchased for $1,000 points, but it is normally sold as $20, the customers will see the points to hold a value that is equivalent to 1 percent.
However, if the products cost included the normal margin and its actual cost is $7; in this scenario, the customers see the loyalty points to hold a value of 1 percent while their actual value is only 0.35 percent. From the example above you will realize that when the loyalty points have a high perceived value, you will be able to use these points as the best motivator at the same time you keep the costs of the loyalty program low. It is therefore vital that as a good businessperson you understand both of these scenarios so that your business is successful.
Determine the point value of the purchases
The main function of using reward programs is to reward the customers after they have purchased goods and services from the business. You will be given business, and you are supposed to give them a percentage regarding points so that you can remain loyal. The amount that you give will depend on your own decision, but below are some guidelines.
The simplest way to set points that will lead to higher purchases is at 1 %. This has been seen to work for programs that use the points. It is, however, good that you research on what your competitors have set and the standard one that can work well.
Determine the point value of an action.
One of the advantages of any loyalty program is to assist you to award points to any actions of a customer that assist you to sell more. You can offer some incentive to customers so that they can register open an account, share your business values on social media and refer to their friends.
Every business has its values which makes it difficult to give the same value. It is good that you analyze the data of the customer that you determine the programs that you can offer them for their varied actions. For instance, if the average value of the order of new customers is $100, it is good that you give some points that are worthy$100 for that referral. But it is good that you reward the points only after the referred client has made a purchase.
It is good that you always try to set the number of points for the action of the customer based on the value that action holds in your business. For instance, sharing the business in social media does not hold much value compared to a referral, since referral has more likelihood of getting a new client.
Converting dollar value to point value
After you determine the action and the purchase of your business, you can then convert the dollar value into points. If the customer has made a purchase that is worth $500 you can decide to reward the referral with 5 points.
What are loyalty points meant for?
As seen above the idea of determining the value that the loyalty points hold is not an easy task. The value of the points depends on the individual who is organizing the program; you can readjust it so that it meets the individual goals of the business. You can start by lessening the purchases back by 1% so that you have each point set to be valued at 1 cent each. This is one of the simplest ways to start implementing the program as it is also easy to be understood by the customers. If you want to access whether the loyalty program that you have fits your business you can look at the free loyalty assessment program at http://www.edenred.com.sg for the assistance.