Customer Incentive Programs: Best Practices

Just sweetening the pot won’t cut it. Be strategic in your approach to customer incentives.

A commencement address to the Wellesley High School Class of 2012 contained a searing observation: You are not exceptional.

The statement was intended for a single group of high school graduates — but quickly twittered its way around the world, and could very well become the new catchphrase that upends the “Like”-me environment of business marketing. The message: It’s not enough just to do stuff, because everyone is doing stuff.

Many organizations fall into the trap of thinking that customers should be pleased as punch by any token of appreciation. The truth is, everyone — including the competition — seems to be doing some form of incentive or loyalty marketing to attract and keep customers. So it takes a really unique effort to stand out. Simply throwing together a “points for purchases” program or a “Refer a friend!” promotion isn’t necessarily going to win new customers or influence current customers to stay.

At QIC, we’ve seen customer incentives evolve over the decades, and this experience has taught us that there are a few key fundamentals that make programs go from ho-him to exceptional. Here’s our advice.

How to Implement an Effective Customer Incentive Program

1. Be clear on the objectives.

This might sound obvious, but you’d be surprised at how many organizations want to start a customer incentive program with the simple goal to “boost sales.” Increasing sales isn’t a bad objective, but dig as deep as you can to get to the true heart of the problem you’re trying to solve.

  • For example, is the problem 1) that you’re not attracting enough customers, or 2) that potential customers are going to your competitors?  If it’s the latter, why? Is it an issue of price or is there some service aspect that you’re not delivering?
  • Based on your business, are you better off attracting the whole universe of customers, or focusing on building repeat purchases from a core group of “high value” customers? On a similar note, are you looking for multiple visits or multiple purchases within a visit?
  • How many of your customers come from referrals (the cheapest form of marketing)?

You get the idea: Delve into the reasons you need this program, and what you hope to accomplish with it. Sure, a customer incentive program can “boost sales” and instill customer loyalty but tactically it can also:

  • Stimulate word-of-mouth referrals;
  • Encourage people to “opt-in” to your communications;
  • Warm up a sales call;
  • Promote test drives or trials; and
  • Increase sales of specific products.

Use it in the smartest, most focused way possible.

2. Target the right folks.

Resist the urge to target every customer with your incentive program. Getting “bang for your buck” isn’t necessarily a matter of having huge participant rolls. Focus on 1) high-value (those most likely to buy and make substantial purchases in the future, even if they’re not coming to you regularly) and 2) already-frequent customers. This allows you to put more of an investment in the participants who will yield the most return.

3. Consider your company’s branding and culture.

Your customer incentive program is truly a key component of your business strategy, and it needs to reflect your organization’s values and culture. It also needs to “make sense” to your customers based on what they know about you already. Keep the theme of the program simple and relevant to your primary business focus. For instance, a retailer focusing on pet grooming and supplies calls their program the “Muddy Paws Club,” emphasizing the larger, grooming side of the business — which is what they are known for — even though the company also sells pet food, toys and other items. To call the program something like the “Playful Paws Club” or “Hungry Puppies Club” would be counter to the overall brand of the company as a full-service groomer.

Also, think about the how your customers are accustomed to interacting with you. The mechanics of the program should not incur a high learning curve. Example: If you are not already using technology as a primary means of connecting with customers, don’t use technology as the sole means of delivering the customer incentive program. The key is to make the program as easy as possible for participants to comprehend and use, or it won’t be widely embraced.

4. Everyone in your organization has a stake in the program.

The customer incentive program should not be “siloed” as a sales or marketing project. As noted before, it’s a key part of your business strategy, and to be done right it needs to be shaped by input from across the organization. Human resources, operations, IT, logistics, supply chain and other departments need to understand how the program works, its implications and how to communicate it to customers who might ask (you’d be surprised at the questions delivery drivers get when they arrive at customer locations).  Besides communications, once the program is launched and starts to bear fruit, it could have an impact on things like inventory planning, order fulfillment and more. You don’t want the incentive program to fail because some part of the chain wasn’t prepared for a boost in sales or a flood of “opt-in” communications requests.

Of course, the customer incentive program needs to be managed by a specific person or team within the company who will have accountability for all aspects of design, promotion, implementation and measurement. However, the Incentive Performance Center recommends using an outside expert if you intend to spend six figures or more on your program: “Not only are the stakes higher, but you will likely find that the logistics involved with launching a major program rival those of any other type of advertising campaign for which organizations generally hire outside help.”

5. Clearly identify the program rules and process.

Take your time here to really think about how the customer incentive program can and should work. What are the rules of participation? How will the participant be engaged in the program? What are the program mechanics — is it a points-based program and if so what is the point value? What does the participant do to earn points? How does the participant redeem their reward? Plan out every step of the program, and test the process with people in different parts of your organization to ensure clarity and user friendliness. There should be no ambiguity in any part of the program.

Keep this in mind: Asking for overly complicated behaviors will discourage motivation and participation. One way to keep a program fresh and effort-focused is to use it to promote just a few key products or services during a specific sales period — and then feature different products at other times

6. Offer meaningful rewards at a range of levels.

Put together an awards catalog that speaks specifically to your participant base. Consider the demographics, particularly if you are in a B-2-B organization: Are your customers mostly women, men or a mix? Do they tend to work in an industrial setting or a corporate one? The rewards you offer need to mesh with the audience you’re trying to engage.

Additionally, be sure to offer rewards at different redemption levels so that participants have a chance earn something relatively quickly. As popular as frequent flier programs have become, a consistent complaint is the fact that it may take many months or years for some participants to earn an award — and when they do, “inventory” (seating) is limited. The effect is a negative customer experience.

7. Allocate a realistic reward budget

A good rule of thumb is that reward costs should run between 1-3% of sales revenue. Be sure to allocate a sufficient budget for program reward redemption.

8. Communicate, communicate, communicate

Get the marketing team to develop a solid communications plan to launch your customer incentive program. Besides introducing the program to target participants, you also need to conduct a communications campaign to your internal stakeholders so they clearly understand and “champion” the program when dealing with customers. Ongoing communications should be a continual endeavor to highlight aspects of the program — for example, new reward offerings, product promotions, etc. as well as to reposition the program as business objectives evolve. Employ every available medium to increase visibility to your participants — and leverage their engagement as a captive audience to disseminate key marketing messages, strengthen your brand, increase product knowledge, education and more.

Make full use of “sticky,” program-related communications to get your messages across: monthly statements, program Web site, email updates, newsletters, blogs, social media— and if you’re really ambitious, create your own “app” for the program!  Be sure to allocate a sufficient communications budget.

9. Track progress

Ideally, your customer incentive program will be implemented on a robust technology platform that generates a wide range of customizable reports. Your data analysis should include as much information as you can glean. Some key insights would include:

Participant response to the program:

  • Enrollments—by location and other pertinent demographics
  • Program “usage” beyond just enrollment: Who actually participated in the program? Where? What were the behaviors exhibited?
  • How soon did the participant respond after receiving program communications?

General operations data; may also require data from a customer relationship management system (CRM):

  • How did these participant sales/actions compare to that of non-participants?
  • Which locations/regions show the highest participation in the program?
  • What rewards are being redeemed — by item, participant type and location?
  • What was the repeat customer sale rate of participants compared to non-participants (applies to those organizations able to track a customer purchase)?

Tracking and analysis should occur on a routine basis so that improvements, enhanced communications and other efforts can be made to increase program success.

10. Measure and get feedback

Because customer incentive programs document specific actions and outcomes, the return on this investment can be more clear than other types of marketing. Using a combination of data analysis from the program platform, CRM and other business systems, plus subjective information from good old fashioned participant surveys, you can better understand:

  • Incremental profits compared to the full cost of the incentive program (including communication, the rewards portfolio, technology and administration, and reward fulfillment).
  • Profitability of active participants (those who actually participate versus just being enrolled) compared to non-participant customers.
  • Frequency of repeat purchases between participants and non-participants.
  • Likelihood of a participant making a repeat purchase due to the program.
  • Likelihood of a participant referring a friend or colleague.
  • Rate of customer complaints from participants versus non participants, and the nature of those complaints.
  • Feedback about the program logistics or rewards.