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Cornell Hospitality Report's Ten Principles for Designing an Effective Rewards Program

Too often, customer loyalty programs seem to be more directed at providing price promotions (which is of course good for the consumer) but less effective at building customer loyalty. The latest Cornell Hospitality Report offers ten guiding principles to help marketers design and modify reward programs to be more effective based on three key drivers:

  • Loyalty program structure

  • Rewards structure

  • Customer fit with loyalty program

Here's my quick summary of the report's ten principles for designing an effective reward program:

1. Foster Customer Engagement: Loyalty extends beyond repeat purchases. Loyalty programs should reward a set of engagement behaviors that encourage deeper customer-brand connections, such as rewarding customers when they update contact information or participate in communities or events.

2. Establish a Two-Way Value Proposition: The reward program should benefit the consumer as well as the business. Rather than just focusing on monetary discounts, programs should focus on rewards customers really value which may differ across customer segments. This, of course, requires an in-depth knowledge of customer preferences.

3. Capitalize on Customer Data: Reward programs are an excellent way to capture valuable customer data. Such data is beneficial not only to drive better targeted rewards but also provide an overall benefit to marketing and research operations.

4. Properly Segment Across and Within Tiers: Rather than segmenting tiers based on an arbitrary variable such as number of night stays, tier segmentation needs to be determined based on customer needs and preferences. Marketers should also give thought as to how a customer might progress through the various loyalty tiers to make sure they are reasonable to prevent defection to a competitor's reward program.

5. Develop Strategic Partnerships: Enhance the value of your reward program with reciprocal reward offerings from key partners. Customers like variety, and variety encourages more customer engagement.

6. Develop Dynamic Tiers: Related to principle #4, marketers should design programs that offer incentives between key spending tier milestones to keep customers engaged and prevent defection. These "spontaneous" rewards can be small but keep customers interested and coming back for more.

7. Cater to Customer's Desire for Choice and Fairness: Give customers a choice with a broad set of rewards they can control when to redeem. Rewards also need to be fair -- the level of prestige needs to match the amount of effort required to attain a particular reward tier.

8. Avoid Commoditization through Differentiation: Loyalty programs must be different from the competition and need to be marketed as such, else they risk becoming just another "me too" feature. To successfully differentiate is not easy and requires a better understanding of the customer to provide value-add experiences or services on top of traditional rewards. If successful, this also creates deeper interactions with the customer that foster greater customer loyalty.

9. Avoid the Price Sensitivity Trap: Focusing reward programs on price discounts risks encouraging customers to delay purchases until a discount is available and places emphasis on price over other differentiators like customer service.

10. Embrace New Technologies: Leverage technology to deliver rewards when and where your customers are -- their mobile devices. This channel not only provides you with another opportunity to do business, it will also improve your ability to capture customer information as well as provide a better loyalty experience.

It's apparent that the foundation for each of these principles is the need for better customer information. By leveraging an integrated sales, service, and marketing solution like those offered by Oracle, organizations can better understand their customers and provide better targeted loyalty programs that benefit the customer as well as the business.

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