The Pollution Solution: Executing Effective Loyalty Marketing Bonuses


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Checking into one of my favorite hotels for business travel, I noticed a promotional counter placard making me an offer I couldn’t refuse. The “Mega Suites ‘Dream Big’ Bonus” told me that by staying just four nights at any of the chain’s thousands of locations during an upcoming three-month period, I would earn 10,000 bonus points.

Now, I love a good deal just as much as any other consumer, but that’s not what made the offer impossible to refuse. I didn’t need to check my travel schedule to know that I was going to be spending far more than four nights with this chain during the promotional period. Was the offer going to change my behavior? Dream on.

The “Dream Big” Bonus was an offer the hotel chain should have refused. By making the bonus available to everyone, the chain incurs extra redemption liability while rewarding me for doing what my jam-packed travel schedule already calls for.

As marketers, we’re often too quick to toss mass-issued bonuses to all loyalty program members. Whether this practice results from infrastructure deficiencies, lack of imagination, or plain laziness, mass-promoted bonuses are merely a form of marketing pollution that costs money and doesn’t work. It’s time we took a hard look at bonuses. Are the right customers taking advantage of them?

Filtering the pollutants
Customers who benefit from promotional bonuses fall into three categories:

* Offer Cannibals earn bonuses by accident. I never thought of myself as a cannibal, but that’s what I’d be if I took advantage of that hotel chain’s bonus offer, because it won’t encourage me to change my behavior. If you don’t target bonus offers, many of your customers will likewise become unintentional cannibals, unaware of the bonus offer until it shows up on their program statement. While unforeseen rewards may surprise and delight, they inspire no incremental behavior. Why increase program liability without a corresponding increase in incremental revenue?
* Currency Junkies are intentional cannibals who actively troll web sites for bonuses they can exploit by simply making already-planned purchases. Again, such activity results in wasted bonus expenses for behavior that would have occurred anyway. Think of these folks as the member equivalent of retail cherry-pickers—shoppers who visit your retail store only when you mail them a coupon, and who buy only the sale items. Good for them, but bad for you.
* High Potentials are those customers we truly want to earn our bonuses. Executed wisely, bonuses targeted to this segment can generate incremental spend, frequency or other activity. I recently received an email from Delta Air Lines that said, in essence: “We’ve noticed that you haven’t been flying with us as much, so we’d like to welcome you back with a special gift of 1,000 bonus miles.” Delta had analyzed the data to target a bonus offer specifically to me based on what they have observed about my behavior—and with a clear goal of influencing future behavior.

Delta employed a pollution-taming tool as useful in marketing as it is in the physical world: a filter. To combat marketing waste, add these tactics to your loyalty bonus filtration system:

1. Don’t broadcast—narrow-cast. Certainly, there are times when broadly distributed bonus offers are appropriate. Your basic bonus structure, for example—tier goals, enrollment rewards, and so on—must be outlined and communicated broadly. Acquisition bonuses used by program partners to attract new business can also benefit from a broad-based approach, such as when 1-800-FLOWERS awards double United Mileage Plus miles to encourage flower orders. Your partner attracts your members to their brand, while you benefit from added earn velocity in your program without incurring additional liability. In these cases, the more the merrier.

But if your goal is to increase lift and retention, then why mimic the shotgun approach of broadcast messages in your bonus promotions? I’ve seen a company compile 50 loyalty offers on a single web page—a currency junkie’s opium dream. What incremental behavior was that company encouraging? The purpose of mass promotion is to build awareness of your program, not to push specific offers. If your goal is to drive incremental behavior within your own product line, then avoid marketing pollution by narrow-casting your bonus offers to the right customers.

2. Bonus along specific behavioral dimensions. There are four dimensions of customer behavior you can attempt to influence via bonus offers. Temporal bonuses change behavior within a specific time frame—for example, a double-points offer that encourages an extra visit that month. Spatial bonuses reward customers who shop at specific locations or channels. Transactional bonuses tie rewards to purchases by product category, basket size or individual SKU. Personal bonuses reward customers by personal attributes—you can target women, seniors and lifestyle groups, for example, or reward customers who supply an email address.

You can even construct bonuses along multiple dimensions. An offer can reward customers who come to a new store location (spatial) in January (temporal) and spend at least $50 (transactional). Every bonus offer should encourage maximum incremental behavior to avoid incenting activity that occurs naturally.

3. Employ segmentation. Identify the most potentially profitable bonus recipients and aim communications at them. Bonus segments by risk of attrition, and by propensity to increase frequency or spend, or to shift market share to you. A propensity model allows you to employ your bonus dollars to maximum effect by targeting those more likely to have room to shift share of wallet your way than others who may have already maxed out their spending in your category.

4. Take down the junkies and cannibals. Filter out those customers who drain your bonus pool by requiring opt-in registration to become eligible for bonuses. Active registration eliminates passive cannibals by requiring them to raise their hand to participate. Mitigate the influx of currency junkies who exploit opt-in bonuses by designing your registration process to gather customer preference data or as an opportunity to launch dialogue. These tactics will help you learn more about your members, and about the junkies in particular. Can you convert them into more profitable program members?

The ideal bonus pollution filter is a combination of all of these tactics, unified by an overall strategy designed to build incremental revenue by deploying targeted opt-in bonuses to specific segments. This strategy will weed out the cannibals and junkies in your files, set you on the path of rewarding only incremental behavior, and help you gather actionable intelligence that leads to stronger customer relationships built on value, relevance and dialogue.

Renewable energy
To reduce marketing pollution, loyalty marketers should adopt a program of Recycle and Renew to drive profitable behavior change. What if the folks at Mega Suites had thought beyond the counter placard that passively invited me to do what I was already doing? By combining data analysis with filtration questions, they might have offered me a bonus not for frequency of stay, but rather for my spend and activity during those stays. “Do you use your hotel room as a workspace while traveling?” Upgrade your next stay to a suite.”Are you responsible for meetings or client entertainment while on the road?” Reserve a conference room for a meeting, or a table at the hotel restaurant to entertain your clients. “Do you ever combine business and leisure travel?” Extend your business trip and enjoy a relaxing weekend with us. Bring the family.

Filter and target wisely. Clean up the clutter. Reduce wasted investment and effort. Enjoy a little extra green in the form of increased profits. And then breathe easier.

Kelly Hlavinka
A partner of COLLOQUY, owned by LoyaltyOne, Kelly Hlavinka directs all publishing, education and research projects at COLLOQUY, where she draws on her broad experience as a loyalty strategy practitioner in developing articles, white papers and educational initiatives.


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