How it used to be

Not too long ago, loyalty cards where customers accrued points on their purchases were the “next big thing”. Now, many retailers offer similar loyalty schemes, and collecting points is no longer novel, and the amount of loyalty they instilled can be questioned. Of course, loyalty schemes are far from dead. They are still very popular, because everyone loves to get “something for nothing” but customer expectations have moved on. In the old paradigm, a customer is in possession of a loyalty card. Each time they spend money in a retailer’s store, or perhaps online, they receive a certain number of points, which can, at some point in the often distant future, be redeemed. In some cases the points would be converted into vouchers that were mailed to customers to redeem in store against the next purchase.

The reality though, is that not many customers are fully informed about how many points they receive for an amount spent, or when they can redeem them. This means they are less likely to remain engaged, and therefore loyal, over longer periods of time.

The way it could be

Prepaid loyalty is different in several ways, some of them subtle, yet important. Firstly, the card itself is the form of payment so is regarded as having a high value. The customer does not have to remember to hand over their loyalty card when they make a purchase, because they are in the habit of using the card regularly as a payment mean. This in itself instills a sense of loyalty. A loyalty reward can be earned on every reload, as well as over time. This appeals to customers who want to see instant benefits for choosing to shop with one retailer over another.

With points accrual, everyone gets the same benefit. This seems fair, but customers nowadays want more personal rewards. They want rewards that are relevant to them, based on their profile and buying behavior. Birthday credit or discounts, and additional rewards on “your favorite things” or exclusive offers, enhance engagement in ways points per spend cannot.

Starbucks prepaid and loyalty card program is seen as the market leader, and during the fourth quarter of 2014, generated $1.3 billion of prepaid card payments. One of many reasons the Starbucks loyalty scheme is so hugely popular, is because the rewards are what people want (coffee), easy to accrue, and easy to understand. It works in a similar way to earning points, but “buy 15 coffees, get the next free” is easier to keep track of, and care about, than “get 1 point for every $20 spent”. Customers are more likely to stay engaged with a loyalty scheme where they understand the benefits. Of course, Starbucks also offer tiered rewards such as free birthday treats and free refills, that creates a desire for people to stay loyal and more up the tiers.

Lastly, today’s sophisticated and savvy customers know brands use loyalty programs to collect data about them, so need a clear incentive to register, and use the card. Points per amount spent are much less transparent, and immediately rewarding, than a free coffee.

A commitment to loyalty

Pre-paying customers can take advantage of rewards, perks, and bonuses as a result of pre-paying, or topping-up an existing card. Retailers do not have to wait until the customer is motivated to buy those 15 coffees because they want the free one; the customer is paying for the 15 coffees upfront, and committing themselves to being loyal.