The answer is yes. Cutting costs does not only have a short term effect on a company’s result, but also a long term positive effect, assuming that the value of the cost cuts is not surpassed by revenue losses. The latter is what program managers fear; that cutting costs will lead to customer attrition and cause long term net loss. The key to avoid this scenario is to know which loyalty elements to cut and which not to. We will briefly walk you through our process to successfully trim a loyalty program.
One approach to resolving this dilemma is to study the elements of the loyalty program as follows. First, by measuring which elements customers value, and optionally their impact on overall satisfaction, program managers will gain insights into which elements are the key loyalty generators and which are less important. The next step is comparing perceived value to the costs of maintaining individual elements.
By creating a matrix with two dimensions, perceived value and cost, we can map program elements into four groups. Of particular interest are those with high perceived value and low costs. These are the elements you usually want to keep. Elements with low value to customers and high costs for the company should probably be removed from the program. What to do with benefits in low value-low cost and high value-high cost combinations is bound to be debated. By adding a third dimension to the study, customer awareness, one can measure to which extent individual program elements are known to customers. This in turn gives program managers more information to go on.
High cost elements with high value and high awareness are likely to weaken loyalty if they are removed. Similar elements with low awareness could either be removed, as few customers will miss them, or optionally they can be emphasized in future marketing efforts to both existing and potential clients to increase the perceived overall value of the program. For low cost and low value elements, we argue that the consequences of removal should be small regardless of awareness, though it should be noted that any elements with high awareness are more likely to be noticed as missing. Again, the consequences should be small, as long as the elements indeed have low value to customers. That’s really all there is to it.
To summarize, companies should do the following to optimize their loyalty rewards programs.
1. Measure perceived customer value, costs and awareness of individual reward program elements.
2. Keep high value- low cost elements. These elements give the best return on investment.
3. Cut low value- high cost and low value-low cost elements. The former will have greater impact on the bottom line.
4. Consider keeping high cost-high value elements with high awareness. Consider cutting or increase marketing of similar elements with low awareness.
