Loyalty Is Not a Liability

by Brandon Siegesmund
Vice President Operations @ More Than Rewards

If your dealer is now rewarding customers for their business as opposed to solely relying on discounting — congratulations! Every year you should be gaining more reward program customers, saving more money, and encouraging loyal customers to keep shopping. Within a year, you’ll have thousands of loyal customers earning more and more points every month.

Would that in any way scare you?

Dealers generally agree with a reward program’s philosophy and enjoy its immediate benefits. We find that many managers kick themselves for not implementing it sooner — after realizing they are essentially giving only half the amount of customer discounts as before. This situation is also a windfall for marketing and sales. Customers are experiencing the buzz of earning points, visiting the dealer more often, checking their rewards through your website, and even banking some rewards for the holidays.

But that’s when accounting starts to take notice. You see, things were somewhat simpler without a reward program. You had discounts, credit cards, coupons, gift cards, etc. Now, we’re injecting another form of payment — “rewards” or “Rider Bucks” — into the mix. What’s most disconcerting is that it seems like your dealer owes people thousands of dollars, similar to what happens with gift card accounts!

The venerable loyalty program, what had once been considered a marketing tool for “savings,” is now chastised as a “liability.” Some managers will scramble to start retracting benefits and discouraging its use, which will in turn upset customers and employees. At worse, you might even think about going back to discounting.

However, don’t worry; there is hope if you’re a victim of your own success. Let’s look at three things you can do to balance your reward program with your budget without drastically affecting customer perceptions. We’ll then close with some final tips to make sure you’re on the right track.

  1. Have accounting consider customers using the reward program a marketing expense.

    Let’s start here; how you define a reward program’s value at the cash register.

    Equating reward program dollars with gift card dollars is not recommended in any case. The biggest reason is the amount of money it’ll seem like you “owe” will be grossly exaggerated. Yes, customers do have points which convert to dollars, and there are unique numbered accounts just like gift cards. The big differences are that points are personally earned from previous purchases; they will expire much sooner than gift cards; and, points are redeemed at much lower rates.

    The cost of the loyalty program is best considered a marketing expense applied equally for all departments for getting customers back in the door, just as if you were running radio ads or you rented a billboard. By tracking the historical use of the program, you’ll be able to better budget your marketing dollars month-to-month.

  1. Make sure you have a reward points expiration policy.

    Periodically expire unused customer points to keep your projected rewards/marketing expenses as low as possible as participation grows every year. Pretty much every loyalty program expires points, so customers are very familiar with the concept. (It also compels customers to return sooner than later.)

    What can you do? Your reward program (like our Rider Rewards system) may have several different policies from which to chose. Many dealers determine to expire points for everyone all at once on one day of the year, but it could also occur on  individual customer “sign-up” anniversaries. There are also other ways, but keep in mind that both staff and customers need to be aware of whatever expiration method you chose.

  1. Limit the total point amount each customer can have at any time.

    This is also known as instituting a “points cap,” and it does two things: It first ensures that customers cannot earn a limitless amount of reward points to surprise you with thousands of dollars in rewards; second, it drives customers to spend their points when their accounts are at or near the cap.

    Explaining further, a common cap dealers have is “10,000 points,” meaning individual customers’ maximum point balances will never exceed this amount. Customers must spend or “cash out” some of their points to then get back under the cap. Afterwards, they can start earning points again.

Among these three important reward program policies, think about how destructive some discounting practices have become not only for your store but for your industry. Your marketing expenses may increase if you enact our first recommendation, but that has to be juxtaposed with how much money was really lost on rampant discounting in the past years.

Remember that discounts are given; rewards are earned.

Just in case you’re wondering why rewards should be considered a marketing expense, please allow me to illustrate it for you: If a customer spends $1,000 with an immediate $100 discount, you’ve given them a lower price, but you might never see them again. However, if you give the same customer $100 in rewards for their purchase — you still gave them a great deal — but now you have the chance to see them for a following visit to use that $100! You just didn’t help pay for their next trip to the movie theater.

Now, there are cases in which reward/loyalty programs can be too generous, and they may be costing more than your dealer can handle. That’s when we can step in and examine your entire program to see when and how your customers are using their points, what you are rewarding on, etc. We’ll spare you the detour to save that topic for another blog.

Thank you for reading, and we’ll see you next time!

Brandon has worked with More Than Rewards for over 10 years in numerous capacities and considers himself an inquisitive lifelong learner. He has a uniquely eclectic background in sales, lead generation, training, marketing, direct response, customer service, telemarketing, technology, and many other fields among a variety of industries. As one of the company’s founding employees, Brandon has successfully trained and  consulted with hundreds of Harley-Davidson dealers, powersport dealers, H.O.G. Chapters, and other sales and marketing professionals. 

If you would like to talk further with Brandon or any of More Than Rewards’ staff, please give us a call at (414) 326-4100.