Announce Limits on Item-Based Loyalty Programs

Loyalty programs can be configured to serve a range of functions:

• To encourage positive word-of-mouth for your store, give loyalty program points to customers whose recommendations result in first-time purchasers. 
• To attract shoppers who identify with Asian cultures, use loyalty programs which offer relatively large rewards earned with an element of fate. This differs from loyalty programs which, research finds, customers with a Western mindset tend to prefer: Assured rewards come incrementally. For each dollar or euro spent, you get points. Smaller rewards are available for a small number of points and larger rewards are available to those who save up their points. 
• Like Kroger Co., you could publicize that you’ll use the sales databases to notify each customer if an item the customer previously purchased is being recalled for safety reasons. Evidence from consumer studies suggests that many will consider this use of data as showing a caring attitude, which further enhances the loyalty from a loyalty program. 

     Researchers at University of Maryland and Belgium’s Lessius University College explored another adaptation of loyalty programs—what they called Item-Based Loyalty Programs (IBLPs), in which bonus points are earned for purchases of specific items. IBLPs enable the retailer to promote those selected items without needing to discount the price. In fact, the study results showed consumers overall were more responsive to reward point promotions than to price discounts of the same monetary value.
     However, the effects of IBLPs differ for customers who have been participating in the store loyalty program for some time before versus those customers who have not. After introduction of the IBLP, the longer-term participants continued to shop with the store, but they began spending less. The shorter-term participants began spending more. The bulk of the store’s revenue gains came from the power of the IBLP to attract and retain newer customers. The Maryland/Lessius researchers suggest that a retailer introducing an IBLP be sure to offer ample inducements for the longer-term loyalty program participants.
     Another danger I see with the IBLP arises when the additional largesse is reined back in. There are likely to be disgruntled customers. The beliefs, feelings, and intentions of the consumers can resemble what happens when you raise prices. You could make the IBLP permanent, periodically changing which items earn the extra points. Or avoid the problem by clearly and continually proclaiming from the start a set time limit on the augmented program.

Click below for more: 
Tailor Loyalty Programs to Customer Culture 
Offer Frequent Shopper Benefits Beyond Discounts 
Sell Upgraded Loyalty Programs