Rewards: The Best Choice for Brands Building Reciprocal Loyalty

Long-lasting loyalty is reciprocal, where both brands and consumers benefit from the relationship. But what fosters reciprocal loyalty? What can a brand offer its consumers to cultivate the type of two-way relationship that will keep them coming back time and time again?

When loyalty is reciprocal, rewards become the most important way to bridge the gap between a brand and its consumers. BigDoor is leading the charge on the concept of reciprocal loyalty, and today we want to help your next loyalty campaign become mutually beneficial. This post walks you through the basics of the types of points and currency that back rewards; outlines three main types of rewards brands offer customers; provides examples on how you can implement rewards into your next loyalty campaign; and offers advice about which reward(s) is the best choice for your audience.

There are two main perspectives when it comes to building reciprocal loyalty through rewards: the brand side, and the consumer side. We’ll talk about rewards from the brand perspective in this post, and will cover the consumer perspective in a post that’s coming soon.

Let’s dive in!

Points & Currency: Dollar-backed vs. Non Dollar-backed

Dollar-backed currency is what all traditional rewards programs are built on. With dollar-backed currencies, the financial liability of the reward occurs when a consumer earns the points, not when the consumer redeems those points. A perfect example is an airline mileage program. A consumer buys a ticket, flies 500 miles, and they get 500 mileage points that they can redeem at a future date for a flight, an upgrade, or a discount. While the points they are receiving may not have a true cash value, they do have a real cost to the airline. As a result, the airline needs to carefully account for how many points are outstanding, and their associated financial liability. This means that the airline can only afford to grant points when a consumer is making a purchase and spending real dollars with the airline.

Non dollar-backed currency is a new concept being pioneered by BigDoor (we’ll be writing more about it soon), and provides significantly more flexibility than traditional dollar-backed currency. With non dollar-backed programs, the financial liability of the rewards occurs at the point of reward redemption, not at the point of earning. Any rewards that have underlying costs associated with them must have inventory and time limitations, and non dollar-backed rewards provide an opportunity for no inventory restrictions at all as they do not have direct cost associated with redemption. This structure allows a brand to set a pre-determined monthly or annual rewards budget, and whether the consumers earn a million points or ten million points, the pre-determined budget for the brand stays the same. The consumer can then be rewarded for a number of what we call “soft actions” like visiting a site, referring a friend, following the brand on Twitter, watching a video, or engaging in content. Consumers can also earn points for making purchases with non dollar-backed rewards, as well.

Dollar-backed and non dollar-backed currency support different types of rewards, but both directly effect the value of the reward a brand is offering. The quadrant below breaks down the value of a reward based on the two points that spur a brand to choose the type of currency backing the reward: brand affinity and cost.

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Brand affinity is the feeling of goodwill a customer or community member holds about a brand. When a company’s brand affinity is high, consumers are feeling good about the products and/or services they company provides. When  brand affinity is low, consumers are unsure about the goods, or message behind the goods, that they are paying for. Cost can be thought of as “incremental cost,” where the cost to a business is higher or lower depending on the cost of the units of output processed.

When analyzing how brand affinity and cost work together to yield the value of rewards, we see four possibilities: decreasing brand affinity with high incremental costs (i.e. using a dollar-backed campaign to send cheaply made mugs to a large volume of consumers); decreasing brand affinity with no incremental costs (i.e. using a non dollar-backed campaign to send an off-brand message to an online community); increasing brand affinity with high incremental costs (i.e. using a dollar-backed campaign to ship high-priced swag bags to consumers as rewards); and increasing brand affinity with no incremental costs (i.e. using a non dollar-backed campaign to encourage users to interact with your online content for points).

Out of the four choices displayed in the quadrant, it’s best to aim for the sweet spot of increasing brand affinity with no incremental costs. A reward that increases brand affinity and lowers costs is the most cost-effective and consumer-pleasing value that any reward can offer reciprocally; the consumer is happy with the reward and continues to love the brand, and the brand is happy that costs are low and that the consumer is pleased. This is where dollar-backed or non-dollar backed currency comes in.

The grid speaks directly to brands deciding whether their rewards should be supported by dollar-backed or non dollar-backed currency. Both options yield a variety of possibility for the types of rewards a brand can offer, but when a brand is supported to use non dollar-backed currency, they gain a huge competitive advantage.

Through non dollar-backed currency, brands can “pay” users for completing “soft” actions, like gaining points for interacting with the brand through social channels, commenting on and sharing content, providing feedback on how to improve the customer experience, and more. If you’re giving users the opportunity to rack in points or coins only for dollar-backed purchases, you are offering a limited experience to increase brand affinity, and run into a problem. In today’s world, so much of what builds brand affinity — and increases loyalty — occurs outside of the traditional pay-to-purchase model, and those actions need to be rewarded. Even though you may not be rewarding users for soft actions, you can bet your competitors are – or will be very soon.

Another advantage of non dollar-backed currency is that a brand can calculate exactly how much they’re going to spend on a rewards program or campaign before it even begins, regardless of user behavior. In traditional dollar-backed transactions, the cost of rewards rests solely on consumer redemption (i.e. the number of people who redeem the reward drives the amount of swag that needs to be manufactured, stored, and shipped). Non dollar-backed currency allows you to set your budgets outside of you customers redemption cycle, which allows for cutting unnecessary costs out of your budget and for your accounting accrual to remain steady.

Rewards: Dollar-backed  vs. Non Dollar-backed

Dollar-backed rewards have an underlying cost to the brand (i.e. discounts or a free airline flight). Non dollar-backed reward programs may include some rewards that have an underlying cost, but each of those rewards needs to have limited overall inventory, and then also provide rewards that have no underlying cost to the brand that have no inventory restrictions (i.e. sweepstakes, exclusive content access, or trial versions of products). Just like non dollar-backed currency, there is an advantage to being able to offer non dollar-backed rewards.

With traditional dollar-backed rewards, companies tend face high upfront costs without knowing the full mechanics of the program. For example, brands have to account for the cost of storing the dollar-backed rewards in a warehouse, paying for shipping, and setting a logistics process in place to deliver the rewards to the consumers.

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On the consumer side, dollar-backed rewards don’t yield immediate results, and the “instant gratification” factor that drives return visitors to complete incentivized actions gets swept away. This lack of engagement, coupled with internal uncertainty around costs and fulfillment, can be a pain in the you-know-what for your accounting, marketing, and legal teams. With non dollar-backed rewards, you can take back control over your rewards budget and put your team at ease.

However, there is definitely a time and place for dollar-backed rewards that can skyrocket user engagement for a chance to redeem. Let’s go back to the example of frequent flier miles programs. Frequent flier miles are always dollar-backed as they are rewarded only after a transaction has been made, but airline consumers LOVE their frequent flier miles and will complete unprecedented actions to keep and grow their milage. You know that friend you have who takes three or four weekend trips near the end of the year just to keep her gold status on her favorite airline? She’s not alone. In January 2006, the US alone boasted over 120 million customers enrolled in frequent flier miles programs. Airlines have found the golden ticket through dollar-backed rewards.

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Three Types of Rewards

Now that you know the two ways to back rewards, it’s time to decide what type of rewards to offer your consumers. Just like customers, rewards come in all shapes and sizes. Despite the endless possibilities of specific rewards brands can offer their customers, there are three main categories that all rewards fall into. Here we go!

1. Sweepstakes (a BigDoor must-have)

A sweepstakes is an opportunity given to a consumer by a brand to enter for a chance to win a prize. The most common sweepstakes offer experiential rewards, where consumers can collect points by completing incentivized actions in order to enter a chance to win a trip, instant-win giveaway, or product. At BigDoor, we see sweepstakes as a key reward to have in your loyalty campaign arsenal, and encourage our customers to implement them into their loyalty campaign strategy.

Why we love sweepstakes:

Instant gratification. While lotteries and sweepstakes are very different mechanically (and legally), the human psychology of participating in both is very similar. Purchasing a lottery ticket is instantly gratifying for participants, regardless of whether or not they win. Lotto participants create an experience out of purchasing a ticket; they watch the “pot” until it reaches certain levels, eagerly rush to grocery stores or gas stations to purchase their tickets, and even go so far as to strategize their purchases and map out where previous winners bought tickets. Part of the fun of entering is receiving the ticket. This frenzy is fueled by the aspirational opportunity to win an incredible prize (just check out these folks) that speaks directly to the consumer psyche. Harnessing the energy sweepstakes provide to power your customer engagement yields incredible results, with entirely predictable financial costs.

Screen Shot 2013-10-23 at 11.27.54 AM Courtesy of The Guardian.

Calculated reward cost. Sweepstakes are monitored rewards that can be planned down to the cent, which is incredibly cost-effective for your business. As a brand, you will only spend as much as the sweepstake is worth, without any hidden fees or logistics associated with redemption. You can alter the cost for each sweepstakes as you push the campaign live, which means this reward can match the flux of your brand’s cash flow at any given time. Talk about a win-win!

Awesome prizes. When you have total control over the cost, you can craft seriously awesome rewards based on your budget. Sweepstakes are typically only rewarded to one person at a time, so instead of spending $10K on a batch of coffee mugs to ship you, you can spend $10K on sending one lucky winner on their dream trip to interact with your brand in some capacity. Incredible prizes entice users to complete the actions allowing them to enter, which directly affects user engagement and behavior.

Flexible entry timeframes. Whether you’d like your sweepstakes to run for one day or three months, any entry timeframe is possible. Before you set your entry parameters, make sure you consider the goal of your sweepstakes. For example, if you’re giving away a last-minute trip to see the finale of a show, you might want to shorten the timeframe for entry. If your goal is to send users on quests in order to earn points to enter the sweepstakes, you might want to increase the timeframe for entry so that a large amount of users are eligible to win. You should judge the timeframe for your sweepstakes based on the results you’d like to receive from participants.

The downside:

Sweepstakes are only as good as you make them. This goes without saying, but a sweepstakes will only give you what you give it. If you’re a fashion retailer who is planning to send one lucky sweepstakes winner to Maui, you could advertise the trip as “Win a trip to Maui!” and see a mediocre response. On the other hand, you could send your winner on a trip to Maui where they will get the chance to meet with one of your designers and talk fashion, and then enjoy a $500 shopping spree at one of your stores. When it comes to sweepstakes, the devil is in the details. Put in what you want to get back.

2. Digital (a BigDoor must-have)

Digital rewards are any reward that is redeemed online (i.e. social media shout outs, badges, points, coins, etc.). Digital rewards are the newest — and fastest growing — category of rewards as retailers and publishers move further into the digital experience when interacting with their consumers. BigDoor sees the future of rewards living in this category, and considers the option of digital rewards a must-have for all brands to want to dominate their markets over the next few years.

Why we love digital rewards:

Bridge the gap. Digital rewards are one of the best ways to bridge the gap between a brand and a consumer. More than ever before, consumers are reaching out to brands where they expect to get immediate responses: online. Experiential rewards that are delivered digitally, like Twitter shout outs or points for interacting with online content, offer a connection between a brand and consumer that is new, exciting, and increasingly expected from your brand’s loyalist fans.

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Cost-effective. When a brand offers digital rewards, they have total control over how much the campaign will cost the company. Digital campaigns are easy to turn on and off depending on audience response, with few costs associated with pulling the plug early. Digital rewards are also some of the lowest costing rewards available; many times, they’re even free. Outside of paying employees to deliver digital rewards through social media and running loyalty campaigns (don’t have one of those? Check our our product!), digital rewards can be created to fit even the tightest budgets. No other type of reward can ensure such a controlled environment.

Instant delivery. Through digital rewards, brands can respond to consumers and provide rewards instantly. Rather than shipping a product as a reward, or opening a waiting period for people to enter to win a sweepstakes, digital rewards can be awarded as soon as the incentivized action has taken place. This type of reward instantly delights consumers, driving engagement and fostering loyalty through positive interactions with a brand. For example, this year Starbucks used a digital, non dollar-backed rewards campaign to entice buyers to purchase bags of coffee from their local grocery stores. When a consumer purchased a bag and entered the promotional code on the Starbucks website, they were instantly rewarded by collecting Stars, which encouraged them to buy more coffee until they had enough stars to reach their goal and receive a gift card (which was also redeemable digitally). Digital rewards are a perfect way for retailers to award users instantly for purchases.

Endless possibilities. In the digital world, the possibilities of reward are as endless as the interwebs itself 🙂 Leveraging existing platforms, experimenting with online communities, and even directly asking your consumers what they want as a reward make these rewards incredibly relevant for any brand. The sky is the limit, and we’re just getting started with harnessing the potential of digital rewards.

The downside:

Not everything can be delivered digitally. Even today, there are still some rewards that are better delivered in person. Until we find a way to pixelize limited-edition, branded swag, we’ll have to stick with snail mail every now and again. Better start investing in Wonka Vision.

Large online communities yield the best results. Digital rewards typically do best when they’re presented to large online communities, which means the more you put into building and growing your digital presence, the more digital rewards will help build loyalty. If your consumers and fans aren’t online, digital rewards probably won’t be right for your business. Targeting your consumers where they already are is still the best approach to rewards.

3. Tangible

Tangible rewards are the physical products given to consumers when they complete incentivized tasks (i.e. completing on-site quests, redeeming a set number of coins, etc.). Here at BigDoor, we believe that the future of rewards lives most heavily in the first two categories (sweepstakes and digital), but tangible rewards still leave a strong mark on the rewards categories landscape. They’re here to stay for the time being, and should be considered whenever a brand puts rewards together for their loyalty program.

Why we love tangible rewards:

Novel, rare merchandise. Tangible rewards are the quickest way to deliver limited-edition merchandise or memorabilia. Novel merchandise can still be considered experiential because the customer is offered the opportunity to have a fantastic experience with the reward; receiving a special piece of merchandise can be a fantastic experience depending on delivery, packaging, and branding. For example, a baseball hat signed by a baseball player is a great piece of unique merchandise to reward consumers with.

Branded rewards. Tangible rewards also offer an opportunity for a brand to engage consumers in a forward-facing way. Building off of the example above, a branded baseball hat signed by a famous player delivers a positive experience, but also ties the consumer directly back to your brand, increasing brand affinity and building loyalty. Just be sure to give some serious thought onto what your brand slaps its logo on before sending it out as a reward. Many a-failed marketing campaigns have occurred when branding goes horribly wrong.

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The downside:

Tangible isn’t sustainable. Fulfillment costs, paying humans to pack things, and figuring out shipping logistics; this process is limiting, and is just not sustainable for many businesses. Rewards programs should include items outside of physical goods as tangible items are not always the best way to boost loyalty. Even though there might be added value to the brand and the program through tangible rewards, the cost to the brand might not be worth it.

Lackluster products. When brands consider giving away tangible rewards, they tend to be on the cheaper side as they are mass-produced. These rewards do not entice consumers as much as an experiential or state-of-the-art reward would. The selection of these rewards could be due to the fact that the brand has to find a quick way to get in front of a large group, but the brainstorming behind tangible rewards tends to be a little dismal. The next time you even consider giving away that free coffee mug, stop yourself before you end up with a warehouse that looks like this:

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And your customers’ homes start looking like this:

Screen Shot 2013-10-23 at 11.44.35 AM Courtesy of The Daily Herald.

Physical products don’t drive loyalty. Time and time again, studies prove that physical rewards don’t have desired effects. Consumers choose experiences with brands, and as we continue to move into the digital world, digital rewards and experiential rewards really drive it home. Tangible items might drive brand affinity for a short amount of time, but when it comes to driving lasting loyalty, consider yourself pushed to the bottom of the pile — much like that $5 t-shirt you sent out last month.

So, What Rewards Should I Offer?

Brands have diverse goals when it comes to selecting rewards to offer through a loyalty program, but one thing is always certain: brands want rewards to delight their consumers.

It’s best to work backwards from your consumer when selecting which type of reward your brand will offer. What entices your audience the most when completing incentivized tasks? Does your community have a large social following that you can leverage when introducing new rewards? Have you polled consumers to see what they’d be most excited to receive? Study your users’ habits, and offer rewards accordingly. If you haven’t spent much time figuring out what specifically drives your users to engage, feel free to reach out to us and we’d be happy to provide you with more of our insights and learnings.

At BigDoor, we see the future of loyalty programs being forever changed by both non dollar-backed rewards that serve to increase brand affinity. However, a truly complete loyalty program allows for flexibility across all available rewards. The best rewards programs provide the brand with predictable and controllable costs, while giving their consumers flexibility in redeeming rewards that serve to increase brand affinity. This is the sweet spot of reciprocal loyalty.


Now that you know the in’s and out’s of selecting the right reward for your program, we’d love to hear from you. What types of rewards does your brand offer? Do you find that one (or two, maybe all three!) category works best? Leave your thoughts in the comments below!

If you’d like to hear more about our thoughts on rewards, stay tuned for a continued series on the blog. If you’re inspired to continue the conversation, drop us a line any time at
team@bigdoor.com
, and one of our loyalty specialists will provide you with all the information you need.

About Ashley Tate

Ashley is the Director of Marketing at BigDoor. A content marketing and startup enthusiast, she blogs about loyalty, customer retention, content strategy, inbound marketing, and her dog, Darwin. Follow Ashley on Twitter @ashtate.