Discount one or bonus one: loyalty programmes comparison

Did you know that few years ago the business started moving towards bonus loyalty programmes instead of the discount ones? This trend was supported by brands in Russia and abroad. But new economic reality has changed customer behavior and preferences. Business's attention was again directed towards short-term tools — discount loyalty programmes.
Should we go back to flat discounts? Or should we go on investing in long-term relations with customer? In this article we propose bonus and discount loyalty programmes comparison.

What is bonus loyalty programme?

In bonus or accumulative loyalty programme the points are given to the client depending on purchase cost. On repeat purchase the points can be used as discount or recalculate into payment currency. For instance: 100 points can be 10% discount or 100/50 rubles in the bill. Sometimes points are not given for purchase on sale. Shop sets the promotion techniques to make the points rateably with bill. Bonus loyalty programme has become effective tool of repeat sales and customer loyalty increase, as buyers are stimulated to pay off by bonuses.

For how long do point stay on card?

More often then rules say that the points have the expiration date after six months, one year, few years. It is the extra stimuli to purchase again and not lose the gain.

Does the loyalty programme provide the promotion, statuses for customer?

More often it does not. But you can update status depending on the common cost of client purchase. In this case the status of loyalty programme member is nominal and does not allow getting more bonuses from the purchase. Formal statuses in bonus loyalty programme make person feel sympathy from brand and increase one's self-esteem: from silver card to platinum one. Besides, as the status grows, clients get extra privileges and gifts, still it does not affect the type of calculation and bonus issue.

Bonus loyalty programme advantages: strong stimulation to buy again

  • flexible setting of point assession and write-off scripts. Shop can correct the mechanics depending on demand
  • no loss, as it would be with discounts
  • there is the cause for communication with client without purchase: messages about points assession, their coming write-off, point as the gifts on birthday etc.

Bonus loyalty programme disadvantages:

  • development of few stimulation scripts: for what and how client gets bonuses, how they can be spent, whether bonus can be passed to a friend etc.
  • development, purchase or rent of the system for bonus loyalty programme launch with user personal account
  • operative correction of technical mistakes during bonuses assession or write-off
  • protection from robbery

What is discount loyalty programme?

Fixed discount for each member of loyalty programme. Discount programme provides the discount here and now without point accumulation. It is crucial psychological aspect — people do not like to wait for the gain or reward. But discount loyalty programme does not stimulate to buy again. Today the customer has discount and buys. In case of no discount for the wanted item, customer goes to shop-competitor, as one has no such connection as points on the card.

Is the discount given forever?

Discount is not written off, it can belong to customer for few years without repeat purchase. Shop can block the card not used for 3-4-5 years. The reason is to maintain the actual client base and card service expenses.

Are members of loyalty programme segmented by statuses?

Yes, discount loyalty programme implies discount stairs for customers. Each buyer has personal account with purchase cost balance. More spent, more discount. For example, 5% discount for new clients on loyalty programme entrance. 10% discount is given for purchase cost more than 20 000 rubles etc. Usually the shop starts clear system with various cards statuses: bronze, silver, golden, platinum. One can find more creative names but the principle is the same — more the person spends, bigger is the discount.

Discount loyalty programme advantages

  • simple mechanics, logic of work
  • affordable service, one can skip the platform with buyer personal account
  • effective for new buyers attraction

Discount loyalty programme disadvantages

  • very few causes to communicate with client, as the discount is fixed, no need to accumulate anything (or monitor the accumulated features), the value of discount is usually shown at plastic card
  • it is difficult to make the repeat purchase interesting for customer
  • it is difficult to stand out of the line of competitors, customers are used to discounts
  • discount is the loss for business

Which loyalty programme helps to attract the client faster and hold the regular buyer?

Despite the same naming as "loyalty programme", discount and bonus have different aims.

Discount loyalty programme helps increasing the average bill and amount of goods sold. Speed of goods exchange grows, retailer sells more for the short period of time.

The purpose of bonus loyalty programme is to build long-term relations with client, increase the frequency of repeat purchase. It is kind of investment for the future.

Client attraction and holding with discount loyalty programme

Discount loyalty programme is more attractive for new client:

  • simple conditions of participation
  • one scenario of discount in action: buy and get your fixed discount
  • opportunity to get the discount here and now, no need to accumulate bonuses. It is very important psychological aspect

Discount programme helps with fast client base increase. Flow of new customers can be impressive. But the discount does not help with client holding and customer loyalty increase. Whether person will buy again or not, depends on price and value of discount. But discount means loss. More than that, shops with constant discounts that are bigger than the competitors' one, are suspicious. Many buyers have stereotype "cheap means worse product". Devices with huge discount? Something is wrong with it, it is going to break soon. Grocery with discount? Something is wrong with expiration date.

Another discount programme disadvantage — programme is limited. As client reaches the platinum status, got 15% discount, it is it, no further development and interest. More clients with big discount, less is the margin. Discount programme lacks flexibility. One cannot influence the customer behavior with it however many kinds of reward you set depending on purchase place, cost, product.

Resume: in medium-term prospective, leave alone long-term, discount loyalty programme can become the burden for business. It does not form strong loyal relations with audience, its tools are not variable. Flat discount will reach its maximum one day, after that the client would lose interest to shop, and business would face the margin problem.

Client attraction and holding with bonus loyalty programme

Bonus or accumulative programme demands detailed development, constant monitoring and bonus script correction, competent analytics. Meaning, business invests more efforts, time, money to bonus loyalty programme. But it is the accumulative programme that forms customer loyalty and stimulates to buy again even if the offers from competitors are interesting.

Bonus programme offers something more than just discount:

  • get the deferred benefit and plan prospective purchase
  • get the reward for various activities: repost in social net, participation in interview, purchase of special promotion goods
  • pay big share of price with bonuses. In some shops one can pay up to 30-40% of cost. This is impossible with discount programme, as providing 30% discount all the time is not profitable
  • get personal stimuli, extra bonuses due to special event: birthday, public holiday, feedback with goods photos etc. It is not expensive for business to issue bonuses. These 100 bonuses (100 rubles in bill) will bring person back to the shop and customer will make repeat purchase few times more expensive

Bonus programme creates many causes to connect with client. Among these are: to remind about bonus expiration, message about new promotion, personal discounts in private club for the chosen ones. One can create more and more scripts.

To make bonus programme more effective for business and management, more interesting for clients, you should segment the audience — the members of loyalty programme. For example, by purchase frequency and cost, by status in loyalty programme, by age, gender, family situation. Advertising dispatch, targeting, recommendations on web-site etc. are set for certain target audience segments. More personal and precise are the offers, better business knows clients and offers interesting promos, and more is interaction with points. More point, more spent, more repeat purchase, and business becomes closer to buyers.

Points are the link of mutual benefit between business and client. Points and prospective benefit help to hold the client and form customer loyalty with extra rewards during communication process.

Resume: bonus loyalty programme is more heavy business-tool that demands investment on launch, support, correction, monitoring. But very bonus programme helps business to increase the audience loyalty, form long-term (even few decades!) strong relations with clients and increase the rate of repeat purchase. Shops with bonus programme and large loyal audience save money on promotion, because it is cheaper to hold one customer than to find new one. Keep in mind that bonus programme does not show impressive result with fast client base growth and quick goods' distribution as the discount programme.

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