Editor’s Note: If you missed the news, Repeat is merging with Stamped. Stamped CEO Mike Berardo is guest posting this newsletter.
The most underrated lever in a loyalty program is the reward offer.
Structure it correctly, and you can get your loyalty program customers to spend more when redeeming. Structure it poorly, and you can be giving away margin without getting anything in return.
Take, for example, our analysis of reward types.
We recently aggregated data from across our customer base to understand what average order value and basket size looked like for returning customer purchases where points were redeemed and compared those metrics to returning customer purchases where points weren’t redeemed.
Within that analysis, we further segmented loyalty redemption orders by reward type, to understand whether one type of reward offer had a more meaningful impact than others.
This type of analysis can be helpful for understanding whether your program is having the desired impact of increasing spend (AOV) and/or possibly improving cross-sell (units per transaction).
As you can see from the chart above, when customers redeem a dollar-based credit or discount, AOV is 9% lower than other returning customer purchases and basket size is 12.2% higher. Since most dollar-based rewards programs are worth roughly 10% of previous dollars spent, brands using this reward mechanism can end up giving away margin. And that’s before discount stacking comes into play.
The solution?
In our dataset, percentage-based discounts drove meaningful behavior change, displaying a 47% lift in AOV and a 38% lift in basket size.
While the AOV improvement is exciting from a contribution dollars perspective, the more interesting piece here is the significant change to basket size. What we haven’t investigated yet is how much of that change is customers stocking up on products that are part of a routine (i.e., pulling sales forward) and how much of that change is customers trying new products (a potential breakthrough for brands when it comes to LTV).
Here’s an example of how this can look in practice:
CONQUERing, a customer of ours, uses a simple, spend-based reward profile, in which they provide 10% and 20% discount offers for redemption levels. When factoring in welcome points and a few other earnings incentives, a customer needs to spend roughly $100 with CONQUERing to unlock a 10% discount and roughly $300 to unlock a 20% discount.
That 20% discount, it should be noted, is twice the brand’s welcome offer of 10% off your first purchase. Contextually, it’s a very good deal for a valuable customer.
Interestingly, almost no customers opt for the 10% discount: Of CONQUERing’s orders with loyalty point redemption, 80% use the 20% discount.
And, in those orders where customers redeem a 20% loyalty program discount, they buy nearly twice as much as new or non-redeeming returning customers. AOV (including discounts) is 50% higher than new orders and basket size is 93% larger.
Is CONQUERing trading some margin for this? Yes, of course. But only from a percentage basis.
Keep in mind: Raw value contribution dollars would be significantly higher (somewhere between 25-50%, depending on contribution margin), because the AOV lift is so drastic.
For brands looking to optimize for profit, then, one of the quickest places to look within your marketing stack is how your loyalty program’s reward offer is impacting customer behavior.
If you have any questions about how we looked at this, give me a shout. We can walk you through it.