To answer that, we need to go back to the origin of points.

Or stamps or coupons, or whatever the corner store was using to track your purchase. The origin of points is in its proxy for a transaction. It is a great way to keep a mutual log between the store and the customer of how many times or how much money you spent with the store, and then you get to redeem for a reward once you hit a certain frequency or spend milestone. The customer gets excited the more chops or stamps they start seeing on their card, and would most likely try to accelerate spends or footfall towards getting that free coffee or scratch card gift. The store gets to reap the benefits of additional spends and frequency due to the nature of the redemption psychology. However, as loyalty programs become more and more commonplace, points programs have proliferated. It’s a bandwagon, everyone has one. There is really no difference between brands when it comes to their loyalty offering. And thus for the customer, there is not much motivation to choose one brand over its competitor. Without a clear vision and clear goals of what the loyalty program is supposed to achieve for the customer and the brand in short and long term, the point ends up becoming a mere point, an accountable value for liability purposes in a P&L, but without the real meaning it is meant to extend to a customer. Thus the fate of the loyalty program is doomed with the meaninglessness of the currency.

What are the advantages of having a points or currency based program?

In a survey done with Populix* of over 160 customers in Jakarta and it’s surroundings (Jabodetabek) , over 74% belong to 1-3 loyalty programs and around 16 % belong to over 5 programs, so loyalty programs are definitely the norm. The main reason stated in joining a program was to collect points (83%) with the hope of exchanging them for rewards. That said, we need to articulate the advantages of a points based program, to explore a loyalty strategy without it. So five reasons to have a points program:

1. Great for tracking and measuring program liability.
2. In a situation of data privacy, data integration or data sharing concerns, points offer the best proxy for transactional and purchase data.
3. Redemption with points can easily be communicated and understood if the rules of the program are simple.
4. Forecasts of issuance and redemption, as well as ROI forecasts are simpler with points based programs.
5. Easily monetizable and becomes a profitable asset to the company if the program or brand have high equity in the market.

Why would you consider a program without currency?

Five reasons you don’t want to consider a points program:

1. The nature of your business doesn’t support points accrual mechanics – for instance, low footfall or low value purchases.
2. You don’t want to communicate the value exchange explicitly to customers, and want to keep the program below the line.
3. You are a high end brand that wants to position its program in exclusivity and service rather than value, because your customer base is value agnostic where recognition and privileges may work better.
4. The nature of relationships you have with the customer doesn’t allow for a direct currency based program – for instance, a channel or B2B model with multiple parties involved.
5. Or, maybe you just want to be different in a world of currency based programs!

Whatever the reason is, you may choose to design a loyalty strategy without points or you may choose to do more than just issue points with a redemption catalogue.

So when do Points become a liability for the business?

When customers don’t see the value in them or the data generated by tracking the point issuance isn’t being optimized. “Small Rewards’ were stated by 56% surveyed by Populix as the most important reason members were disappointed with their loyalty programs, followed by no special offers (41%) and lack of information (37%). Relevancy of offers drew a neutral score as many members did not know what to expect or how to benefit from the program. So increasing the value of the points or subsidizing them is not the solution, unless you have deep pockets and are willing to incentivize purchase like ride-share apps and e-commerce market places are currently doing to create a differentiator for their services. The rest of the businesses, need to properly design their point generosity and use data to drive insights and generate upsides , which would then enable members to ‘earn more’ by ‘spending more’ and help the businesses maintain margins, protect their bottom line and build long term loyalty.

In Summary, What Works for You Is What’s Best for You!

Currency is a strong candidate to run a loyalty program, but it’s most certainly not the only loyalty mechanic. With the rise of digital, it is easy to collect data on customers and create curated engagement mechanics without currency. What is more important than the mechanics is the vision. Do you know what you want out of your program? Do you know who you are designing it for? Now that’s the real question, not whether you should have Points or Cashback or Coupons…

Shalini Gopalan pioneered Indonesia’s first full-fledged Loyalty Marketing and CRM company which was acquired by AIMIA. She now helps companies build better and more profitable relationships with their customers as an independent consultant

Populix is a go-to consumer insights platform that provides the most comprehensive and reliable research and data with quick turn-around time. Populix believes the quality of respondents matters most and so its core offering is to connect businesses with readily accessible and highly qualified respondents of more than 130,000 in Indonesia. For more information visit www.populix.co