We look at the limitations of monetary incentives, the appeal of experiential rewards, and how to start building an emotional connection with your customers.
The secret is out: customer loyalty programs work. 79% of customers say that loyalty programs make them more likely to continue doing business with brands. Almost every B2C business has a customer loyalty strategy to capture and hold customer attention. But, “If everyone's super, no one is.” The market is oversaturated with loyalty strategies involving traditional rewards like points and discounts. Customer wants loyalty programs tailored to their personalized needs and interests. Your points-based loyalty program may be well-crafted but still not enough to stand out from the competition.
But here is the real secret: non-financial and experiential rewards. Loyalty programs with non-financial rewards provide memorable experiences that build long-term relationships and emotional connections with your customers. Customers enrolled in a loyalty program spend 27% more when the brand establishes a positive emotional connection.
That’s not to say that traditional rewards programs don’t work. Customers do like value! We certainly aren’t suggesting that your loyalty program can’t involve some sort of financial incentive for participation. Rather, your goal should be to build a more creative program that has more nuance and personalization.
Limitations of financial rewards
A financial rewards loyalty program, such as a points-based system, is generally the same for every business. It involves earning discounts/free products and services through qualified purchases. There are other financial loyalty program types besides points, but points-based programs are popular because they:
- Provide immediate, tangible value
- Are easy to implement
- Avoid blanket discounts on products/services
Financial rewards aren’t particularly unique or exciting. Points-based loyalty assumes that one size fits all in terms of products and can, if not planned properly, eventually be very expensive to the business. The value of points is also difficult to quantify for an outsider to a rewards program and may dissuade participation.
Above all else, financial rewards are purely transactional in nature. We can’t emphasize enough the value of establishing a meaningful emotional connection with your customers. This means offering them long-term, continual incentives for participating in your rewards programs. Financial rewards emphasize short-term gains like the occasional discount or free item.
But what is the alternative?
The appeal of non-financial rewards
A non-financial or experiential reward is designed to enhance the customer experience through interactive rewards tailored to their specific interests. These rewards may be exclusive or early access to products/events, membership into an exclusive community, VIP treatment, or extra perks for an existing experience. These types of rewards are desired by customers: 46.4% of customers want loyalty programs to offer early access to sales and 31.8% are interested in new products.
If you’re wondering how rewards could possibly be customized for individual customers, experiential rewards commonly use customer data (remember that 87% of Americans are comfortable with having details of their activity tracked in exchange for a more personalized experience) to give them a diverse offering relevant to their interests. Younger audiences, in particular, are searching for exclusive experiences that build emotional connections over transactions.
So why do non-financial and experiential rewards provide an emotional connection?
Financial rewards focus on triggering a cognitive response that’s directly related to a product or service you offer. For example, if you allow someone to spend 400 points for a free coffee, every time they get points the only thing they will think is: “I’m only X amount of points away from a free coffee!” This doesn’t build any emotional attachment between your customer and your loyalty program and their participation in the program will only last as long as they see value in the end product.
Non-financial and experiential rewards seek to set your brand apart by triggering an emotional response in your customers when they receive a reward. A VIP event ticket, for example, carries much more weight in a customer’s mind than $500 does (even if these two things are equivalent in monetary value). These rewards are particularly impactful when they are tailored to that person’s interests. By triggering this emotional response, your brand creates a long-lasting impression in that customer's mind.
Boss Experience: Fashion brand Hugo Boss recently uplifted their loyalty program to be more experiential in nature. The Boss experience provides free alterations for apparel, a personalized shopping experience with a stylist, and free access to Hugo Boss events for a few lucky members. These experiential benefits are on top of other benefits like members’ only products, early access to collections, and invitations to brand events. Hugo Boss’ worldwide revenue was at an all-time high in 2022.
Nike Membership: Nike is a brand that needs no introduction. In 2017 their loyalty program had over 100 million members who had access to rewards, Nike messages, and members-only collections. Today, their membership includes member-exclusive styles, customizable shoes, invites to events, workshops, workouts, and more. Nike’s membership includes access to a community of like-minded members enthusiastic about fashion and working out.
Implementing experiential rewards
Crafting an effective non-financial experiential rewards program cannot be done without understanding your audience. With the examples that we’ve provided, these brands know their customers' interests and lifestyles intimately. They crafted their rewards specifically to build emotional connections and increase customer investment in their products. In order to make your brand’s experiential non-financial rewards program effective, you need to think about the following:
- How engaged with your brand are your customers currently?
- Who is your audience? What are their values and interests? And is your brand visible to them?
- Why are your customers purchasing from your brand? How can you engage these preferences and desires?
Empathizing with your customers is only the first step; a seamless experience is required between them and you. This means having an app that’s easy to navigate and access, excellent customer service, and a way to collect and understand data about your customers.
This last point is perhaps the most difficult, with large amounts of data collection and analysis being unwieldy and difficult to do independently. Web3 is a powerful tool that can organize data about customers and distribute rewards to them based on their preferences. Web3 also is excellent for building communities and automating reward redemption.