Designing the Right Rewards Program for High-Tech Companies
POSTED : July 15, 2014
BY : Clay Walton-House

Tech customer engagement & objectives

The high-tech industry is fast-paced and highly competitive. Technologies constantly evolve, ushering in new entrants, and an ever-changing landscape that makes it difficult to stay ahead. Challenges aside, high-tech industry leaders who can maintain their position are rewarded with attractive returns and growth prospects.

High-tech companies jostling for a position should remember that ultimately, consumers purchase technology to ameliorate and enrich daily tasks and activities. To succeed and capture mind- and wallet-share, loyalty marketers can leverage rewards programs to drive improved experience with highly interactive products and services. This post will discuss rewards program considerations, distinguishing between two distinct types of technology companies: device companies and services companies.

Device companies

Device companies manufacture a wide range of products including TVs, PCs, tablets, phones. Most of these products are higher cost, lower frequency purchases, requiring deliberation and significant monetary investment. Consumers use devices like phones and PCs extensively in professional and private activities, and the devices, therefore, become highly personal manifestations of self-identity; consumer purchases are influenced by brand associations and the way the brand reflects on the user. Customer experience and product features have a significant impact on daily life, occupying mind-share and creating positive or negative attitudinal reactions. Device companies should think about rewards programs in terms of the following objectives:

  1. Increasing attitudinal loyalty and building a broader brand relationship
  2. Promoting cross-selling of services, peripherals or companion devices

Services companies

Services companies offer search, data storage, software and other services integral to consumers’ lives. Services tend to be lower cost (or even free), but with broad engagement or usage after purchase. As a general rule, customers extend less emotional investment per service, making decisions based on utility rather than aspiration (exceptions include social services like Facebook, Instagram, etc.). Customers tend to be price-sensitive, and willing to substitute one brand for another (ex. Using Microsoft OneDrive as a substitute for Dropbox, or Google search as a substitute for Yahoo search). Services companies require an emphasis on customer retention and often depend on user subscription renewals. Rewards programs for services companies should solve for customer retention in the following ways:

  1. Creating barriers to exit
  2. Increasing usage and engagement

Retention levers

Three primary retention levers are available to loyalty marketers: (1) Perceived Value, (2) Affinity, and (3) Barriers to Exit.  Each of these levers presents varying levels of utility for influencing customer behavior based on the specific business and customer base to which they are applied. Rewards programs manipulate these levers to positively influence customer behavior.

Designing the Right Rewards Program for High-Tech Companies

For the high-tech industry, all of these levers offer some level of utility, but certain levers are better suited to solve for the business objectives of devices and services companies.

For device companies, Affinity is the most important lever, contributing to positive attitudinal loyalty, and an emotional attachment to brand. Customers use devices frequently and rely on them both at home and at work. As previously noted, devices represent high price point purchases, and deeply personal extensions of self. Few devices companies fully leverage rewards programs, but a few have caught on to the way rewards can contribute to customer experience, and emotional brand attachment. For instance, Samsung Galaxy owners receive exclusive owner rewards like VIP access to entertainment venues, concert ticket offers, and merchandise. Samsung is cleverly linking its brand to “fun,” “cutting edge” experiential-based associations that its target consumers care about. In the process, Samsung is likely increasing Affinity, customer retention, cross-selling, and brand advocacy.

For services companies, the Barriers to Exit lever offers significant utility, and contributes to industry objectives to increase retention and drive usage. Creating deep brand Affinity can be difficult for services companies, as customers extend low emotional investment per use, and are willing to substitute other products and services. Rewards programs can, however, succeed at creating subtle Barriers to Exit over time, reducing the likelihood of switching. For example, customers who store and share a high volume of documents with Dropbox over time may be less likely to switch to another cloud storage service because of the time required to transfer files to new locations, or organize co-authors to switch platforms. This effect creates a Barrier to Exit, increasing retention, and even driving new users to the platform as they collaborate and co-author with existing users.

Rewards earn models

Earn Models determine how customers earn value in the form of benefits, rewards, or currency—points, dollars, etc. The dynamics of how customers earn value will not only significantly impact their experience with the program, but implicitly help or hinder a marketer’s control over various retention levers. In addition to impact on customer experience, Earn Models are also the primary driver of program costs. Understanding the different types of Earn Models, and the associated tradeoffs, is imperative for the creation of successful programs that mitigate the risks of low customer engagement and costly operations.

The four primary Earn Models are:

  1. Membership
  2. Threshold
  3. Interval
  4. Stored Value

Few high-tech companies have launched robust rewards programs, perhaps due in part to precedence; historically, rewards programs thrived in highly transactional industry environments like banking or retail, where increasing frequency of purchase is a primary business objective. However, progressive loyalty marketers now think about rewards in a more mature, broad context, including the potential for rewards to influence brand affinity, cross-selling, and customer experience. Choosing the right Earn Model is essential for progressive devices and services companies attempting to use rewards programs to further these objectives.

The Membership Earn Model aligns well with device companies’ business objectives to increase attitudinal loyalty and promote cross-selling. Rather than accruing benefits through repeated transactions, the Membership Earn Model attributes full stated benefits upon initial purchase. This binary “either you’re in or you’re out” model makes sense for device companies because customers typically make one-time or infrequent purchases. Rather than driving toward repeat purchase – a common rewards program objective, but unrealistic in this scenario – the Membership Earn Model enhances overall customer experience, influencing brand affinity and attitudinal loyalty in the long run. For example, returning to the Samsung example, every customer who purchases a Galaxy is instantly granted member benefits like VIP seating at concerts. Throughout the duration of product ownership, the customer experiences special treatment, building his or her likelihood to evangelize the brand or think favorably of Samsung in future purchasing scenarios. Another benefit of the Membership Earn Model is that it tends to be simple to manage and less resource intensive than other models, making it easier for loyalty marketers to maintain ROI positive programs. The model also provides a valuable mechanism for capturing customer data, enabling the highly personalized product experience that customers desire.

For services companies, the Threshold Earn Model is best aligned to business objectives to build barriers to exit and increase usage and engagement. The Threshold Earn Model attributes benefits when program members reach pre-set targets for a given behavior. Many services companies offer highly replaceable services, and the benefit of the Threshold Earn Model is that it creates barriers to exit by providing a reason for customers to continue using and/or engaging with the brand rather than switching to a substitute product or service. For example, Bing Rewards offers points to customers for each search conducted in the Bing search engine. Points are redeemable for prizes at various levels. Members of the Bing Rewards program may be indifferent between using Google, Yahoo or Bing, but are more likely to continue using Bing based on the added incentive of accumulating points. The Threshold Earn Model also allows companies to match rewards value to the value of the customer transaction. For instance, Microsoft accrues a relatively low value from each incremental search conducted, but it can match that with relatively low value rewards. Microsoft could enhance the model by integrating across products and services to offer relatively high-value rewards to its most valuable customers who engage across the full Microsoft product ecosystem.

Key program design considerations

Loyalty marketers in the high-tech industry should consider the following market and customer dynamics to optimize rewards program design:

  1. Digital experience and omnichannel execution must be flawless. High-tech customers are savvy technology users. They delight in mobility and personalized content, and engage with brands across multiple platforms. Rewards programs in the high-tech industry should be optimized for mobile, and consistent across form factors and browsers, in order to positively reflect on the brand. A poor rewards program user interface could significantly harm brand associations, and cause more damage than it’s worth.
  2. Know your technographics so you design a program that fits within customers’ digital life. In order to offer a flawless digital experience, high-tech companies must do their homework to understand how and when customers engage with their brand. For instance, device companies should know what apps and services customers use and optimize the experience on their devices. Services companies should know what kind of devices customers use or prefer, in order to build on those platforms, and fit services to likely use cases.
  3. Usage is king. For most technology companies, the key to success is keeping users engaged and helping them extract the full intended value of the product and service ecosystem. Loyalty marketers should use rewards as a mechanism for driving usage and should reward this engagement by attaching personalized experiences that take the customer beyond the standard use case and build long-term attitudinal loyalty.

At the end of the day, technology is an enabler, helping customers reach aspirational goals in their personal and professional lives. Rewards programs should support that aspirational drive, by enhancing experiences to build loyalty, and engaging customers to increase retention.


About the Author

Clay Walton-House serves as Managing Director of Integrated Loyalty Services at PK. He helps Fortune 500 companies create and implement new customer engagement strategies that accelerate growth and build loyalty. His expertise lies in understanding consumer behavior and translating it into actionable customer insights. Clay has a proven track record of successful program design and optimization, helping uncover ways to build retention and loyalty strategies into a company’s broader business model.

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