Those of us who redeem our loyalty points on gift portals will have inevitably come across a gift or two that was appealing to us but was beyond our reward points balance.
On some gift portals, it’s possible to pick up the goodies by simply paying up the difference with cash e.g. Lufthansa WorldShop, IHG, HDFC Bank.
Whereas on others, it’s not.
The same difference exists with levels that give special benefits to members at higher levels in a loyalty program.
Take Flipkart First for example. Among other benefits, members of the program gain earlier access to special sales. You can buy Flipkart First for INR 500 (US$ 8.35).
On the other hand, you can’t buy the Gilt Noir level on the leading flash ecommerce site Gilt. Gilt confers this level only to customers who have spent at least US$ 10,000 on the site.
Ditto ICICI Fast Forward card, which lets holders advance to the head of the queue when they visit branches of India’s largest private sector bank. I’ve had this card for over a decade – the frayed edges bear testimony to its age – and I never paid anything for it.
This brings us to the question of whether brands should let members buy gifts and levels – collectively “gifts” – or earn them by exhibiting a certain amount of loyalty to the brand.
Let’s look at the pros and cons of each option.
Buy Gifts
+: Delivers instant gratification, even if members have to pay more than reward points to “get something now”
-: Dilutes the brand image e.g. why is an airline selling headphones, as in the case of Lufthansa WorldShop offering Bose headphones for 87,000 miles or EUR 299?
Earn Gifts
+: Aligns perfectly with the basic objective of a “loyalty program”, namely, to drive loyalty
-: Denies instant gratification
+ / -: Tacitly prods the member to buy more product, so that they will be able to earn the extra reward points required to pick up the gift that caught their fancy. Typical Earn Ratio in the industry is 100:1 (Spend INR 100 to earn 1 reward point) and Burn Ratio is 4:1 (Redeem 4 reward points to get a gift worth INR 1). This means consumers will need to make INR 400 in additional purchases to earn one rupee worth of additional reward point. This is a 400:1 sales kicker for brands. This is obviously a big plus for the brand / retailer. But I’m in two minds about whether it’s a positive or negative from the member’s perspective, and would welcome any comments from readers.
In the overall analysis, I suppose there’s no right or wrong answer to the question that forms the title of this post. Brands need to weigh the benefit of providing instant gratification on the one hand with the potential loss of additional sales on the other while deciding whether to let members buy gifts outright or earn them solely by exhibiting greater loyalty.