In “Comparing the effectiveness of rewards and individually targeted coupons in loyalty programs two German researchers at Humboldt University of Berlin’s School of Business and Economics compare shopper behaviour between coupons and loyalty points. The researchers discovered that whilst loyalty points are definitely appreciated, coupons offer more benefits to shoppers and the retailers that redeem them.
They analysed a leading German grocery chain’s loyalty programme for a year and found that whilst shoppers did enjoy the immediate benefits of redeeming their loyalty points in exchange for free products as opposed to receiving a marginal discount when redeeming a coupon, ultimately coupons were more profitable once all the small discounts were added up. Shoppers were found to use targeted coupons on 18.5% of their shopping trips compared with redeeming loyalty points on just 2.5% of their shopping trips. The study found that “Point redemptions have a stronger effect but are less frequent resulting in a larger absolute impact of coupons on sales”.
Carefully targeted and relevant coupons were found to increase the trip frequency for shoppers leading to higher incremental revenues and lower costs for the retailers, and a bigger impact on sales for brands. When it comes to loyalty points the researchers believed that whilst they may be less profitable than targeted coupons, they still led to increased shopping trip frequency and basket spend.
“In their efforts to encourage customers to engage frequently with loyalty programmes, retailers should turn to individually targeted coupons, more so than loyalty programme point redemptions.”
Ultimately the researchers concluded that “loyalty programme point redemptions and individually targeted coupons are complementary” and that to offset the lost profit from redeeming loyalty points on products, retailers, and brands should offer more targeted coupon incentives to encourage more shopping.