10 April 2011: Rewards programmes are a dime-a-dozen these days, and it would seem that there's no shortage of new programmes entering the South African market – especially in the consumer and retail spaces.

Jolande Duvenage, CEO of FNB's rewards programme, eBucks, says: "The increase in programmes, and greater commitment from companies has really matured the market and created some healthy competition.

"What this means for the industry, and for eBucks, is that the challenge to drive differentiation and value for customers and the various stakeholders in these loyalty programmes is more important than ever before."

Consumer trends, she says, also indicate a strong uptake in loyalty programmes within the local market; with the most effective of these designed for tangible benefit, versatility, as well as convenience.

"However, the multifaceted nature of rewards programmes often leads to frustration amongst consumers regarding the true value that programmes offer, and – ultimately – the ability to understand how and when to benefit from these rewards."

Know your rewards programme

The first step in understanding a rewards programme is to understand how the reward mechanism works.
Programmes generally use one of three mechanisms to reward members, with each reward type offering its own set of benefits:

1. Discounts and cash backs:
   Discounts offer an immediate monetary reward to members, but are generally limited to transactions at specific partner stores. On the other hand, cash back programmes generally ‘give' consumers cash back in the form of a credit against an outstanding balance.
   
   
2. Rewards currency  programmes:
   In rewards currency programmes, such as FNB's eBucks, the currency received is not a reward in itself, rather a means to a reward. Rewards currency programmes offer versatility and allow members to choose their own reward. This choice includes being able to select, through eBucks' various spend channels,  when and where they would like to reward themselves and on what they would like to spend their currency.
   In a rewards currency programme it is important to evaluate how many earning opportunities you have as this will impact on how quickly a member can obtain value from the programme. As a multi-partner programme, eBucks is able to offer its members a variety of partners from which they can earn eBucks. 
   
   
3. Soft benefit rewards:
   In this case, consumers do not receive money back or accrue any rewards currency, but receive soft benefits such as additional services and privileges, for example, lounge access at airports.

The latest in the loyalty industry is to offer a combination of rewards currency, discounts and cash back in a ‘hybrid' programme.  This allows consumers to use their rewards currency as a way to extend their purchasing power.

"For instance," Duvenage explains, "FNB's eBucks allows its members to take advantage of significant discounts on all of the most popular items in the eBucks shop such as movie tickets, Kulula flights, Emirates  flights  and Woolworths vouchers; using either their eBucks or swiping their FNB cards as a method of  payment.

In addition, the eBucks currency can be used for payment in diverse categories; from filling up at fuel at Engen to buying an iPod. This gives eBucks members the freedom to enjoy their rewards – the way they want to.

"The different mechanisms are then packaged into a rewards programme offering, either in the form of a ‘club', where you pay a membership fee, or as part of a free rewards programme."

Whether a member prefers several frequent, smaller rewards or the ability to save or pool their rewards currency for a luxury item, the success of a rewards programme to a large extent depends on how relevant the reward is to individual consumers. 

Just as individuals exhibit different spending and saving habits, so too do they present diverse rewards currency earning and redeeming behaviours, based on different expectations of a rewards programme.

What's it worth?

While discounts are easily translated into a monetary value, rewards currency programmes in South Africa show varying levels of transparency in how much a reward unit is worth.

This is problematic as unless the value of the rewards currency is defined it is difficult to compare like-for-like, thereby creating confusion amongst consumers.

Duvenage says that it is important to know how much the rewards currency can buy because a lack of transparency in the industry means that few rewards programmes are able to quantify how much they have given back to consumers.

Being able to measure and attach a clear value to a reward makes it more relevant and tangible to consumers. For example FNB's eBucks, which is pegged to the rand, has a clear value that is transparent to members in that eB10 is worth R1.

Another factor to consider is whether or not the rewards currency expires. Many programmes practice the so-called point-breakage, with rewards expiring if they are not redeemed within a specified period of time. This leaves the consumer unable to accrue their rewards currency for something bigger and in the case where the rewards on offer are ‘expensive', most consumers never earn enough to take advantage of the reward. eBucks never expire and can be transferred or ‘pooled' between members at no cost, allowing members to save up their eBucks for big ticket items.  

Earning and spending rewards

While some programmes might offer the promise of amazing rewards, the consumers' actual ability to earn the rewards may be very limited due to a number of factors. In evaluating a rewards programme it is important to look into the actual earn rate (how many rands a consumer needs to spend to earn each reward unit and how much the reward unit is worth in terms of its buying power). Other important considerations are the number of earn opportunities available, as well as the extent to which consumers have to engage in new behaviours to earn the rewards.

Multi-partner programmes like eBucks offer members the benefit of accelerated earnings because they can earn from more than one partner at a time, significantly boosting their earning potential.

For example if you use your FNB cheque or credit card to purchase from a retail partner, you would earn eBucks from both FNB and the retail partner.

For a consumer to truly benefit from a rewards programme, it is crucial that they are rewarded for doing the things they do everyday such as banking, shopping, and using their cell phones.

This is why programmes like eBucks work tirelessly to ensure that they offer so much more to their clients, not only rewarding them, but also extending their wallets when times get tough.

It is important to evaluate the number of different opportunities available to consumers to spend their rewards currency.

Some programmes only allow customers to spend in the same environment in which the reward units were earned. Other programmes allow customers to spend in a variety of places. 

Reducing the inconvenience of having to be at a specific place, at specific time and fulfil many (sometimes ridiculous) requirements to earn a reward should be paramount for rewards programme operators.

eBucks, for instance, allows members to spend their eBucks across a variety of channels, including: the eBucks shop; retail presences including Cape Union Mart, Look & Listen, Incredible Connection, The ProShop and Makro; through eBucks travel; with eBucks' online partners such as Kalahari.net and NetFlorist; through mobile phones on airtime; or even at Engen forecourts where you can fill up with eBucks.

The monetary value of a reward only represents one aspect of the full value proposition. The versatility in spending power, in other words, what you can spend your rewards currency on, is also crucial. Without this a member may be limited to only spending in one place.

For example, FNB customers who are eBucks members do not have to earn and spend eBucks in the same place. Rather, the eBucks business model is based on partner companies such as FNB allocating eBucks to their customers to reward them for their loyalty. These customers then have an almost limitless choice of products and services to ‘spend' their eBucks on.

Do people actually use it?

High member activity is the holy grail of rewards programmes and is a key measurement of success for a programme.  Very few rewards programmes, however, actually make their member activity levels known to the public.

There is a vast number of people who belong (and even pay to belong) to rewards programmes and never use the benefits of the programmes.

For members to be enjoying the rewards on offer they are required to earn the rewards currency and redeem it, once earned. The value of a rewards currency-based programme is that members actually spend their rewards, which is an indication of how satisfied they are with the rewards on offer.

This ratio is commonly referred to in the industry as a programme's spend-to-earn ratio; and is largely influenced by how easy is it to earn the rewards and the choices and channels available to spend the rewards on.

A healthy rewards programme has a 70% spend-to-earn ratio.  FNB's eBucks is consistently well over 80%.

 "Consumers are becoming very savvy about their rewards programmes – about which ones add the most value and which one aren't worth the paper that their terms and conditions are written on," Duvenage says.

"As a rewards programme that has been around for 10 years, it is vital that eBucks continues to bring more choice and rewards to its members. The programmes that stay attuned and responsive to its members, giving them tangible rewards, will be the ones left standing," she concludes.

About eBucks:

eBucks, the rewards programme offered by First National Bank (FNB) and RMB Private Bank, is acknowledged as one of South Africa's leading rewards programmes with highly active members spending in excess of 80% of the eBucks earned in any given month.