How to Give Points: Psychology and Value
Have a strategy for allotment of points based on purchase volume and type of customers. What should you consider for each dollar you pay as loyalty reward for customers? Consider psychological aspects in allotment of points as well. For example, instead of giving 1 point, give 100 points for each dollar. The number 100 will be more effective on customers who make fewer purchases from you even if their purchase volume isn’t significant.
Of course, the value and purchasing power of that 100 points is equal to that of 1 point, and it’s just fooling around with numbers and zeros. Giving points to customer based on purchase volume is one of the simplest loyalty programs. The points you consider for customers contain two values: first, purchase value and second, sales value. The purchase value of points is when a customer aims to make a new purchase and intends to use his/her points as well.
For example, you set the purchase value of every 100 points as one dollar, meaning if a customer buys 1000 dollars worth of product from you, he/she will be able to receive a purchase reward equal to 10 dollars by his/her points. In fact, if the customer wants to use that point for purchasing the next product, 100 points won’t be equal to 100 dollars.
The sales value of points is when a customer buys a product from you and you give them certain points in exchange for their purchase. For example, they receive 100 points in exchange for making a 100-dollar purchase, i.e. by selling 100 dollars to them; you have also sold them 100 points. Define purchase value and sales value of points according to calculations and policies of your business.
For example, for your customer to effectively use points earned, you can value each point at one cent (1% purchase value equals to 100 cents). 100 points will be given to customer in exchange for purchasing 100 dollars worth of your products. If a customer wants to use his/her point for purchasing again, each point will be equal to one cent; i.e.
each 100 points have a purchase value equal to 1 dollar. Sales value = value of the point you give to customer in exchange for making a purchase. For example, the value of a 100-dollar purchase from you made by a customer is 100 points. Purchase value = value of point by selling which to you a customer can make a new purchase.