WO2003019446A1

WO2003019446A1 - Methods of conducting customer loyalty programs

Info

Publication number: WO2003019446A1
Application number: PCT/SG2002/000193
Authority: WO
Inventors: Kok Loon Ng; Yew Shyan Teh
Original assignee: Ico-Op.Net Pte Ltd
Priority date: 2001-08-27
Filing date: 2002-08-26
Publication date: 2003-03-06

Abstract

Methods of conducting customer loyalty programs to reward customers are disclosed herein. In a first aspect, the method comprises the steps of calculating a customer's reward (204) based on a company's forecasted revenue (201); and adjusting the customer's reward (204) in response to a profit target (205) which is associated with the forecasted revenue (201). In this way, the method allows a company to plan and adjust the rewards (204) to ensure that the profit target (205) is met.

Description

METHODS OF CONDUCTING CUSTOMER LOYALTY PROGRAMS

Background and Field of the Invention

The invention relates to methods of conducting customer loyalty programs, more particularly but not exclusively to reward customers who purchase goods and/or services from a company.

Several conventional methods have been used for conducting customer loyalty programs which reward customers in the form of bonus points, rebates, discounts and other incentives which are issued at a fixed rate according to the value of the customer's purchases. For example, for every dollar spent on a company's products/services by a customer, a certain amount of fixed bonus points, rebates and/or discounts are given to the customer. Such rewards may be used subsequently to redeem vouchers, free goods or services, or used to offset the costs of future purchases of goods or services from the company.

In other customer loyalty programs, higher spending customers may be rewarded with more value by assigning a higher redeemable value to the rewards of these customers when their expenditure reaches a pre-determined level. An objective is to encourage customers to spend more in order to reach the next higher tier or level so as to increase the redeemable value of their rewards. Another example of encouraging customers' spending is by setting a minimum reward level in order to qualify for redemption so as to motivate customers to spend more to reach this minimum level. A further form of encouragement is to allow the customers to redeem their rewards from a chain or wide choice of merchants to enhance the value of their rewards.

Such reward programs, however, suffer from a disadvantage that the rewards awarded to each customer have no relationship with the actual sales or financial performance of the company providing the rewards. In addition, the customers may not be rewarded accordingly if the company's revenue/profits increases due to the customers' loyal patronage. Another disadvantage is that the customer is engaged only when the customer buys from the company and therefore they are reactive rather than pro-active and may not be sufficient to retain the customers or buyers to encourage them to use the programs more frequently.

It is an object of the invention to provide methods of conducting customer loyalty programs which alleviates at least one of the disadvantages of the prior art.

Summary of the Invention

According to the invention in the first aspect, there is provided a method of conducting customer loyalty programs to reward customers of a company, the method comprising the steps of calculating a customer's reward based on a company's financial index; and adjusting the customer's reward in response to a financial target which is associated with the financial index.

An advantage of the preferred embodiment of the invention is that the rewards can be adjusted according to the financial performance of the company so that profitability is not affected. A further advantage is that when the financial target is exceeded, the customer's reward may be adjusted so that the customer is rewarded accordingly.

Preferably, the financial index is a forecasted revenue of the company and the financial target is a profit target of the company.

According to the invention in a second aspect, there is provided a method of conducting loyalty programs to reward customers who made purchases from a company, the method comprising the steps of: providing a current rewards pool having a size at least in part dependent on a company's financial index which reflects the company's financial performance; and calculating a customer's reward based on the size of the current rewards pool.

Preferably, the method according to the second aspect further comprises updating the customer of the calculated reward at regular time intervals using multi-channel communications means. Preferably, the method also comprises the step of providing an amount of purchase required so that if the amount of purchase is made, the calculation would be based on a larger size of reward pool. The amount of purchase can be made by one or more customers.

The invention also relates to a computer program operable to perform the above methods and a computer system which comprises the computer program.

Brief Description of the Drawings

An embodiment of the invention will now be described, by way of example, with reference to the accompanying drawings, in which:

Figure la shows a schematic representation of a system for conducting customer loyalty programs according to the preferred embodiment of the invention; Figure lb shows a schematic representation of an alternative system of Figure la for conducting customer loyalty programs; Figure 2 illustrates the relationships between various financial indices of a company and how a reward pool is obtain in relation to a forecasted revenue and profit of the company;

Figure 3 illustrates different pre-defined forecasted revenues and corresponding reward pools; Figure 4 shows two equations which are used to calculate individual rewards of customers;

Figure 5 depicts a chart illustrating the relationship between the actual and forecasted revenues, profits and rewards; Figure 6a and 6b illustrates two methods of displaying the reward scheme according to the described embodiment of the invention;

Figure 7 illustrates the flowchart of how the different reward pools are adjusted when a forecasted revenue is met so that gratification can be continuously delivered to the customers; and Figure 8 illustrates a continuous relationship between the various factors to generate revenue and accelerate profit for a sales organisation.

Detailed Description of the Preferred Embodiment

The following definitions will be used throughout this specification:

Customer relationship — means the relationship of the company with her customers which creates loyalty in these customers so that they become advocates of the company.

Loyal customers — means customers of a company who choose the company as the preferred company and who buy repeatedly from the company.

Advocates — means customers of the company who actively promotes the company as the preferred company to other people.

Loyalty program — means a program conducted by a company to develop or enhance customer relationships. Reward — means a form of incentive that is given by a company to a customer for his purchases from the company. The incentive can be in the form of but not limited to, rebates, bonus points or discounts given to the customer.

Reward pool — means an aggregate of rewards that is provided by a company and distributed to all customers or buyers for their purchases from the company.

Rebate — means cash incentive that is given by a company to customers or buyers for the purchases from the company.

Bonus points — means points that are given by a company to customers as a bonus for their purchases from the company. These points have a certain pre-determined value which can used to exchange for goods or services from pre-selected companies.

Market — means a place or environment where a company sells her products and services to customers

Buyers — means people who purchases products or services from the company

Revenue — means the money collected by a company from the sale of products or services.

Profit — means the money made by a company from sales of products or services after deducting from the revenue all expenses and costs related to the sale of the products and services.

Mind share — means the share of the customer's mind which encourages the customer to choose a company as the preferred company. SMS - means short messaging service which is a means of sending short messages to mobile wireless devices such as mobile phones, pagers, PDAs and any device that can receive text messages.

Software engine — means software that is used to conduct the customer loyalty program.

Sales Dynamics — means the rate of increase of the sales or revenue of a company over time.

Gratification — means the satisfaction and pleasure experienced by the customer or buyer.

Multi-channel communication means — the different means of communication to reach out to the customers such as via Internet, mobile phones, PDAs, mailers, advertisements, or other communication devices.

Figure la shows a schematic representation of a system for conducting customer loyalty programs according to the preferred embodiment of the invention. At the back end of the system, there is provided a computer system or server 102 coupled to a "plug-in" which contains a software engine 101 responsible for conducting the customer loyalty program. The information or data 104 required by the software engine 101 for processing of the loyalty program may be obtained via the computer system 102 or directly using the "plug-in" in the case of sales made via a website using e-commerce 110.

In addition to e-commerce, three other sales channels are shown in Figure la and these are "online" shops 105, stand-alone shops 108 and via telephonic means 109. The computer system 102 interfaces with these front-end "shops" to collect the sales information and related data 104 required by the software engine 101. "Online" shops are basically the same as the stand-alone shops except that the former includes devices such as point-of-sales (POS) machines, cash registers or card readers that are integrated with a server 105 a so that any sales information or customer data can be automatically updated to the computer system 102. On the other hand, the sales devices in a stand-alone shop are not connected to a computer server and thus the data needs to be obtained manually at regular time intervals and entered manually by an operator 106 into a computer or electronic device 107 at the end of each day for uploading to the computer system 102.

Figure la also shows a third sales channel using a call center which receives sales or purchases from customers telephonically. In this case the call center operator is the primary person to gather and feedback information to the back-end computer system 102 for further processing by the software engine 101.

A purchase by a customer through any of the above sales channels would be recorded together with an identification of the customer in order to calculate the reward associated with that purchase. This information is then transmitted to the computer system 102 which is subsequently retrieved and processed by the software engine 101.

An alternative to the plug-in of Figure la is shown in a schematic representation of Figure lb. In this case, the software engine 101 of the invention runs on a separate computer server 103 that is interfaced to the computer system 102. In this case, instead of the back-end computer system 102 interfacing with the various sales channels, information from the sales channels is fed directly to the separate computer server 103 for processing by the software engine 101.

Figure 2 shows an example of how the rewards pool is taken into consideration and how the rewards pool is being adjusted according to a financial index to meet profitability goals and to reward customers accordingly using two tables 210,220. The first table 210 shows a company's simplified financial performance for a previous year before the implementation of the method proposed by the present invention. The "Reward %" 211 for that year was fixed at 2% of the "Total Revenue" 203 for each quarter resulting in the various "Total Rewards" pool 212 as shown. The "Net Profit" 214 is then calculated from the "Gross Profit" 213 and the "Reward Pool" 212.

Figure 2b then shows how the invention is used to ensure that the company's profit goals are not impacted.

In this example, the forecasted revenue is used as the financial index and the company has planned for the forecasted revenue 201 of the current year to increase by 30% over the previous year's revenue 203. Similarly, the forecasted profit target 206 is to increase by 24% from $12.95m to $16.06m. Based on this, the company also proceeds to forecast the revenue for the next four quarters as shown in Figure 2. Then, the series of rewards

204 over the four quarters is then tested, checked and adjusted if needed so that the forecasted net profit 205 will increase by an amount according to the financial profit target 206 acceptable to the company as shown in the second table 220. Using the relationship between the "Reward %" 204 and the forecasted "Total Revenue" 201, the effect of the rewards pool on the forecasted "Net Profit" 205 can thus be calculated. The

"Reward %" can also be adjusted upwards so that more rewards are awarded to loyal customers if, for example, the revenue and profit exceeds the company's forecasts.

Figure 3 illustrates how the described embodiment of the invention allows the company to input into the software engine 101 the forecasted revenues 201 and its corresponding rewards pool.

The parameters "last achieved revenue" 301 and the "current rewards pool" 302 are displayed by the software engine 101 but these cannot be altered since these are factual financial figures. A user of the software engine 101 is allowed to input forecasted data of different levels such as: (1) a first level of forecasted revenue 303 and corresponding rewards pool 304, (2) a second level of forecasted revenue 305 and corresponding rewards pool 306, and (3) a third level of forecasted revenue 307 and corresponding rewards pool 308. These different levels reflect the growth of the company's revenues as forecasted and their corresponding sizes of the rewards pool. In this way, when a company actual revenue exceeds the first level, a customer will know that if the next higher level is exceeded, he will have a higher rewards pool in which his rewards will be calculated, as discussed earlier and in accordance with equation (a) and (b) of Figure 4. From this scheme, the customers are thus encouraged or motivated to spend more so as to hit the next higher level for a bigger share of the rewards.

Typically, the data 104 required by the software engine 101 for calculation of rewards is the aggregated sales of the company or a department and total purchases made by an individual buyer or customer over a period of time. Based on these two factors, the individual customer or buyer is then rewarded with a fraction of a rewards pool according to the equation (a) shown in Figure 4. The software engine 101 may track the reward pool either using the actual reward 401 or using a percentage of the available reward in accordance with equation (b).

In the latter case where a percentage is used, the reward of the customer will be based on a bonus % related to the reward % as shown in the second table of Figure 2. Taking the second quarter Q2 as an example, the reward % is 2.4% compared with the reward % at the beginning of the first quarter Ql which is pegged at 2%. The bonus % can then be calculated as:

{(2.4%-2.0%)/2.0%} x 100% = 20 % bonus.

The reward for a customer would then be the number of reward points multiply by this bonus % as shown in equation (b) of Figure 4.

Similarly, for Q3, as the reward % increases, the bonus % also increases correspondingly. The reward % for Q3 is 2.5% and the bonus points would then be 25% bonus and similarly the reward for a customer would then be based on this higher bonus % which represents an increase of 5% from Q2 to Q3. It should be apparent that the method of calculating each customer's reward may not strictly follow equation (a) or (b) but may be customised to each user's spending habits, for example, some companies may allocate more rewards on a tier basis to buyers who spend more on the company products or services so that these buyers get more rewards per dollar for their repeated purchases.

The described embodiment of the invention allows the company to ensure that the profit target of a company is not affected by the loyalty program since the reward pool shared between customers is factored into the analysis as described earlier. In addition, by motivating the customers to purchase from the company with such a loyalty scheme may also increase the profit of the company since the customers are encouraged to spend more (thus improving revenue) in order to get more rewards.

Figure 5 illustrates a typical relationship between the forecasted revenues, profits and rewards and the actual revenues, profits and rewards of a company. The solid lines 501 are actual revenues, profits and rewards of the company and the dotted lines 502 are the planned and forecasted revenues, profits and rewards. Figure 5 illustrates that the described embodiment allows the loyalty program to chart the actual revenues, profits and rewards against forecasted revenues, profits and rewards. The proposed method according to the described embodiment allows the company to adjust a series of rewards to respond to actual revenues and profits achieved by the company by calculating, testing and checking the amount of rewards against that forecasted and achieved.

Figure 6a illustrates how to feedback the sales performance of a company to the market so that customers or prospective customers are aware of the loyalty program. The company may provide the current reward pool 601 and the next level of reward pool 602 to these customers to entice them to purchase the company's products and services by communicating to the "market" these information using, for example, the Internet, mobile devices such as mobile phones and PDAs, mailers, advertisements, or other communications devices. The sales performance of the company may be displayed in the form of a moving bar chart 603 to show the incremental revenues needed to reach the next higher reward pool from the current reward pool. The rate at which the bar moves provides the feedback of the sales dynamics to the market. Such a display 603 can be in different forms depending on the nature of the business and the aesthetic appeal required. For example, instead of a moving bar, pictorial representation may be used, for example, golden nuggets to represent increasing wealth for financial companies or simply an analogue scale for companies in general.

Using the above approach, a pro-active scheme of enticing prospective and existing customers is thus possible to increase the revenue of a company.

Figure 6(b) illustrates another example of the display of sales dynamics where the current and next higher reward pools are in the form of bonus percentage 604 of the reward points given to customers.

The actual revenues and rewards of the company displayed by the software engine 101 to the market can be masked by multiplying the actual revenues and/or rewards pool size with a numerical factor to derived masked revenues and/or masked rewards pool size. This numerical factor would be known only to the company so as to prevent actual sensitive financial information relating to the company to be disclosed to competitors. In this way, the numerical factor is used to disguise the sensitive information from becoming public knowledge. The software engine 101 may need to apply this numerical factor equally for all computations so that the actual relationship between the revenues, profits and rewards are not affected.

When the current reward 605 and a next higher reward 606 associated with a specific product of the company is to be displayed, the current and next higher rewards associated with the specific product are calculated on a pro-rated basis from the current and next higher reward pools respectively, based on the price of the specific product. For example, a product with a higher price will have a higher rebate and a product that costs less will have a lower rebate.

Figure 7 illustrates a flowchart of how gratification messages are delivered at regular intervals by various channels of communications to each individual customer or buyer using the multi-level reward scheme as shown in Figure 3 as an example. At step 700, the revenue of the company or the selected department is accumulated. Next, at step 701, this aggregated revenue which is the actual revenue is compared with a first level forecasted revenue. If the actual revenue is not equal to or does not exceed the forecasted revenue, the software engine 101 continues to aggregate the revenue from the various sales channels 105,108,109,110 at step 700.

When an actual revenue of the company reaches the first level forecasted revenue at step 701, the software engine 101 shifts the second level forecasted revenue to become the new first level forecasted revenue and the original first level forecasted revenue becomes the "last achieved revenue". Similarly, the rewards pool corresponding to the first and second level are changed accordingly. With the first and second levels changed, the third level forecasted revenue and corresponding rewards pool are also shifted downwards by one level to become the second level forecasted revenue and rewards pool respectively. In this way, after a first level revenue is achieved, higher revenue forecasts and reward pools are translated down as shown at step 702.

At step 703, the company is notified by the software engine 101 to enter a highest forecasted revenue and corresponding reward pool 703 since the original highest entries would have been shifted downwards by one level. The software engine 101 next sends out a gratification message at step 704 to each individual customer or buyer with a personalised message to inform them that their rewards have increased since their rewards are tied to the revenue and the rewards pool, as described earlier and in Figure 4. The gratification message may be sent out by the software engine 101 using communication means similar to the earlier mentioned method of reaching out to the market.

Each time when the actual revenue of the company reaches a forecasted revenue, the software engine 101 carries out the process as illustrated by Figure 7. Therefore, the company can use the described customer loyalty program to deliver updates to each individual customer at regular intervals to inform them of the increased in rewards when the next higher level of forecasted revenue is reached so that they can continue to enjoy increasing rewards for their purchases even after post sales. The purpose of continuing to give buyers incremental rewards at regular intervals is to target, win and occupy the "mind share" of buyers so that they become loyal to the company and become advocates of the company. The end effect is to accelerate the revenue and profit of the company by accelerating the sales dynamics of the company as illustrated by Figure 8 which slows the relationships between the various drivers to increase revenue and profit.

Having now fully described the invention, it will be apparent to one of ordinary skill in the art that many changes and modifications can be made thereto without departing from the scope of the invention as claimed.

Claims

1. A method of conducting customer loyalty programs to reward customers of a company, the method comprising the steps of calculating a customer's reward based on a company's financial index; and adjusting the customer's reward in response to a financial target which is associated with the financial index.

2. A method according to claim 1, wherein the customer's reward is calculated from a rewards pool.

3. A method according to claim 1, wherein the customer's reward is calculated from a number of rewards pool, each rewards pool having different size of rewards.

4. A method according to claim 3, wherein the size of each rewards pool is associated with a corresponding predefined financial index, and the method further comprises the step of: calculating whether an actual financial index equals or exceeds a current predefined financial index and if so, using the size of a rewards pool corresponding to a next financial index as a basis for calculating the customer's reward.

5. A method according to claim 4, further comprising the steps of masking the actual financial index to derive a masked index and transmitting the masked index to a customer.

6. A method according to claim 5, wherein the masked index is derived by multiplying the actual financial index with a numerical value.

7. A method according to any one of claims 4 to 6, further comprising the steps of masking the actual rewards pool size to derive a masked rewards pool size and transmitting the masked rewards pool size to a customer.

8. A method according to claim 7, wherein the masked rewards pool size is derived by multiplying the actual rewards pool size with a numerical value.

9. A method according to claim 4, further comprising the step of transmitting the actual financial index and the size of the corresponding rewards pool to a customer.

10. A method according to claim 4 or claim 9, further comprising the step of transmitting the next financial index and the size of the corresponding rewards pool to the said customer.

11. A method according to claims 4, 9 or 10, wherein the actual financial index changes in response to a customer's purchase and the method further comprises i the step of transmitting the rate of change of the financial index to the customer.

12. A method according to claim 11, further comprising the step of transmitting the rate of change of the actual financial index to other customers or potential customers.

13. A method according to any one of claims 4 or 9 to 12, wherein the said transmission is performed at regular time intervals to the said customer.

14. A method according to any one of claims 4 or 9 to 12, wherein the said transmission is performed when the actual financial index reaches the next financial index.

15. A method according to any one of claims 4 to 14, wherein the said transmission is performed using multi-channel communications means.

16. A method according to any one of the preceding claims, wherein the said financial index is a forecasted revenue of the company.

17. A method according to any one of the preceding claims, wherein the said financial target is a profit target of the company.

18. A method of conducting loyalty programs to reward customers who made purchases from a company, the method comprising the steps of: .providing a current rewards pool having a size at least in part dependent on a company's financial index which reflects the company's financial performance; and calculating a customer's reward based on the size of the current rewards pool.

19. A method according to claim 18, further comprising the step of updating a customer of the said calculated reward.

20. A method according to claim 19, wherein the updating is performed at regular time intervals through multi-channel communications means.

21. A method according to any one of claims 18 to 20, further comprising the step of providing an amount of purchase required so that if the customer makes the said amount of purchase, the said calculation is being based on a larger size of rewards pool.

22. A method according to claim 21, wherein the larger size of rewards pool offers greater incentives than the size of the current rewards pool.

23. A method according to claim 21 or 22, wherein if the said calculation is based on a larger rewards pool, the method further comprises the step of sending this information to the customer.

24. A method according to any one of claims 18 to 23, wherein the said financial index is a forecasted revenue of the company.

25. A method according to any one of claims 18 to 24, wherein the said financial target is a profit target of the company.

26. A software program operable to perform a method according to any one of the preceding claims.

27. A computer system comprising a software program according to claim 26.