Ebay’s Loyalty Program - Ebay Plus

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Loyalty Programs

One of the most common and successful operations to create these long-term relationships are Loyalty Programs (LP).

A LP is a marketing process that consist of rewards offered to costumers, based on their repeat purchases. In return costumers which subscribed for such a LP gives up some freedom of choices for the focal firm. Costumers concentrate their purchases and collect assets from the firm in the “hope” of exchange products, services or special treatment. In this case the costumer offers transparency to it’s personal purchase behaviour and a part of their identity profile to the focal firm, which makes an LP an important CRM tool to the suppliers (Kumar & Reinhartz, 2012, pp. 184-185).

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Key Objectives of an LP

- Building True Loyalty

- Efficiency Profits

- Effectiveness Profits

- Value Alignment

The key objectives of a LP are creating True Loyalty, gaining Efficiency and Effectiveness Profits and focusing on Value Alignment.

Obviously a company wants costumers which underline their behavioural purchases with attitudinal reasons. Only True Loyalty is backed up with Attitudinal Loyalty is really effective.

As Kumar & Reinartz (2012, pp.184-185) mention LPs can build True Loyalty, if a company manages to make loyalty socially visible and expressive. But loyalty is driven by many other factors. Best example is grocery shopping. This purchases are driven mostly by tangible considerations.

With the implementation of an LP the focal firm tries to earn more with the same costumer base. The challenge is to change the costumers’ buying behaviour and so boost the efficiency profits. This can be measured in several ways. First by the share of category requirements (SCR), second by the frequency of your purchases, third within the costumers’ price sensitivity and furthermore on the lifetime duration. But the most effective way to measure the size of basket is the SCR. It gives you the monetary value of a costumer. By using a LP, the costumer creates switching costs and this leads to a trade-off between costumers’ free choice or gaining rewards.

Critically you have to overcome a two key criticism viewpoint. The focal firm has to ensure if the cost for an LP can really change the buying behaviour of its costumers or if the money would be better invested to cases like price cutting. Therefore, the profit for a costumer to subscribe for a LP must be higher than not doing (Kumar & Reinhartz, 2012, pp. 185-186). This leads to the second problem. Will an LP really attract non-loyal costumers and change their buying behaviour in favour of the company or will it just attract those who are loyal anyways?

For this reason, a company need the tool of effectiveness profits. By sourcing the costumers’ data and deriving the knowledge about the individual preferences they can improve the offerings for each personal identity and therefore give the costumer a sense of being understood, treated personally and on the other side attract him automatically for more monetary spending on the focal firm’s market (Kumar & Reinhartz, 2012, p. 186).

Value alignment helps to source out between more or less valuable and profitable costumers by scanning the available data. This is not only efficient but it’s also saving costs for useless advertisements (Kumar & Reinhartz, 2012, pp.186-187).

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Design Characteristics

LPs need to be designed in a way they can attract potential costumers and it should fulfil the criteria to only appeal to the target group of the focal firm for the cost saving reasons discussed in the previous chapter.

As the LP Design Characters are one of the main drivers for the LP’s Effectiveness in this Chapter the most important design characteristics a LP has to inhabit to motivate for subscription will be discussed.

- Reward Structure

- Participation Requirements

- Sponsorship

- Extra Services

The key design to attract costumers is to enlarge the benefits for their purchases in form of rewards.

The focal firm can offer Hard rewards in form of tangible or financial value, like price reductions or promotions. But also soft rewards are possible. Those carry a symbolic value and benefit in a psychological way by offering special status and services.

Product proposition support are products which are offered to the costumers after collecting a specific amount of assets, like points. Those products can be related to the focal firm, like buying 9 cups of coffee and get the 10th for free. But they can also be unrelated, like getting kitchenware for collecting enough points at a grocery shop.

But you need to balance the costs and the aspirational value of the reward.

The rate of reward tells the costumer how much he gets out of the concentration of the purchases. Therefore, it’s the most important driver for an enrolment. But it’s the reward redemptions are even though the key cost factor. So a good design factor is the tiering of rewards. With growing amounts of spending inside the focal firm the rewards are rising. An example here is to offer higher discounts on prices depending on how much money you spent in the company last year. Lastly Timing and rules of rewards are very important to gain long term relationships with the LP members (Kumar & Reinhartz, 2012, pp. 192-194).

Another important characteristic of LPs is the participation structure and how to enrol into it.

First is questionable if a company selects their costumers and has therefore voluntary enrolment, or if there is a system of automatic enrolment. If costumers are chosen selected the question comes up if the system is open or if membership is only reachable with a special invitation, what makes the system closed. Closed memberships can also contain fees to offer more excusive services. One more design factor is the differentiation between an automatic or manual point accumulation (Kumar & Reinhartz, 2012, pp. 194-195).

Moreover, the question arises if there