Why is it not a good idea to run a loyalty programme without the support of a professional supplier? - Tomasz Makaruk

Why is it not a good idea to run a loyalty programme without the support of a professional supplier?

Running a loyalty programme without the help of specialists from an external company does not make a good choice. Instead, by opting for such help means you gain professional support, which shortens the implementation times and minimises the risk of errors occurring. Just as importantly, it also reduces the costs by relieving you of the need to invest in special tools and infrastructure. If you want to choose a good partner, some key criteria needs to be taken into account. It is important to pay attention to their experience in similar projects, the types of information security management systems, the functions of the IT system, the logistics background, and the tax and legal security systems.

What are loyalty and incentive programmes?

Loyalty programmes are very popular. According to an analysis by i360 specialists, there are currently more than 120 initiatives in Poland using the term ‘loyalty programme’ in their rules and regulations, which means that they reward their customers for repeat purchases. Loyalty programmes are actions intended to last for an extended period of time, and are divided into two types. The first is known as B2C (Business to Consumer) and is aimed at consumers (end purchasers). The second is B2B (Business to Business) and is aimed at business intermediaries like distributors, owners, decision-makers, sales personnel, sales representatives, etc., and is also referred to as an incentive programme. In Poland, the most popular loyalty programmes at the end of 2020 were: Orlen Vitay, Moja Biedronka, Lidl Plus, Club Rossman, and Payback.

How do you implement a loyalty programme?

The process of organising a loyalty programme is extremely complex and time-consuming. It involves defining the precise objective, analysing the activities of the competition, finding out the preferences of future participants, calculating the incentivisation factor, determining the legal and tax model, creating (or purchasing) a licence for the IT system, preparing and testing advertising materials, signing contracts with prize suppliers, and organising the logistics of their distribution. The next step is to finance the whole process, or attempt to convince the Board of Directors to allocate a budget. After that, it is important to measure its effectiveness and efficiency, create a risk management plan, and communicate effectively with all the participants on an ongoing basis.

Most organisers initially want to carry out all the above activities in-house. This approach sometimes works well; however, it is necessary to have the right competences, skills, and human resources to professionally deal with such diverse issues as the tax model, the IT system, and the marketing strategy. While acting alone can be the cheapest option, the reality it is not always the best way. It is easy to make a lot of mistakes due to inexperience. Loyalty programmes are usually prepared once, and if a second one is needed, there must have been a lot of oversight the first time around.

So how can it be done better? One solution is to join an existing multipartner or coalition programme. In this way you are automatically relieved of everything involved in launching and running the programme. By joining an operating initiative, you do not have to deal with managing it.

This model can be compared to buying a car, where we assume that implementing the programme is a situation where you simply own a car. You have full rights to it and can do whatever you want with it, but you also have to bear all the associated costs. Joining the programme is more like buying a bus ticket. You do not own the vehicle and you do not have control over the route, but the fare costs a small fraction of what you would pay for a car. You also avoid having to maintain the bus, and you can always choose another option if it breaks down or if there are traffic jams.

However, the examples presented here are extreme, but there are also other, intermediate solutions. These include hybrid models, which involve outsourcing part of the preparation, implementation, and operation of the loyalty programme. Depending on your capabilities, such as competences, human resources, and implementation timeframe, a selection of the work can be outsourced to external specialists. This usually involves the preparation of an IT system, planning a marketing strategy and/or the logistics of purchasing, issuing and claiming rewards. Which version of a loyalty programme implementation makes the best choice? This is difficult to answer, and the final decision should always be made according to your needs and opportunities, as well as such issues as the budget.

Why is it not a good idea to run a loyalty programme without the support of an external company?

This question can be answered most simply by referring to the argument of experience. Outsourced professionals spend more time with them, they know almost everything about implementing, managing, running, and monitoring the programme, as well as keeping an eye on the competition and closing the programme. By choosing to work with such a company, you can take full advantage of their experience, knowledge, and competences. They already know all the potential mistakes that can be made, and they will do their best to avoid them. This would be very difficult on your own, especially if you have never done something like this before. What you are doing is buying many years of knowledge in this field to achieve a perfectly tailored service that can help you achieve your planned goals.

Another argument for not attempting to implement a programme yourself is the need to invest in tools. It involves many expenses, from the desks for the new specialists that need to be hired, to the software, warehousing space and all the equipment. Using an existing, proven, external infrastructure is clearly recommended.

The third argument, directly related to the previous one, is the lower cost of implementation. Investing in all the necessary tools, recruiting new staff, and renting a warehouse exposes you to large additional expenses. Purchasing a ready-made solution is always a better, more cost-effective option.

The final arguments are time savings and high quality. Trying to implement things yourself, learning from your mistakes and organising everything from scratch is always more time-consuming. The support of an external company offering ready-made, proven solutions guarantees the rapid development of the initiative and minimises the risk of shortcomings and errors.

What should you look for when choosing an agency to operate a loyalty programme?

Choosing the right partner to implement or run a B2C loyalty or B2B incentive programme is extremely important. If you entrust all or part of the work to the wrong people, you can expect unpleasant consequences. Any mistake can negatively affect the implementation time, the costs, and the prestige.

Partners are usually selected based on subjective criteria, where communication style and mutual trust are frequently the most important choices. However, to approach the vetting of candidates in a more objective way, you need to be guided by five basic determinants:

  • experience with similar projects;
  • information the security guarantees that any entity involved in the organisation and management of loyalty programmes should have;
  • operation of the information system;
  • in-house logistics facilities;
  • legal and tax security system developed based on individual tax interpretations;
  • legal and tax security system development supported by the above tax interpretations.

It is also very important, although often overlooked, to verify whether the project work is going to be handled by an experienced team of managers, led by a managing partner.

Experience with similar projects. Learning from one’s own mistakes on a professional basis does not always pay off. One of the most important requirements in the tendering processes for the operation and/or implementation of a loyalty programme is the question of experience.

If you want to establish a long-term partnership where sales and personal data exchange plays a huge role, due to industrial exclusivity, you cannot be guided by experience in dealing with competing customers. The most important criterion here is experience with similar projects, but in other market categories. To be sure, it is always worthwhile checking references at the source, and taking a moment to discuss it with the project leaders of other clients.

Information security management system. An extremely important process in the implementation of a loyalty/incentive programme is the exchange of sales data. This is necessary to calculate the points or rewards for the participants. Collections of such data, which are often very detailed, divided into regions or even product units should be appropriately protected. They must not be exposed to loss or disclosure to third parties. It must also be remembered that the managing entity must generate the relevant reports that form the basis for the payment/issuing of rewards, as well as for subsequent decisions regarding the operation of the programme. In practice, it is not just the confidentiality but also the integrity and completeness of the information collected that is mandatory.

It is imperative that you only choose entities that are ISO 27001 certified. The documents related to this certify that the information security systems comply with the globally accepted standards. It is also wise, on occasion, to check the certification body that carried out the audit leading to the certification.

IT system operation. There are two primary types of IT systems on the market – proprietary and boxed. The first type is software designed to meet the needs of a specific entity. The latter involves universal, freely available solutions, most often operating as software as a service. This means that the provider does not own the software, but only uses a designated range of its services via the Internet.

The most sensible solution is to work with companies that have proprietary, proven, professional IT systems. They should also be hosted on dedicated servers, in one of the most recognised hosting centres in Poland. This choice is safer and will avoid you incurring the sub-provider’s margin.

In-house logistics centre. A key element of any loyalty or incentive programme is, of course, the rewards. These need to be stored in some way, meaning that at least a minimum amount of storage space is needed. You also need space for recording and issuing products, as well as the workstations for preparing them for dispatch. If you entrust all this to an external company, it means disclosing the customers’ address data. While this is convenient, confidentiality may be compromised.

Outsourcing in this way also generates additional costs, which have to be covered to a greater or lesser extent. A partner using an external logistics centre is also less flexible when it comes to operating hours, delivery times, or shipping times, which can affect the overall work schedule.

Legal and tax security system. Running a loyalty programme generates many risks, but one of the biggest is that related to legal and tax security. It is very important to have a thorough approach to the tax documentation of any income generated from the issuing of prizes, VAT issues, preparation of invoices for the service part of the programme and the prizes issued, and the preparation of accounting notes.

Before making any choices, it is important to check whether the entity has a legal and tax security system in place, and that it is supported by individual tax interpretations, etc.


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