Almost all of us have seen and used at least one rewards program. Nowadays, they are so common they can be found at brands of any size. From a small corner shop to a retail giant. Such programs can be found at retail stores, supermarkets, shopping malls, restaurants, coffee shops, airlines etc. It can be of a specific brand, a group of brands or rewards you can earn when you shop with eligible bank cards. The models are pretty much similar. You sign up and you earn awards on qualified transactions. Open loop schemes are the most common as they apply to the majority of consumers. But what about closed loop schemes?
Closed loop schemes are schemes applicable to a specific group of consumers and are therefore not open for all. It’s common for open loop schemes to coexist with closed loop schemes where the latter has some offer differentiation, i.e., the offers are more relevant or of higher value than the ones in the open loop scheme. Let’s see an example. An all-day coffee shop and restaurant runs a rewards program open for all customers. In an attempt to attract new customers and retain loyal ones, a closed loop scheme is set up and is specifically for the students of a local nearby university, offering them additional cashback rewards. A student now has an incentive to join this closed loop scheme using her university email and choose this brand instead of a competing one and benefit from the provided offers.
Closed loop schemes allow the brand to compete with other brands by offering better awards while managing and analyzing valuable data through BI tools.
So are closed loop reward schemes worth it? When the incentives are good, participation is good. And bigger participation means increased revenue. Then it’s worth it.