Build vs Buy: Loyalty Programs
It's difficult to decide which aspects of a loyalty program to handle in-house and which to outsource when developing one. If you find the right mix, you can start an effective program on schedule, on budget, and with the desired effect for your company.
When creating a loyalty program, it can be difficult to know which parts to take on internally, which to outsource, and which you should buy right off the shelf. Striking the correct balance allows you to launch an effective loyalty program on time, on budget, and with the desired effect for your organization.
To be clear, I'm not here to tell you what components of a loyalty program are the best fit for your organization — only you can decide that. I'm here to make sure that as you make that decision, you consider all your options for building or buying the parts you need. Loyalty programs are heavily influenced by the industry you're in and the products/services you're selling, but I'll try to present a generic case to present those options.
To start with, let's consider what some of the most common components of an effective loyalty program include:
perks and coupons
redemption store experiences
reward vendors/reward fulfillment
customer data platforms
You may not need all of these, but you certainly will want some, and evaluating which are necessary for your goals is the first step. But for now let's explore a sample situation: an organization has conducted the due diligence and research to determine that the components of their loyalty offering include a points system, customer experience UI, personalized offers, rewards redemptions, and possibly perks as well. In other words, they want to offer points for purchases that lead to tiered levels and personalized offers, all integrated into their existing digital experiences.
The next important question after understanding the scope of the services is establishing a budget. Ask yourself: what is the value that customer loyalty has for your business? Specifically, what additional revenue do you expect to generate from this program? And how can you quantify any other, less tangible benefits resulting from increased engagement? Remember, the budget directly impacts what the user experiences. You get what you pay for.
Once you have a budget, you can start looking at the key question I aim to help answer: do you build it or buy it?
In a nutshell, I recommend customizing the UI and experience as far as you think ownership over it is needed, then relying on building a headless architecture for the backend systems. In other words, default to buying if you don't actually _need_ to build it.
When to Build
Let's look a little more closely at when and why you might want to build or buy, depending on your needs, market, and budget. The decision ends up relying primarily on factors of cost, control, connectivity, and maintenance.
Building a piece of your loyalty program is certainly a good idea if you need complete control over a system, for instance, if you need to be able to modify it frequently, or add and subtract features on short notice. If your team built it from the ground up they can work as fast as they need to without jumping through any hoops.
It's also smart to be the one building if you've outgrown the leaders in your industry. Many innovators in legacy industries find that available offerings simply aren't up to the standards of those in faster-moving domains. Doing the work could mean being a breakout success.
Another situation where building is necessary is if you absolutely must maintain complete ownership over the data or user experience. Companies with security and privacy concerns may opt for this approach, as will companies that are brand-forward wherever users touch them.
When to Buy
Understanding the limits of your organization's resources and core competencies is key to knowing when to buy services. If you're a marketing company, you probably don't have a lot of specialists in accounting software — so you buy those services. It's the same thing here.
If your organization doesn't have a dedicated, general-purpose software engineering department, you're unlikely to be able to build something as sophisticated as a loyalty program in-house. If your core competency is in branding and responsivity to users, you should focus on that — let someone else track the redemption values for your taxes.
It's important even if you have some engineers at your disposal to consider whether you could meet the deadlines you've set. Maybe they could do it in six months, but if you want to launch in two that's not an option.
A middle road here that is occasionally preferable is to partner with another company you have a good relationship with, for example when you want more control than you might have over a purchased service but don't have the internal expertise — you may be able to build something in a partnership.
In Practice: Loyalty Programs
Let's see how the above advice plays out for the example organization I mentioned above.
Your Customer Experience: BUILD.
Owning your customer experience and customizing it to your exact specifications is very important in this space. This experience has the strongest impact on customer loyalty, up to ¾ according to a 2020 report by Bond Brand Loyalty — if you think about it, few users will power through a bad experience just to get slightly better rewards.
Architect the platform in such a way that you own and can easily customize the experience. Your backend systems and vendors should be in the headless/microservice category, ideally one that can be served across products for a unified, omni-channel experience. Users will want to see the same thing whether that's in a browser, an app, an email, a kiosk, or even in person.
The main thing to consider in how to go about building this component is whether your organization has enough experience and resources in creating modern digital user experiences. Does your design team understand the usability requirements to create a loyalty program, drive purchases, award and track points and rewards?
If not (and this is quite common!) I recommend finding an organization to work with that does have that expertise in augmenting technology teams and delivering amazing loyalty experiences. This partner can help you navigate the build-out and help you make informed decisions on this critical user-facing piece of the loyalty program. Aim to find a software consulting firm that can deliver end-to-end, is collaborative and transparent, and works with your product owners daily to build your vision.
Points System: BUILD/BUY.
This is one that depends on your needs. If you're doing and tracking one thing on a small scale, like accumulating points for buying your products, chances are your use case has been solved hundreds of times over and vendors will offer more or less exactly what you need with the integrations you require.
On the other hand, if you have a network of more complicated integrations and interactions, such as through multiple brands or platforms, your use case might be unique enough to require building specifically for it. This is especially true if you need or want to have ownership and control over the integrations, or if this is meant to be a core aspect of your business.
Customer Data Platform: BUY.
Here's one place where it's almost always best to go with an established, enterprise-tier data solution. Take a look at others in your industry or in analogous industries and see what they're using, then evaluate those candidates based on your particular needs and budget. Building your own data infrastructure is needlessly risky and expensive for almost any organization these days.
Rewards Fulfillment: BUY AND PARTNER.
Unless there's a particular reason you need to own the fulfillment and operations side of your rewards redemption process, don't try to build it. These things can be surprisingly complicated and few organizations have the special knowledge needed for them.
Fortunately, there are plenty of established providers strictly focused on this part of the process, and which offer extensive customization of rewards and other aspects. I can recommend RewardOps in particular as an amazing provider that provides seamless integrations.
Tiered Perks: BUILD OR BUY.
Industries and company needs differ widely, but people generally want the same things wherever you go when it comes to perks. There's no need to reinvent the wheel here, and better perks often come hand-in-hand with services operating at larger scales. Leveraging existing networks through the offerings of coalition partners is a more straightforward approach that saves time.
In the end, for our hypothetical organization, we have the customer experience being built, while the points, data platform, rewards fulfillment, and perks/vouchers can all very realistically be bought. Knowing this breakdown — something you can figure out in an hour with your leads — is crucial to getting more specific about timing, budget, and resource allocation. Find out what you absolutely can buy and start finding vendors. Establish your vendor acceptance criteria. Decide what you absolutely must build and talk to your engineering team. For the rest, see how your "absolutes" affect them and respond accordingly. At Quantum Mob, we’ve worked with our clients to build out amazing digital user experiences for their members, building everything from loyalty platforms, redemption estores, perks experiences, and voucher offerings, just to name a few. Speak to an expert at Quantum Mob today to explore build vs buy for your organization and how we can help you focus on building out the most important aspect of your loyalty program.
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