Loyality-vs-Pre-Paid-Package

Off late a lot of businesses have been considering this question which is the better technique to grow the business loyalty points or the pre paid packages? We did a little research on the topic and based on the relevance with the laundry industry came up with the following observations. hope these make sense to you :):

Let us first understand what do these terms mean:

Pre Paid packages:  customer buys a pre paid package issued by the laundry and in return gets the service worth more than the amount paid. For example, a customer pays up USD 250 in advance and in return can get laundry services worth USD 315.

Loyalty Points: a set up where the customer gets some points based on the value of the business he/she gives and the points could be redeemed against the services of the laundry or any other gifts that service provider offers.

Now let’s look closely at the value being offered by both the techniques:

Pre Paid Packages:

  • Benefits to business
    • Enjoy interest free loan: A great amount of money can be generated using these packages and then the amount can be utilized to make strategic investments to grow the business.
    • Customer loyalty guaranteed: since the customer has paid in advance, it is not expected that he will switch to the competition. This also gives enough time to the business to understand the customer and make every effort to satisfy with the services required.
    • Certain benefit value: both the business and customer are sure of the benefits they are going to enjoy the deal.
    • Get more business: Since the customer is not paying up at the time of giving garments for cleaning, he is less likely to differentiate between the expensive garments he wishes to give to professionals for cleaning against the not so expensive ones that he can manage by himself by self-washing. the same psychological effect that happens while paying through credit card against paying hard cash.
    • No fear of bad debt: You have already got the amount so no fear of losing money.
    • Time Saving: no follow ups required to chase the customer to recover money as it happens with credit policies.
  • Benefits to customer
    • Discount benefits: discount or no discount the garments needs to be cleaned. Customers love to get discounts and hence do not hesitate to pay upfront if they trust the business and are sure of the quality of the service.
    • The benefit in present: Customers know the exact benefit they are getting and they can get it immediately as and when they want it. So no future promises and clarity of the benefit value help build the confidence.

Loyalty Points:

  • The benefit in future: Customer is encouraged to use the services today for an expected gain in future.
  • Uncertain benefit value: Neither the laundry nor the customer is sure of what will be the value of the benefit either one will get by this technique.
  • Customer loyalty not guaranteed: Business is never sure whether the customer will be loyal to it or not and whether it will switch over to any competitor.