User operation: 4 steps to build a points system

Points can be found everywhere, such as membership points on Taobao and JD.com, mobile phone bill points, and even points at offline supermarkets and coffee shops. Points have become an indispensable marketing tool for merchants. With the popularity of "paid members" and "super users" in recent years, the points system in various industries is also gradually improving and developing.

There are also many merchants who have just started or have not yet started to do points may have questions:

What is the definition and main function of integration?

How to design the acquisition and consumption of points?

How to control the budget cost of the points system?

Based on these questions, I will answer them based on my experience, and I hope it will be helpful to you.

1. Definition and Function of Integral

What are points? Points are virtual currency within the product and are the carrier and tool for motivating and guiding user behavior. To put it more simply, points are the "currency" issued in the product, and are the "money" that users can obtain and use. The points system plays an important role in the user operations of enterprises, mainly including three aspects:

1. Active retention: Improve users' continuous active retention on the platform and cultivate user loyalty. The value and playability of points can attract user participation, and the sunk cost of users obtaining points will increase user retention.
2. Attracting new users and paying: Points help motivate users to perform key high-value behaviors within the product, including sharing and paying, which helps companies make profits.
3. Layered operations: Based on the 80/20 principle of user stratification, that is, 20% of high-value users contribute 80% of the revenue, the operation strategies and actions for top users and mid- and tail users will be different, and points are a simple and direct stratification method.

In addition, the biggest advantage of points is that costs are controllable. Any points that users have not redeemed are just a number, and companies can also dynamically adjust the value of these numbers.

2. Build a points system in 4 steps

To build a points system, you need to have clear specific steps and framework. If you just do it blindly, building a points system haphazardly will only waste resources and be meaningless. The specific construction can be divided into 4 steps:

1. Determine the cost budget of the points system

Points are "debts", so the first thing to pay attention to during the design phase is to control costs. Depending on the business model, the cost plans invested by different companies in building the points system are completely different. There are two common options: fixed cost and floating cost.

(1) Fixed costs

If your business does not make a profit directly through the sale of products/services, for example, through selling advertisements or selling prepaid cards, it is generally recommended to adopt fixed costs, estimate one year's revenue in advance, and then apply for a certain budget.

For example:

The first step is to calculate the company's annual revenue.

The second step is to confirm the points budget amount. Most companies control the points budget between 1% and 5% of their revenue. For example, if a company's annual revenue is 10 million and the ratio is set at 3%, then the budget will be 300,000.

The third step is to confirm the actual usage of points. Based on the calculation that users get 1 point for every 1 yuan spent, 10 million yuan in revenue corresponds to 10 million points. Referring to the industry's 30% point usage rate, the number of points used in one year is 3 million points.

Third and fourth, determine the points redemption ratio. Points usage/budget = 3 million/300,000 = 10:1

Finally, the points operation will be carried out at an exchange rate of 10:1.

(2) Floating costs

The difference between floating costs and fixed costs is that floating costs change with changes in turnover, and there is no upper limit on the entire points pool. It is generally suitable for companies that generate revenue directly from the sale of products/services.

Take Haidilao as an example: Haidilao points are 1 point for every 1 yuan spent by the user, and the redemption ratio is 20 points for 1 yuan, which is equivalent to using 5% of the consumption amount as the point cost.

Data shows that Haidilao’s restaurant sales in 2020 were 27.4 billion yuan, which is equivalent to setting aside 5%, or 1.37 billion yuan, as a user points budget. Haidilao has calculated that if a customer comes to the store once more per month, the profit can increase by about 2,052 yuan per year. Therefore, Haidilao knows that making appropriate concessions and maintaining old customers are more beneficial to the long-term development of the company.

2. Design of points acquisition

We must learn to encourage users to actively earn points and ensure the frequency of interaction between users and the brand. In addition, in order to control costs, two points should be paid attention to during the design process:

First, list user behaviors and assign key weights based on the behaviors;

Second, design the integral value of each behavior based on the weight.

Below I divide the most common user behaviors of enterprises into four categories: novice tasks, daily tasks, consumer behavior, and communication and sharing. Reference integral values ​​are given below.

(1) Novice tasks

This is a process that helps users become familiar with the product while motivating them to use the product. Each user can only complete it once. It is recommended that this type of process accounts for 10%-15% of the total.

References are as follows:

• +20 points for binding mobile phone;
• Bind email address +20 points;
• Upload a profile picture +20 points;
• +20 points for first consumption/posting/sharing;
• Complete personal information +20 points.

(2) Daily tasks

Daily tasks include signing in to earn points, logging in to earn points, daily user interactions, etc. Such behaviors are the main way for users to earn points, and it is recommended that such behaviors account for 30-40% of the total.

References are as follows:

• Sign in to get points: one month is one cycle, and a maximum of 150 points can be obtained each month;
• +1 point for daily login;
• +1 point for visiting the page, maximum once per day;
• +1 point for each post, with a daily maximum of 3 points;
• +1 point for user comments, maximum 3 points per day.

(3) Consumption behavior

Points can be returned in a certain proportion based on the user’s consumption amount to encourage users to repurchase. The reference ratio is 1%-2% of sales.

(4) Communication and sharing

In order to encourage users to share platform content and achieve the effect of attracting new users, corresponding points rewards are given through actions such as invitations and sharing. It is recommended that this type of reward accounts for 30% of the total.

References are as follows:

• Invite friends to register to get 5 points, the daily limit is 10 points;
• Sharing content with friends earns 1 point, with a daily limit of 2 points.

In addition, different types of enterprises can also make corresponding emphasis in the design of points acquisition, for example:

For video websites, you can set the online time requirements to earn points. For example, if you watch iQiyi for 30 minutes, you can get 10 points, and you can do this three times a day.

For online education, you can set up a system to earn points by completing courses. For example, for every minute of class on Tencent Classroom, you can get 1 point, and a maximum of 100 points per day.

3. Design of points consumption

The way of consuming points is the best way to make users feel the benefits of points. Only with consumption will users have the motivation to earn points. It usually includes five consumption methods: points redemption, points exchange, points lottery, game consumption, and points recycling.

For example, the points redemption ratio we set above is 10:1. We just need to convert the value of the redeemed goods into points according to the ratio.

(1) Redemption of Goods

Redemption is the most common way to consume points. Usually divided into 3 categories:

1) Physical goods. For example, mobile points mall, various small umbrellas, selfie tools, etc.

2) Virtual goods. For example, you can redeem VIP membership of video websites within Alipay.

3) Coupons. For example, JD coins can be exchanged for discount coupons.

(2) Points redemption

This method is to redeem points in the form of "points + a small amount of cash", which can not only help merchants flexibly control the cost of point redemption and promote inventory digestion, but also help speed up the consumption of points. For example, Taobao has a special exchange area for Taobao coins.

In addition, you need to pay attention to some risks when using points to redeem cash. To prevent malicious cheating, you can use the following ideas and methods:

• Set a threshold for using points to redeem cash (points can only be used to redeem cash when a certain amount is reached);
• Set the cash discount ratio for the order amount (up to 50% of the order amount).

(3) Points lottery

When setting up a lottery, you need to ensure that the items in the lottery are attractive, take advantage of the users' gambler mentality of trying to win a big prize with a small investment, and promote the consumption of their points during the gameplay. It is also necessary to ensure that users have a certain probability of winning, and it is best to ensure that users are 100% likely to win.

(4) Game consumption

By using games to attract users, you can increase user activity. Common simple types include lipstick machines, scratch cards, roulette wheels and other lottery draws. Of course, the more vivid and complex the game is, the higher the potential profit will be.

(5) Points recovery

In order to ensure the controllability of points costs and the periodicity of points operations, points must be set with a certain validity period, and unused points that expire must be cleared.

Generally, traditional enterprises do not have such strict control over points, and the validity period is longer; while the Internet industry has periodic restrictions on points, and the validity period will not be very long. For example:

Tmall points are valid for 1 year;

China Mobile's points are valid for 3 years;

The points of China Merchants Bank credit cards are valid for 3-5 years.

4. Pay attention to the key indicators of the points system

After the points system is built and officially launched, this is not the end, but just the beginning. We can use some key indicators to adjust the direction and strategy of points in a timely manner. There are two types here: one is operational indicators and the other is effect indicators.

Effect-based indicators directly reflect the final effect of the points system. For example, indicators such as user repurchase increase rate, conversion increase rate, and points input-output ratio.

(1) Increase in repurchase rate

Compare the user repurchase rate data before and after using the points system.

(2) Conversion improvement rate

Compare the user order conversion data before and after using the points system.

(3) Points input-output ratio

Points input-output ratio = Profit from the growth of the points system / Cost of the points system investment

It is necessary to calculate the budget cost and labor cost of points, as well as the increased sales due to repeat purchases and conversions brought about by the points system, and finally derive the ROI to analyze whether the points system needs to be adjusted.

Operational indicators reflect the operation status of the points system in each link . Includes: maximum number of points that can be issued, actual number of points issued, points redemption rate, and user usage rate.

(4) Maximum number of points that can be issued

Maximum number of points that can be issued = profit * budget ratio * points redemption ratio

It is usually calculated based on a full year. Assuming the company's annual profit is 2 million, the budget accounts for 5% of the profit, and the points redemption ratio is 1000:1, then the maximum number of points that can be redeemed = 2 million*5%*1000=100 million points.

(5) Actual number of points issued

This requires counting the number of points earned by all users. The time must correspond to the maximum number of points that can be issued. If only half a year is counted, the maximum number of points that can be issued must also be calculated at half the rate.

Assume there are 10,000 users.

If each user obtains 12,000 points on average, then the actual number of points issued is 10,000*12,000=102 million points.

If each user obtains 8,000 points on average, then the actual number of points issued is 10,000*8,000=80 million points.

When the maximum number of points that can be issued is greater than the actual number of points issued,

This means that it is difficult for users to obtain points and the difficulty level needs to be adjusted in a timely manner.

When the maximum number of points that can be issued is less than the actual number of points issued,

This means that it is too easy for users to obtain points, which poses a cost risk and needs to be restricted in a timely manner.

(6) Points redemption rate

Points redemption rate = total points redeemed / actual points issued

For example, if a total of 3 million points are redeemed and 10 million points are actually issued, then the points redemption rate is 30%. Currently, the points redemption rate of domestic enterprises is generally between 15% and 30%.

If it is lower than this number, it means that your users' desire to redeem is too low and your redemption products are not attractive enough; if the redemption rate is higher than 50%, you should consider whether the redemption threshold is set too low and whether there are any cost risks.

(7) User utilization rate

User utilization rate = number of users using points / total number of users

For example, if 3,000 users have used their points and there are actually 10,000 users, then the user utilization rate is 30%. Currently, the user utilization rate of domestic enterprises is generally around 30%.

If the user usage rate is too low, it is necessary to strengthen the presence of points and carefully design both the acquisition and consumption stages.

In short, companies need to constantly update and track these data, continuously optimize and improve the entire points system, and naturally reap good results in the end.

3. Final Thoughts

To sum up briefly, if you want to build a points system, you can proceed in 4 steps: the first step is to determine the cost budget for points. There are usually two types of costs: fixed costs and floating costs.

The second step is to design the points acquisition method. There are usually four ways to obtain the information: novice tasks, daily tasks, consumer behavior, and dissemination and sharing.

The third step is to design the points consumption . Points can be consumed in five ways: points redemption, points deduction, points lottery, game consumption, and regular recycling.

Step 4: Focus on key indicators. There are 7 key indicators in total, divided into operational indicators and performance indicators.

Author: Yan Tao Sanshou

Source: Yan Tao Sanshou