How to improve user active loyalty?

Nowadays, with the continuous development of the e-commerce industry, many consumers now choose to shop on e-commerce platforms. Therefore, e-commerce apps have also launched some points-based operations. A reasonable points system can retain users and increase conversion rates. The author of this article shares his thoughts on improving user activity and loyalty. Let’s take a look.

The point system is becoming more and more common nowadays: Taobao, JD.com, Suning, all major e-commerce apps have a point system; China Mobile, China Unicom, and China Telecom, the three major operators also have a point system; even offline supermarkets, convenience store chains, and milk tea and coffee shops have a point system.

What is the value of the points system that can be seen everywhere? The main value of the points system is to increase user activity retention and cultivate user loyalty. User activity retention and user loyalty are one of the most important goals of a product and directly affect the user's life cycle value, so the points system is very popular in Internet products.

However, the premise of everything is to improve a reasonable and sustainable points system.

This article shares with you the design and operation of the points system in a comprehensive manner. The full article is long and the structure is as follows. I hope it will be helpful to you.

1. Understanding the Points System

1. Definition and function of the points system

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.

So what is the points system? The points system, which can also be called the "virtual currency system", is a systematic mechanism centered on points, with the rules for obtaining and consuming points as the framework, and the points gameplay as the main content.

The points system plays an important role in Internet products, mainly in 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. Pay for new users: Encourage users to perform key, high-value behaviors within the product to achieve new users/payment. Points are feedback incentives for user behavior, mostly directed at key new customer acquisition/paying behaviors.
3. Tiered operations: Rapidly stratify users by value based on points and conduct differentiated tiered operations. The 80/20 principle of user stratification, which states that 20% of high-value users contribute 80% of revenue, determines that the operating strategies and actions for top users and mid- and tail users will be different, and points are a simple and direct stratification method.

2. Products eligible for the points system

Although the points system is valuable to products and users and is highly flexible and versatile, common retail e-commerce, life services, content information, online education and other products can all be involved in the construction and operation of the points system.

However, when a product meets certain characteristics, it is more suitable to create a points system:

• The product meets users' medium and high frequency needs and has operational value. For products with naturally low frequency of demand, the points system has limited effect on improving user activity;
• The user life cycle in the product is long and has an operating time. The user life cycle here refers to the user demand cycle. For example, for driving test products, most users have a life cycle of 3-6 months, or even shorter. After getting a driver's license, users no longer need to use the product, so the operating space is short and it is not suitable for a points system.
• The product provides relatively rich user functions and has room for operation. This feature excludes some early tool products with a single function. If a photo product currently only has the function of photo beautification, the user's behavior on the product is single, and it is difficult to guide the user to generate high-value behavior through the point system. Only after the functional modules and profit model are further enriched and improved, it is appropriate to consider the point system.

In addition to focusing on the product's features, it's also important to consider where in the product's life cycle it is.

The product life cycle generally includes the introduction stage, growth stage, maturity stage and decline stage, and each stage has different focuses. The points system is generally suitable for construction in the middle and late stages of the growth period and for long-term operation.

Products in the middle and late stages of the growth stage have been verified by the market and users, have a certain degree of stability and sustainability, and the user scale has reached a certain level. User activity retention and loyalty determine the subsequent user scale and user value, so this is a suitable time to invest in building a points system.

2. Build a points system

Let’s look at how to build a points system, which can be divided into three steps.

1. Determine the budget/value of the points system

Points are subsidies given by the platform to users, and the platform needs to bear the corresponding costs, so points mean expenditures and the cost budget needs to be considered.

The most commonly used method for confirming the points budget is the fixed proportion method, which takes a certain proportion of the platform's sales/profits as investment in the user points system. However, the points system has uncertainty in actual operation, and it is necessary to pay attention to costs and benefits in a timely manner and adjust the expense budget accordingly.

In addition, the specific value of the points needs to be set, that is, how much money 1 point is equal to. The value of points should take into account the difficulty and frequency of users obtaining points, the acquisition and consumption cycle, and the product's budget for points.

The value of points in Internet products is mostly 1 yuan = 100 points. Other occasionally common ratios include 1 yuan = 10 points and 1 yuan = 200 points. Other excessively high or low point ratios are not uncommon.

An exchange ratio that is too high, such as 1 yuan = 1,000 points, will result in users having too many points and a weak sense of the value of points. An exchange ratio that is too low, such as 1 yuan = 1 point, will reduce the operating space of the points system and will not be able to effectively motivate users' daily behavior. The number of points users have will generally be low.

2. Design points acquisition to reward high-value behaviors

The points system is an effective cycle of point acquisition and point consumption. Let’s solve the problem of obtaining points first. How do users obtain points? What actions are required?

For products, points are rewards for users' high-value actions (HVA). High-value actions refer to actions that enable users to directly or indirectly create value for the product, such as shopping, attracting new users, and visiting.

For users, they are willing to complete designated behaviors to obtain points because points have practical value. Users obtain points by participating in point tasks and completing designated high-value behaviors required by the tasks.

Therefore, the design points acquisition can be divided into two steps:

• Identify high-value user behaviors;
• Design a points task system.

1) Identify high-value user behaviors

Users' high-value behaviors can be divided into core behaviors and non-core behaviors. Core behaviors refer to user behaviors that directly affect the core indicators of the product (or called North Star indicators), and their number is relatively small; non-core behaviors refer to other behaviors that indirectly affect core indicators, that is, they can promote the occurrence of core behaviors, and their number is relatively large. The two types of behaviors have different values ​​for the product, and therefore require differentiated points reward rules.

Core behaviors are directly related to product goals and are generally easy to identify. For example, the core behavior of users in e-commerce products is placing an order.

Non-core behaviors mainly use the path decomposition method to break down the path that users take to complete core behaviors and find key non-core behaviors. In e-commerce products, non-core behaviors include browsing activities, viewing products, following merchants, adding to shopping carts, recommending friends, etc.

2) Design a points task system

Different behaviors have different values, and the corresponding reward points are also different. High-value behavior + point rewards form a point task. Multiple point tasks constitute the main way to obtain points - the point task system.

Core behaviors have a direct impact on the core indicators of the product. The value created is easy to calculate and measure. Clear reward rules are set based on the ratio of the value created by the behavior and the subsidy cost. For example, you can get 1 point for every 1 yuan you spend.

The impact of non-core behaviors on the core indicators of the product is difficult to calculate and measure accurately. Based on the conversion relationship with the core behaviors and the frequency and difficulty of the behaviors, relatively low point rewards are set.

High-value behaviors and reward points are designed and packaged to form a point task system. Users can obtain point rewards by participating in point tasks. However, tasks targeting core behaviors mostly exist in the form of basic rules and are not directly reflected in the task system.

Ele.me’s points task system clearly distinguishes between ordering tasks (core behaviors) and browsing tasks (non-core behaviors), and the corresponding points rewards are also significantly different.

3. Design point consumption to form a closed loop of retention

Let’s solve the problem of points consumption. How do users use points? What are the consumption channels?

From a product perspective, most points systems exist within a single product, and the acquisition and consumption of points occur within the product closed loop. In the process of using and consuming points, users are further retained and guided to generate new consumption.

From the user's perspective, points are rewards for users performing high-value behaviors, and users understand and recognize their value. Only when users use their points within the product to obtain discounts or other exclusive benefits can user awareness be strengthened and points acquisition be promoted.

Points consumption can be divided into active consumption and passive consumption. Let's look at them one by one:

1) Active consumption - exchange of goods

Exchanging goods is the most common way to consume points. Using points as currency to circulate within products has lower user understanding costs and is more conducive to a stable cycle of point acquisition and consumption.

It includes the redemption of physical goods and virtual goods (coupons, memberships, etc.). The combination of the two can better meet users' points consumption needs.

2) Active consumption - points redemption

The value of points has been made clear when designing the points system, and it is relatively simple to redeem points for cash. Moreover, the point redemption function realizes the direct binding of points and currency, which enhances the purpose and value of points.

When using points to redeem cash, we need to pay attention to the risk of loss of users after using their points and the risk of malicious cheating. The following ideas and methods can be used:

1. Set a threshold for using points to offset cash (points can only be used to offset cash when the purchase amount reaches 50 yuan);
2. Set the cash discount ratio for the order amount (up to 50% of the order amount);
3. Set the minimum number of points to be used (the number of points that can be used to redeem cash is an integer multiple of 200);
4. Other risk control measures (real-name authentication, data monitoring, user model).

3) Passive consumption

In order to ensure the controllability of points costs and the cyclical nature of points operations, points will be set with a certain validity period, which is generally 1-2 years, and unused points will be processed after the expiration date.

The points processing methods include direct cancellation upon expiration and random redemption upon expiration. Direct cancellation upon expiration means that the points earned in a specific period will be canceled after a certain time (relative) or at the end of each year (absolute). Random redemption upon expiration means that the expired points will be randomly redeemed for designated goods or rights, generally virtual goods and rights.

After these three steps, the main framework of the points system is completed, which is a framework for points acquisition and points consumption based on points budget and value. Points acquisition promotes points consumption, and points consumption also promotes acquisition, forming a reinforcing loop. The next step is to make this cycle of points acquisition and consumption work better.

3. Improve the points system

1. Points system gameplay activities

Under the basic framework of points acquisition and points consumption, points gameplay activities can increase the playability and richness of the points system and better enhance user participation.

1) How to earn points

The point-earning gameplay increases the ways and fun for users to earn points, and is a packaging upgrade for point tasks. In essence, it still uses points as rewards to promote users' high-value behaviors.

Common ways to earn points include:

1. Sign in to get points: users can get fixed/random/tiered points rewards by signing in continuously;
2. Multiple orders and points: Users who complete multiple orders within a certain period can receive large points rewards;
3. Invite to get points: Invite friends to buy specific products and you can get specific points as rewards.

Sign-in and multiple orders are common. Let’s take a look at VIPKID’s activity case of inviting friends to buy courses and earning points:

VIPKID’s points activity uses a tiered points reward rule to incentivize a variety of behaviors, including sharing on WeChat Moments, collecting likes on WeChat Moments, and inviting friends to purchase courses. It progresses step by step from non-core behaviors to core behaviors, incentivizing users to spread the word and attract new users, thereby obtaining points rewards.

2) Points Consumption Gameplay

Timely consumption of points is the guarantee of an effective points system. The slow and delayed consumption of points means that users have low recognition of the consumption method and the value of points. Points consumption gameplay activities can better improve the consumption of points and promote the cycle of points acquisition and consumption.

The point consumption gameplay is mainly probabilistic, such as raffles, treasure hunts, and check-in sharing. Users consume points to obtain the right to participate in gameplay activities, taking advantage of the user's gambler mentality of risking a small amount for a big gain, and promoting the consumption of their points in the gameplay.

Let’s look at some product examples: NetEase Yanxuan’s lottery is direct and effective, using points to exchange for lottery opportunities; the lipstick machine uses gamification to increase user participation while also consuming user points; Ele.me’s check-in and share allows users to invest points to bet, check in and share, taking into account both point consumption and user activity.

Points provide the motivation and carrier for gameplay activities and are highly flexible. Corresponding gameplay activities need to be selected based on product and operational goals.

2. Design and operation of points mall

The main way to consume points is to redeem goods, including physical goods and virtual goods. Centralizing the items for redeeming points into a points mall, rather than dispersing them throughout the points system, can enhance users' stable understanding of the value of points and how to play, and increase user participation in the points system.

So under what circumstances is it appropriate to create a points mall for the points system? The following three requirements must be met:

1. For non-comprehensive e-commerce products, the goods in the mall have the exclusive nature of the points system;
2. Users have a high frequency of earning points and need a stable consumption path;
3. We attach great importance to investment in the points system and hope to use the points system to build user loyalty.

Let’s take a look at how to design and operate a points mall:

1) Points Mall Design

The core of the points mall design is the product, and two key issues should be paid attention to:

How can users be more willing to redeem goods? To solve this problem, we need to ensure the value and richness of the goods.

How can the platform pay lower costs? The solution to this problem can be to think about the premium and source of the goods.

Looking at the two issues and their solutions: the sense of value of a product also means that the product has a high premium; the richness of a product is also affected by its source.

To ensure the value (premium) of the product, you can choose exclusive limited edition products or customized products based on product IP, and use the quality, brand and scarcity of the product to enhance the value of the product and bring in a high premium.

The richness (source) of goods can be a combination of physical goods and virtual goods, and internal goods and external goods.

The product designs of VIPKID and China Mobile Points Mall are more in line with the above ideas:

2) Points Mall Operation

A complete points mall is a merchant store or even a small e-commerce platform, which requires certain operational actions to improve the effective operation of the points mall.

The core of the points mall operation is still the circular framework centered around points acquisition and points consumption, focusing on points consumption, enhancing user recognition and use of points, and even generating profits.

The main operating methods include:

1. Product iteration: Maintain periodic product iteration and optimization, and conduct content planning and promotion to maintain user recognition of the mall;
2. User interaction: Increase the interaction between users and the mall, such as posting orders and awarding prizes, adding new gift voting, and taking photos of gifts for selection;
3. E-commerce activities: limited-time and limited-quantity discount redemption, points purchase (points + cash to purchase gifts), and combination redemption discounts.

3. Points system data driven

The basis for the smooth operation of the points system is to optimize the regulation based on data analysis, pay attention to the core indicators of the points system, and maintain sensitivity to the operation of the points system. In addition to the monitoring of daily points acquisition, usage, inventory and further split data, it is necessary to focus on three key indicators:

1) Number of users by points level

Points are the currency within the product. The distribution of users under different points levels is like the distribution of rich and poor people in real society. The number of points users needs to focus on and solve two problems: polarization and slow circulation.

Polarization means that there are many users with few points and many users with many points, but few users with points in the middle. The essential problem is that new users have low participation and are overly dependent on loyal users. It is necessary to achieve tiered operations to stimulate the acquisition of new users and promote consumption of old users.

Slow turnover means that the number of points and the population are stable and the speed of increasing points is slow. The essence is that user participation is low and points are not continuously acquired. It is necessary to enrich the gameplay and increase the value of points.

2) Points utilization rate and usage cycle

An effective points system is a rapid cycle of points acquisition and points consumption. The points utilization rate and usage cycle can reflect the health of users' acquisition and consumption of points. If the usage rate is low and the usage cycle is long, it means that users have low recognition of the points and are dissatisfied with the way the points are consumed. It is necessary to increase the consumption methods and gameplay accordingly to enhance the value of the points.

3) Points input and output

The low input-output ratio of points indicates that the points system has low value to the product, the point value design is unreasonable, and rewarding high-value behaviors does not bring the expected benefits. It is necessary to adjust the point budget and value from the foundation and optimize the iterative points acquisition and consumption methods.

IV. Extending the Points System

In products, the points system often coexists with the membership system, and there are even level systems, achievement systems, and identity systems, which are all components of the user growth incentive system; the goal of the user growth incentive system is user activity and loyalty, and then the pursuit of maximizing user value.

The membership system is a privilege system/growth system. After users pay to become members, they can enjoy the combined rights and interests within the product, which is privileged. Non-member users do not enjoy these exclusive membership benefits.

The points system is an incentive system. Users can obtain points as rewards by performing high-value behaviors, and the points can be consumed and used, which is universal. The difference between users is reflected in the number of points they have.

The membership system and the points system have different focuses, but both serve the goals of maximizing user loyalty and value. Moreover, more products have both systems, or integrate them to provide all-round operations to users.

In addition, the points system is more often operated within a single product, but since points have monetary characteristics, they can be extended to explore cross-product and cross-platform points systems to create an ecological points system.

V. Conclusion

The goal of the points system is to increase user activity retention, cultivate user loyalty, and obtain user value. In addition, we should also focus on creating value for users. The points system serves the products and also serves the users.

The process of users "earning points" and "spending points" within the points system is their "life" within the product. Enabling users to "work hard to earn money" and "spend money happily" is the only principle for the smooth operation of the points system.

Author: Wu Yijiu

Source: Wu Yijiu