Cannabis Loyalty Program: How to Design Attractive Program Benefits

An effective benefit structure is a balancing act between making it attractive to customers and achieving the program objectives.

After reviewing the extensive loyalty research literature and conducting in-depth interviews with cannabis consumers, we have found that the following three benefit types are particularly valuable to cannabis consumers:

Benefit type 1 – Discount offers

A discount offer is the quickest and easiest benefit to set up, since it doesn’t involve managing physical rewards or organizing special events. So if you are just starting out, discount offers are a valuable tool in your benefit toolkit.

However, discounting as a marketing strategy has serious drawbacks:

  • General discount campaigns are largely ignored by customers because of their low relevance. 
  • Competitors are probably offering similar discounts.

Stand out with personalized offers

Personalized, highly-relevant discounts tailored to a customer’s preferences is a solution to discounting’s shortcomings. If a customer is a big Purple Haze flower fan, you bet they would not ignore a 10% off on Purple Haze. 

A successful example: British retail giant Tesco’s promotional efforts are carefully targeted to its members. Four of every six of its Clubcard discount vouchers are for goods that members already purchased within the past eight weeks, while the other two are for related cross sell/upsell items. While the industry average for coupon redemptions is between 1 and 2 percent, between 15 and 20 percent of Tesco coupons are redeemed.8

Personalization used to be a secret marketing weapon enjoyed only by big companies with large marketing budgets. Fortunately, the advancement of artificial intelligence has now made personalization technology affordable and accessible to smaller businesses too. We will discuss how to implement personalized offers in the implementation section of this whitepaper.

Benefit type 2 – (Almost) free rewards redeemable with points 

How to give out rewards legally?

States like California have laws that prohibit dispensaries from giving away any product for free (this includes both cannabis and non-cannabis products).16 However, there are ways to use rewards while staying compliant:

  • Charging an ultra-low price for rewards (e.g. 5 cents). Liquor stores are restricted by similar laws and have been successfully running this type of promotions for years. For example, BevMo has a long-running “buy one bottle get one for a nickel” wine promotion.
  • Offer free upgrades to premium brands or larger package sizes. For example, upgrade an eighth ounce to a quarter ounce. 

What makes a reward attractive?

An attractive reward needs to have high perceived value. Studies show there are three elements that determine customers’ perceived value of a reward:17

  • Cash value of the reward
  • Aspirational value of the reward
  • Perceived likelihood of achieving the reward

When selecting rewards and assigning them point values, make sure to keep these three criteria in mind.

What rewards should I offer?

There are many goodies you can offer as rewards: 

  • Cannabis products (e.g. flowers, pre-rolls, concentrates)
  • Cannabis paraphernalia (e.g. rolling paper, trays, grinders)
  • Dispensary-branded apparel (e.g. T-shirt, beanies, baseball cap pins)
  • Virtual goods (e.g. a series of cool mobile background images of cannabis under the microscope)
  • Let your imagination run wild.

Customers perceive some rewards as more valuable than others. Is a free dispensary-branded T-shirt (an indirect reward unrelated to the core product) as valuable as a free pre-roll (a direct reward similar to the core product)? Is an instant spin-to-win (an immediate reward) more valuable than a sure-win redeemable in the future (a delayed reward)? These are important questions and we have the answers for you based on academic research:

For products that are highly-involved (meaning consumers care a lot about the product), direct rewards are perceived as more valuable and consumers do not care if the reward does not come immediately. On the other hand, for low-involvement products (e.g. toilet paper), consumers want to get the reward right away, but do not care if the reward is unrelated to the product they purchased.26

Cannabis is a highly-involved product – most cannabis consumers we interviewed say they care a lot about their cannabis and are very involved with the products. Therefore, dispensaries should offer direct rewards that are highly relevant to cannabis, and it is O.K. to make the customer work towards it for awhile before reaching the reward. In short, delayed pre-rolls are better than instant T-shirts.

How many points should a reward cost?

When determining a reward’s “point price”, the anchor point should be customers’ perceived value of this reward. The actual reward cost does not matter. For example, if you acquired some signed Cheech and Chong posters at $20 each to use as rewards, but your customers value them at $70 each, your reward point price should reflect the $70 value.

It may take a few months of adjustments before you find the right point pricing that makes an reward attractive while achieving your program objectives. Make sure the finance and marketing departments work together on this effort as we need both teams’ expertise.

Don’t miss out on strategic rewards

(Almost) free loyalty rewards are perfect incentives for customers to try new things, thanks to the power of free. A smart dispensary should take full advantage of rewards’ role as a free sample stand. Here are some ways to offer rewards strategically:

  • Cross sell, upsell with rewards

If a customer likes live resin, maybe a cured resin reward would help them expand their resin pallette. If a customer likes Blue Dream flowers, maybe a Blue Dream hash will introduce them to the joy of extracts. Just like personalized discount offers, personalized rewards are much more effective than generic rewards.

  • Test candidate product with rewards

Want to find out if your dispensary should carry that new product? Test it out first as a reward! You can get immediate and insightful customer feedback (especially if you request feedback through your loyalty program mobile app) that will help you make informed decisions.

Benefit type 3 – Exclusive preferential treatments

Some researchers believe that customers perceive access to exclusive preferential treatments as more valuable than rewards and discounts.8 The feeling of exclusivity as well as the actual benefits can help dispensaries instill customer loyalty without feeding into the discount culture and devaluing products.

To provide you with inspirations, we have compiled a diverse list of exclusive preferential treatments successfully deployed in the cannabis industry (plus a few from other industries):

Exclusive services

  • Member-only smoke lounge
  • Access to VIP budtender services
  • Express delivery
  • Express in-store pick-up
  • Extended product return
  • Satisfaction or money back guarantee
  • Special phone numbers for priority customer service
  • Free gift wrapping
  • Free alterations (fashion industry)

Exclusive publications

  • Member-only newsletter with exclusive new product intros
  • Quarterly magazines about cannabis lifestyle and know-how

Early access

  • Early access to seasonal or sale merchandise
  • Early boarding privileges (travel industry)

Exclusive events

  • Cannabis workshops
  • Holiday gift soirees
  • Member community events
  • Cannabis farm tours
  • Member-only closeout sales
  • New cannabis product demos
  • Invitations to parties with major designers (fashion industry)
  • Preferential access to trunk shows of major designers (fashion industry)

Studies show that members of communal loyalty programs have much stronger loyalty and less likely to switch compared to noncommunal programs.18 However, keep in mind that organizing an engaging community event takes substantial efforts, so strive for low frequency but high quality.

These exclusive preferential treatments are not usually redeemed with points, but are associated with program tiers. Different tiers would have access to different benefits levels.

By Nora Chen