4 steps: Build a private domain points system from 0 to 1

Everyone should have come into contact with points! When the points reach a certain amount, they can offset the cost, or get a discount, etc. The following article is the author's summary of the content on building a private domain points system, which can be used as a reference for students who work in operations.

Nowadays, 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.

In fact, the main purpose of brands and merchants designing points is to maintain customers for a long time and retain users. This also coincides with the essence of private domain traffic operation, and the core is also to operate user relationships. Therefore, the establishment of a points system is also indispensable in the private domain, and it also plays a vital role in activating the private domain traffic pool and retaining users.

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 bluntly, 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 the continuous active retention of users 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 clarify the specific steps and framework. If you just do it blindly, building a points system 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 in the design phase is cost control. Depending on the business model, different companies have completely different cost plans for building a points system. There are two common plans: 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 prepaid cards, etc., it is generally recommended to adopt fixed costs, estimate one year's revenue in advance, and then apply for a certain budget.

For example:

1. Calculate the company's annual revenue.
2. Confirm the points budget amount. Most companies control the points budget between 1% and 5% of revenue. For example, if the company's annual revenue is 10 million and the ratio is set at 3%, then the budget is 300,000.
3. Confirm the actual usage of points. If users get 1 point for every 1 yuan spent, 10 million yuan of revenue corresponds to 10 million points. Based on the industry's 30% point usage rate, the annual point usage is 3 million points.
4. Determine the points redemption ratio: Points usage/budget = 3 million/300,000 = 10:1.
5. The points operation is 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 to consume once more per month, the profit can increase by about 2,052 yuan a year. Therefore, Haidilao is well aware that appropriate concessions and maintaining old customers are more beneficial to the long-term development of the company.

2. Design of points acquisition

We need to learn how to let users actively earn points and ensure the frequency of interaction between users and brands. In addition, in order to control costs, we need to pay attention to two points during the design process:

1. List user behaviors and assign key weights based on the behaviors;
2. Design the integral value of each behavior according to the weight.

Below I divide the most common user behaviors of enterprises into four categories: novice tasks, daily tasks, consumer behaviors, and communication and sharing. The reference points are given below.

1) Newbie 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:

• Bind your mobile phone +20 points
• Bind email address +20 points
• Upload avatar +20 points
• +20 points for first purchase/post/share
• Complete personal information +20 points

2) Daily tasks

Daily tasks include signing in to earn points, logging in to earn points, daily interactive behaviors of users, 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: 1 month is 1 cycle, and you can get up to 150 points per month
• Daily login +1 point
• +1 point for visiting the page, maximum 1 time per day
• +1 point for each post, maximum of 3 points per day
• +1 point for user comments, up to 3 points per day

3) Consumer behavior

Points can be returned according to a certain proportion of the user's consumption amount to encourage users to repurchase. The reference proportion is 1%-2% of sales.

4) Spread and share

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 requirement to get points. For example, you can get 10 points if you watch iQiyi for 30 minutes, and you can do it 3 times a day.

For online education, you can set up points for completing courses. For example, for every minute of class on Tencent Classroom, you can get 1 point, and the maximum daily points is 100.

3. Design of points consumption

The way of consuming points is the best way to let users feel the benefits of points. Only with consumption can users have the motivation to obtain points. Usually there are five ways of consumption, including point redemption, point exchange, point lottery, game consumption, and point 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) Redeem 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 in Alipay.
3. Coupons. For example, Jingdong coins can be exchanged for discount coupons.

2) Points redemption

This method is to exchange points in the form of "points + a small amount of cash", which can not only help merchants flexibly control the cost of point exchange 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:

1. Set a threshold for using points to redeem cash (points can only be used to redeem cash when a certain amount is reached)
2. 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 are attractive, take advantage of the user's gambler mentality of risking a small amount for a big gain, and promote the consumption of their points during the game. You also need to ensure that the user has a certain probability of winning, and it is best to ensure that the user is 100% likely to win.

4) Game consumption

Using games to attract users can increase user activity. Common simple types include lipstick machines, scratch cards, roulette wheels and other lottery forms. Of course, the more vivid and complex the game is, the higher the profit may be.

5) Points recycling

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.

Traditional enterprises usually do not have such strict control over points, and the validity period is relatively long; however, the Internet industry has a periodic limit on points, and the validity period is not 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, it 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 of indicators: one is operational indicators and the other is effect indicators.

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

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, including: the maximum number of points that can be issued, the actual number of points issued, the points redemption rate, and the user utilization rate.

4) Maximum number of points that can be issued

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

Usually it is calculated based on a full year. Assuming that 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 period should 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 should also be halved.

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=100 million points.
• If each user gets 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, it means that it is difficult for users to obtain points and the difficulty level should 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, it means that it is too easy for users to obtain points, which poses a cost risk and should be restricted in a timely manner.

6) Points redemption rate

Points redemption rate = total points redeemed / actual points issued

For example, if 3 million points are redeemed and 10 million points are actually issued, the redemption rate is 30%. Currently, the redemption rate of points in 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.

Final Thoughts

To sum up briefly, if you want to build a points system, you can go in 4 steps:

1. Step 1: Determine the cost budget of the points. Usually there are two ways: fixed cost and floating cost.
2. Step 2: Design of points acquisition. Usually there are four ways to acquire points: beginner tasks, daily tasks, consumer behavior, and communication and sharing.
3. Step 3: Design of point consumption. Points can be consumed in five ways: point redemption, point deduction, point lottery, game consumption, and regular recycling.
4. Step 4: Focus on key indicators. There are 7 key indicators in total, including operational indicators and performance indicators.

Author: Yan Tao WeChat public account: Yan Tao Sanshou