To spend or not to spend your loyalty points? For marketers, this may seem like a non-issue. After all, customers hoarding points doesn’t hurt anyone; they either spend them eventually or, if not, then the company saves on reward costs… right? The stark reality is that program members sitting on their loyalty points can actually hurt your brand — both financially and through lost opportunities. This guide is dedicated to exploring the reasons why it is good for your business when customers spend their points, and what the best practices are to ensure they keep redeeming.
Key Takeaways & Actionable Insights
- Customers usually don’t spend half of the loyalty points they earn
- Letting members sit on their points causes liability, even fraud
- Tracking point redemption is an indicator of the program’s success
- Possible solutions include reward auctions, prize wheels and point swapping
If you wish to learn more about the most up-to-date loyalty program trends, statistics and benchmarks, make sure to download Antavo’s Global Customer Loyalty Report 2023.
The Challenge That Comes With a Point-Based Loyalty Program
Point-based or earn & burn loyalty programs have become a staple in the industry for a reason. They are easy to implement, and simple to understand. Your customers can immediately grasp how much value their money brings, and it’s not hard for them to estimate how many purchases are needed to earn the rewards they want. However, a large percentage of the earned loyalty points never live to see redemption.
The easiest way to track unspent point is by keeping an eye on point breakage. In short, point breakage is a metric that’s used to assess the financial liability that comes from unredeemed points. The most common calculation for point breakage is to divide the number of unspent points by the total of points collected. If this ratio is above 30%, your loyalty program is in trouble.
It’s quite difficult to gauge how many unspent points are currently circulating. A Gartner report a couple of years ago claimed there were over $140 billion in unspent loyalty points in the US alone, while other sources say that the total amount of unspent points across the globe is worth $48 trillion. Nevertheless, Antavo’s Global Customer Loyalty Report 2023 found that 48.6% of points earned are redeemed by loyalty program members. This means roughly every second point customers receive will never be used. In the same report, we found out that the lifetime value of members who have redeemed points at least once is 6.3X higher than those who never redeemed.
Here are a couple of reasons why your customers might decide against spending their points:
- The reward they like costs too much
- The rate of earning points is too low
- They don’t like any available rewards
- They are bored by the loyalty program
- They only log in during peak seasons
Why Is It Good For You When Customers Redeem Their Loyalty Points
The truth is: unredeemed loyalty points are an unavoidable part of any loyalty program that uses a spendable currency. It’s simply impossible to achieve a 100% redemption rate in a reward system. But that doesn’t mean you shouldn’t intervene if you see your customers sitting on their points. Here are five reasons why too many unredeemed loyalty points should worry you:
Reason #1: More Points Mean More Liability
When it comes to loyalty points, think about them as a specialized currency. Sure, members won’t be able to spend them anywhere else, but they can still use them to claim coupons and rewards that have a real-world cost on your end. Think about it this way: it impacts your bottom line differently when a customer claims two $5 dollar coupons each month vs. redeeming 10 coupons at once, each worth $20, just because they sat on their points for years.
Reason #2: Unspent Points Pose a Security Risk
Fraud in loyalty programs isn’t as uncommon as you may think, unfortunately. From a hacker’s perspective, spear phishing an account full of unspent points is an easy payday. It doesn’t matter what led to the fraudulent activity — a crack in your security, or a moment of a member’s negligence — members will expect you to return their lost account and loyalty points. If you can’t (or won’t) do it, chances are high that members will turn their back on your brand.
Reason #3: Taking Away The Points Will Anger Customers
The problem with giving customers something (in this case, loyalty points), is that you can’t really take it back without backlash. In a loyalty program member’s eyes, points are theirs because they worked (or rather shopped) hard to get them. Losing loyalty points due to point expiration always leads to a bad experience, even if it’s justified. Some customers may even decide to abandon the loyalty program — and even the brand — if it happens.
Reason #4: For Coalition Programs, Point Redemption Makes or Breaks Business Relationships
Managing point liability is especially important for coalition and umbrella loyalty programs. For instance, in the case of a mall loyalty program, tenants often need to “buy” the loyalty points that are handed out to customers for their purchases. Then the mall finances the rewards that customers can buy with said points, thus compensating the tenants for their investment. This cycle of clearing and settlement will break down if members don’t use their points, because the tenant’s money will sit in the circle indefinitely. This could easily sour the relationship between the mall and its tenants.
Reason #5: What’s the Point of the Loyalty Program If Members Don’t Use It?
Last but not least, if customers don’t redeem their points… what’s the point of having a loyalty program? The point of a reward system is to shape customers’ relationships and views of your brand, and for that, you need frequent interactions. Low redemption rates in a loyalty program won’t move KPIs and are unlikely to deliver a high ROI. In the end, without a healthy point economy, the loyalty program will only rack up costs, as customers who don’t spend their points will either churn or simply never become frequent buyers.
10 Ways To Stop Customers From Sitting on Their Loyalty Points
CFOs are usually not a fan of the accounting around earn & burn loyalty programs, but it’s undeniable that they create a tangible value exchange. With that in mind, here are 10 strategies to reduce liability to keep both your customers and CFO happy.
1. Remind Customers About Point Expiration
Have a clear plan for points expiry that you clearly communicate to customers — so when it happens, it won’t catch them by surprise. Expiration emails are the standard way to gently encourage customers to ‘burn’ their points, ideally personalized to their preferences and shopping behaviors. Some airlines and hotels even offer the ability to reinstate points for a fee, and several have detailed expiration policies.
Inspirational Example: Benetton
Naturally, point expiration emails aren’t the only way to combat unredeemed points. After noticing too many unspent points on member’s accounts, United Colors of Benetton created a survey asking members why they hadn’t redeemed loyalty points, and how they could do better. That’s a nice way to balance the expiry message with a customer-centric approach.
2. Stock Up on Unlimited Rewards
Another widely used tactic in loyalty programs is to have a list of rewards that can be redeemed in unlimited quantities. Doing so ensures that customers always have something to buy with their points, in case they want to make an unplanned purchase. But to avoid hurting their bottom line, they balance this out by adding conditions to the reward itself. For instance, a member can buy as many $20 coupons as they want, but the voucher can only be applied if the order value exceeds $100.
Inspirational Example: Modanisa
International eCommerce fashion platform and retailer Modanisa runs a fully mobile, multi-country loyalty program powered by Antavo. A strength of the reward system is that members have a wide range of benefits to choose from. That means members don’t have to wait until they get 100 points for a big reward — they can spend the 50 points they already have on a smaller reward.
3. Offer Branded Merchandise and Experiences
Coupons and free shipping are hygiene factors in the loyalty industry. Members expect them, but you need to show rewards that have true emotional value if you seek to build long-term engagement. This is where physical gifts and branded merch & experiences come into the picture. If you want customers to redeem their points, a package of limited-edition product samples or an item signed by an influencer is more likely to catch their attention.
Inspirational Example: Rip Curl
The Rip Curl membership program, Club Rip Curl, is built around passion and inclusivity. Empowered by Antavo’s technology, the program has two key selling points: members can earn points by enjoying their favorite sport, surfing, thanks to a sports tracker being integrated with the loyalty platform; and members can spend their loyalty points directly on Rip Curl-branded apparel, accessories and surf equipment.
Thanks to its surf-centered loyalty program, 97% of Club Rip Curl members have made at least one purchase and the overall purchase frequency has increased by 22%. Find out more in our case study.
4. Allow Members to Spend Points on Special Events
If coupons are the heart of financial rewards, then special events and experiences are the pinnacle of emotional rewards. For airports, this might be one-time access to the VIP lounge. Fashion retailers may organize influencer parties and invite their most valued customers. These rewards are usually quite costly, so they are a great way to get customers to redeem a large amount of points.
Inspirational Example: Marriott Bonvoy Moments
Marriott Bonvoy Moments offer a huge selection of luxury and adventure rewards, ranging from culinary to sports and entertainment. Ranging from a cooking course in a Michelin-star restaurant, to a concert in Dubai’s Coca-Cola arena, or a luxury stay at a Malibu villa, Marriott Bonvoy Moments has something dreamy in most major cities around the globe. The rewards come at a high cost, but the experience is totally worth the effort.
5. Let Customers Buy Gamification Tickets
Gamification is the perfect habit builder in a loyalty program. The rule of thumb is to incentivize repeatability. For instance, if you have a Prize Wheel, give customers a free spin every now and then…but after that, subsequent spins of the reward wheel should require members to spend points. Since people love the thrill of games, they will burn through their unused points in no time.
Inspirational Example: Yeo Valley Organic: Yeokens
Organic dairy product company Yeo Valley runs a loyalty program powered by Antavo, Yeokens, where members can earn Yeoken tokens by entering special codes on products. Tokens can be used to spin the aptly-named ‘Dairy-go-round’, a prize wheel that members can spin three times a day in hopes of winning freebies. In addition, Yeo Valley Organic also regularly hosts raffles that members can enter using their Yeoken tokens.
6. Impress Everyone With Partner Rewards
Running a flashy reward system with high-end benefits can be costly. Luckily, if you want to diversify your reward portfolio, you don’t have to do the heavy lifting all by yourself. By working with partners who contribute offers, discounts and gifts, you can boost both quantity and quality. In addition, partner rewards help you cast a wider net on member interests, so it’s more likely that they’ll find something they can’t wait to spend their points on.
Inspirational Example: American Express
Earn & burn programs and partner rewards are the perfect match for credit card loyalty programs, due to the high frequency of purchases and the huge affiliate network these companies operate in. For instance, American Express cardholders can redeem their points for a variety of rewards, including travel benefits, merchandise and gift cards, provided by well-known airlines, hotels and retail partners.
7. Encourage Point Donations to Charity
By allowing customers to offer their unused points to charity, you can solve two issues at once: first, you can reduce point liability in a stable manner. Secondly, supporting noble causes helps to build an emotional bond with customers, who will see your business in a more favorable light. This brand love may then translate into advocacy, as they spread positive word of mouth about your brand and loyalty program.
Inspirational Example: P&G
American consumer product company Procter & Gamble (P&G) heavily emphasizes charity in its loyalty program, Good Everyday. The loyalty program has a long list of charitable causes, which it frequently updates. In addition to letting customers donate their existing points, each receipt upload yields a bonus donation to one of these noble causes.
8. Put VIP Privileges on Sale
In most loyalty programs, VIP privileges like early access or priority access to customer service are high-tier benefits. But what if members could skip the grind and buy themselves into this special position? This is possible with an insider club within the loyalty program, which requires a fee to enter, paid in points. Those who enter the insider club get access to the VIP perks.
Inspirational Example: Priority Pass
Priority Pass is a standalone membership program that provides access to a network of airport lounges worldwide. Some loyalty programs, like American Express Membership Rewards and certain credit card programs, offer Priority Pass membership as a perk. Members can use their points to obtain Priority Pass membership and enjoy access to VIP lounges.
9. Implement Point Swapping
Sometimes customers don’t redeem their points simply because they are members of too many loyalty programs. Therefore, they have a lot of points they would love to spend, but they are scattered around many different loyalty program accounts. Umbrella loyalty programs or point-swapping marketplaces are one potential solution, as they let members combine different loyalty currencies into a unified account.
Inspirational Example: Swapi
10. Introduce Reward Auctions
My last piece of advice to help members burn through their points is to implement a raffle or reward auction. The great thing is that you only need to offer a handful of high-value rewards to get members invested, who then need to use their points to buy raffle entries or bid on the rewards.
Inspirational Example: Hilton Honors
Hilton Honors, the loyalty program by Hilton Hotels & Resorts, offers periodic auctions in its “Experiences Marketplace.” Members can bid on unique experiences, such as concert tickets, sporting events, and travel packages, using their Hilton Honors points.
Earn & Burn Is an Infinite Cycle
If you paid attention and implemented the right solution, it’s unlikely that you have to worry about too much point liability. Nevertheless, customer expectations are always changing, so you have to stay on top of your loyalty game so that the experience doesn’t get stale.
And if you wish to learn more about the most up-to-date loyalty program trends, statistics and benchmarks, make sure to download Antavo’s Global Customer Loyalty Report 2023.