Why don’t people redeem loyalty points anymore although they went through the trouble of signing up and are actively collecting points or miles.points, loyalty points, miles

Why don’t people redeem anymore?

By  Tarek Ghobar , Co-Founder .

It comes as a surprise sometimes too many loyalty program managers in the industry that members do not redeem their reward points or miles as often as they like, if at all. They went through the trouble of signing up and are actively collecting points or miles, however, thousands of customers still do not utilize such schemes in the right way. In fact, some e-commerce reward programs report a redemption rate as low as 1%, which is a very expensive loyalty scheme to maintain by all measures and should be re-evaluated or killed. This is however very important for companies as it measures true engagement with the brand and at the same time gives invaluable insights to what the customers want.

For loyalty managers, the buck always ends with you. All the analytics and insights are in vein if the basic expected requirements to catch the customer’s ‘redemption attention’ is not present.

First and foremost, are the rewards offered relevant to your customer base. Traditionally loyalty redemptions have been about a one size fits all model: everyone earns points, and everyone has the same redemption options. With all the information available today about customer behavior, information that companies already have, this is a very outdated approach. Banks are especially falling behind in keeping their customers redeeming and engaged, with many taking the shortcut of co-branded cards instead. When spending behavior on the card, frequented locations, travel history, marital status, etc. all being available for intelligence insights, it is mind-boggling how hundreds of reward programs still rely on basic redemption options through a third-party store or basic vouchers from any partner offering them a discount. According to the HelloWorld Loyalty Barometer report of December 2017, 77% of consumers want personalized rewards. So no matter how many subscribers a loyalty program has if the rewards being offered are not relevant to the customer base, engagement is doomed from the start.

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A second important element is a communication. Most members of a loyalty program typically receive a monthly or quarterly newsletter with the number of points or miles in their account, a flashy link to the company website for the latest offers, and that’s it. Such emails are usually automated, with the same information on redemption options being cycled through. This might be sufficient for very active members who have a redemption target, such as frequent flyers for example who are double-checking how far they are, but that is a small percentage of the entire member base of airlines loyalty programs. Being visible with the redemption partners is key as well, which is why most airline loyalty programs are displayed at car rental kiosks for example. However, in today’s digital age, this is an expensive game. Very few loyalty programs are advertising online with the redemption partners, and with the users being online, this is a missed opportunity to communicate with users.

Looking at a typical reward program today, the method of redemption is far less appealing to the new generation than what is being offered. Which brings us to the critical junction where the conversion rate is determined, convenience. Having a reward store and a one-stop shop for the different offerings seemed like a good idea 15 years ago, but bringing the customer to that store is where the problem lies today. From an e-commerce analogy, customer acquisition cost (CAC) is one of the most important metrics in determining if an online store is heading towards success or not, and companies are spending billions in advertising to fight for the customer’s attention. A reward store will not be able to compete for customer time online unless the CAC of the loyalty program skyrockets, let alone a store designed with a great checkout experience (have you experienced the Amazon 1-click checkout?). Some airlines and banks in the Middle East still require members to redeem through the phone with an agent and go pick that voucher from a branch.

The question of redemption rate is as old as the loyalty industry itself, and with over $100 Billion in unredeemed points and miles globally, unlocking redemption with the right partners and the right channels has endless possibilities for brands to give their customers real value through the reward program and see their engagement grow.

PointCheckout is a payment gateway for loyalty points, helping loyalty programs extend their redemption options to thousands of online stores and producing AI-powered analytics on user behavior to power brands for better engagement with their members. Get in touch directly on hello@pointcheckout.com

Last Updated  July 28, 2019