It’s no secret that earn & burn programs can lead to unforeseen consequences for your business, as unspent loyalty points may create financial liability on the bottom line. Finding a way to encourage these members to redeem loyalty points not only reduces your liability but also increases the engagement factor of the program.
The Challenge of Unspent Points and Point Redemption
77% of the UK adult population participate in loyalty programs. Customers see the value in joining, but amazingly 3m customers have never claimed their rewards. On average there are £47 of unspent loyalty rewards per person, which equates to £6bn of unspent rewards in the UK and over $360b worldwide. Can you imagine what a boost to the economy that would be if everyone started redeeming loyalty points? With COVID significantly impacting several industries where loyalty programs are prevalent, there is an opportunity to drive customers to spend, by unlocking that unredeemed value.
CFO’s are not a fan of the accounting around earn & burn loyalty programs, but customers love points-based programs. They are easy to understand and create a tangible value exchange. In turn, they are highly effective at driving frequency, a measurable ROI, and customer lifetime value.
So, with that in mind, how can you reduce liability to decrease the impact on the bottom line plus keep customers and CFOs happy?
1. Remind customers about point expiration
Have a clear plan for points expiry, with a trigger CRM program to encourage customers to ‘burn’ the points, ideally personalized to their preferences and shopping behaviors.
Some airlines and hotels even offer the ability to reinstate points for a fee, and some of them have detailed expiration policies.
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. Offer experiential rewards
Create an earn & burn program that allows customers to redeem loyalty points for products, promotions, and experiences rather than traditional cashback systems.
We are seeing more companies building experiential benefits into their loyalty programs, which takes the pressure off liability in comparison to more-traditional rewards. Experiential rewards also contribute to the more emotional side of loyalty, which is an important component of successful programs.
3. Allow members to spend points on special events
Create a ‘Burn’ that’s charity or community-related as opposed to cash-back systems, because it drives more emotional relevance. This is a great way to support local causes and re-distribute charity budgets to a more targeted experience that brings customers on the journey with you.
By encouraging customers to redeem loyalty points on noble causes, you develop an emotional bond with members as you align yourself with their values. Moreover, if the event is successful, customers will be more inclined to keep buying from you to accumulate points for future charities.
4. Create emotional loyalty benefits
Avoid the traditional earn & burn approach, and build a reward system with emotional and functional benefits including events, personalized discounts, and services like ‘book & shop’.
Sparks is a great example of an effective reward program with over 7 million members, that rewards customers through gamification, personalized offers, and charity donations. My John Lewis, in a similar vein, has focused on surprise-and-delight treats, and events across categories to build an ‘experience’ with its brand and products.
5. Encourage points swapping through loyalty wallets
Digital wallets, such as Swapi, allow brands the opportunity to reduce their points liability while offering customers the ability to swap points in the Swapi marketplace for points, products, and promotions from other brands.
Being able to redeem loyalty points across multiple brands can be a huge selling point for a loyalty program, as the potential for fun and exciting engagement grows significantly. Now there’s a serious emphasis on earning points, which they can spend on a larger catalog of rewards.
Don’t Let Customers Sit on Their Points
However, you decide to reduce points liability, ensure that the experience for the customer is clear, simple, and feels like a fair value exchange. Whilst liability is a frustration for businesses, the bigger picture of loyalty should outweigh the short-term impact of financial liability. Loyalty programs should drive valuable business assets, from the rich customer data they provide and their ability to influence customer behavior, frequency, customer lifetime value, and brand advocacy over time.
If you wish to learn more about enticing reward design for a loyalty program, feel free to download our ebook.
