Loyalty points systems have become increasingly prevalent, promising a myriad of benefits for both companies and customers. However, despite their popularity, these programs are not without their flaws. It is important to identify potential problems with loyalty points systems and explore potential solutions to overcome these challenges. Drawing inspiration from Philip Shelper’s comprehensive guide, “A Global Perspective: Loyalty Programs – The Complete Guide,” we will explore common issues and solutions to consider.
The Elusive Redemption Conundrum
One of the most significant issues plaguing loyalty points systems is the challenge of redemption. Many customers accumulate points over time, only to face obstacles when attempting to redeem their rewards. This issue arises due to several reasons including limited options for redemption, complex rules, confusing conditions and high redemption thresholds.
Limited Options for Redemption
Loyalty programs often offer a restricted range of redemption options, such as specific products or services. This limited selection can frustrate customers who may desire more diverse rewards that align with their preferences and needs.
Many programs, such as Qantas Frequent Flyer program and Velocity offer a diverse range from redeeming points for flights through to physical goods such as a Thomas Sabo bracelet. Another example is Telstra Plus. Members have a very limited range of electronic and technology items to redeem upon (personally, I am surprised this hasn’t been extended into other major household categories).
However, I have personally found the points value assigned to some physical goods misaligned to actual real-world cost. Customers are savvy: in most cases they can do the math.As points are a form of currency, each business sets the currency exchange that is customer facing. For example $1 = 100 points or $1 = 1000 points. What is the value of these points to a customer when deciding on a program? What can a customer use their points for?
There are a number of factors a business needs to critically consider in regard to redemption:
- the accrual process for points gained by customers and inclusion in a separate liability ledger until redeemed
- the amount of value internally attributed by the business to each point
- is the value proposition for redemption creating a positive engagement with the members
- what is the redemption rate and what is driving this.
Businesses need to understand the value that drives their members behaviour and ensure their program at least: meets these expectations and meets the goals of the business.
Solution: To overcome this limitation, companies should expand the range of redemption options to meet their customers’ needs and expectations of modern loyalty programs. This can be achieved by collaborating with a network of partners across various industries for example, a coalition alliance through affiliates. By offering a broader selection of rewards, loyalty programs can cater to a wider audience and enhance the overall customer experience.
When businesses partner, they can potentially unlock B2B and wholesale discounts which will improve the commercial business case. This will allow an opportunity to increase the amount of redemption options.
Complex rules and conditions
Another stumbling block faced by customers is the complexity of rules and conditions associated with loyalty points systems. These frameworks often include convoluted expiration policies, blackout dates and confusing tier structures, making it difficult for customers to navigate the program effectively.
Solution: KIS = keep it simple. Simplifying the rules and conditions is key to improving the customer experience. Clear and concise guidelines should be established, ensuring transparency and ease of understanding. Additionally, loyalty programs can leverage technology to automate and streamline the process, reducing customer confusion and frustration. By providing reminders before expiry of points, loyalty programs continue to provide value and connection to members.
Customer experience needs to be top priority when creating rules. By having a simple structure for earning and burning, it will make it a positive and seamless interaction for the customer. Everyday Rewards is extremely simple for their members where they collect 2,000 points and receive $10 off your next purchase.
It is also in the best interest for the business when designing the loyalty program to have simple rules and conditions. The business needs to be able to communicate how the program works to internal stakeholders to ensure any rules engines are accurate. One area that gets forgotten too often is the sales and call centre reps that need to assist with enquiries. Businesses need to ensure they are equipped with all the mechanics of the program and ability to assist for refunds, saving tool etc.
High redemption threshold
High redemption thresholds act as a deterrent for customers aiming to redeem their hard-earned points. When customers perceive it as excessively challenging to reach the minimum threshold, they may become disengaged and lose interest in the loyalty program.
Many luxury hotel chains have high thresholds before customer can benefit, for example six-night stay minimums.
Businesses that have high redemption thresholds could potentially face negative brand association. In competitive industries, with no incentive from the loyalty program, customers will seek other options to fulfill their needs.
Solution: Lowering redemption thresholds can incentivise customers and promote active participation. By making rewards more attainable, loyalty programs can foster a sense of achievement and encourage customers to remain loyal. Moreover, personalised offers, tailored to individual customers’ spending habits, can further motivate customers to engage with the program.
Businesses need to find the balance on the volume that is redeemed. Loyalty program business case will have a redemption rate that influences the affordability of the program. By segmenting customers or providing tiers, a business can provide more personalised offers to influence redemption. For example, many tiered programs provide more benefits to higher spending customers to influence basket size.
Overall
While loyalty points systems have the potential to be effective tools for customer retention, they are not without their flaws. The biggest problem lies in the difficulty customers face when attempting to redeem their rewards. However, through strategic measures, such as expanding redemption options, simplifying rules and conditions and lowering redemption thresholds, businesses can overcome these challenges and create loyalty programs that truly resonate with their target audience. By implementing these solutions, businesses can enhance customer satisfaction, strengthen brand loyalty and ultimately drive business growth.
The business needs to ensure a clear business case is created for the loyalty program. This will then be used to assess success measures such as redemption against customer segments.
