Have Loyalty Card, Will Not Redeem Points
Does your keychain hold more loyalty card fobs than keys?
If you are part of the typical American household, then the answer could very
well be yes. According to the 2011 Colloquy Loyalty Census, the average
household holds 18 loyalty program memberships.
Today, there are over two billion
memberships in the U.S., up 16 percent from 1.8 billion in 2008. In Canada,
the number of memberships has grown roughly four percent since 2009.
According
to Colloquy, the total value of points (and miles) issued to U.S. members in
2010 came to $48 billion. Roughly one-third of those rewards, however, go unclaimed.
Another
survey of consumers by Capital One Financial found that 57 percent of consumers
had not redeemed points in the past three months. According to a Dow
Jones Newswires report, "Cardholders often cited the difficulty
of redeeming the rewards, a lack of flexibility or a dearth of attractive redemption
options."
A New York Times piece suggests that companies offering
rewards should work together to make programs more "interchangeable." The
same piece pointed to Upromise as one of the few programs where consumers could
accrue points from "competitors within industries and companies in different
industries" in
a single account.
A blog by Sonali Verma on The Globe and Mail website
equated loyalty programs with religion. "Either you’re a true believer,
or you’re not. The first group loves the idea of getting something for nothing.
(One of my colleagues went all the way to China and back on her reward points.)
The second group cannot be bothered to collect points, even if it means leaving
money on the table."
- The Billion Member March: The 2011 COLLOQUY Loyalty Census Growth and Trends
in Loyalty-Program Membership and Activity – Colloquy - All About Your Unused Rewards Points – The New York Times
- Capital One: Card Rewards Programs Fluster Some Consumers – Dow Jones Newswires/The
Wall Street Journal - Points of no return: Tips on rewards – The Globe and Mail
Discussion Questions
Discussion Questions: Is it a good or bad thing from a business perspective that so many consumers have loyalty cards yet don’t redeem perks? What would constitute the perfect loyalty program in your mind?
Come on now…the whole idea of appearing to ‘pay back’ customers for their loyalty was that they wouldn’t in fact take the ‘gift’. Isn’t that the strategy behind gift certificates–that people would buy them and not use them? Ergo–free money.
Heck we all know that making it hard to actually use points (Can you spell “air miles”?) was a deliberate part of the strategy.
I am not surprised by the findings. While key fobs make it easy enough to garner points, redeeming them requires effort and time. Also, unflatteringly, it seems that some of the programs make the redemption process unnecessarily burdensome. It is like having clipped coupons and forgotten to bring them to the store. Will you still buy toothpaste? Yes, of course. Same thing with rewards. It’s a nice-to-have, but probably won’t make or break the sale on many items.
It’s good that so many people have loyalty cards, but bad that they don’t use them. There must have been something that attracted consumers to join the program, but those same programs are failing if they don’t hold the attention of consumers. It should be as easy to earn rewards as it was to join the program.
At grocery, most programs allow consumers to buy selected products at reduced prices. That doesn’t build loyalty. It only shows that the prices on the selected items were too high to begin with. Most grocers don’t make good use of the data they collect from consumers, thereby missing another loyalty opportunity.
A good loyalty program should be easy to join, offer plentiful rewards at multiple redemption levels and should be used to tailor offers with high perceived value to consumers.
Let’s remember that after you scrape off all the marketing hype, loyalty cards were created to benefit retailers, not consumers.
From fueling the fires of POS data engines to providing a built in infrastructure for marketing new products, and an endless number of applications in between, many (please note I didn’t say “most” or “all”) loyalty programs get more than they give, especially when the “benefit” to consumers offers an opportunity to brand switch, buy things they don’t want and get their email boxes full of commercial spam.
The most successful loyalty programs are those that build actual loyalty and that’s a standard many of today’s programs fail to meet which is why we all have so many of those little key tags–many for directly competitive retailers!
As with most things there is good and bad in this situation for the issuer. The good news is that people appear find the loyalty programs worth joining indicating that they intend to make a reasonable number of purchases from you. The bad news is that they may join competitive companies’ programs as well. For example, I fly mostly on one airline but do belong to a number of other airlines’ loyalty programs. When everyone in the competitive set offers a loyalty programs (airlines, supermarkets, etc.) consumers see them as just part of the offer and I believe they lose a lot of their appeal.
Before the accounting rules changed “breakage” (points earned but never redeemed) was seen as a good thing. Today the unredeemed points are both good and bad. As the issuer you have to carry them as a liability but don’t incur the expense of actual redemption. Some programs allow you to make a payment to keep your points even when they are set to expire. I recently did so with one airline as it was far cheaper than taking a flight and I had enough miles for two round trip tickets.
An ideal program would be one so compelling that the participant would always select to make their purchase from the issuer even though they may have its competitors cards on their key chain. What would that look like–that would depend on the consumer.
Successful loyalty programs analyze the data and create offers targeted to specific groups of consumers or individual consumers. If all the cards allow for is amassing points requiring the consumers to figure out the terms (and small print) of the programs to be able to use the points redemption will be low. As a result, that kind of program does not create loyalty. Programs that use points and make redemption easy or individualize offers to consumers result in building loyalty. Retailers can design programs to generate loyalty or just allow the consumers to accumulate points.
Loyalty cards have become a cost of entry. Shoppers expect them, but consider them a mild nuisance (one more thing to do at checkout). They generally don’t have a clue which items they bought were “on sale” unless they read their receipt later. Increasing the payout to shoppers, for competitive differentiation, isn’t now built into the financial model. Given what is, for the most part, a no-win situation, Kroger does the best job in grocery, via data mining and attractive offers targeted to specific shoppers.
It would be interesting to know what effect easy redemption has on actual customer loyalty. CVS makes it relatively easy to redeem value (walk in, scan your card, get free store credit) while the airlines make it relatively difficult. Does this affect customer behavior?
I’ll bet the majority of unused “points” are airline miles and gasoline discounts. Airline miles are so hard to use that it is better to focus your effort on finding low cost flights. US Airways even charges you about $50 to redeem points for a flight. For many people, especially those who do not drive a lot, the gasoline discounts are not worth much. On the other hand I have found the Hilton Honors hotel rewards easy to use though they have significantly devalued their “currency.”
I view the grocery loyalty cards as necessary to avoid being overcharged, but I suppose the people who don’t care enough about what they pay to use them do help subsidize the rest of us. As far as some loyalty programs that work–in my view the Staples program, the Target RedCard 5% discount, and the Smokey Bones frequent diner club.
The message isn’t altogether getting through to those who offer loyalty cards. British Gas–one of our biggest suppliers of both gas and electricity–recently joined the Nectar card scheme. One of their extremely aggressive salesmen tried to persuade me yesterday that offering me Nectar card points would be a great reason to switch to them as my power supplier. Poor man, I hope he isn’t holding his breath while he waits for me to think it over. No way.
The best loyalty programs for the consumer are the one that actually, easily and quickly rewards them for their loyalty. The longer the time frames between the activity to acquire the points and the time to get the reward, the less meaningful they become.
The supermarket that surprises me most often with discounts when I check out is the one that I frequent the most. The drug store clerk that asks me if I would like to apply my $5.00 reward to my purchase is the one I return to. The airline that treats me like a first class high priority passenger, even when I fly coach is the one I prefer to fly. The hotel that upgrades my room to the concierge level, guarantees me a room within 24-hours, gives me early check in and late check out and free internet is the one that gets my business.
From the business side, the best program is the one described above, because it keeps me coming back and that is the objective.
From the business side, the best program is the one described above, because it keeps me coming back and that is the objective.
A few points: 1) It is an oxymoron to call a frequent-shopper program a loyalty program when we have competitors’ memberships that are being used concurrently. We are “forced” to join supermarkets’ programs only to ensure we receive the discounts at the POS. It’s a bothersome, unnecessary step in the transaction process. Upon checking out, we are surprised at the amount we saved. 90% of the time, we would’ve purchased the items regardless of the discounts. This breaks marketing rule #1: Never give an unwarranted discount.
2) We in retail too often focus loyalty programs around the products rather than around service. What if a supermarket offered a “premier line” for large orders that had three employees performing the transaction to speed up the process. Customers could qualify by spending $150 / week. Jewel in Chicago did something similar to that 30 years ago. What goes around comes around.
3) What are the compelling characteristics of the travel and hospitality industry loyalty programs that could be applicable to our businesses? We DO try to fly one airline and stick with one hotel chain, right? Why? Because we are truly rewarded with tangible benefits. Many don’t even cost anything, like their “premier line.”
Yet to be mentioned in this discussion are online loyalty programs. Perhaps because they don’t involve key fobs. I’m a preferred ecommerce customer at both Zappos and Lands’ End, receiving automatic perks – and sometimes unexpected but very pleasant “surprise perks” – when I order. And as for the idea that I am somehow charged for these perks in a hidden, subterranean fashion, I’ve compared prices, brands, and quality elsewhere and both of these retailers are consistently competitive. Usually with the lowest price. Zappos isn’t just shoes, of course. Among a bunch of other stuff, they sell Levi’s 501s at the best price I’ve found, with free overnight delivery. And for Jimmy Fallon fans, do you remember the song he and his group recently sang, “I was a 34, but now I’m a 36?” The guys reading this know what I’m talking about. News flash: Zappos has Levi’s with 35″ waists! Still with the great price and delivery.
That loyalty program members don’t redeem their points can only be bad news. It’s a clear indication that the member isn’t engaged with the brand. Still, this shouldn’t come as a surprise. In one survey or another, consumers have been telling brands for years that they find point redemption to be cumbersome and that when they do want to redeem points, the rewards are not what they seek.
There are several aspects to creating a good loyalty program, but two stand out. One, lead with the tenet that the program is another part of the brand experience, not the sole experience. If members don’t like the brand first, it’s unlikely they’ll ever like the brand’s loyalty program. Two, offer rewards that members actually want. Those rewards can take any form, and shoppers who are already engaged with the brand will tell retailers what they want. Retailers just need to survey the customers and then take their responses to heart by actually working hard to turn the customers’ desires into real rewards.
The term “loyalty card” is really a misnomer, because there are obvious exceptions, but the general rule is that shoppers are NOT loyal, period. It’s a shared fiction that some retailers and some shoppers participate in. Even the suggestion about pooling rewards shows that it isn’t about loyalty.
When you segment shoppers on a loyalty basis, the “hard loyals” are those who are dedicated to the retailer, never shop elsewhere, and would never consider switching. Even so, one year later, half of the “hard loyals” are gone–no longer in the group. This is a general problem, not just with loyalty, but with all kinds of segmentations. At best, if well done, it gives you a snapshot. But people are not static and individually reinvent themselves–at least in some aspects–on a continuing basis.
This discussion also has a bearing on the “loyalty” of Canadians, under consideration elsewhere here at RetailWire today.
A few thoughts on the articles cited and the latest reporting from Colloquy:
1. Watch for multiple new market offerings attempting to solve for the breakage problem. In the next 12 months, consumers will have many new options to consider.
2. Another recent research report from ACI Worldwide noted that “62% of members polled said they had not heard from half or more of their retail loyalty program since enrollment”–marketers have to spend more time on communications and learn to work in new digital channels.
3. There is a wave of innovation coming to re-tool loyalty and rewards programs. We may see, less cards, less points, but the fundamental concepts re-positioned to help brands “get ahead of the transaction.”
4. It’s not going to be your keychain that’s overloaded in the future, you’ll just need to add memory to your smartphone!
When will we call these programs what they really are–price management programs? If they had ‘value’ and were creating ‘loyalty’, they would work–wouldn’t they?
They have everything to do with managing price and nothing to do with ‘loyalty’. This message should ring loud and clear about the millions spent on these programs that are nothing more than a distraction internally to retailers and an nuisance to customers. If they were anything but a nuisance, there would be very few unredeemed points or rewards.
They only reward being gained out of all this nonsense is the card/key fob manufacturers, the consultants, and the data storage suppliers that are making millions upon millions for the data storage piling up that is either poorly utilized, bad data or not utilized at all.
Reading through the comments, there certainly was a lot of jargon but very little reality.
The items that Doc Banks mentions are things that create loyalty. These types of retailers utilize my personal data as a ‘personal salesperson’. They are actually creating loyalty and an experience. Experience is what makes us return time and time again. Every time I make a purchase from Zappos, I shake my head wondering “How’d they do that?” That type of amazement is related to my experience and my decision to return. For most customers, a key fob has never done that and never will. They simply weight down a key chain and make them think twice about returning.
If we really need to have more discussions about these types of things, we’d do all of ourselves a better service to discuss the “How’d they do that?” experiences rather than unredeemed points. We knew that result prior to any of the programs launching. In many of these, it may have been the expected result. When you use them to manage price intentionally or unintentionally, this is what happens.
Loyalty cards have in my opinion lost the luster over the years, as a more simple and quicker way to save is now the way to shop. Consumers do not like to feel stupid, when they get to the checkout counter, and are asked to produce their loyalty card to save 50 cents. Give them instant offers, and sales will grow.
I consider myself a typical customer, as well as a retail consultant and journalist. I buy groceries at Winn-Dixie for in-store savings and use the card to get my gasoline discount at Shell. I use my Delta American Express for my charges to build on my free miles balances so I can take additional trips and stay in Hiltons because their card is wonderful and is always giving me additional points for my stays. I have two Visas which accumulate miles for Southwest and Hilton–again never a problem to redeem and use. I buy my books on my Books A Million card; I use my Smoothie King punch card, etc. etc.
Am I overwhelmed with cards? No. Only three basic charge cards and perhaps 8 to 10 loyalty cards but the word LOYALTY is correct. I am loyal because I value them and what they give back to me. I go out of my way to find these places and buy from them because of the benefits I enjoy. Call me old fashioned, I guess. (Sort of like the old adage, “I dance with one that brung me,” and as long as they don’t mess it up–I’m going keep on doing it that way!)
I do believe the programs work. I don’t mind the myriad programs because I simply won’t carry any of their fobs, cards or whatever. As long as my phone number is enough, I’m in and happy.
What I do NOT believe will work going forward is intentionally building a program that makes it difficult to redeem the benefits. I do like points programs that let me choose where to spend…but I understand entirely that most retailers will continue to offer only their own products as benefits. What does toast my cookies is not being able to easily redeem them.
If you can tally my points at the register with just my phone number, let me redeem them in the same fashion. Whatever “won’t be redeemed” calculation is being used to inflate the program needs to be backed out. Offer half the benefit knowing everyone will use it.
Otherwise your customer won’t believe you actually want to reward them. The new consumer just won’t take it.
The posted articles and discussions are so interesting and they do reveal one thing that cannot be disputed. There are as many opinions on the value, perception, and future of loyalty programs as there are loyalty programs.