Rewards are psychologically powerful tools for influencing behavior. People offer rewards to encourage strangers to help search for their lost items or pets. Grade schoolers will study extra hard on their spelling tests to earn a bonus recess. And my stubborn 8-year-old would probably still be in diapers if it weren’t for the power of stickers and M&Ms as potty training rewards.
For years, businesses have been harnessing the power of rewards to earn the attention of their customers and members. And with good reason. They work.
More businesses than ever before are now offering rewards programs. And collectively, the results show that rewards are a highly effective way to influence customer behavior. Depending on how the rewards are structured, they convince members to spend more, spend more often, pay an annual membership fee, refer their friends and/or keep coming back.
However, members only have a finite amount of attention to give, and an increasing number of businesses fighting for a piece of it. In fact, the consumers on average are signed up for 14.8 loyalty programs, but are active in less than half of them.
So the question becomes: How do you keep members engaging in your rewards program for years to come?
When you look a little deeper, it becomes clear that – while high-value rewards are important, of course – even more, members want to be able to redeem their rewards quickly and easily.
Rewards Programs: How to Secure Member Loyalty
For the businesses that provide them, many rewards programs require considerable investment. The potentially high cost to operate can intimidate some businesses wanting to start a new rewards program. (Note: they don’t necessarily have to. More on that further down this article.)
The good news is that big companies are seeking to protect that investment by studying in depth the relationship between consumers and rewards programs. And they’re willing to share the findings they’ve gathered.
- 86% of customers are more loyal to the brands where they participate in rewards programs (Citi Retail Services)
- 66% of consumers modify the amount they spend to maximize reward collection (Bond)
- After a positive rewards experience, 70% consumers visit the brand’s retail locations, over 40% follow them on social media and over 30% subscribe to their newsletter (Wirecard)
- Reward program members who have redeemed a reward are twice as satisfied with loyalty programs as non-redeemers (Bond)
- Mobile searches for “rewards app” have grown by over 90% in the past two years (Google)
Clearly, the mere promise of a reward is enough to get consumers to give your business a try. However, attention is fickle. It’s just as easy to lose as it is to gain—perhaps even easier—as evidenced by statics like these:
- Consumers’ top frustrations with the rewards experience include: long wait for reward (46%), confusing redemption process (34%), and tracking points (27%) (Wirecard)
- 45% of Millennials don’t join a loyalty program because it requires too many purchases to earn rewards (Kobie Marketing)
- 70% of consumers abandon loyalty rewards because it takes more than six months to accumulate enough points to redeem rewards (Maritz)
- 56% of shoppers have changed or abandoned a purchase when they realized their points had expired (CodeBroker)
- 57% of members do not know their points balance, and 38% are unaware of their points value (Bond)
The answer is clear. Members should be able to enjoy their promised rewards quickly (preferably instantly) and with little (preferably no) effort required of them. Right?
If that’s true, why do so many businesses require members to jump through many hoops to earn their reward? Why are businesses constantly devaluing their points? Why is the average time commitment to redeem 12, 18, even 24 months?
To understand, let’s back up and look at the history of rewards programs.
The Falling Value of Rewards Currency
Many rewards programs follow an “Earn and Burn” model. In this model, program members first EARN loyalty currency (most commonly called points or miles) by performing designated behaviors (most commonly spending money on purchases). Then, once they have accumulated enough points, they can BURN them by redeeming for their chosen reward (most commonly a selection of merchandise, gift cards and/or travel service).
Kelly Passey, president of Access Development, works closely with businesses of all types that are facing the hard decision to devalue their costly rewards programs. “If a member redeems for a $25 gift card, the business pays pretty close to $25 to provide that reward,” Passey said. “If a member redeems for a $200 night stay at a hotel, the business pays pretty close to $200 for it. Traditional rewards come with heavy price burden, and at the end of the day businesses need their rewards programs to stay profitable.”
When a program devalues its program, it lowers the purchasing power of each point. The end result is that members have to save up even more points before they’ll have enough to redeem. From the member’s perspective, all they see is that they now have to wait longer, work harder and/or spend more money, before they can finally enjoy the promised reward.
“When you devalue your points and miles, you’ve extended the runway it takes to get that liftoff you’re looking for, the one where the member is able to redeem for a reward and become even more engaged in your program,” Passey said.
As we showed in the statistics above, not every member will tolerate the added effort and time. Some will give up and refuse to play the game. But many more will simply forget about you because they never had any solid value to anchor their loyalty to. In total, consumers are sitting on $100 billion in unredeemed rewards points. That’s a huge amount of untapped loyalty potential.
According to a study by Bond Brand Loyalty, “satisfaction peaks as participants become eligible for rewards and drops off following redemption, making it important for operators to minimize time between redemption periods and progress towards the next redemption quickly.”
To make matters even trickier, the rewards program market is growing increasingly noisy. Looking back, it was only a decade or two ago that there were few rewards programs being offered. Now, if it feels feel like every mom & pop pizzeria is promising a free pizza for buying 10, that’s because 90% of businesses DO have some kind of consumer rewards program. And many of them are dangling extra enticing sign-up bonuses, hoping to hook new members early.
“Why do members keep signing up for the next rewards program, and then the next, but don’t stick around long enough to actually redeem?” said Passey. “Unmet expectations. Unfulfilled marketing promises. If consumers could find a rewards program that met all their needs and expectations for joining in the first place, that rewarded them with appropriate value for their time and investment, then they'd have no need to keep looking or be swayed to abandon and join other rewards programs.”
Collectively, US shoppers hold 3.8 billion memberships in loyalty programs. However, 75% of consumers actively earn and redeem rewards in just three or fewer programs on average.
So what can rewards programs do to stay both rewarding AND profitable (besides devaluing their points)?
Faster Earn + Faster Burn = More Successful Rewards Programs
The faster a business can reward members the better. This begs the question: how fast is fast enough? How easy is easy enough?
While there is no industry standard, most agree that 6 months, a year, 18 months or more is too long for members to wait before they have enough points to cash them in.
And this long wait isn’t only bad for the member. 62% of retailers who deliver loyalty program benefits in the first week of membership see a return on their investment within the first 6 months, compared to only 21% of retailers who deliver benefits within the first month.
“Why do businesses offer rewards in the first place?” said Passey. “If the purpose were to monetize their members, then it wouldn’t matter if a member never redeemed for a reward. However, most businesses want to establish a lifelong relationship where the member returns again and again. And there’s no way members are coming back unless they see the benefits right away.”
Successful rewards programs reward members fast AND often. So, if you’re a business looking streamline your rewards program, it might be helpful to break it into two parts.
The two sides to the equation are: Earn & Burn. And by looking at them individually, you can implement some powerful strategies that will lead more lasting loyalty.
Increase Members' EARNing Power
On the first half of the equation, people earn points for doing the behaviors you’ve chosen to reward them for. Some of the pain points they run into during this part of their journey could be frustration that the points aren’t adding up fast enough, or that the tasks are not fun or fulfilling.
So therefore, businesses need to find a way to amp up consumer’s ability to earn points faster and more easily.
On the bright side, human psychology is working for you. Rewards programs already take advantage of some elements of gamification. Every point earned is a little hit of dopamine, leading up to that big hit when a reward is finally earned. Just be aware that consumers are getting savvy to these tactics, and positive reinforcement only works when members believe the reward is within their reach.
If the program feels like too much work, or if it’s not fun anymore, they’re quick to abandon the effort.
In essence, to keep members engaged, you need to find a way to increase their sense of progress toward the reward. If they feel like the points are racking up fast, or that points are simple to earn, they’ll keep returning.
Here are a few ideas to increase members’ earning power:
Reward Non-Purchase Behaviors
This is powerful tool for businesses and can encourage members to take actions that will help your business grow and help you engage with them in more ways. For example, you can reward members for signing up for your mailing list, for interacting through social media, or by referring friends and family to join your rewards program. These and other engagements are so important to a program’s success that one study showed that 77% of loyalty programs that reward solely on “transactional behaviors” fail within two years of launch. This is amplified by the fact that 75% of consumers want to be rewarded for engagement beyond purchases.
Eliminate Points Altogether
It may sound like a radical idea to abandon loyalty currency or punch cards, but there are other options. Consider that 79% of consumers say they don’t want to accumulate points anymore and instead believe that loyalty programs should provide immediate benefits to maintain their loyalty. You can transport members straight from purchase to reward with membership perks like instant cash back, or by rewarding them just for signing up with exclusive discounts or insider content.
Award big points for big purchases
Nothing racks up the points faster than large purchases. And one of the largest purchases routinely made by consumers is travel plans. White label travel portals, like this one from Access Development, can be added to many types of rewards programs. The rewards can get as high as hundreds, or even thousands, of dollars in a single booking, deliverable as instant cash back or as an equivalent amount of your chosen loyalty currency. For example, $200 in savings on a hotel stay could equal $200 in cash back, or 20,000 bonus points (at $.01 per point). Either way, it’s a huge chunk of merchant-funded value that’ll be sure to turn the heads of members used to earning pennies at a time. It's a way to instantly juice the earn side of the equation and shorten the line of sight to redemption.
Team up with merchant-funded rewards
With the high cost of running a reward program, many businesses think the only choices are to foot the bill themselves or pass the cost on to members. But for those that are already rewarding members for shopping at other businesses, there is a third option: merchant-funded rewards. Merchant partners often have a budget of their own for attracting new customers and are willing to fund cash back offers, coupons or other rewards to draw your members to their location. Not only can merchants provide bigger, more enticing rewards per dollar spent, they’ll sometimes share the profits with you in the form of back-end revenue, further offsetting the cost of running a quality rewards program.
Create tiered membership levels
Do you have both free and a premium (paid) membership options? In a 2021 survey, 95% of businesses with traditional rewards programs have discussed adding a premium tier. And with good reason. Consumers want them to: 81% said they would likely pay to join a retailer’s premium program if they are already part of its free traditional program. Frequent users are willing to pay for better rewards including a better points earning rate, discounts, free shipping, etc. Just be aware that paying members expect more: 72% of them expect to see benefits immediately or at least within the first week.
Increase Members' BURNing Power
The second half of the equation comes when members finally exchange their accumulated points for real-world rewards. Some of the pain points that prevent members from taking this last step may include that the options are too limited, that they can’t figure out how many points they have, or that it’s been too long and their points have expired.
Therefore, businesses need to empower their members with the options and the knowledge they need to succeed.
Unfortunately, many businesses hold to the traditional “catalogue” of limited gift cards and merchandise to choose from, along with their one-size-fits-all redemption processes.
Even worse, some businesses actually hoping members will sign up and earn, but never burn their points. This is called breakage and those who rely on it to make their profits are missing the point.
It’s important for members to make it to the crucial step of redemption as quickly as possible. That moment when they finally hold their reward in their hands helps cement their loyalty to you.
Here are a few ideas to increase your members’ redemption power:
Give More Redemption Process Options
Rewards programs have evolved over the years, from paper punch cards, to plastic membership cards to all-digital programs. And while not every member is the same, one thing is clear. Most consumers use mobile phones as a digital hub for all financial and shopping services: everything from mobile pay to storage of digital coupons, discounts, and—you guessed it—rewards program management. In fact, 71% of shoppers say they would be more likely to use loyalty cards if they could access their cards and rewards from mobile phones. If members have everything they need at their fingertips, ready to go when they are, they’re less likely to forget.
Diversify Rewards Choices
For some, this may mean adding reward tiers with different price points. This way members can get a quick win by redeeming for smaller rewards at an easily-attainable price point. Others who are so inclined will have bigger rewards they can aspire to and save up for.
Ensure Easier Tracking, Clear Communication, Reminders, etc
Members respond positively when you remind them about their rewards. Consistent communication is an important component of member engagement, and rewards reminders give you another reason to communicate your value with members, and keep that sense of excitement going. Emails that alert members to earned reward points have at least 50% and as much as 300% higher redemption and click-through rates. And consumers themselves admit they would visit or purchase from a store more often if they did a better job of communicating how many points they have (40%).
Sprinkle in Surprise Rewards & Other Alternate Perks
There are lots of options for “just because” perks you can add to help round out a rewards program. A well-placed membership perk reward can help you re-engage members who haven’t earned in a while, or intensify the excitement of your top earners. Some member favorites include “happy birthday” freebies and “we miss you, please come back” promotions.
A Future Solution: Let Members Pay with Points
One exciting new solution in development is the technology to convert points into a true wallet. With it, members will be able to use their points from multiple rewards programs anywhere they want as real currency at the point of sale. Beta tests are showing that members are more than willing to trade a little of their points’ value for the huge increase in relevance, immediacy and convenience. In fact, 43% of consumers surveyed said they would pay a points premium for this convenience. “The day of the catalogue is dead,” said Passey. “Today’s consumer is looking for more. Sometimes that means more value, sometimes more options, sometimes more convenience. Always, it means more options.” This is good news for providers too, as new solutions can eliminate the cost of storing all those goods and gift cards in warehouses.
Engage Your Members with Faster, Easier Rewards
At the end of the day, rewards programs tap into some of our most primal urges. Science has shown that our human brains are hardwired to prioritize instant gratification over long-term goals. We develop cravings to repeat experiences that feel good. We’re more likely to continue in behaviors after receiving positive reinforcement, and stop behaviors where we’ve received negative punishment.
That’s why successful rewards programs take the necessary steps to make the process fun, fast and painless.
“People want to save money, be smart, feel savvy, stretch their discretionary dollars and take home pay,” said Passey. “We all like to be rewarded.”
If you’d like to discuss how to give your rewards program the boost it needs to resonate with your members, contact the experts at Access Development.
- Everything You Need to Know About Merchant-Funded Rewards
- Breakage Bad: When a Loyalty Program Stops Being a Loyalty Program
- The Top Ten Benefits of Customer Retention
- What a (Well Done) Discount Program Can do for Member Benefits
- How to Create Customer Loyalty from Points and Loyalty Programs
Topics: Rewards Programs, Ongoing Incentive Programs, Merchant Discount Network, Discount Programs, Payment Card Rewards, Access Development, cash back rewards, consumer behavior, rewards, member acquisition, member engagement, customer loyalty, white label travel solutions