It's an age-old theory that if you create a loyalty programme on high breakage that the numbers in the business case will add up nicely.

This era in loyalty programme thinking is strictly over. There is a direct correlation between loyalty programme performance and redemption (i.e. the reverse of points breakage). Brands, which operate with high redemption, are facing a potentially high attrition rate amongst its database.

In a recent study by Bond Brand Loyalty, a US-based consultancy firm, they state that programme members who do not redeem are 2.3 times more likely to defect than those who redeem in the past 12 months. In the work that Truth delivers for its clients, we see that this statistic plays out. The lower the redemption rate of programme rewards, the less likely the brand is to retain its customers.

Brands have begun to realise that true value for the customer lies in high redemption rates, which in turn, also reduce the weight of loyalty points liability on the balance sheet. As soon as you manage to drive redemption levels upwards, attrition rates decline and retention levels stabilise and increase. This proves the theory, time and time again, that a retained customer is of more value than throwing marketing money purely after customer acquisition.

Some brands guard their redemption rates close to their beating loyalty heart, but others more openly share these. It is not a new statistic from the loyalty industry in South Africa, when I quote Johan Moolman, CEO of eBucks (voted year on year as the top retail banking loyalty programme in the Truth BrandMapp annual loyalty whitepaper):- eBucks sees a 89% redemption rate of their loyalty currency, which towers over the global average of 60%. This skew towards higher redemption is a strong indicator of 'programme health'. There are months when Johan states that the quantum of eBucks redeemed that month equals or exceeds the volume of eBucks earned by its members.

On the contrary, programmes failing to reach the industry average of 60% redemption or higher may find their programmes are too complicated for customers to earn or redeem rewards or that the rewards on offer are simply unappealing or irrelevant rewards, leading to subpar redemption rates.

However, what are the opportunities for brands to circumvent low engagement and a decline in redemption rates?

The key will be to drive continuous and frequent engagement (such as Discovery Vitality Active Rewards) for small, daily activities with your clients through a platform which can either reward on a small basis (like a coffee voucher) or with daily opportunities to win big or save up rewards for big rewards (e.g. 5 star luxury stay at a beach resort). It is not clear or obvious which customers want small, frequent rewards or wish to save up for the bigger, more valuable reward. The same customer may want both!

Such ideas range from 'normal' redemption of points against products or services, redeeming to charitable causes, using points to bid on 'money can't buy' type experiences or redeeming against lifestyle offers. Companies need to think of innovative and creative ways to allow customers to redeem in order to stay engaged and motivated to keep earning more rewards.

Article has been provided by Truth