Some companies in India boast about loyalty programs that generate reward redemption rates of 10-15%. In truth, low redemption rates could indicate fundamental problems with the program. Kelly Hlavinka, Managing Partner, COLLOQUY, explains why, and what companies can do to embrace redemption.

1. Customer Loyalty
Loyalty Mantra: The Power of Reward
Redemption By Kelly Hlavinka
Y ou've invited good friends to a
dinner party numerous times,
but they've consistently failed
to take you up on your offer. They're
that lower redemption rates are a
good thing, some companies in India
boast about loyalty programmes that
generate reward redemption rates of
10 to 15 per cent – or lower. In truth,
loyalty offers, it's a sign that they are
too busy. They're committed not engaged and not spending.
elsewhere. They always give a low redemption levels are not cause
Moreover, it's a strong indication that
plausible excuse, but they never for celebration. Instead, they indicate
they may be ready to move on to form
accept your invitation. It is unlikely the presence of fundamental
a relationship with a competitor.
that you would view their numerous problems with the programme.
rejections as cause for celebration. We've seen that the more active and
Instead, most of us would wonder if After two decades of analyzing loyalty
engaged loyalty programme members
there might be something wrong with program performance in North
are, the greater the sales lift, brand
the relationship. America, we know the evidence is
engagement, and retention those
abundantly clear: Redemption
members return to the company. We
Simply put, that's the challenge correlates directly with bottom-line
refer to this correlation as the
loyalty marketers face when custom- results -- including higher customer
COLLOQUY Relationship Chain™. The
ers fail to redeem rewards. retention rates and higher customer
Relationship Chain is an ongoing set of
spend. When redemption rates are
metrics that enable companies to
After examining the financials for a low, the loyalty programme is
measure the relative health of loyalty
company's loyalty programme and underperforming, and is either not
programmes and the quality of
tallying redemption rates, some designed properly or was not put into
customer relationships.
marketers might be pleased about play for the right reasons.
saving money for their company when There are distinct stages that
customers fail to redeem rewards The whole point of a loyalty
customers must pass in order for
points and offers. But that's a mistake. programme is to engage customers
companies to maximize their value
While it might sound counter- while also showing them you're loyal
and profitability. At each stage,
intuitive, your company actually to them, too. Loyalty marketing is a
retention rates increase. Ultimately,
stands to lose money – and competi- long-term strategy, and that means
the path leads toward the end game
tive advantage – when redemption results aren't evident until six to nine
of higher retention, higher spending,
rates are low. months after launch. It takes time to
and more profitable customer
forge a relationship with customers
behaviours – such as ongoing
Some programmes do not promote and build a bond with them that will
engagement with your brand.
redemption out of financial concern encourage ongoing engagement.
that if too many points are redeemed, Yes, earning points increases
then the breakage benefit will decline. So, when customers don't use
customer engagement. But merely
Probably owing to the misconception rewards points or don't redeem other
earning points is not the objective of a
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2. Customer Loyalty
loyalty programme and customers channels over an 18-month period cent. And, they smile all the way to the
know this. They understand that confirms two of the tenets of the bank. They know that redemption is
amassing points holds no tangible Relationship Chain: that redemption crucial to establishing and maintain-
benefit. If customers don't redeem amplifies customer value and ing the bond between their brands
those points, they will eventually lose encouraging multiple redemptions and customers, and is vital to the
interest in the programme and your can return even greater value. health of their companies. What's
company because they do not realise more, those same North American
the value you promised. So, it is crucial Our research also shows that loyalty marketers work tirelessly to come up
that you promote redemption, to programme members who have with new ways to nudge customers to
encourage customers to obtain the redeemed for rewards are three times redeem even more often, with the
rewards you told them they would more likely to be word-of-mouth goal of constantly increasing
reap as a result of your relationship. (WOM) champions – that coveted title redemption levels.
used to describe loyal customers who
While it is easy to view redemption bring others to your brand. If a North American organization saw
only as a cost, that is wrong thinking. low redemption levels of 10 per cent
Actively promoting redemption to Redeemers Are 3 Times More Likely to 20 per cent, company executives as
customers is a financial and competi- to Be WOM Champions of Your Brand well as marketers would be alarmed
tive necessity in today's world. because it would signal that the
The linkage of redemption and
Redemption amplifies customer company and its loyalty programme
customer value is also demonstrated
value, so encouraging multiple are in great peril.
in the percentage of programme
redemptions can return even greater
redeemers – those who have earned Redemption is an essential link on the
value. That's what the analysis behind
one or more rewards of any type since Relationship Chain, which can also be
COLLOQUY's Relationship Chain
becoming members – who are also described as a series of customer
proves: Redemption activity by
Word-of-Mouth (WOM) Champions. behaviors that move from increased
customers brings companies financial
These customers are willing and able involvement in a well-executed
rewards, including increased revenue
to recommend the brand to a network loyalty programme. The end goal is
and long term value of the company's
of others. always retention and profitability for
customer portfolio. In addition, the
effect of increased engagement and the company. As customers move
Setting A Healthy Target for Success
building stronger bonds with through the links in the chain, their
customers helps insulate and protect To ensure they reap maximum value lifetime value to the company
against competitive poaching of from every customer, forward- increases and so does the company's
customers. thinking North American companies return on investment in the loyalty
encourage redemption and attain program. The four links in the
Our study of a retailer's history of healthy redemption levels that Relationship Chain are:
consumer spend across multiple commonly reach 50 per cent to 75 per
Enroll best customers. Enroll
The COLLOQUY Relationship Chain™
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3. Customer Loyalty
customers who offer the highest value Engage. Next, you must engage these Stimulate participation. It's crucial
or potential value to the company. priority customers with regular, that you encourage programme
That means you must first determine ongoing communications that participation – from completing
which customer groups are most constantly answer the customer's surveys and checking points balances
important to you. most pressing question: “What's in it to entering sweepstakes and
for me?” responding to offers. This activity
helps customers envision their
dreams, setting the stage for “what
if…?”
Trigger multiple redemptions. At this
point in the Relationship Chain,
loyalty programme members expect a
payoff, so offers that give customers
strong rewards that also recognise
their status as a valued, best customer
help solidify the relationship you've
built with them. The more redemp-
tions, the more value these customers
bring to the table.
Redemption is an investment in the
relationship with your best customers
that pays off as they move along the
Relationship Chain. When you issue
an invitation to these brand loyalists,
they respond by strengthening your
company and brightening its future.
Leading organizations in developed
economies know that redemption is
crucial to building customer value and
return on investment. Now you do,
too.
Kelly Hlavinka is the Managing Partner
of COLLOQUY – Knowledge arm of
LoyaltyOne
LoyaltyOne is a global leader on
consumer insights & strategy, loyalty
marketing and customer experience
management.
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