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Sep 24th, 2019. Posted in: Loyalty Programs
A redemption rate is the most important factor in deciding whether your program is healthy or not. It’s because it does not only show how valuable the customers perceive it to be, but also indicate their engagement, product satisfaction, and impact sales.
A redemption rate is the number of rewards participants have redeemed out of all rewards earned expressed in percentage.
The redemption rate is such a vital metric to your loyalty program since it affects significantly on your business and customer base. It shows how worthy the customers perceive your program to be. If they find it valuable and actively participate in your program, they will spend their points for rewards and the redemption rate is up. By contrast, the low rate means the customers aren’t interested in your offer and unengaged. In short, measuring your program’s redemption rate helps to assess its effectiveness in encouraging customers to return and shop more often.
Moreover, according to Bond Brand Loyalty – a prestigious brand loyalty agency, customers were sitting on $100 billion of unredeemed points in 2017. In other words, you risk $100 billion from offering loyalty points that weren’t redeemed by the customers.
The common way is to put your rate in comparison with the average rate in the industry. The average loyalty redemption rate is 13%. If your program has a rate less than 13%, it is performing below average.
It is important to note, however, that the age of the loyalty program has a huge effect on the final rate. It takes time for shoppers to get to know your offers, collect points and get rewards. We recommend letting your program run for at least 6 months to have an accurate evaluation.
As important as it is, a redemption rate cannot be enhanced by itself over time. Whether your rate is below or above the average, there are plenty of program aspects you can review in an attempt to improve it.
In daily situations, among a list of tasks that need to be done, we typically choose to solve one by one based on time set. This applies to the loyalty program as well. Psychology states that our motivation to avoid loss is incredibly stronger than the motivation to earn. By imposing a sense of urgency, you can encourage people to actively engage in your program as they’re aware they’re at risk of losing the rewards if they miss the chance.
It is crucial, however, not to put pressure on the expiration date since it may lead to customer dissatisfaction. There’s a thin line between motivating people to redeem and causing them stress. An example can be seen on Air Miles case, which received extreme backlash for its rushing program under a strict expiry condition. The company had to cancel the program and prompted an apology, causing it damaged reputation.
A program that has more ways for the audience to earn rewards is more exciting and thus more engaging. Getting excited about the program is the starting point of seeing value in becoming a program’s member. When they see more opportunities to earn rewards beyond simply registering and making a purchase, they are more likely to join in the community.
One way to make customers engage more in the program is through social media. Online contests, for example, referring friends or taking pictures on a theme, give ways to reward customers rather than the traditional of buying way. A birthday reward is another great idea to show that your brand values far beyond getting customers to spend as much as possible.
Even the perfect loyalty program can have a low redemption rate simply because the customers don’t know they have something to earn. Therefore, reminding them of the program is key to make sure the redeemed points won’t get lost.
Email is one of the most effective engagement tools you have at your disposal. Notification emails showing how close the customers are to the reward encourage them to keep shopping.
These small yet powerful changes will make a huge difference to your redemption rate and set you well on your way. It’s time to start monitoring your program’s redemption rate and analyze all aspects to drive maximum engagement and revenue.