Do Loyalty points go waste?

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There is so much talk about Coalition loyalty nowadays. Almost every large global company in the loyalty space is here & batting hard! I have written earlier about this. But will a coalition loyalty company be able to run a better loyalty program?

Does Coalition loyalty work in India? Will marketers cooperate & align together or will multiple program partner interests be too complex to manage. Or will the Indian crab syndrome come in the way!

Here is more about the Indian crab syndrome: http://bit.ly/HKgMNK

But are people forgetting a few fundamentals. Loyalty programs, if they are to engage customers should allow them to see “value”. Discounts don’t have memory & so most programs come out with points. But according to the 2011 Colloquy Customer Loyalty Census, of the $48 billion worth of perceived value in reward points and miles distributed by American businesses annually, one-third goes unredeemed by consumers.

Companies lose money on time and effort, and customers get no more value from the businesses to which they are supposedly "loyal."

India is seeing a plethora of Coalition loyalty companies. Can they improve the quality of programs that exist? Payback has been the early coalition entrant. Transaction throughput via Payback is around $350 million (Rs 1,500 crore to Rs 1,600 crore) every month. In India, around 35 to 40 per cent of the loyalty points that are given by Payback to its members is redeemed, while in Germany, about 95 per cent of the points given by Payback are redeemed.

Breakage is simply the amount of points or credits that expire or never get redeemed. Along with gift cards and cash cards, it is widely associated with Loyalty and Rewards Programs. The biggest question is ‘How much breakage is optimal? If the breakage is low, does it mean that the program is a success, and if it is high, is it because members do not care about the program? This is not always easy to answer, as a certain percentage of points do naturally break and form a part of expected revenues. Studies have indicated that breakage in the retail loyalty programs hover around 25%. Some large airlines indicate a breakage between 13-25%.

It would be interesting to do analytics around the profile of customers who redeem regularly & get some insight into what customers find valuable in a loyalty program. Program design has a huge impact on breakage.

It is a myth that high breakage leads to a good loyalty program, it’s exactly the reverse! Marketers should go back to the basics of building a credible loyalty program & not get misled into shortcuts through only the coalition loyalty route. But this requires a serious conversation with the CFO & the CEO!