A new survey from Maritz Loyalty Marketing claims almost 40 percent of longtime members of retail loyalty programs have never redeemed rewards.
In a paradoxical finding, the survey also reported that 49 percent of participants said retail rewards programs influence where they spend their shopping dollars. It is clear retailers are not doing enough to bridge this disconnect, or to convince consumers that loyalty points are an effective proxy for money.
“The value of points sometimes doesn't carry the same meaning as cash, so it makes the concept of that value a little more abstract,” said Craig Hogan, vice president of marketing and strategic planning at Maritz, Fenton, MO.
Regardless of the redemption rate, consumers generally stay loyal to the retail rewards program they joined.
According to the survey, based on 407 interviews in October, 24 percent of consumers joined their program one or two years ago, 19 percent two to three years ago and 29 percent three years or more. Twenty-one percent of consumers who once joined such a program opted out.
Asked what type of rewards they prefer to redeem their loyalty points for, 61 percent ranked cash as a top choice, 57 percent wanted free merchandise and 46 percent liked gift certificates.
In addition, 38 percent preferred members-only offers or discounts, 13 percent liked special benefits or upgrades, 11 percent wanted free travel and 10 percent were inclined toward free tickets to events.
Sixty-one percent of women redeemed their rewards versus 50 percent of men.
The survey did not address behavior differences between those in offline retail loyalty programs and online programs. But an earlier Maritz poll in the summer compared the two.
“In general,” Hogan said, “respondents who claimed to be members of an online retailer's loyalty program appeared to be a bit more involved with the program. That is to say, they tended to understand the rules of the program a little better, and the program had marginally greater impact in their decision of where to make a purchase.
“Also, their redemption patterns seemed to be skewed more toward gift certificates and cash back and less on discounts than for the bricks-and-mortar variety,” he said.
Based on this knowledge, Maritz sees room for improvement. The company handles loyalty programs for Bank One, Citibank, Wells Fargo, Toyota, Sprint and Nestle Purina. It constantly urges clients to engage customers at all points of contact including e-mail, telephone and the cash register.
“I'd like retailers to know redemption is good,” Hogan said. “Use your loyalty program as a tactic to drive traffic back to the store.”
He suggested gift cards, which carry a stored value. According to gift card distributor ValueLink, about half of gift-card recipients spend more than the value of their gift cards. Another finding from America's Research Group claimed 16 percent of recipients never spend the balance on their card.
Though it is no excuse not to encourage full participation, total redemption of rewards at times may prove counterproductive for retailers.
“Sometimes it's the program strategy,” Hogan said. “Once someone earns to a certain degree, then that earning turns into a liability for the retailer.”
The key issue for retailers then is how to handle breakage, or the unredeemed loyalty points they carry on their books as a liability. Some eventually write them off.
“I think the line is to strive for people to participate in the program, and that means redemption,” he said. “I think it's impractical that any program will ever redeem at the 100 percent level. The only way to achieve 100 percent redemption is a cash-back program, which is the last thing you want to do. But you do want the customer to feel that they've received a benefit from the program.”