If your business has a loyalty program, the whole reason behind it is to keep customers returning for your goods and services. As a business, your loyalty program is all about recognizing and rewarding your customers to achieve business goals like driving the repeat purchase rate, increasing average order value, and frequency of purchase. For your customers, they get value from the program when they redeem points.
What are Loyalty Program Breakage Rates?
Breakage rate is the percent of points issued that do not get redeemed.
High breakage rates indicate that your customers may be earning points, but they are not actively engaged in your loyalty program. A variety of reasons may cause this — points expiring too fast, members don’t see value in spending points, they quit the program, or they never earned enough points to redeem for anything. A high breakage rate might be also signal that your customers don’t know how to participate in your loyalty program.
Why are Breakage Rates Important?
Customer engagement is essential to today’s competitive marketplace. The value your members get from your loyalty program is critical to keeping them engaged with the program and your brand. A loyalty program definitely impacts consumer activity with a brand.
Consider these loyalty statistics:
- 86% shop more if they like the loyalty program, 60% shop less if they leave the program.
- 23% of consumers say they abandon programs if the value of the rewards wanes overtime or the program does not live up to promises.
- 14% of consumers leave if rewards simply are not relevant.
- 23% of consumers withdraw if achieving a meaningful reward is too time-consuming, costly, or too much work – an investment not worth the payoff.
High Breakage Rates Are Bad for
Every industry is facing unprecedented challenges. Consumer purchase behavior has changed dramatically. As a result, loyalty marketers need to pivot to adapt their loyalty program to engage, reward, and retain customers, whilst at the same time combat financial challenges and build for the future.
Loyalty Programs Influence Consumers
Your CFO may be inclined to encourage a higher breakage rate to reduce costs. Don’t do it! Instead in these challenging times, empower your customers to redeem their points. Feeling valued, and special/recognized are important drivers of customer satisfaction and loyalty. A 2019 study found that loyalty program’s influence on consumer behavior is strong, with seventy-nine percent (79%) of consumers surveyed stating that loyalty programs make them more likely to continue doing business with brands.
How are Breakage Rates Calculated?
You can calculate your loyalty program’s breakage rate with these three easy steps:
- Determine the total number of points that have not been spent. (This is the total number of points that have not been redeemed for the entirety of your program.)
- Determine the total number of points issued ever, including expired points.
- Divide the total number of points that have not been spent by the total number of points issued.
When Customer Insight Group audits a loyalty program’s performance, we look at the overall breakage rate as well as breakage rates among the different customer segments, issuing partners, and the breakage rates of current outstanding points versus your programs long-term breakage rate.
When benchmarking your loyalty program metrics, know that loyalty programs, with a breakage rate in the 25 to 35 percent range are considered to have a healthy rate.
Breakage Rates by Industry
The breakage rates loyalty programs experience differ widely by vertical. For example, in the travel industry, the breakage rate averages 85 percent, while retailers often see a 30 percent breakage rate and cashback programs experience a breakage rate as low as 5 percent.
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Filed under: Brand Loyalty