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Loyalty Program Breakage: Health Measure of Program

Loyalty Program Breakage: Health Measure of Programs
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.
Even though your CFO may be happy that customers aren’t redeeming their loyalty points, your company needs to proactively monitor and manage the breakage rate as one of the barometers of the health of your loyalty program.

Monitor the Health of Your Loyalty Program

What is a loyalty program breakage rate?

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. This may be caused by a variety of reasons — 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 also signal that your customers don’t know how to participate in your loyalty program.Definition of Breakage Rate Loyalty Programs

How do you calculate your breakage rate? 

You can calculate your breakage rate with these three easy steps:

1. 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.)
2. Determine the total number of points issued ever, including expired points.
3. Divide the total number of points that have not been spent by the total number of points issued.Calculate Breakage Rate Loyalty Program

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 cash back programs experience a breakage rate as low as 5 percent.

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.

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.

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% consumers say they abandon programs if the value of the rewards wanes over time or the program does not live up to promises.
    • 14% of consumers leave if rewards simply are not relevant.
    • 23% consumers withdraw if achieving a meaningful reward is too time-consuming, costly or too much work – an investment not worth the payoff.

Top Reasons Quit Loyalty Program

The benefits you receive will ultimately outweigh any liability or outright costs associated with the redemption of points.

How to Increase Reward Redemption

8 Tips to Reduce Your Breakage Rate

Here are eight tips to increase the value your customers get from your loyalty program:

  1. Get creative with rewarding points
  2. Provide mobile loyalty app
  3. Reward social sharing
  4. Evaluate your rewards
  5. Surprise and delight customers
  6. Limited time promotions
  7. Explain how to redeem rewards
  8. Remind customers about point expiration

1. Get Creative With Rewarding Points

One of the easiest ways to keep customers engaged is to make it easier for members to earn points. Start with giving new members bonus points just for joining the program and remind them just how close they are to getting their first reward.

DSW Rewards Program

2. Provide Mobile Loyalty App

Make it easy to earn points regardless of purchase channel.  Provide a mobile app for your program so members can keep track of their points and easily access their account to redeem them.

Ulta Insider Mobile App

In Nielsen’s 2017 Global Loyalty-Sentiment Survey, roughly 80% of loyalty-program participants say it is somewhat or very appealing to be able to earn rewards regardless of whether a purchase was made in store, on a website or on a mobile device (81%) and to choose among several types of rewards (79%).

3. Reward Social Sharing

With 2.8 billion active users on social media in 2017 (37% of the global population!), our world is more connected than ever before. The ability for members to share content across channels makes social media capabilities a natural extension of your loyalty program for both advocacy and increasing brand awareness. Reward social sharing and customer engagement like referring a friend, supporting a cause, sharing on Facebook, Twitter, Pinterest, fanning your pages, or subscribing to an email.Reward Social Sharing

In Nielsen’s 2017 Global Loyalty-Sentiment Survey, 46% of consumers said they would like to earn points or rewards for sharing products and pages on social networks.

Ways to Earn Points in Rewards Program

The number of points doesn’t have to be big. The important thing is to keep reminding customers that they have many opportunities to earn them.

4. Evaluate Your Rewards

Many times customers don’t redeem points because the amount needed is too big and takes too long for them to accumulate. Remember that one of the goals of your loyalty program is to grow profitable customer relationships. To grow the relationship, you need to offer rewards at a variety of different thresholds to entice customers to earn more points and redeem their points for the rewards they want.

Sephora Tiered Rewards Redemption

5. Surprise and Delight Customers

Give members a variety of options to redeem points so they get the most value from participating in your loyalty program. Offer periodic bonus point offers or set up “play to win” events, such as sweepstakes and auctions throughout the year to help reduce breakage rates.

Point Auction Verizon Smart Rewards Points

6.  Limited Time Promotions

Chances are you have customers who are eyeing a certain reward in your program but don’t have enough points. Encourage them to spend points through periodic promotions that allow customers to receive rewards at reduced points.

Short Term Loyalty Points Promotion

Temporarily reducing the points required for redemption initially cost you money, but it’s a powerful marketing tool you can use to drive member engagement of select customers.

Limited Tme Offers Expedia

7. Explain How to Redeem Rewards

Often customers mistakenly believe that they can only redeem reward points for a specific type of product or service they have previously purchased. Include a page on your website that explains how the program works and what types of rewards are available.

Southwest Airlines Rapid Rewards How to Redeem Points

Periodically review which rewards have low redemption rates and replace them with more compelling offers. Consider highlighting new rewards through email, mail, and social media.

8. Remind Customers About Point Expiration

Loyalty Program Points Expiration ReminderOne of the biggest factors affecting loyalty program metrics are customers who don’t use their points because they are unaware of expiration dates. Make sure loyalty points don’t expire all at once and send out notices when expiry is imminent.

points expiration reminder

Is your loyalty program a bit sluggish? Let Customer Insight Group show you how to get your member’s hearts pumping again.

Next Steps:

A loyalty program audit is highly recommended to assess how well you are doing to support program objectives, identify areas for improvement and determine how to optimize your program.

Read this article to find out how to Overcome Poor Loyalty Performance.

Call us today at 303.422.9758 to learn how Customer Insight Group’s loyalty consultants can help enhance your loyalty program to boost customer relevance, build loyalty and dominate market share.

Updated January 2019