Y that lower redemption rates are a ou've invited good friends to a

good thing, some companies in India dinner party numerous times,

boast about loyalty programmes that but they've consistently failed

generate reward redemption rates of to take you up on your offer. They're loyalty offers, it's a sign that they are 10 to 15 per cent – or lower. In truth, too busy. They're committed not engaged and not spending. low redemption levels are not cause elsewhere. They always give a Moreover, it's a strong indication that for celebration. Instead, they indicate plausible excuse, but they never they may be ready to move on to form the presence of fundamental accept your invitation. It is unlikely a relationship with a competitor. problems with the programme.that you would view their numerous

rejections as cause for celebration. We've seen that the more active and After two decades of analyzing loyalty Instead, most of us would wonder if engaged loyalty programme members program performance in North there might be something wrong with are, the greater the sales lift, brand America, we know the evidence is the relationship. engagement, and retention those abundantly clear: Redemption

members return to the company. We correlates directly with bottom-line Simply put, that's the challenge refer to this correlation as the results -- including higher customer loyalty marketers face when custom- COLLOQUY Relationship Chain™. The retention rates and higher customer ers fail to redeem rewards. Relationship Chain is an ongoing set of spend. When redemption rates are

metrics that enable companies to After examining the financials for a low, the loyalty programme is

measure the relative health of loyalty company's loyalty programme and underperforming, and is either not

programmes and the quality of tallying redemption rates, some designed properly or was not put into

customer relationships. marketers might be pleased about play for the right reasons.saving money for their company when

The whole point of a loyalty customers fail to redeem rewards

programme is to engage customers points and offers. But that's a mistake.

while also showing them you're loyal While it might sound counter-

to them, too. Loyalty marketing is a intuitive, your company actually

long-term strategy, and that means stands to lose money – and competi-

results aren't evident until six to nine tive advantage – when redemption

months after launch. It takes time to rates are low.

forge a relationship with customers Some programmes do not promote and build a bond with them that will redemption out of financial concern encourage ongoing engagement. that if too many points are redeemed,

So, when customers don't use then the breakage benefit will decline.

rewards points or don't redeem other Probably owing to the misconception

There are distinct stages that

customers must pass in order for

companies to maximize their value

and profitability. At each stage,

retention rates increase. Ultimately,

the path leads toward the end game

of higher retention, higher spending,

and more profitable customer

behaviours – such as ongoing

engagement with your brand.

Yes, earning points increases

customer engagement. But merely

earning points is not the objective of a

Loyalty Mantra: The Power of Reward

Redemption

112 | November - December 2012 |

Customer L oyalty

By Kelly Hlavinka

loyalty programme and customers channels over an 18-month period cent. And, they smile all the way to the

know this. They understand that confirms two of the tenets of the bank. They know that redemption is

amassing points holds no tangible Relationship Chain: that redemption crucial to establishing and maintain-

benefit. If customers don't redeem amplifies customer value and ing the bond between their brands

those points, they will eventually lose encouraging multiple redemptions and customers, and is vital to the

interest in the programme and your can return even greater value. health of their companies. What's

company because they do not realise more, those same North American Our research also shows that loyalty the value you promised. So, it is crucial marketers work tirelessly to come up programme members who have that you promote redemption, to with new ways to nudge customers to redeemed for rewards are three times encourage customers to obtain the redeem even more often, with the more likely to be word-of-mouth rewards you told them they would goal of constantly increasing (WOM) champions – that coveted title reap as a result of your relationship. redemption levels.used to describe loyal customers who

While it is easy to view redemption bring others to your brand. If a North American organization saw

only as a cost, that is wrong thinking. low redemption levels of 10 per cent Redeemers Are 3 Times More Likely Actively promoting redemption to to 20 per cent, company executives as to Be WOM Champions of Your Brandcustomers is a financial and competi- well as marketers would be alarmed

tive necessity in today's world. because it would signal that the The linkage of redemption and

Redemption amplifies customer company and its loyalty programme customer value is also demonstrated

value, so encouraging multiple are in great peril. in the percentage of programme

redemptions can return even greater redeemers – those who have earned Redemption is an essential link on the value. That's what the analysis behind one or more rewards of any type since Relationship Chain, which can also be COLLOQUY's Relationship Chain becoming members – who are also described as a series of customer proves: Redemption activity by Word-of-Mouth (WOM) Champions. behaviors that move from increased customers brings companies financial These customers are willing and able involvement in a well-executed rewards, including increased revenue to recommend the brand to a network loyalty programme. The end goal is and long term value of the company's of others. always retention and profitability for customer portfolio. In addition, the

the company. As customers move effect of increased engagement and Setting A Healthy Target for Successthrough the links in the chain, their bui lding stronger bonds with lifetime value to the company To ensure they reap maximum value customers helps insulate and protect increases and so does the company's from every customer, forward-against competitive poaching of return on investment in the loyalty thinking North American companies customers. program. The four links in the encourage redemption and attain

Our study of a retailer's history of Relationship Chain are:healthy redemption levels that consumer spend across multiple commonly reach 50 per cent to 75 per

Enroll best customers. Enroll

113 | November - December 2012 |

The COLLOQUY Relationship Chain™

Customer L oyalty

Engage. Next, you must engage these Stimulate participation. It's crucial customers who offer the highest value

priority customers with regular, that you encourage programme or potential value to the company.

ongoing communications that participation – from completing That means you must first determine

constantly answer the customer's surveys and checking points balances which customer groups are most

most pressing question: “What's in it to enter ing sweepstakes and important to you.

for me?” responding to offers. This activity

helps customers envision their

dreams, setting the stage for “what

if…?”

Trigger multiple redemptions. At this

point in the Relationship Chain,

loyalty programme members expect a

payoff, so offers that give customers

strong rewards that also recognise

their status as a valued, best customer

help solidify the relationship you've

built with them. The more redemp-

tions, the more value these customers

bring to the table.

Redemption is an investment in the

relationship with your best customers

that pays off as they move along the

Relationship Chain. When you issue

an invitation to these brand loyalists,

they respond by strengthening your

company and brightening its future.

Leading organizations in developed

economies know that redemption is

crucial to building customer value and

return on investment. Now you do,

too.

Kelly Hlavinka is the Managing Partner

of COLLOQUY – Knowledge arm of

LoyaltyOne

LoyaltyOne is a global leader on

consumer insights & strategy, loyalty

marketing and customer experience

management.

114 | November - December 2012 |

Customer L oyalty