Where points succeed, and fail, in the loyalty program equation

By Bryan Wassel  
Text below includes excerpts from an article originally published by CX Dive. For the full story, click here.  

Points can provide reasons for customers to engage with a business while offering the company levers it can pull to adjust consumer behavior. 

Points aren’t a silver bullet for loyalty success. Companies need to make sure their offerings are right for their industry, ensure the options don’t overwhelm customers, and recognize that each point carries a real cost. They also need to contend with the fact that points are losing their luster for many consumers.  

Why different industries use points 

The goal of points can usually be summarized by four common objectives, according to Dan Woods, global market leader for retail and e-commerce at Alorica. Companies want points to increase customer lifetime value, create demand without impacting margins, draw in customers during off-peak times, and maximize the return on investment with adjustable earning and redemption options.  

Which goals a given company will pursue is often a matter of the industry in which they operate. 

For retailers, maximizing customer lifetime value is the primary objective, according to Woods. Retailers want to drive incremental purchases, and points offer a flexible framework for encouraging that additional spending through a number of avenues. 

Travel and hospitality brands, on the other hand, often use points to encourage bookings during off-peak periods while encouraging customers to spend more during the busy times. 

Companies can adjust their loyalty programs so points go further during periods with low hotel occupancy or when flights have trouble reaching maximum capacity, according to Woods. When customers don’t need encouragement to book a room or flight, companies can incentivize additional spending by adding more opportunities to earn points. 

“They’re going to give out less points to maximize spending in those off-peak periods,” Woods told CX Dive. “On the flip side, during the peak periods, you may see an increase in rewards because they want to encourage spending while customers are on the property.” 

When too much choice creates friction 

One of the most valuable benefits points bring to a loyalty program is letting customers choose how and when they want to get their rewards. 

While consumers love having choices, the spread of options needs to be easily understood, according to Woods. Too much friction in a loyalty program and the benefits aren’t worth the hassle. 

“Their predominant objective is to simplify this for the redemption of those points,” Woods said. “You don’t have to go through layers of customer support to get resolution. Rather, you go in, you apply the points, and you can pick the service or product that you want to procure.” 

Points aren’t free for businesses 

Loyalty points aren’t legal tender, but they do carry a cost. Companies need to account for not just the price of the loyalty program’s rewards, but the behind-the-scenes infrastructure that powers the program. 

Companies need to constantly listen to what customers are saying about their program, because the earlier they can pinpoint problems the better, according to Woods. A good loyalty program is often the end point of an iterative process. 

“A lot of the programs that we see now that are successful have gone through multiple years of retooling to get to the point where that is now,” Woods said.  

When do points lose their luster? 

Just because a loyalty program offers points doesn’t mean consumers feel like they’re getting something for free. 

Even when the cost is right, the results can fail to match expectations, according to Woods. While the customer has already spent their money, a poor redemption experience can stop them from referring the brand to a friend or even turn them into a detractor. 

“You see it predominantly in entertainment where a lot of people expect the VIP treatment, and that VIP treatment may be watered down or not meet the expectation specific to the customer’s objectives,” Woods said. “There’s definitely an impact on long-term customer spend.”