Loyalty Has Its Rewards - If You Claim Them

These days, consumers can hardly make a purchase without being exposed to some kind of loyalty rewards or frequent buyer program.

They get cards punched when buying a cup of coffee or a bagel. They get "member discounts" at supermarkets. They get credits on merchandise from retailers. They accumulate points good towards free flights and hotel stays from airlines, hotels, and credit card companies.

So why aren't customers redeeming them?

It's not a big surprise that the number of memberships in loyalty programs in the US are up to over 2 billion. That's a 16% increase from the previous year, according to a new study, the "2011 Forecast of U.S. Consumer Loyalty Program Points Value," by loyalty agency Colloquy and Swift Exchange, a digital commerce company. In terms of industries offering loyalty rewards, financial services far and away lead the pack, followed by the travel industry, which includes airlines, hotels, and rental car companies.

What is surprising, however, is that $16 billion worth of loyalty rewards points out of about $48 billion issued each year remain unused.

In fact, the average American household earns about $622 worth of loyalty rewards per year but never cashes in $205 worth of those points. So the burning question, especially in an economy where value has top of mind awareness, is: Why aren't consumers taking advantage of the points they accumulate?

There could be any number of reasons — consumers simply forget they have them, the tangible rewards aren't compelling enough, it takes too many points to get something of value, or maybe it's a hassle to turn them in. The problem for a marketer is two-fold: non-use suggests that the consumer isn't demonstrating the desired loyalty to the company, and the unused points become a lingering liability.

Kelly Hlavinka, managing partner of Colloquy, told MarketingDaily, "If redemption equals engagement and engagement delivers customer satisfaction and profits, then loyalty marketers should encourage their members to make the most of their rewards. In short, redemption is good."

But it may not be that simple. It's easy for a consumer to join a loyalty rewards program; in fact, frequent travelers are notorious for joining lots of airline programs. Then they simply accumulate points in all of them, demonstrating little loyalty to one airline or the other. Credit card companies make it even easier to accumulate points good for air travel since they typically don't restrict redemption to a specific airline, seat availability, or blackout dates.

The bottom line is consumers may belong to numerous loyalty programs but, in reality, they have little loyalty to one or the other.

To distinguish themselves, some loyalty programs, like Hilton HHonors, are refurbishing their programs to concentrate on experiences instead of points. Others, like American Express, are using rewards programs as a new form of "social currency." Southwest Airlines recently changed its frequent traveler program and is in the midst of a major ad campaign, above, suggesting that its program isn't burdened with the same "red tape" typical of other airline programs. 

Still, many loyalty programs seem to be so similar that they begin to blend together. In Colloquy's previous research, consumers cited "boring rewards" and the feeling that "all loyalty programs look alike" as reasons they were not enamored of loyalty programs. That's why Nancy Gordon, chief operating officer of Swift Exchange, thinks marketers need to focus on turning rewards into something tangible.

She told MarketingDaily that the loyalty program market is "ripe for transition from a culture of accumulation to one of realization in the fullest sense. That means helping consumers make rewards-based purchases as easily as they buy anything else in their daily lives."