Written by Jonathan Berner
The ABCs of low redemption rates. Well, just the As, really.
One of the top reasons customers join loyalty programs is to get rewarded — in fact, 62%of customers cite rewards as their primary motivator. Even so, many programs find that customers aren’t redeeming as much as expected. Often, these rates fall short of program owners' expectations, despite data showing that members who redeem are significantly more valuable than those who don’t.
So, what’s going on?
In Kognitiv’s global research study, we asked customers across various geographies and industries why they participate in loyalty programs and how they use them. The found...
What motivates customers to join loyalty programs?
The research highlighted how motivations vary across verticals, but one insight stood out universally: benefits and rewards matter most. Unsurprisingly, customers prioritize receiving value in exchange for their participation above all else. Strong loyalty programs create opportunities for members to realize value early in the customer journey.
Receiving benefits & rewards is particularly important when customers are facing economic uncertainty During recessions or periods of financial pressure, customers actively seek value, and loyalty programs provide a compelling way to deliver it.
Why redemption matters
Redemption isn’t just good for customers — it’s great for brands. Multiple research studies found that customers who redeem rewards are more likely to remain loyal.
- 83% of consumers say that being part of a loyalty program influences their decision to buy again from the same brand
- Top-performing loyalty programs can increase revenue from redeeming customers by 15% to 25% annually due to more frequent purchases or larger basket sizes
- Engaged loyalty members exhibit 15-20% lower churn rates
Clearly, redemption creates a win-win scenario. But if it’s so beneficial, why aren’t more customers redeeming?
Barriers to redemption
There are several reasons why customers might not redeem rewards. Let’s explore these barriers:
- Awareness: Customers may not know how to redeem or what options are available.
- Achievability: If rewards feel out of reach, customers may disengage. For example, earning rates may be too low or thresholds too high.
- Accessibility/Awkwardness: A high-friction redemption process can deter customers.
- Attractiveness/Assortment: If rewards aren’t relevant, appealing, or usable, customers won’t redeem them.
- Accumulating: Some customers are saving up for a larger redemption in the future.
- Asked: Customers may simply need a prompt or reminder to redeem.
- Age: Customers in the early stages of their loyalty journey may not have accrued enough points yet.
- Association: If redemption is tied to another behavior (e.g., completing surveys or visiting specific locations), customers might avoid it.
- Alternates: Some customers may value non-redemption benefits (like status perks) over redeemable rewards.
Any others you’d add – alliterative or not?
Diagnosing your program’s redemption gaps
If you’re not sure which of these is your main challenge, start with Analysis. Examine redemption rates by customer segment and link this data to customer profiles and behavior. Key questions to ask include:
- Which customers are redeeming most frequently?
- What types of rewards are most popular among different segments?
- How do earning rates impact redemption patterns?
By controlling for earning rates, for example, how many points a customer earns per month, you can isolate factors like Achievability from other issues, such as Accessibility or Attractiveness.
The power of asking
Don’t hesitate to ask your customers directly about their redemption experiences. Surveys, interviews, or in-app feedback can provide invaluable insights. When paired with behavioral data, customer feedback can reveal the “why” behind redemption gaps, enabling you to tailor solutions effectively.
Striking the right balance
Whether your program struggles with low engagement or faces the opposite challenge of excessive redemptions straining your budget, it’s crucial to revisit both your loyalty tools and your strategy.
- Optimize your offerings: Align rewards with customer preferences to enhance their perceived value
- Streamline the process: Ensure that redemption is intuitive, accessible, and low-friction
- Incentivize at key moments: Use personalized prompts and nudges to encourage redemption
Reach out to our team to learn the latest ways to increase engagement with your program’s benefits and the valuable behavior change it can create. And, importantly, how to balance your costs and benefits to make sure your program engages both your customer audience and your accounting team.
À bientôt!
About Kognitiv
Kognitiv is redefining loyalty with its AI-native outcome-based technology. Our award-winning loyalty software and a suite of cross-channel intelligence and personalization products enable brands to deliver hyper-personalized experiences, predict and optimize customer engagement in real time, and achieve measurable results.
It’s time to move beyond transactions and earn customers’ lifetime loyalty. Discover how reimagining your loyalty strategy and customer engagement with AI can foster deeper connections and drive long-term success.
Track, predict, and optimize your customers’ lifecycles with Kognitiv Pulse. Learn more.
Enable 1:1 personalization at scale with Kognitiv Ignite. Learn more.
Launch and manage a successful loyalty program with Kognitiv Inspire. Learn more.
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