The real concern for scheme members is the 拢2bn sitting unclaimed in Britain's households, calculated by International Consumer Loyalty Programmes and reported on in June.
With 15% of households holding redeemable points but nearly a quarter of those never redeeming the points they have earned, companies need to ask just how expensive is their loyalty scheme is.
The benefits of being part of a loyalty scheme seem simple enough -- customers are driven to store and special products can be pushed with special offers and bonus points. Loyalty at some level seems almost guaranteed.
But can those who are sitting on their rewards points really be deemed as loyal, and what does it do to your bottom line having points sitting on the balance sheet that may or may not be redeemed at any time?
The points issued in loyalty schemes represent a future cost to the operating company and hence a balance sheet liability. Although the method for valuing and presenting this liability within a company's balance sheet varies, it is inevitably the responsibility of the finance function where loyalty traditionally means pounds in the bank.
In order to minimalise the effect of unredeemed points, rules that try to cap liabilities will have been written in from the beginning. The most obvious method is to limit the life of a point based on, for example, date of issue, date of last purchase, or date of last member transaction.
This is not the end of the problem. While those members sitting on their rewards may not have significant revenue potential, they can still represent a significant cost to the business. However, this is a cost that can be reduced through targeted management.
The ongoing responsibility for managing the accumulation of points on member accounts is therefore important.
Key to this responsibility is understanding the causes of non-redemption and recognising those customers in which costly points balance liabilities are accumulating. The vast array of mechanics marketers apply to increase revenue from higher value members can then be applied to reducing the costs associated with long term point liabilities in these customer segments. For example:
- An inactive member may be persuaded to redeem out and lapse their membership in exchange for an appropriate reward, for example a donation to a charity, reducing subsequent communication costs and balance sheet liabilities;
- New low-cost redemption offers may encourage conversion among members unable to accumulate sufficient points for a redemption in a reasonable time frame;
- Of course, response may also identify deceased members for which points liabilities can be removed.
As well as managing away risk, there is always the possibility of reactivating and hence increasing the value of these members. Loyalty schemes often claim a correlation between redemption and subsequent increases in activity and spend, so a carefully managed scheme is of benefit to all involved.
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