Customers are increasingly abandoning points-based loyalty programs, frustrated by low-value, difficult-to-redeem rewards. Instead, they want value in the form of instant gratification - and they want it now.
Having a great product or service is great - but it’s not enough. Americans want more. They want rewards, bonuses, and perks - but not points. Points may be a longstanding pillar of the American brand experience, but users are increasingly falling out of love.
Who can blame them? Often complicated to earn and even trickier to spend, many users feel rules and caveats are buried in small print. Not only that, but points don’t offer the kind of immediate gratification consumers - and increasingly, businesses - expect from a transaction.
The following looks into new research that highlights the alarm bells ringing in the points-based rewards industry. We also look at the point-free alternatives designed to build and retain user loyalty.
A value fallacy?
Anyone who's tried to upgrade a flight with points understands the challenge of earning them. And once enough points are earned, the redemption process starts, often via an online portal or app. Sometimes the points can be used to pay in part for a transaction - sometimes they must cover the full cost. It's this type of grey area that's likely to be the model's downfall, becasue customers are increasingly becoming frustrated.
A vast majority of respondents to a 2022 survey cited the time and effort it took to obtain a reward as the reason they disliked such loyalty programs - which explains their plummeting active user rates.
A 2023 survey of US reward program participants, half (50%) expressed increasing frustration at the lack of choice in how they receive their rewards. Additionally, 38% identified the challenges they encounter in earning rewards as a primary source of dissatisfaction.
This irritation extends to spending the points, too. Difficulty redeeming rewards because of a complex or multi-step redemption process has turned off 32% of customers. Limited options for redeeming points are also a point of concern. Almost a third claim that the rewards on offer are not meaningful or substantial.
There are further frustrations customers face with a point-based system, including:
- Expiration of Points. Some customers may feel frustrated if their reward points have an expiration date. The result? A perception of lost value.
- Hidden Fees or Costs. Customers might become annoyed if there are hidden fees associated with redeeming their points. This could include shipping fees, handling charges, or other unexpected costs.
- Unclear Terms and Conditions. Lack of transparency in terms and conditions can lead to confusion and frustration. Customers may feel misled or cheated if they are unaware of specific rules or limitations associated with the redemption process.
- Difficulty in Tracking Points. Keeping track of their accumulated points or understanding the fine print can lead to frustration. Clear communication and accessible account information are crucial.
There’s a disconnect between customers and the brands offering this style of reward program. More than 50% of participants encounter difficulties in spending rewards according to their preferences. This shows how consumers possess large quantities of untapped digital value that remain inaccessible for them to use as they see fit. Empowering them to unlock their unused digital value is crucial.
Addressing these concerns and providing a user-friendly, transparent, and flexible rewards program can help mitigate customer frustrations and enhance their overall experience with the brand.
Rewards the right way
Building brand loyalty starts with a great product or service. But it doesn't stop there. A 2022 survey by Statista found that 70% of Americans considered loyalty programs a leading factor in securing their loyalty toward their favorite brands.
There’s no doubt reward programs have a place, but how they’re structured is crucial in winning over - and retaining - consumers.
A value-based or tiered rewards system offers an alternative approach to incentivizing and rewarding customers without the frustration of points. They’re becoming increasingly popular for a range of reasons:
- Simplicity and Transparency. A non-point system is often simpler to understand for customers. They can easily grasp the value associated with their loyalty without the need to accumulate and track points. This also enhances transparency.
- Instant Gratification. With a non-point system, rewards are often delivered more quickly and immediately upon achieving a certain milestone or loyalty tier. This can lead to increased customer satisfaction and a sense of instant gratification.
- Reduced Complexity. Customers don't need to worry about understanding complex points conversion rates, expiration dates, or various rules associated with point-based systems. The simplicity can make the program more user-friendly.
- Customization and Personalization. Non-point systems often allow for more flexibility in offering personalized rewards. Businesses can tailor rewards based on individual customer preferences, creating a more meaningful and engaging experience.
Winning the competition for customer loyalty
Keeping customers happy and engaged is non-negotiable. In an age of soaring customer acquisition costs, research has shown that an increase in loyalty can result in a 25% or more increase in average profit per customer. Building the right loyalty program is essential. So what are consumers looking for?
Perks and benefits are a plus, but there’s something else customers are looking for that may surprise - emotional connection. Around half of the participants of another 2022 survey reported having joined a loyalty program simply to express their devotion to a brand or company.
Pleasing the other half comes down to delivering “easily-accessible” rewards. This is “critical to… brands’ ability to engage and build relationships with consumers across all age groups, from Gen Z to baby boomers.”
Research shows that almost 80% of consumers prefer to have shopping rewards automatically applied at checkout. A close percentage (69%) of consumers agree that this is the simplest form of accessing rewards.
Rewards and banking: the ultimate loyalty-boosting combo
The burden of delivering customer rewards lies not with vendors, but on financial institutions. Customers want a seamless experience with instant rewards pegged to their payment method.
“Consumers associate their payment mechanism with their loyalty, which is expressed in rewards. This is a huge opportunity for card issuers to increase their value proposition with additional shopping rewards,” says Michael Marcus, senior advisor and board member at Boston Consulting Group.
“Our dollars just do not stretch as far as they used to. Any opportunity to save money with cashback or coupons is a welcome benefit to consumers,” he added.
In 2024 and beyond, successful loyalty programs will move away from frustrating point-based models and instead, focus on instant gratification and stored digital value.
Inaccessible or difficult-to-access value is not a reward. Instead, businesses must recognize the necessity of transforming the rewards they pay out into a more liquid, 'cash-like' form, to unlock their potential and adapt to the evolving preferences of consumers.