Do you pay for reward points on allocation? If so, you’re paying for every single point, whether the points are redeemed or not. On the other hand, you may be paying on redemption – a smarter, and more cost-effective model, but one that could still make your finance team nervous.
Yes – points liability definitely needs to be understood, monitored and accounted for properly. But unspent points can also be a good thing. The key is to look at points liability alongside engagement, earning and redemption behaviour: growing liability in a highly active programme tells you something very different from a high balance in a mostly dormant one.
Points in the bank can be a sign of good things to come
First up, many people like to save their points for something special. For example, we know that some people save their points for occasions such as moving home, weddings and Christmas.
“When I moved into my first home, I cashed in all of my points for Amazon vouchers. It was a huge help, money was tight at the time, and it got me a lot of the home basics and even a few small appliances. A while ago I had a mobile phone break on me… Luckily I had enough points for a replacement!”
“We collect the points through our business, I save the points up and spend on Xmas presents or birthday gifts. I am a very happy customer.”
“I’d been dreaming of Tom Ford’s Soleil Blanc as my wedding perfume, but it’s the kind of luxury I could never quite justify buying for myself. But that’s exactly what my points were for!”
Others have used theirs for memorable trips, such flying to Vietnam or a holiday in Lapland. These are the rewards that are likely to be amongst the most meaningful to your programme participants – they come with bragging rights and create positive memories that will always be associated with your brand.
Secondly, it’s important to remember that not all points are spent. This is why paying for points on allocation may not be such a good idea. At Incentivesmart, our most highly engaged programmes typically see around 80% of points redeemed, so it’s likely you’ll see some points sitting in members’ accounts.
Points in the bank mean there’s something to come back for
An empty points account may not be such an ideal goal (despite what your finance team says). A growing points balance tells you something important: people are participating in your programme.
They’re engaging with the platform, performing desired actions – placing orders, completing a survey, engaging in training, attending an event or being recognised for values-based behaviours – and earning rewards. They’re responding positively.
The value of endowed progress
In 2006, Joseph Nunes and Xavier Drèze conducted a study at a car wash and found that a 10-stamp card with 2 pre-filled stamps achieved a 34% completion rate, compared to just 19% for a blank 8-stamp card.
They called this behavioural principle the endowed progress effect: giving people an artificial head start towards a goal makes them more likely to complete it.
The same principle can be applied to a points-based loyalty programme. An account with zero points has little inherent value to its owner. This is why we recommend giving registration bonuses: new members have something worth building on right from the start. There’s progress to continue and value they don’t want to lose.
In healthy loyalty programmes, members are earning and spending
Overall, a successful loyalty programme is one where points keep moving, continually entering and leaving the programme economy as people engage, collect and redeem their rewards. Viewed alongside activity, redemption and engagement data, points liability can help you understand how members are interacting with your programme.
So rather than asking how you can get outstanding points balances as close to zero as possible, perhaps there’s a better question: what level of points liability helps keep our members engaged and motivated towards their next purchase?
If you’re still concerned about high levels of unused points, our Member Engagement team can help. We’ve run effective campaigns for several clients, successfully encouraging high achievers to spend points simply by showing them what’s within their reach.
The most important thing to remember is that if your members have points in the bank, they keep adding to them and regularly spend them, they’re doing exactly what your loyalty programme was designed to motivate them to do.
And while points liability (reward points earned but not yet spent) represents a potential future cost to the business, you also need to take into account what those unspent points are doing: influencing behaviour and acting as a sign of a healthy, engaging loyalty programme.
