Have you ever signed up for a rewards program, only to discover several months later that your points expired before you had a chance to use them? If so, you’re not alone. Research shows that loyalty program members lose up to a third of the savings they could have earned from these programs due to redemption hurdles: policies such as expiration dates, spending minimums, and other requirements that hinder customers from actually reaping the benefits of membership.
When — and How — to Build Hurdles into a Loyalty Program
Although rewards programs are designed to save customers money, most of them also include some form of redemption hurdle: policies such as spending minimums or expiration dates that limit customers’ ability to actually reap the benefits of the program. These hurdles can be very frustrating — but new research suggests that if set up correctly, they can also be a win-win for both companies and their customers. Specifically, redemption hurdles enable companies to effectively price segment their customers, allowing them to meet more customers’ needs. To do this, companies can leverage industry market research and prior purchase data to set hurdles that will separate customers into groups according to the frequency and amount they are likely to purchase. In addition, firms should be sure to communicate program rules clearly to avoid surprising customers. With this approach, companies can design rewards programs that will maximize both profits and customer satisfaction, ultimately creating more value for everyone.