Loyalty program managers at fintechs, banks, or credit card issuers understand the significant investment involved in designing and maintaining robust rewards programs. However, are customers truly realizing the full value of loyalty offerings?
The data suggests a pretty significant gap between the potential benefits available and the value actually captured by cardholders. This presents both a challenge, as well as an opportunity, to enhance customer engagement, drive loyalty, and ultimately improve the ROI of loyalty initiatives.
How underutilized are program benefits?
The statistics around un-utilized loyalty rewards are sobering. It’s estimated that approximately $360 billion in credit card points and miles are sitting, unredeemed, in customer loyalty accounts. This represents a substantial amount of potential value that customers are not accessing. From another angle, approximately 70% of rewards card users are currently sitting on unused cash back, points or miles. The accumulation of unredeemed rewards indicates an obvious disconnect between earning and redemption, hindering the very cycle of engagement that should be driving loyalty.
Digging deeper into specific loyalty benefits further reveals underutilization. For example, CarTrawler reported that only 12% of individuals who rented a car in the past year booked it through their loyalty program, missing out on benefits like loss damage waiver (LDW) coverage. This highlights a failure to capitalize on valuable, cost-saving benefits that are likely already part of cardholder offerings.
The sheer volume of rewards being distributed reinforces the potential value at stake. Bank of America, for example, issues around $2.5 billion in rewards value annually to its Preferred Rewards clients alone – about $450 per year per member! Extrapolate this across all financial services loyalty programs, and the potential impact of unutilized benefits and value becomes even clearer.
Implications of “sleeping” benefits on loyalty member participation
The underutilization of existing benefits has several implications for loyalty programs, including lower engagement. Customers who are not actively redeeming rewards or utilizing benefits may become disengaged with a program over time, potentially leading to decreased card usage and ultimately, attrition.
A program might also be seen as having lower perceived value. If customers are unaware of or struggle to access their benefits, they may feel like the program is not worth the effort. This can impact customer satisfaction and make them more susceptible to competitive offers from other card issuers or banks.
Finally, a program might experience lower ROI. Loyalty programs can be expensive to launch and maintain. That investment in a loyalty program is intended to drive specific outcomes such as increased customer spending/lifetime value, improved bank unit economics, and customer retention. But, if a significant portion of benefits are not being utilized, the return on a company’s investment in their loyalty program will almost certainly be lower than expected.
Tactics to drive more loyalty program benefit utilization
To address this utilization challenge and help customers realize more value – which benefits financial institutions not just with increased revenue but with improved customer retention – loyalty program strategists should consider the following tactics:
- Proactive Communication and Education: Move beyond static welcome kits or booklets. Instead, implement targeted and timely communication strategies and campaigns that provide clear explanations of benefits’ potential savings and convenience, to highlight relevant benefits to customers at the moment they might need them.
- Simplify Redemption Processes: Identify and address any friction points in your reward redemption processes. Ensure they are intuitive, easily accessible across multiple channels (web, mobile app), and require minimal effort from the customer. This is especially important since 31% of consumers cite lengthy redemption procedures as a major frustration.
- Personalize Benefit Delivery: Leverage data analytics to understand individual customer spending habits and preferences. Use these insights to proactively surface relevant benefits and offers that align with their needs. More than 7 in 10 users say that ease of access to a loyalty program’s offers or benefits, along with personalization, make them more likely to use it. Further, use the data to actively target appropriate customer segments with often overlooked but valuable benefits such as extended warranties, travel insurance, and dining rewards.
- Provide Contextual Reminders and Assistance: Explore technology solutions that can provide contextually relevant, real-time reminders of benefits during a customer’s online shopping journey.
- Explore Upselling and Cross-selling Opportunities: Once customer needs and specific benefit utilization is understood, identify opportunities to offer relevant card upgrades or additional products that align with their demonstrated value preferences.
By taking a proactive approach to help loyalty program members unlock the full potential of these programs, fintechs, banks and card issuers can foster deeper engagement, strengthen customer loyalty, and ultimately drive a greater return on a loyalty program investment. The key is to move beyond simply offering benefits, and towards actively guiding customers in realizing their inherent value.
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Shawn Conahan, Chief Revenue Officer at Wildfire Systems
Shawn Conahan is currently Chief Revenue Officer at Wildfire Systems, where he develops strategic partnerships with major finance, banking, and fintech companies to enable the creation of new revenue streams and modernizing their customer experience to position them competitively for the future of banking and money. He has been an entrepreneur, senior executive and investor in the wireless, technology and Internet industries for over 15 years, having previously built and sold three companies. His industry experience ranges from digital media to wireless technology to big data where the common thread has been building platforms with broad applicability.
