The most recent estimates are that, between all airlines, there are more than seventeen trillion (17,000,000,000) outstanding & unredeemed frequent flyer miles hanging around out there in space somewhere. Can you imagine the impact on airline balance sheets if program members suddenly decided it was time to redeem all those points? There is no way to measure the chaos that would ensue.
On the other hand, airlines are most certainly aware of the size, scope and potential effect of those points on their businesses and yet they’ve been able to manage their ever-growing breakage numbers while growing their programs.
Breakage is a funny thing. While it can look like “free money” to an accountant, it could be a CFO’s worst nightmare. But breakage can also be a rich source of data and actionable learning for loyalty program managers.
SweetTooth Rewards, a loyalty platform for ecommerce enterprises puts it this way – “Customers see value in points when they spend them, not when they earn them. If your customers are not spending their points they are never realizing the value they hold. If customers don’t see value in your points they will not be motivated to earn them in the future.
This means they will not be motivated to purchase more often or perform the other actions you reward for. Actions such as social sharing and referring friends are a great way to leverage your program as a marketing tool. But are useless if you can’t motivate your customers with points.” https://www.sweettoothrewards.com/blog/program-breakage-is-bad/
At the 30,000 foot level, a big breakage number could mean a handful of things:
- It could signify a low perceived value to your program. They might just not care enough about the brand or the give-backs to bother.
- It could signify that your redemption system is too complicated for your average member. Too many tiers, levels, expiry periods and time-frames can reduce redemption rates.
- It could signify the presence in your market of a strong competitor.
- It could signify problems at the checkout counter (if that is where redemption is supposed to occur)
And those are just a few of the most likely reasons – to be sure, there could be countless more.
If reducing breakage is important to your enterprise, take note – there are some common sense ways to reduce it and in the process, to fix whatever was responsible for growing it in the first place.
Give customers points as soon as possible
To reduce breakage you need to get customers spending points. To get customers spending points they need to have points to spend – and they need to know about them. Awarding points (or whatever item) should never simply be a transaction. It is a touchpoint – a communications event and a milestone in your relationship with your customer. In other words, if the award isn’t communicated and celebrated it will almost certainly de-valued.
Give customers unexpected points
Another way to ensure customers have points to spend is to give them extra points when they might not expect it. Loyalty marketers, of all people, are often guilty of forgetting the value of “surprise and delight.” Delighting your customer outside of their expectations can be a very powerful bonding agent.
Educate your customers on how to spend points
Earning points should be easy – and so should redeeming them. Unless you are actually trying to obstruct redemption for some reason (and yes, there are legitimate reasons for redemption rates to be throttled up or down), then your customers deserve the same simple, easy-to-understand processes and communications that drew them into the program. Complex redemption structures can be a major cause of bloated breakage rates.
Remind your customers that they have points to spend
The point of highest brand esteem normally happens at the point of purchase. That is when your customer feels the best about their relationship with you. One of the other high points on that continuum is at their point of redemption. But what about all that time and space in between them? Oftentimes, customers just need a simple reminder now and then that they have redeemable points at their disposal. Note: Bill Hanifin posted on this topic here – its well worth the read.
Run promotions to motivate point spending
Nothing amplifies brand affinity like a special offer exclusively for your program members. Not only will a points promotion accelerate the shrinking of your breakage but it is also seen as a further “members-only” benefit which only serves to supercharge the bond between your customers and your brand.
A large breakage number can be the financial equivalent of a ball and chain. Yes, it means there is no cost of redemption but it can also create a significant liability on your balance sheet. But in the hands of a skilled loyalty program manager, it can also be the key to unlocking new levels of understanding and brand affinity.