Rising redemption rates - who's winning?

The global economic climate has seen an overall increase in loyalty programme redemptions as consumers redeem their loyalty points against a host of goods and services from general household items to flights for holidays.  Loyalty programme rewards have proven to be a particularly valuable way in which consumers can work to maintain their lifestyle without the same levels of expenditure.

Research on behalf of Wyndham in the USA, for instance, shows that 20 percent of consumers believed that they would be unable to take their next holiday without using loyalty points or miles, which suggests that the current economic climate has increased the importance of travel rewards in holiday planning.  In addition, 47 percent said that they plan to redeem travel reward points towards their next holiday.

Many of the leading brands are currently benefiting from the kudos of being seen and being able to help their loyal customers still enjoy a holiday, buy much needed groceries or other household essentials by cashing in their reward points.  The result is that consumers are engaging more readily and more often with their chosen brands as those brands are delivering valued benefits for consumers.

Fiscally the benefits can be much greater for the brands than they initially appreciate and these should be attributed to the loyalty programme.  For incremental spend, the monies accrued during a person's complementary stay or instore, is often not accredited to the loyalty programme but bundled in to day-to-day turnover.

However research has found that the increased uplift in spend resulting from redemption can be between 14 and 400 per cent.  Figures from a Middle East retail group support this with every voucher resulting in a higher total spend of which 60 percent could be viewed as incremental. 

Whilst this is excellent news for brands running loyalty programmes there are discrepancies across territories and sectors; what is happening in the USA is totally different from activity in China, Japan is different to the UK and the Middle East bears scant resemblance to Europe.   So, good news is tempered with the knowledge that no one size fits all.

For instance while redemption is strong in many parts of Europe, travel redemption in the USA is in decline as compared to a marked increase in retail redemption, with particular emphasis on redemption against low value but essential household items.  According to a Hilton HHonours research, travel programmes in Asia Pacific are still robust with Australia leading the pack. eBucks, a popular coalition loyalty programme in South Africa, recently reported that seeking value for money has become a top priority and as a result redemption rates are likely to remain high for a considerable time.

Despite country and cultural differences, increased redemption could signify a noteable change in customer behaviour which could well continue after the economic climate improves.  Whilst there are clear associated benefits such as a reduction in liability and increased incremental spend, the commercial impact to loyalty initiatives and programme profitability should be understood and evaluated.

The ability for consumers to redeem the equity they have built up through loyalty programmes is having a very positive impact on consumers.  This could pay powerful dividends for brands in the long run if they are able to encourage further engagement.  However this should be done with a clear understanding of the commercial outcomes and without compromising the profitability of the customer or the relationship programme.