Loyalty isn't broken, it is simply misunderstood.
There are a number of posts and articles circulating stating that there are billions of pounds of points not being redeemed - the inference, that loyalty programmes are broken or simply not working.
Well, that's one way of looking at the situation. Another is to appreciate that there are many types of loyalty related programmes and each type has a number of moving parts. Points are just one mechanic, it is the one which as consumers we know instinctively and therefore generally the first port of call when people talk about loyalty programmes.
So let's start with points. If there are billions of points out there not being redeemed then some of the key criteria for having a programme are being met. If you wanted to influence customer behaviour so that customers continued to shop with you and in return receive points then that part of your goal is being met. Points are working just fine so far.
The problem isn't that consumers aren't actively participating in your programme and accumulating points, the issue is that they aren't redeeming them as fast as you would like.
Generally, there are two types of collectors, "grabbers" and "growers".
"Grabbers" like to participate by accumulating and spending their points quickly, whilst "Growers" like to let their points build up until they have enough for a particular level of reward that they are after or that satisfies their value equation.
In any programme, you are going to have both "Grabbers" and "Growers" therefore it is important to know the weighting of each in your programme population and adapt your reward offering to ensure it is always relevant.
Relevance is king. Customers will not respond to any promotional or loyalty initiative unless they find the rewards exciting and relevant. An obvious observation but you would be surprised how often rewards are left late in the process of developing a programme.
Personally, I think any promotional or loyalty activity needs to be built from the reward up.
Relevance doesn't mean you have to have an endless catalogue of rewards either, some of the most successful programmes focus on a single reward proposition such as cinema or cash. But rewards also have to be achievable, the points ratio or gearing has to be such that rewards are relatively attainable by consumers.
The biggest, misunderstanding about loyalty programmes is communication. You can have the best proposition, the most relevant rewards and the most sophisticated platform or app to deliver them on, but if you don't continually communicate in an active and relevant way with your audience then your programme will not perform.
Launching a programme is exciting. You have to come up with a proposition, a name, the creative, the rewards and the launch plan. But if you are going to launch any type of programme you need to appreciate that the hard work actually starts once you have launched it. A programme is a living entity and needs to be invested and nurtured for it to provide the kind of behavioural changes you are after.
Perhaps part of the reason there are billions of points being unredeemed are because brands aren't supporting or investing in their programmes in the right way or perhaps they simply have the wrong type of programme for their needs.
Communication costs are expensive but a necessary evil if you want to have a successful programme and need to be adequately budgeted and planned. Vital if you are building a long term programme that you are going to put at the core of everything you do.
But points aren't the broken part of any programme, they are just one tool in a very large consumer promotions / loyalty range of solutions.