Study says $16 billion worth of loyalty program rewards go unredeemed each year

May 12, 2011 | by Kim Williams
Study says $16 billion worth of loyalty program rewards go unredeemed each year

According to a recent study by COLLOQUY, a marketing research company, and Swift Exchange, a marketing technology company specializing in the rewards industry, Americans accumulate approximately $48 billion in rewards points and air travel miles annually. Of that amount, at least one-third, representing $16 billion in value, goes unredeemed by consumers.

The study, titled "2011 Forecast of U.S. Consumer Loyalty Program Points Value," is the first study on the perceived dollar value of loyalty programs and illustrates the economic influence of these programs on consumers, issuers, merchants and manufacturers.

“If redemption equals engagement and engagement delivers customer satisfaction and profits, then loyalty marketers should encourage their members to make the most of their rewards,” said Kelly Hlavinka, managing partner at COLLOQUY. “In short, redemption is good.”

Hlavinka said the research results indicate loyalty marketers have work to do, because while unredeemed points may translate to short-term corporate savings, they do not equate to long-term customer relationships.

The number of loyalty memberships in the U.S. is currently 2.1 billion, exceeding 2 billion for the first time, up from 1.8 billion in 2009, according to COLLOQUY's 2011 loyalty rewards census report. The average household has signed up for 18.4 programs, compared with 14.1 programs in 2009.

Despite the increase in overall membership, the average number of programs in which households actively participate is just 8.4. The overall membership of 2.1 billion represents a 16 percent increase compared to the 2009 report, but shows a slowdown when compared with 2007 to 2009 when memberships rose 34 percent.

The financial services sector is the biggest provider of rewards at $18 billion a year, with the travel and hospitality sector as the second-largest at $17 billion a year. The retail industry, although it makes up 40 percent of all loyalty program memberships, issues the smallest value in rewards at $12 billion a year.

Put in perspective, the average household that is active in loyalty programs earns $622 a year, but does not redeem $205 of those rewards. That's enough money to buy an airline ticket, purchase a week’s worth of groceries or even a smart phone. So, why aren't more consumers cashing in on loyalty rewards?

Consumers want a hassle-free loyalty experience

“Three decades after the inception of the modern frequent flyer program, the rewards industry is ripe for a transition from a culture of accumulation to one of realization in the fullest sense,” said Nancy Gordon, chief operating officer of Swift Exchange. “That means helping consumers make rewards-based purchases as easily as they buy anything else in their daily lives.”

Daniel Wesley, 33, of Tampa, Fla., blames his bad memory as the reason why he doesn't redeem loyalty member reward points.

"In all seriousness, it simply takes too long to earn enough points to redeem for something I would feel is worthwhile," Wesley said.

Carrie Rocha, 35, of Minneapolis, Minn., said she is actually a big fan of loyalty programs, but admits her rate of redemption is hit or miss. While she participates in several rewards programs, such as CVS's Extra Care Bucks, she said her redemption depends on how easy it is to understand the redeeming process, and how frequently she shops in a particular store.

"Stores whose loyalty programs I understand and use, like CVS's Extra Care Bucks, I am super-duper loyal to, and I spread the word about the store like mad," Rocha said. "It seems like every brand has a program now, and it is overwhelming to keep track. The ones that are easiest to use are the ones I favor."

Beverly and Pablo Solomon, owners of mussee-solomon, a high-end art and design business located outside of Austin, Texas, use the same credit card associated with a major hotel chain that Beverly started using 35 years ago during her time as a model in the fashion industry. She traveled extensively then, and she and her husband do a lot of traveling for their business today.

"We get points for every dollar we spend anywhere, and on occasion, they have deals where you get three or four points for each dollar spent at specific stores," Pablo said. "We have accumulated a huge number of points. At one time we had several hundred thousand." 

Pablo said they do redeem reward points when they want to, but they also always keep a very large number of points in their rewards account to qualify for a special category that offers perks and upgrades. He said that often when they check-in at the participating hotels, the staff tries to convince them to switch to a different program because of their card status.

"We also think of our points as a savings account. With this recent economic downturn, and some in the past, we've used some of our points to pay for our business travel expenses," Pablo said.

Topics: Consumer Behavior, Customer Experience, Loyalty Programs, Retail - General

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