How should I set my loyalty points to expire? That is a question we hear a lot here at Smile.io, and for good reason. Point expiration is a great way to motivate your customers to buy, but if you do it wrong they will likely be frustrated and leave for good. But before I get into how you should set loyalty point expiration, we should first discuss if you should set points to expire at all.
Should Loyalty Points Expire?
Before I discuss how to set your loyalty points to expire, I first want to explain the benefits and drawbacks of point expiry. Depending on your store’s goals you might not want to set loyalty expiration at all. Let me explain.
Why You Don’t Want Point Expiration
Setting points to expire is an effective way to create urgency in your customers and get them to return for a purchase, but there are a few downsides. The first is that once you take points away from a customer you have taken away all motivation for them to come back. Once those points are taken away, good luck getting them to come back again.
The second reason to have no point expiration is because it is annoying to your customers. Put yourself in their shoes for a moment. Imagine getting an email every 6 months saying that if you don’t spend X dollars in the next month your points will disappear. I bet that would piss you off a bit, like it did to Starbucks customers back in 2012.
Starbucks made the mistake of not emailing members to inform them of expiring points. This lead to a lot of unpleased customers as Roger Dooley outlines in his article on the mishap. Regardless of how you look at it, a customer is not going to be pleased when you take their points away. But using point expiration is also effective at encouraging purchases. You just need to strike a balance.
Why You Want Points to Expire
Now for the benefits of setting an expiry date on your loyalty points. The first benefit is that it encourages customers to come back. If you have a date when points expire your customers will be motivated to continue purchasing from you so they don’t lose their hard earned points.
You should also be sending communication to these customers letting them know their points are set to expire. I would recommend letting them know three months out, 1 month out, 1 week before, and a final reminder the day before expiration. The last thing you want is to have customers feel like they did not receive adequate warning before the points expired.
You should treat these final emails as a last ditch effort to retain a dormant customer before they are totally lost. You may even want to throw in an extra incentive in the last few emails to provide further incentive to return. If you can get this customer engaged with you again you are increasing their lifetime value which will outweigh the cost of the extra incentive.
Types of Loyalty Point Expiration
You want to know the best way to set loyalty point expiration, it is the title of the article and no doubt why you are here. I will go over the two most popular types of point expiration and give my two cents on an appropriate length of time before points should expire.
1. Hard Expiration
This is a expiration timeline that corresponds with a specific date on the calendar, it is also referred to as calendar year expiration. When using this method you simply select a date at which loyalty points will expire, usually on January 1st.
This is a common way to set point expiration, mostly because it is simple to do. But in my opinion the benefits stop after simplicity. When points expire within a year shoppers may be reluctant to even sign up for your program. They will likely feel like they don’t have enough time to earn enough points to make it worth their while.
This type of points expiration also only allows you to use point expiration emails during one time of the year. If all points are expiring on January 1st you will be encouraging all your members to come shop with you at once, and at a time that may already be busy. The next expiration option gives you much more flexibility as marketer and is more engaging for your customers.
2. Rolling Expiration
This is an expiration timeline that is dynamic and changes based on a customer’s activity. In this type of expiry you set a timeline that points expire in (like 6 months or a year). If a customer has not earned or spent points during that timeline then their points will expire. Essentially they have X days after their last point transaction to either earn more points (make a purchase) or use their points (claim a reward).
This type of expiration allows you to motivate customers much more effectively. This is because they don’t view expiration as happening in the immediate future, they can continue to save points for bigger rewards (if they choose).
This type of point expiration also ensures that your point expiration marketing is staggered. All of your customer’s points will not be expiring at the same time making your point expiration marketing much more effective. This type of expiration is better at continually encouraging and incenting repeat purchases over the entire life of the customer. A rolling expiration is one of the best way to increase your purchase frequency with a loyalty program.
My Expiration Preference
I am a fan of using a rolling expiration in a loyalty program. The reason I prefer this is because of the benefits listed above, but also because it does not deter signups that are close to the expiration period. Say you are making a holiday purchase at the beginning of December and sign up for the loyalty program that has a hard expiration on January 1st. In this scenario you only have a few weeks to use those points before they’re gone.
This is extremely demotivating for anyone looking to sign up within 3 months of the expiration date. A rolling expiration date ensures that no customer is ever demotivated because of the timing of their signup.
How Long Before Points Should Expire?
The above question is a natural question to ask once you know what kind of expiry you are going to use. I can give my short answer, and my long answer to this question. I will start with the short answer first.
Short Answer – 1 Year
If you are looking for a simple point expiration period, I would recommend one year. This gives customers an adequate amount of time to earn/spend points. This also encourages customers to make multiple purchases within the year.
Long Answer – It Depends
If you are like me, and like everything to be based on some data then the “long answer” is more relevant to you.
Ideally you want to set up your point expiration so that customers who you would consider dormant (haven’t purchased from you in while) can be emailed telling them their points will expire. This is an effective way to get them back and shopping with you again. You can calculate your time between purchases with the calculation below.
Once you know your average time between purchases you can set your point expiration when you believe that customer has become dormant. This could be a complicated method like two standard deviations away from that average, or you could elect to do something simpler like adding an arbitrary time onto your average like 6 months.
This method takes your sale cycles into account rather than just setting it as one year. Maybe you sell lawn mowers which someone buys every 5-10 years. Having a point expiration of one year is not going to do you much good.
The Best Loyalty Point Expiration
Setting a point expiration is one of those topics that has people torn. If you were to poll the Smile.io office you would likely get results all over the map. But my personal recommendation is to use a 1 year rolling point expiration. It is a good compromise of merchant and customer benefits.