Editor’s Note: This post was originally published on May 19, 2015 and was updated for accuracy and comprehensiveness on May 18, 2018.
Redemption rate, or the percentage of points issued that are actually redeemed, is a key indicator in whether a loyalty program is healthy or not. A healthy program is one that engages its members and encourages them to return and shop more.
Since loyalty members see value in a program when they actually claim a reward, we like to tie the engagement of a program to the redemption rate. If a customer is actively participating in your program and finding it appealing, they will be spending their points on rewards (and increasing your redemption rate). If your customers are not redeeming points, it means that they are not actually engaged.
Accounting loves a low redemption rate because it means that they have to pay out less rewards. However, a low redemption rate should always be concerning for marketers.
How Do You Know if Your Redemption Rate is Low?
One of the best ways to gauge your success is by comparing your business with one that’s similar. However, that’s not always possible - especially with a metric like redemption rate.
We know this information is hard to find so we did some digging into the thousands of merchants running Smile.io to find some averages for you to compare to.
If your current redemption rate (total points spent on a reward divided by all points issued) is less than 13.67% you are below average. If this is you, you should start to think of ways to improve your program participation.
Dealing With a Low Redemption Rate
If you just discovered that you have a low redemption rate, don’t worry – you can still fix it! A low redemption rate is usually the result of people joining your loyalty program but not actively participating. The solution is to get people to be more active in your program, and there are a number of ways to do that.
1. Offer Multiple Ways to Earn Points
A program that has more ways for a shopper to earn rewards is more exciting and therefore more engaging. Loyalty programs that only give you points for registering and spending are old-school and boring. If you want to boost your redemption rate, you need to add more unique ways to earn.
Actions that expose a customer to your brand more often are usually the most effective. Our research found programs that encourage social follows have higher than average redemption rates.
You also want your program members to feel valued. After all, loyalty is a two way street. The best way to do this is by showing them that your program is not just about getting them to spend as much as possible. A great way to show your appreciation is with a birthday reward. Giving your members points on their birthday has shown to also significantly increase redemption rates.
Obviously you should add ways to earn that match up with the loyalty brand image you are trying to create. If you do not already have a strong Twitter following, don’t try to boost your redemption rate by getting people to follow your inactive account. That just won’t work!
2. Offer Different Rewards
The majority of loyalty programs out there offer the gold standard: redeem a certain amount of points for a discount off a purchase. That’s because it’s effective! However, if you want to increase your redemption rate you should add more ways to earn rewards. This increases the chances that a loyalty member will find something that is valuable to them.
There are a ton of different rewards you can offer as part of a loyalty program, including: experiential rewards, exclusive products, free shipping, store credit, or straight discounts.
3. Use On Site Cues
Sometimes people just forget that you have a loyalty program. If they can’t find it, they can’t engage with it! Use on site cues to remind them how awesome your loyalty program is. Here is an example from Camera Ready Cosmetics’ home page.
Keeping your program in front of your shoppers is an easy way to boost your loyalty program engagement and redemption rate.
Redemption Rate Influencers
The average redemption rate we talked about earlier is an average across many industries, countries, and revenue levels. Smile.io helps power stores that do $10,000 a year to $100,000,000 and everything in between. This means that this average may not be super relevant to you. That is why we have also taken a look at redemption rate averages in different countries, for different aged programs, and even for paid vs free Smile.io plans.
All of these results can be found in our free redemption rate research. I will share some of the findings with you here as well.
Where your business is established does not have much of an impact on how engaging your loyalty program is, but cultural tendencies of your average shopper can. We found that certain countries actually have higher than average redemption rates, and some have drastically lower.
As you can clearly see, the country where your shoppers are from does influence a store’s redemption rate. If you are selling to customers from Singapore or Canada you are going to have an easier time keeping customers engaged than in Indonesia or Hong Kong.
Age of Program
The age of your program influences your redemption rate as well. At Smile.io, we always recommend giving your program at least 6 months to evaluate its effectiveness. This is because your shoppers require time to adjust, accumulate points, and get rewards.
Trying to evaluate a loyalty program that is younger than 6 months is difficult. Brand new loyalty programs generally have higher than normal redemption rates as many companies elect to start existing customers with points. There is also the new hype factor that leads people to redeem points for rewards.
These initial high redemption rates are generally followed by a bit of a lull before returning back to what you should expect at the 6 month mark. If you have a new loyalty program be sure to give it adequate time before evaluating how effective it is.
Redemption Rate is a Product of Your Effort
Your redemption rate is a product of your loyalty program. You should not just expect it to change over time. You get out of your program what you put into it. A loyalty program is not a set it and forget it tool.
I always recommend a staged launch to keep your members interested and boost program effectiveness. Be sure to constantly evaluate your redemption rate so you know if you need to make any changes. You should aim to have your redemption rate higher than 20%, so good luck and happy rewarding!