Reward Program Strategy

Why Do Some Rewards Program Points Expire?

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No matter which industry you look at, rewards programs are there helping merchants retain and delight their valued customers. However, while there are many different kinds of rewards programs, one of the of the most universally trusted is a points program.

The mechanics of the classic points program are simple: when the customer performs a valuable action (like completing a purchase, referring a friend, or posting on social media), the brand awards them points which can be applied towards rewards like discounts, experiences, and even products.

There are two sides of the reward points expiry debate

Where things start to get interesting is in what happens when a customer doesn’t spend those points. Some business minds think these points should accumulate indefinitely (Team Acquire), while others believe that having an expiry date on these points is the way to go (Team Expire).

 

Should Points Be Acquired or Expired?

Before we give you our take on the issue, let’s explore the implications of points expiry and why the topic matters to today’s brands. It all boils down to two words: unredeemed points.

Unredeemed points are the bane of any points loyalty program. In fact, they’re such an issue that we’ve actually put together an ebook on everything there is to know about point redemption rates and what you can do to improve them. Whether you’re on Team Acquire or Team Expire, the end goal is the same: increasing redemption rates.

Understanding point redeption rates is the key to building an engaging program

Members of “team acquire” believe that they can increase point redemption by not allowing customers’ points to expire. This means that a customer will always have the opportunity to return and spend their points, even if it’s a long time after their initial purchase.

On the other hand, “team expire” believes that if a customer goes too long without spending their points they can actually reach the point of no return, where they are extremely unlikely to ever spend them. By setting the points to expire at or before this point, they can provide customers with the motivation to spend their points before it’s too late.

Check out the free guide to rewards psychology

Both sides of the conversation have compelling and logical evidence for why their points structure makes the most sense, so which method is correct?

As much as I hate to say this, the correct answer depends on your industry, products, and customers. Here at Smile.io, we believe that merchants should have the option to build rewards programs that fit both their needs and those of their customers. This philosophy is actually what inspired us to build the Points Expiry feature for our own product!

Tools like points expiry are only as good as our reasons and methods for using them

Whether you’re a Smile.io merchant or not, and whichever side of the acquire/expire discussion you find yourself on, there are a few things you should know about points expiry and how to get the most out of it. After all, points expiry (like any tool) is only as good as the person who wields it.

 

Why Points Expiry Works

Expiring Points Motivate Customers Through Loss Aversion

If increasing redemption rates is the ultimate goal of reward program tools, then points expiry actually seems pretty counterintuitive. How on earth could taking points away from customers increase the number of points that get redeemed? After all, every point that expires is a point that a customer never has a chance to redeem.

This counterintuitive effect can be explained by the loss aversion principle rooted in economics and decision theory. In simple terms, this theory states that human beings are hardwired to try and avoid loss wherever they can, even if it’s not always the most rational decision. This is why losing $5 hurts us much more than gaining $5 pleases us. Loss aversion theory is also at work when people suddenly become enamored with an old item they had previously forgotten when someone attempts to throw it away.

the los aversion principle states that humans are wired to avoid loss whenever possible

You’re probably starting to see how this paradox applies to points expiry. Rewards programs are built on giving your customers something to gain by shopping with you but points expiry gives them something to lose as well (a switching cost). This duality allows your brand to leverage the motivational effects of gaining value and avoiding losses simultaneously.

The best part of expiring rewards points is that their motivational effect strengthens when your brand needs it the most. Right after a customer earns points they’re still excited from the high of the purchase and the initial reward. However, the longer they wait to earn and spend more points, the easier it can be to forget about them and the less motivated they become.

Motivation levels can remain constant with points expiry

Expiring points help to balance this decline in motivation because the farther a customer gets from their initial purchase, the closer they get to the points expiry date. This provides fresh motivation and interest through the loss aversion principle.

Expiring Points Show Customers the Value of Points

It’s no secret that humans value things that are perceived to be rare and scarce.  This is why we often don’t respond immediately to someone we’re trying to impress so that we can seem more desirable. We’re using the scarcity bias by limiting our availability and communicating our value in the process. Limited time offers play to the scarcity bias in much the same way. These deals appear even more valuable because they’re only offered for a short period of time.

The scarcity heuristic states that the rarer a resource is, the more value we will place on it

The points in a loyalty program can work in much the same way. Letting customers know that they will receive points and then have a certain window of time in which they can use them highlights the value of the points in a way that customers may have overlooked if they were available indefinitely.

Including points expiry can feel like you’re going to be disadvantaging your customers but that’s not actually the case. By fairly communicating the value of your points you can actually inspire more customers to reap the benefits of your program by letting your customers know that you’ve given them a special gift and they can either choose to use it or lose it.

 

How to Use Points Expiry the Right Way

Now that you know how points expiry can actually help increase your loyalty program redemption rates, let’s discuss how exactly a brand would design a program with an expiring points system that truly benefits their customers. As you might have guessed, points expiry is a game of give and take.

Give your customers a reason

If you’re changing or introducing an aspect of your rewards program, your customers have a right to know. Points expiry is no different. Your customers will want to know how points expiry will affect their current balances and future earnings. A clear explanation can calm their fears and actually get them excited about the changes to come.

Davids tea rewards program changes example email

These explanations can be delivered on your rewards program explainer page or through an email marketing campaign targeting current and prospective program members. DAVIDsTEA has always been a great example of this principle at work.  Anytime they make any changes to the way their customers can earn or spend points, they’re sure to communicate that with clear, branded emails.

Explainer pages help you make sure your customers understand your program

The important thing is to be thorough and transparent. Customers might love a good birthday surprise, but I can guarantee they won’t react the same way to a points expiry surprise.

Give your customers a reason why

An explanation is a great first step, but if you’re switching your program over from non-expiring points then that explanation must contain the reason why. It would be an unfortunate misunderstanding if your customers got the wrong impression and felt like you’re trying to cheat them or hold back on them.

Email marketing is a great way to communicate the changes to your rewards or loyalty program

 

 

Explaining that your program is designed to actually help them get the most out of your program can clear up any misconceptions about your loyalty program and help get customers on board. Like the explanation, the reason why can also be communicated through emails and/or an explainer page, as well as on your social channels.

Give your customers Time to process any changes to your program like points expiry

Implementing points expiry isn’t a trivial change to your loyalty program, and like we’ve discussed it can change customer behavior for the better. The thing to keep in mind is that these changes can take some time to cement.  As such, you’ll want to give your customers the time they need to make adjustments.

Some points expiry mechanics work on a strict timeline (such as points expiring X months after they were earned), while some are based on engagement (like points expiring after Y amount of time without a customer earning or spending points).

When introducing points expiry, the rule of thumb is to give customers a full expiry period of notice

Whichever method you choose, we recommend providing your customers with a full explanation and guidelines one full expiry period in advance. This gives customers as much time as possible to make their purchase decisions and get the most out of your brand according to your new terms of service.

Give your customers a points expiry warning

When you’ve actually rolled out your points expiry program, don’t forget to keep your customers in the loop every step of the way! When a customer’s points are about to expire, give them a heads up so that they can take action if they so desire.

Points expiry branded experience smile.io

These last chance and reminder emails are staples of an expiring points program, and give customers a chance to redeem points they may not have otherwise.  At the end of the day, isn’t that the entire purpose of points expiry?

 

Expiring Points, Inspiring Customers

Expiring points may not be the right fit for every brand, but when used correctly they can make a positive impact on both customer relationships and program engagement. The motivational impact of the scarcity heuristic and the loss aversion principle can help a lot of brands walk the walk when it comes to the value they say is in their program points.

When it comes to actually managing  a points expiry program, brands must remember the “four gives” or their customers won’t be in a forgiving mood. It’s important to give customers an explanation, a reason, a warning, and time to adjust to the program. A brand that keeps these things in mind will be expiring their points but inspiring their customers.

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