Aeromexico values its frequent-flier rewards program at $1 billion. That means its loyalty program has more cash than many actual financial institutions. But all that unredeemed value is a symptom of a problem. Loyalty programs should get people engaged with and using the product, not letting their reward points sit.
Loyalty programs are supposed to get customers to stick around with points and rewards. But the majority of businesses find their programs aren’t keeping customers engaged. Only 44% of customers say they are satisfied with their membership, and over 20% of loyalty members never even make a redemption. A 2012 study found that of the $48 billion in loyalty rewards doled out that year, a full third ($16 billion) went unspent.
Why all this “passive loyalty?” It’s clear throwing credit at people isn’t getting them to redeem rewards. Your loyalty program should be about customers forging real relationships with your brand, not buying them out with cheap points. If you want your loyalty points to represent true brand loyalty, they must evolve.
Creating a program that is more than just earn and burn won’t drive customers away. Take for example one area of loyalty program evolution: rewarding with points for referring people to your loyalty program. Member-get-member programs are a major way loyalty programs are starting to reward members. Changing the way your customers earn is an easy avenue to increasing the loyalty value of your rewards. It will show that loyalty to your business actually means something, and that you value real relationships.
Make Referrals Earned, Not Given
A referral that is earned represents a loyalty milestone to your customer. Later reward points unlocked through referral become a more meaningful symbol of a customer’s loyalty journey with your brand.
The scarcity principle of social psychology helps explain the increased loyalty value. People place a higher value on rare objects than abundant ones. Earned referrals are scarcer and will be more prized. If it takes a history with your business before customers can refer, they will feel their continued loyalty has paid off and that their rewards are well-deserved.
Maple’s referral system is a great example. Maple requires customers to purchase two meals before making a referral and limits referral quantity to optimize acquisition costs. As a result, Maple customers are encouraged to make a genuine brand connection before they refer, and the rarer earned referrals make customers more likely to use them. When they do recommend, their referral will be of substance and based on real experience, reminding the advocate they’ve earned their $15 credit.
Reward Based on Participation
To give your loyal members the sense that they’ve earned their referral reward, add a participation condition. Reward your advocates only after a referred friend has enrolled. Or, take it a step further, and only give points to your advocates after friends have purchased.
When you ask somebody to refer your brand, you’re asking them to use their social capital on behalf of your brand. By linking an advocate’s reward to the acceptance of a referral you give that capital back when a new customer does become a customer. Social influence tells us that people like it when others approve of their interests. Not only will your loyal customer feel validated by their friend’s acceptance, your referral reward reaffirms their original trust in your business.
Take Uber’s refer-a-friend policy. Uber members can collect credit only if their friends take the free ride included in the referral. When they cash in their $20, they are reminded of the successful referral they had to make to get it. Since they’ve introduced someone they know for sure is interested in Uber’s service, the advocate feels they’ve demonstrated their loyalty and earned the ride credit.
Refer to Advance, Redeem to Remain
Loyalty programs use referral as a way for customers to advance in loyalty status. The most active referrers earn more points and unlock unique rewards the more people they bring in. Use referral as a way for customers to rise in the loyalty ladder, but also require them to redeem a certain amount of rewards to maintain their high-roller status.
Redemption requirements may seem imposing, but it actually creates a loop of positive reinforcement. As they redeem, customers continuously re-engage with your brand at the top-tier level they’ve worked so hard to achieve. Their loyalty is positively reinforced every time they use their benefits and solidify their VIP status.
Starwood’s Preferred Guest program encourages Gold members to “Stay Golden” by redeeming a certain amount of stays per year. Referral is instrumental in earning points and advancing tiers, but actually redeeming rewards is what reminds customers of your brand’s value and the connection they’ve built with you.
Loyalty is Active, Not Passive
In the end, it’s your job to make your loyalty program a path for customers to form genuine relationships with you. If you treat points and referrals as the valuable resources they are, customers will view them that way too.
Give your customers perks that are hard to unlock and loyalty to your brand becomes a meaningful achievement. Use redemption to refresh the relationship, not to buy their commitment. Referral can keep your loyalty program active so you don’t end up with $1 billion in forgotten value.