Grace with Loyalty Point Expiration Extensions

How would it feel to give up your gold and accept the silver or—oh no!—the bronze? I’m not talking about your repositioning on the awards stand at the Olympics. No, I’m asking about the likely reactions of your customer to a drop in loyalty program status if they fail to give you sufficient continuing business.
     Studies at Georgia Southern University and Macquarie University conclude that the customer would probably feel embarrassed and irritated. Worse yet are the reactions if the points earned so far are declared as immediately expired. Points can be used for free items or discounts with clearly measurable monetary value, which can also be managed by the customers themselves like currencies. Earning a higher status in the program, on the other hand, is predefined by the firm policies and does not come with a direct monetary value that customers can control. To encourage continuing active participation in the loyalty program, allow customers to keep their points for a grace period and keep building further on them, and punish with status demotion rather than point expiration.
     Some loyalty programs award gold status to customers as an exclusive gift without requiring them to meet purchase criteria. Because their loyalty program status was endowed, not earned through buying, we might expect they would consider it fair if the business subsequently takes back the gold medal. Yet, the researchers found these people were more likely to feel embarrassed and that they’d been treated unfairly when losing status and points than were those who legitimately earned status through purchases. More important to a retailer, they also reduced their store patronage to a greater extent.
     To avoid risks in hierarchical loyalty programs, you could eliminate tier structures. Not a good idea. Research indicates that people are attracted to the status available with tiered programs. So go in the opposite direction from eliminating tiers. Make a big deal of the tiers. Refer to the customer as a “member.” Give extra acknowledgement, such as by looking at the customer, smiling, and saying, “Thanks for being a Gold Level member.” Little need to worry that the Bronze Level shoppers overhearing this will feel they’ve been slighted. Research finds it motivates rather than irritates or discourages.
     Do be sure participants understand the rules for and consequences of being dropped to a lower level. Then give advance warnings to those at risk of being dropped.

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