Latest / The Retention Marketing Podcast with Fexingo: Email, SMS, and Loyalty for Repeat Customers / Why Your Loyalty Program Is Quietly Killing Repeat Purchases
Transcript
- Lucas: So I was digging into a retention report the other day, and one stat stopped me cold — sixty percent of loyalty program members never redeem their points. Ever. They just let them pile up like digital dust. Luna: Oof. And those are probably the same members brands think they're locking in with all those 'earn points on every purchase' emails. Lucas: Exactly. And that mismatch — between what brands think their loyalty program is doing and what it's actually doing — is exactly what we're digging into today. And look, if these conversations have sparked something you've actually used in your own work, the smallest way to keep this show ad-free is a coffee. If today's episode is worth a cup to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Yeah, no pressure. We're just happy you're here. But a coffee does fuel the editing, I'll say that. Lucas: Alright, so back to points. The big problem is what I call the 'worth-it threshold.' A customer looks at their points balance and asks, 'Is this actually worth anything to me?' If the answer is no, the program becomes noise — or worse, it trains them to wait for discounts. Luna: Wait, trains them to wait? How does a loyalty program do that? Lucas: Because when you offer points on every purchase, you're essentially giving a tiny discount now in exchange for a vague promise later. The customer learns that buying today isn't urgent — they can earn a little more, wait for a bonus points event, and then pull the trigger. So repeat purchases actually slow down. Luna: That's counterintuitive. You'd think any incentive speeds things up. Lucas: Right, but behavioral economics says otherwise. There's a great example from a skincare subscription brand — I won't name them, but they had a classic points program. One point per dollar, ten percent back in points. And their repeat rate was flat for two years. Luna: Sounds familiar. So what did they change? Lucas: They restructured the whole thing. First, they made redemption dead simple. Instead of a clunky rewards catalog, they let members apply points as a dollar credit at checkout — no minimum threshold, no tiers. Second, they slashed the earning rate from ten percent back to five — but they added non-monetary perks like early access to new products and a birthday gift. Luna: So they gave less financial incentive but more emotional hooks. Did it work? Lucas: Within one quarter, their repeat purchase rate jumped eighteen percent. And here's the kicker — their redemption rate went from twenty-two percent to sixty-one. Because people finally felt the points were worth it. Luna: That 'worth it' feeling is so much more powerful than the point value itself. Lucas: Exactly. And that's the core insight — the perceived value of your loyalty program matters more than the actual economics. If redemption feels easy, members engage. If it feels like a chore, they ghost. Luna: So what are the specific red flags that a program is quietly killing repeat purchases? Lucas: First red flag: low redemption rate. Under thirty percent is a warning sign. Second: high ratio of points earned to points redeemed — if points are piling up, you're building a liability, not loyalty. Third: engagement velocity — are members actually checking their points balance, or do they ignore your loyalty emails? Luna: Engagement velocity — I like that. It's not just whether they buy, but how actively they're interacting with the program. Lucas: Right. And that's where many brands measure wrong. They look at revenue per member, but that's lagging. A better metric is something like points interactions per member per month — how often they check balances, engage with offers, or redeem. Luna: So what would a loyalty program that actually drives repeat purchases look like in practice? Lucas: Well, let's flip it. Instead of rewarding every purchase, reward specific behaviors you want to increase — like buying within a certain window after a product runs out. The skincare brand I mentioned did something clever: they sent a 'loyalty bonus' email right when a customer's next order was due, offering double points if they purchased within forty-eight hours. Luna: That's like a nudge, not a constant discount. It creates urgency without devaluing the brand. Lucas: Exactly. And they also introduced a streak mechanic — like a 'consecutive months' bonus. If you've bought three months in a row, the fourth month gives you a special perk, like free shipping or a mini product. It rewards consistency, not just spending. Luna: I love that. It's the same psychology as Duolingo streaks or Snapchat streaks — people hate breaking a chain. Lucas: Right. And the beauty part is, these non-monetary perks cost the brand next to nothing, but they create real emotional attachment. The birthday gift is just a sample they already have. The early access is just a timing change. Luna: So the takeaway is: stop thinking of loyalty as a points economy, start thinking of it as a relationship engine. Lucas: That's a great way to put it. And if you're listening and thinking, 'I want to audit my own program,' here's a quick three-step framework. First, check your redemption rate — if it's under thirty percent, you have a problem. Luna: Okay. Then what? Lucas: Second, map the customer journey to your loyalty touchpoints. Are you hitting them at the moment they're about to run out of your product? Or are you blasting the same points reminder every week? Luna: Timing is everything. And the third step? Lucas: Third, ask yourself: what would the customer lose if your program vanished tomorrow? If the answer is 'nothing,' you're just renting customers with discounts. If the answer is 'early access to the stuff I love,' you've built something sticky. Luna: And sticky is what repeat purchases are made of. Speaking of which — I'd love to hear a real example of a brand doing this well. Do you have one? Lucas: Yeah, actually. I was looking at a pet food company — a DTC subscription model. They replaced their 'points for every bag' system with a 'loyalty reset' every twelve months. You start fresh, but your redemption value increases if you've been active each month. So if you skip a month, your points are worth less — not gone, just less. Luna: Oh, that's bold. It penalizes inactivity without punishing it completely. Lucas: And it works. Their repeat rate went up ten percent in six months. Members started treating their monthly order like a ritual, not a purchase. Luna: So the lesson is: loyalty programs should be designed to reward behaviors you want to encourage, not just any purchase. Lucas: Exactly. And that's the big shift — from 'earn points on everything' to 'earn meaningful rewards for actions that deepen the relationship.' Luna: So when you're auditing your own program, start with the worth-it threshold. Ask: would a customer find their points balance worth the effort to redeem? Lucas: That's the question. And if you're not sure, run a quick survey or look at your redemption data. The numbers will tell you. Luna: Alright, so next time you see a loyalty program with a million points and no redeeming, you know it's time to rethink. Lucas: And maybe that's the real loyalty metric — not how many points you've given, but how many times someone has felt that 'this was worth it' moment.