Latest / The Retention Marketing Podcast with Fexingo: Email, SMS, and Loyalty for Repeat Customers / Why Your Loyalty Points Expire and How to Fix It
Transcript
- Lucas: So Luna, I want to talk about something that I think is one of the most quietly destructive forces in loyalty marketing, and it's the thing that makes customers want to throw their phones at the wall. Luna: Oh, I have a feeling this is about points expiring. Because I just got an email yesterday from an airline saying my miles are about to vanish, and I had that little panic moment. Lucas: Exactly. That panic moment is the core of it. And it's a policy that on the surface seems harmless, but it actually punishes the exact people you're trying to reward. So today I want to dig into why expiry exists, why it's terrible for retention, and what some brands are doing instead. Luna: Alright, I'm already on edge just thinking about my miles. Let's get into it. Lucas: So first, let's talk about the airline industry, because that's where this practice is most entrenched. The big carriers, and I'm not going to name a specific one, but you know who they are, they typically have a policy where your miles expire after 18 to 24 months of inactivity. And that's not a small thing. The airline industry collectively holds billions of dollars in unredeemed miles, and a big chunk of that is because people simply forget they have them. Luna: And that's the thing, it's not that people are being lazy, it's that life gets busy. You don't fly for a year because you had a baby or you changed jobs, and poof, your miles are gone. Lucas: Right. And the marketers behind these programs know that. They're relying on something called breakage, which is the percentage of points that are never redeemed. For airlines, breakage can be as high as 20 to 30 percent. And that's not just a small footnote; that's billions of dollars in pure profit, because those miles were already earned, they were already a liability on the books, and if they expire, that liability disappears. Luna: So it's a deliberate financial strategy. But it's also a retention nightmare, isn't it? Lucas: It is. Because when you take away something that a customer earned, you're not just losing that customer's future transactions, you're actively creating a negative emotional association with your brand. And there's actually a psychological principle at play here called the endowment effect. When someone owns something, even something as abstract as frequent flyer miles, they value it far more than something they could just earn from scratch. So taking it away feels like a real loss, and losses hurt twice as much as equivalent gains, psychologically. Luna: So the airline is basically saying, 'We're going to take back this thing you already earned,' and the customer's brain processes that as an actual loss. That seems like a great way to make someone hate you. Lucas: Exactly. And there's a study I remember from a few years ago that showed that when a loyalty program makes points expire, the likelihood of that customer making a repeat purchase drops significantly, not just in that moment but for months afterward. The trust is broken. And once trust is broken, you're not just competing on price and convenience anymore, you're fighting a negative emotional memory. Luna: Okay, so if it's so damaging, why do so many programs still do it? I mean, besides the breakage profit. Lucas: Well, the traditional argument is that expiry creates urgency. It forces people to redeem, which gets them back into the ecosystem, and if they're coming back to redeem, they're likely to spend more. That's the theory. But the data doesn't really support it. In fact, a lot of programs have found that expiry creates the opposite of retention. It creates a scramble to redeem at the last minute, often on low-value rewards, and then the customer feels used and disengaged. Luna: So they're basically trading a short-term redemption spike for long-term loyalty. That sounds like a bad trade. Lucas: It is. And I think it's why we're seeing some brands, particularly in the travel and credit card space, start to move away from strict expiry policies. They're realizing that the goodwill from not expiring points is worth more than the breakage profit. Luna: Can you give me a specific example of a brand that's doing this well? Lucas: Sure. There's a regional airline in the US that made headlines a few years ago by announcing that miles would no longer expire. And they framed it as, 'We trust our customers, and we want to be a partner you can count on.' That move generated a ton of positive press, and more importantly, it built a level of trust that their competitors couldn't easily match. Their customer satisfaction scores went up, and they saw an increase in card sign-ups and repeat bookings. Luna: That's a bold move. But what about the breakage? Aren't they leaving money on the table? Lucas: They are, but they're betting that the increased customer loyalty and lifetime value will more than offset it. And so far, that bet has paid off. It's a long-term play, and I think it's the right one. Luna: So what about the brands that aren't ready to go all-in on never expiring? Are there middle ground options? Lucas: Oh, definitely. One of my favorite approaches is what I call 'dynamic expiry.' Instead of a hard deadline, you make the expiry conditional on customer engagement. For example, you could say, 'Your points never expire as long as you make one purchase every 12 months.' That's not a threat, it's a gentle nudge to stay active. And it's much more customer-friendly than 'use it or lose it' in 18 months. Luna: So it's like a soft requirement. It still encourages engagement, but it doesn't feel like a punishment. Lucas: Exactly. And you can even do it with a grace period. Say, 'Your points are set to expire in 30 days, but if you make a purchase within that window, we'll refresh them for another year.' That's a powerful retention tool because it gives the customer a clear action to take, and it feels more like a reward than a threat. Luna: And if they don't take the action, then the points expire. But at least you gave them a fair warning and a chance to save them. Lucas: Right. And here's where the marketing comes in. The way you communicate that expiry matters a lot. You don't want to send a scary email that says, 'Your points are gone.' You want to send a helpful reminder that says, 'Hey, you've got 5000 points that are about to expire. Here's a few ways you can use them.' Luna: So it's about framing. Instead of focusing on the loss, you're focusing on the opportunity. Lucas: Exactly. And that's where SMS can be really effective. Because expiry is time-sensitive, a text message can feel more immediate and personal than an email. You can send a text that says, 'Your points expire in 72 hours. Use them to get 20% off your next order.' That's a strong call to action. Luna: And with SMS, you can also create a sense of urgency without being pushy, because it's already a time-sensitive situation. Lucas: Right. But you have to be careful. If you send too many reminders, it can feel like nagging. So the key is to send one well-timed reminder, maybe two, and then let it go. Luna: What about the redemption experience itself? Because if you're going to make people act, the redemption process has to be easy, right? Lucas: Oh, that's a huge point. One of the biggest reasons points expire is that the redemption process is too complicated. People log in, they can't figure out how to use their points, they give up, and the points expire. So if you're going to have an expiry policy, you need to make redemption as frictionless as possible. That means a clear checkout process, a good FAQ, and ideally, a tool that lets you apply points with one click. Luna: That's a good reminder. Because I've definitely been on sites where you need a PhD to figure out how to use your points. Lucas: Yeah. And that's not just a user experience problem, it's a retention problem. If you make it hard for people to redeem, you're essentially pushing them away. Luna: So, we've talked about the airlines and the horror stories. But what about the brands that are doing this well? Beyond the regional airline, are there other examples? Lucas: There are. A lot of modern direct to consumer brands are taking a different approach. They're using points as a way to reward engagement, not just purchases. So you can earn points for writing a review, referring a friend, or even just following on social media. And they make those points expire on a rolling basis, like after 12 months, but they're constantly giving you new ways to earn more. So it feels less like a threat and more like a game. Luna: That's a clever angle. It keeps people engaged, and the expiry becomes a nudge to earn more, not a punishment. Lucas: Exactly. And another approach is to not expire points at all, but instead, to periodically offer 'bonus redemption' events where points are worth more than usual. That drives urgency without the negative association of expiry. You're not threatening to take something away, you're offering an extra incentive to act now. Luna: That sounds like a win-win. The customer feels like they're getting a great deal, and the brand gets the engagement. Lucas: It is. And it's a strategy that's becoming more popular because it aligns with the psychology of loss aversion. Instead of triggering a fear of loss, you're triggering the joy of a gain. And that's a much more positive motivator. Luna: So, I'm curious, from a data perspective, what's the actual impact on customer lifetime value when you switch from expiry to no expiry or dynamic expiry? Do we have numbers? Lucas: We do. There's a case study from a major credit card issuer that went from a two-year expiry policy to no expiry on their rewards points. They tracked customers over 18 months and found that the average customer lifetime value increased by 15 percent. And that was driven by higher retention rates and an increase in average transaction value. The customers who were no longer worried about losing their points felt more confident spending them, and they also felt more positively toward the brand, so they were more likely to make additional purchases. Luna: Fifteen percent is significant. That's not a trivial bump. Lucas: No, it's not. And it's a strong argument for reconsidering your expiry policy. But I think the bigger takeaway is not just about expiry itself, it's about the philosophy behind it. Are you designing your loyalty program to leverage your customers, or are you designing it to serve them? And that's a question every marketer should be asking. Luna: That's a great way to put it. And it's the kind of question that's easy to answer with 'we want to serve them' but hard to actually implement. It requires looking at every policy with fresh eyes, especially the ones that have been around forever. Lucas: Yeah. And speaking of serving the audience, I want to take a quick moment to mention something that's been on my mind. We're able to do this show without ads, and that's because of the listeners who support it. If you're getting value from these conversations, you can help us keep it going by buying us a coffee. The link is simple: buy me a coffee dot com slash fexingo. It's not a big deal, but it makes a difference. And we appreciate every single person who's ever done that. Luna: Yeah, honestly, it's the reason we can dive into topics like this without worrying about sponsors. So if you enjoy the show, consider it. Lucas: Alright, back to loyalty. So we've talked about the problems with expiry and some alternatives. But I want to leave you with a concrete action plan. If you're a marketer listening right now, here's what you can do starting today. Luna: I love a good action plan. Give it to us. Lucas: First, audit your current program. Look at your points expiry policy and ask, 'Is this creating more value than it's destroying?' Look at your breakage rate, but also look at your customer satisfaction scores. If you have a high breakage rate, that's not necessarily a win, it might be a sign that your program is too complicated or your customers don't care enough to redeem. Luna: So breakage can be a red flag, not just a profit center. Lucas: Exactly. Second, consider a dynamic expiry policy if you still want to encourage activity. You can implement a rolling 12-month window with a grace period. And third, make redemption ridiculously easy. If you have a mobile app, make points redemption a one-tap process. And if you're using SMS, send a proactive reminder when points are about to expire, but make it helpful, not scary. Luna: And what about the long-term? Should brands be moving toward no expiry at all? Lucas: I think it's the direction the industry is headed. The brands that are winning are the ones that treat their loyalty programs as a relationship, not a transaction. And relationships don't expire. So if you can afford to do it, I'd say go for it. The long-term goodwill will pay off. Luna: That's a solid take. I know I'll be looking at my own points with more appreciation now. Lucas: And maybe fewer panic attacks. That's the goal.