What Is Point Breakage In Loyalty Programs And Why Should You Care?

There are many moving parts and elements of a customer loyalty or incentive program that contribute to its success. One of those elements is ensuring customers remain motivated and engaged in redeeming their earned rewards. After all, effective loyalty programs not only attract customers but keep them actively participating and satisfied over the long term.

However, when customers aren't earning rewards and loyalty points go unredeemed, this can result in what's called a high point breakage rate (or incentive breakage as it’s sometimes referred to among B2B incentive programs). 

Point breakage rate is a loyalty program metric that is relatively easy to comprehend, but brands sometimes misunderstand its critical role in the success and perception of customer loyalty programs. While high breakage rates might initially seem beneficial to businesses by reducing the liability associated with outstanding points, they often signal deeper issues that can undermine the effectiveness of these programs.

What Is Point Breakage In Loyalty Programs?

Point breakage (not to be confused with the 1991 film Point Break) is the percentage of issued loyalty program points that go unredeemed by members.

If John Doe earns 1000 points in his loyalty program but leaves 500 points unredeemed in his account for an ongoing amount of time, the 500 points contribute to the loyalty program’s breakage rate. This can also happen if reward points expire. 

Some point breakage is normal, and averages can vary by industry: for example, CPG retailers typically see 20%-30% breakage, while B2B brands and the travel industry can see rates of 70-85%.

Establishing an exact percentage as the universal standard for an alarming breakage rate across loyalty programs is difficult because breakage rates can vary significantly by industry. However, it's typically safe to say that if your point breakage rate is trending towards the higher percentages, you've got a problem. 

What Causes A High Point Breakage Rate In Loyalty Programs? 

On the surface, point breakage might seem like a good thing for the brand: fewer points used or redeemed for rewards means fewer items or prizes to fulfill, lowering program costs. For channel incentive programs that issue rebates, the fewer rebates that are paid out, the more the brand benefits from the sale without incurring the cost of the incentive. 

However, the negative impact of a high point breakage rate far outweighs any small benefit of reduced fulfillment costs. 

Let’s consider the common reasons a customer loyalty program might have a high point breakage rate:

• Loyalty program points are expiring too fast
• Members can't realistically earn enough points to redeem for prizes because the cost of program rewards is too high.
• Earning or redeeming points is too complicated or requires too much work on the customer’s part.
• The available rewards are irrelevant or not valuable enough

Each of these reasons not only causes a high breakage rate but also reveals major issues with the loyalty program itself. 

Loyalty Program Points Expire Too Fast

Some loyalty programs have set policies under which a member's points will expire after meeting specific criteria, such as if a member's account is inactive for a specified period or if the member doesn't redeem any points for rewards within a set period.

For businesses, point expiration can help manage liabilities and encourage ongoing customer engagement by requiring points to be used within a specific period. However, if not handled properly, it can also lead to customer dissatisfaction and the perception of lost value.

One cause of point breakage is an expiration period that is too short. The average loyalty program point expiration period is typically 12-24 months, with some brands, such as CPG or food companies, offering a shorter 6-month period.

When determining a loyalty program's point expiration period, the company must consider its products and customers' buying habits to ensure the length of time before points expire is fair. People eat food every day, but probably don't stay in a hotel every night; as such, a hotel brand should have a more extended expiration period for its loyalty program points than a food or restaurant brand. 

If companies set their point expiration period too short, they risk having their members' points expire before members can use them. This means customers lose any program value they’ve rightfully earned too quickly, before they can benefit from it. Not only does this cause a high breakage rate, but it will also lead promptly to loyalty program churn.  

Members Can't Earn Enough Points To Redeem For Rewards 

Another cause of point breakage is when the point cost for available rewards is too high, or if there aren’t any low- or mid-tier value rewards in the catalog: only high-value rewards with high price tags.

Loyalty program point values and earn rates can also differ; for example, some programs may reward 5 points per $1 spent, while others may offer 1 point per $1 spent. The number of points earned per dollar can also be affected by factors such as whether members can earn points for engagement activities, referrals, and so on. 

Companies need to find a balance between how many points customers can earn for actions or purchases, and setting the cost of loyalty program rewards. If the number of points required to redeem any reward is realistically beyond what a customer can earn, it will quickly become a problem. 

Think about it this way: if the low-tier rewards in your rewards catalog start at 1000 points but customers can only earn 1 point per dollar spent, they would have to spend $1000 to get their first reward. 

Customers will quickly become overwhelmed and discouraged by the amount of time and money they need to spend just to get the low-tier rewards -- never mind the top-tier rewards. 

Earning & Redeeming Points Is Too Complicated or Requires Too Much Work

It's part of loyalty program best practices to keep the program design simple and easy for customers to use, as this helps improve loyalty program performance. Member participation rates tank when a loyalty program makes it too challenging to earn points, requires too much effort on the member’s part, or imposes strict restrictions on how members can use and redeem their points.

When earning points becomes too difficult, it can lead to several problems that ultimately undermine the program's goals. Customers may feel discouraged if they perceive that the effort required to accumulate points is disproportionate to the rewards offered. This perception can result in decreased participation and lower overall customer engagement with the loyalty program.

Even if your loyalty program has reasonable enrollment rates initially, there’s a high likelihood members will abandon it soon after enrollment rather than continue struggling to use it.

The Rewards Are Irrelevant Or Not Valuable Enough

Lackluster customer rewards can significantly undermine the effectiveness of a loyalty program or any loyalty initiative, for that matter. Customers won’t redeem their hard-earned points for rewards that don't interest or excite them. 

When loyalty program rewards do not align with customers' interests or preferences, they may perceive the program as irrelevant, reducing its overall appeal. Customers aren't likely to feel motivated to participate in a loyalty program at all when they don't want any of the rewards. 

There are instances when members hoard their loyalty program points in hopes that better, more valuable rewards will become available in the future. But even that scenario has the risk of losing members when they no longer have the drive or motivation to continue playing the waiting game.

The ultimate consequence of lackluster loyalty program rewards is a diminished sense of loyalty, as customers are less likely to build a strong emotional connection with a brand that does not appear to recognize or value their patronage.

How Does A High Point Breakage Rate Negatively Impact Loyalty Programs?

High levels of point breakage are an issue because they show that a key element of the loyalty program isn't working: customers are earning points but not doing anything with them when points are meant to be used. Point breakage can also reveal other negative impacts, such as creating a cycle of unfairness and failing to deliver value to customers and the brand. 

High Point Breakage Creates A Cycle Of Unfairness

The human brain is wired to react to pain. Psychology research shows that the same area of the brain that registers pain also reacts to feelings of unfairness. This means that when an individual believes they are being mistreated, they respond similarly as if they were experiencing pain.

Point breakage can create a cycle of unfairness that’s difficult for customers to overlook, leading to customer dissatisfaction and eroding trust in the brand. Whether it's due to a complex redemption process or because their points expire too quickly, customers will feel frustrated and angry that they can't use their hard-earned points, and believe deceptive processes misled them. Suppose customers think the loyalty program is designed more to benefit the company than to reward their loyalty. In that case, they are likely to disengage and potentially switch to a competitor with a more accessible, rewarding program.

No company should want its customers to associate these negative emotions with its brand, and a brand with an unfair loyalty program doesn't inspire affinity or loyalty among its customers. High point breakage might seem like a good thing for the brand, but it isn’t suitable for the customer, and that is what brands should be working against. 

High Point Breakage Means The Loyalty Program Isn't Delivering Value

Some brands fall into the trap of viewing their loyalty programs as a tool that should only benefit the brand itself, which is just untrue.

The core purpose of a customer loyalty program is to build a relationship between the brand and the customer through recognition, appreciation, and mutual exchange of value. Rewarding early and often helps inspire and encourage customers to keep making repeat purchases, which in turn leads to brand loyalty.

When rewards aren’t being delivered or redeemed, a core piece of the loyalty-building process is removed. Without it, the whole strategy falls apart. The loyalty program and its rewards automatically become less critical and less valuable in the customer’s mind. Diminishing value makes it easy for customers not to care deeply about a brand or to maintain an existing relationship.

How To Fix Point Breakage Issues In Your Loyalty Program

To fix point breakage, a good place to start is to determine why your loyalty program is experiencing it in the first place. Review your loyalty program performance metrics and member data to identify trends that reflect the issues outlined above. Then consider ways you can modify your program to address these issues.

Here are some tips to fix high-point breakage rates:

Ensure Members Know How The Loyalty Program Works

Point breakage solutions aren’t always complicated or require dramatic changes, such as complete loyalty program overhauls or process changes.

The first and easiest solution is ensuring your members know how, when, and where they can earn and redeem loyalty program points. Your loyalty program might seem straightforward to you, but customer confusion about how it works and a lack of understanding of the rules are among the top causes of members becoming inactive.  

Here are some action items to ensure new and existing loyalty program members are well-informed: 

• Make sure your loyalty program earning rules are clear, easy to understand, and readily available to members across any digital channel. Include a ‘How-To’ or explainer page on your brand website that explains how your program works for interested viewers.  
• Create onboarding emails for new members that explain the loyalty program structure, earning rules, and how to redeem points. You can also create emails that encourage customer actions, such as redeeming their first reward or reaching a point milestone. 
• Set up automated emails that remind customers of their available points and the different ways to spend them, such as recommended rewards or new catalog items. 

Make It Easier To Earn Loyalty Points

If your loyalty program only allows members to earn points when they buy something, then it’s less likely that member participation will stay consistent or frequent. After all, this means customers have no reason to engage with your program when they're not making a purchase.

Both your members and your loyalty program will benefit from creating more opportunities for users to earn points. Members will have a reason to use your loyalty program and engage with your brand more frequently. Being rewarded for more active engagement will also help build the connection between the customer and your brand, thereby fostering greater customer loyalty.

Consider letting members earn points for activities like:

• Completing their member profiles
• Social media activity: reward members who tie their social media accounts to their profiles with points, and award points for posting content to dedicated hashtags, interacting with brand social accounts, etc. 
• Engaging with content such as watching videos, reading articles, or participating in brand events  
• Submitting product reviews or referring friends & family
• Completing user quizzes or surveys

Provide More Reward Options

As we mentioned before, lackluster rewards can make it challenging to feel motivated to participate. After all, what’s the point of earning points if none of the rewards make you want to redeem your points?

There’s also the fact that customer shopping trends and preferences have consistently changed over time. Suppose you stick to the same prizes or rewards you offered 5 years ago. In that case, there’s a higher likelihood that customers will begin to feel your loyalty program no longer delivers the same high value or desirable incentives it once did. 

Regularly refreshing your loyalty program rewards catalog with new items or expanding it to include other types of rewards has several benefits: 

• It demonstrates the brand is invested in keeping the loyalty program fresh and exciting
• Customers have a reason to check in to see what new rewards are available regularly
• High-value rewards make the loyalty program more appealing to non-members and help motivate customers to enroll

Businesses must ensure that loyalty program rewards are attractive, meaningful, and tailored to their target audience's needs and desires. Take the time to conduct research and collect customer feedback to understand what your customers want to see in their reward options. 

Determine What Your Point Breakage Rate Means For You

On the surface, point breakage may not seem like a significant concern for brands running a loyalty program, but its most important threat is to the program's long-term health and growth.

A customer loyalty program's ability to serve its purpose and deliver on ROI depends on all parts of the process working smoothly and together. When members aren't redeeming their points, the causes can create negative impacts that, over time, will hinder the program's progress towards meeting its goals.

To avoid these issues, monitor loyalty program breakage rates alongside other loyalty metrics and stay on top of any changes in program health. Doing so will enhance your customer satisfaction, foster deeper customer engagement, and cultivate long-term loyalty.

If your customer loyalty program is experiencing problems such as high breakage rates or similar issues, consider reaching out to us to learn how we help our partners identify, diagnose, and fix problem areas in existing loyalty programs.