Banks accounted for the largest share of some $48 million in perceived rewards U.S. consumers earned through rewards programs over the past year, yet about one-third of those rewards will go unredeemed, new study data suggest.
And although rewards programs may be costly to support, card issuers might see better long-term performance and even improved profitability if they used partnerships and improved cardholder communications to encourage consumers to redeem the points they have piling up, according to Alliance Data Systems Co.’s Colloquy loyalty-research unit, which conducted the study.
According to a nine-part analysis of points consumers earned directly and through partnership relationships, Colloquy estimates that the financial-services sector, including banks issuing credit and debit rewards cards, doled out $18 billion in rewards over the 12 months ended in March, or 37.6% of all rewards.
The travel and hospitality industry was close on banks’ heels in dispensing a total of $17 billion, or 35.5% of all rewards, with the retail sector bringing up the rear with $12 billion, or 25.1% of all rewards. Other industry sectors accounted for the remainder of rewards consumers earned.
In its 2011 Forecast of U.S. Consumer Loyalty Program Points Value released April 19, Colloquy, in collaboration with Swift Exchange, analyzed the value of and points each U.S. consumer household earns and redeems in conjunction with $3.9 trillion in annual U.S. retail spending. The study analyzed 17 industry sectors with points-based rewards programs; the study excluded grocery “club card” and other discount programs.
The average household has some 18 different loyalty-program memberships, and the average household earns $622 in rewards each year. But they fail to cash in on about one-third, or $205 of that value, Colloquy says, citing U.S. Census Bureau data.
The retail sector comprises 40% of all loyalty memberships, but it accounts for a smaller chunk of total rewards value because a large portion of that segment consists of rebate programs that are not counted directly as rewards points, the study notes.
The travel-and-hospitality industry accounts for 32% of all consumer loyalty memberships, and financial services accounts for just 20% of all memberships, according to the study.
The financial-services sector claims such a large share of perceived total rewards largely because an estimated 80% of credit cards support rewards, Colloquy’s study notes.
But the industry could do more to capitalize on its customers’ investment in rewards, the firm contends.
“As the industry continues to recover from the onslaught of the financial crisis, we maintain that efforts of the financial-service industry to offer more choice and to make the currency that they issue easier for their customers to use will result in stronger redemption that in turn will lead to improved loyalty, card adoption, utilization, spend and ultimately, profitability,” the report states.
Recommendations for companies offering rewards points include forming partnerships with marketers in other channels. “New technologies are in development to better manage existing partner relationships and to enable new forms of collaborative relationships on both the earn and redeem sides of the equation,” the report notes.
Colloquy also recommends exploring ways to make points redemption simpler for customers, including aggregating rewards from other programs to accelerate redemption, and enabling consumers to redeem points through mobile channels.
Card issuers could do a better job of keeping customers on top of their own rewards status, the report suggests.
“Clearly and frequently communicate reward benefits,” Colloquy advises. “Alert members of their rewards ... (and) tell them when they are close to attaining a reward or a new program tier.”
Separately, Capital One Financial Corp. said on April 19 that a recent survey it conducted showed that many consumers may be dissatisfied with their credit card rewards programs and that a majority of consumers have not redeemed any rewards points within the previous three months.
In an online survey Cap One conducted March 25 to 28 among 1,045 U.S. adults, it found that while 72% of respondents said they want the ability to redeem rewards points for cash, only 54% actually do so. Nearly half, or 47%, said they are able to redeem rewards for merchandise such as electronics and housewares, but only 32% want that option.
Only 22% of U.S. credit cardholders are completely satisfied with their rewards program, and 57% had not redeemed any rewards points within the previous 90 days, Cap One’s survey found.
Survey participants who said they would like to redeem rewards but did not do so cited among their reasons difficulty in redeeming rewards (28%) and a lack of attractive redemption options (27%).
Nineteen percent of survey participants said they believe rewards programs lack flexibility, and 23% rated their ability to earn rewards quickly as only fair or poor.
Cap One’s survey, conducted in conjunction with Prosper Business Development Corp.’s BigResearch, marks the launch of the Capital One Rewards Barometer, a survey it plans to conduct quarterly to measure consumers’ patterns in accumulating and redeeming rewards.
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