Article Type: Loyalty
Published: February 23, 2025
Reading Time: 4 minutes
One of the top reasons customers join loyalty programs is to get rewarded — in fact, 62% of customers cite rewards as their primary motivator. Even so, many programs find that customers aren't redeeming as much as expected. Often, these rates fall short of program owners' expectations, despite data showing that members who redeem are significantly more valuable than those who don't.
This article explores the barriers preventing customers from redeeming loyalty rewards and provides guidance on diagnosing and improving redemption rates in your loyalty program.
Kognitiv's global research study asked customers across various geographies and industries why they participate in loyalty programs and how they use them. The research highlighted how motivations vary across verticals, but one insight stood out universally: benefits and rewards matter most.
Unsurprisingly, customers prioritize receiving value in exchange for their participation above all else. Strong loyalty programs create opportunities for members to realize value early in the customer journey.
Key Finding: Receiving benefits and rewards is particularly important when customers are facing economic uncertainty. During recessions or periods of financial pressure, customers actively seek value, and loyalty programs provide a compelling way to deliver it.
Source: Kognitiv Global Loyalty Insights, 2023
Redemption isn't just good for customers — it's great for brands. Multiple research studies found that customers who redeem rewards are more likely to remain loyal.
| Metric | Impact | Source |
|---|---|---|
| Purchase Influence | 83% of consumers say that being part of a loyalty program influences their decision to buy again from the same brand | Open Loyalty |
| Revenue Increase | Top-performing loyalty programs can increase revenue from redeeming customers by 15% to 25% annually due to more frequent purchases or larger basket sizes | McKinsey |
| Churn Reduction | Engaged loyalty members exhibit 15-20% lower churn rates | Zinrelo |
Clearly, redemption creates a win-win scenario. But if it's so beneficial, why aren't more customers redeeming?
There are several reasons why customers might not redeem rewards. Let's explore these barriers:
Customers may not know how to redeem or what options are available.
If rewards feel out of reach, customers may disengage. For example, earning rates may be too low or thresholds too high.
A high-friction redemption process can deter customers.
If rewards aren't relevant, appealing, or usable, customers won't redeem them.
Some customers are saving up for a larger redemption in the future.
Customers may simply need a prompt or reminder to redeem.
Customers in the early stages of their loyalty journey may not have accrued enough points yet.
If redemption is tied to another behavior (e.g., completing surveys or visiting specific locations), customers might avoid it.
Some customers may value non-redemption benefits (like status perks) over redeemable rewards.
If you're not sure which of these is your main challenge, start with Analysis. Examine redemption rates by customer segment and link this data to customer profiles and behavior.
By controlling for earning rates (for example, how many points a customer earns per month), you can isolate factors like Achievability from other issues, such as Accessibility or Attractiveness.
Don't hesitate to ask your customers directly about their redemption experiences. Surveys, interviews, or in-app feedback can provide invaluable insights. When paired with behavioral data, customer feedback can reveal the "why" behind redemption gaps, enabling you to tailor solutions effectively.
Whether your program struggles with low engagement or faces the opposite challenge of excessive redemptions straining your budget, it's crucial to revisit both your loyalty tools and your strategy.
Optimize your offerings: Align rewards with customer preferences to enhance their perceived value.
Streamline the process: Ensure that redemption is intuitive, accessible, and low-friction.
Incentivize at key moments: Use personalized prompts and nudges to encourage redemption.
Reach out to our team to learn the latest ways to increase engagement with your program's benefits and the valuable behavior change it can create. And, importantly, how to balance your costs and benefits to make sure your program engages both your customer audience and your accounting team.
Kognitiv is redefining loyalty with its AI-native outcome-based technology. Our award-winning loyalty software and a suite of cross-channel intelligence and personalization products enable brands to deliver hyper-personalized experiences, predict and optimize customer engagement in real time, and achieve measurable results.
It's time to move beyond transactions and earn customers' lifetime loyalty. Discover how reimagining your loyalty strategy and customer engagement with AI can foster deeper connections and drive long-term success.
Kognitiv Pulse: Track, predict, and optimize your customers' lifecycles with AI/ML-powered insights and activation to maximize customer lifetime value.
Kognitiv Ignite: Enable 1:1 personalization at scale with AI-native data activation across owned channels.
Kognitiv Inspire: Launch and manage a successful loyalty program with quick-to-deploy, scalable loyalty system with 200+ connectors for easy omni-channel activation.
Kognitiv Amplify: Intelligently acquire and engage customers across paid channels with outcome-based AI/ML optimization for paid display, video, social and programmatic.
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