The Rewards Law of Diminishing Returns
Rules and limitations: loyalty programs are always loaded with them. Rules are fair enough — guidelines help structure how consumers earn and redeem points. But does 'structure' translate to 'restrictions' for consumers? Often yes, to the point that customer push back has led many loyalty programs to remove some unfriendly rules such as expiration dates for points and blackout dates.
One rule of thumb for almost all loyalty programs today is a slow, but consistent decline in the value of any individual point. A point you earn today might be worth 1.0 cents, but if you don't redeem that point for a year, its value can drop to 0.9 cents.
Part of the lowered value makes sense: we experience core inflation every day. If 25,000 points are worth a free night at a hotel this year that would have cost $250, those points are worth 1.0 cents each. Next year, the cost of that hotel will go up (generally speaking) as the costs of the hotel go up. With the room now costing $275 per night, the value of your 25,000 points, would now go up to 1.1 cents per point.
More likely, at some point in between, the redemption cost will change. Let's assume the redemption cost rises to 30,000. Those same points are worth 0.83 cents per point — a 17% devaluation in the point value, as compared to a 10% increase in cost.
This is a specific example, for sure, but the average redemption across many cases is significant. Modeled out, you'll see a slow but consistent reduction in points' value.
Different Points Model. Same End Result...
Some other programs have a fixed value per point instead of a fixed value per redemption. Instead of 25,000 per night, the points might have a fixed value of 1 cent per point. If the hotel stay costs $250, the value is 25,000 points. If the hotel stay costs $240, the value for redemption is 24,000, and so on.
It's easier to understand, but ultimately this points model has the same problem for the user. Picture this — your goal is to earn 25,000 points so you can stay at your dream hotel. But by the time you earn enough points, your suite by the beach now requires 27,500 points. You can get stuck in a cycle of never quite having enough!
High-end rewards always need a lot of points. There are no hotel nights worth $20 these days, and spending enough to earn 27,500 points can take a long time. While many important rewards and frequent flyer websites argue that there are programs with precious points, redeeming for those high-value experiences usually takes a lot of money, time, and expertise.
There's a Better Way
We are huge fans of rewards programs and points-based experiences. We think that consumers desire and demand meaningful rewards for their loyalty. We are building programs that offer the rewards you deserve for the things you love. Our programs will maintain their point values and provide a broad array of redemption options from very few points to many. This way, you retain high value and get rewarded the way you would like.