Guide to Loyalty Points Expiration – Should You Do It and How?

Designing and launching a customer loyalty program is one thing, but managing it is a whole another story. If you are planning or already running a point-based loyalty program, you need to answer a necessary question – what about points expiration? Should loyalty points expire? Is it always fair and clear for customers? What are the pros and cons of setting up an expiration process? And finally, how to do it in a foolproof way? The goal of this guide is to explore the benefits and cons of the expiration process, explain why you might need it in your rewards program and finally, describe how Voucherify handles it.

What is points expiration?

Points expiration is a process in rewards programs that sets an activity time frame for collected loyalty points. Setting up a strict redemption time frame for loyalty points can be helpful from the program management standpoint. However, it might not always be the best option for the best customer experience. The way brands implement expiration into their rewards system widely varies, with some companies (most notably airlines) dropping this feature altogether. Read on to learn the ins and outs of setting this process up for your rewards program.

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Pros and cons of points expiration

When it comes to whether or not loyalty points should expire, there are two very distinct ways you can look at it.

Benefits of expiring loyalty points:

1. Higher sense of urgency‍

Without points expiration, customers have no pressing need to earn and redeem points, which might limit the number of repeat purchases and sales overall.‍

2. Marketing opportunities

Expiring points open a possibility for relevant and contextual communication from your brand, bringing your company top of mind. Nothing stops you from jumping at this chance to promote your products and other promotions you are running.‍

3. Keeping brand top of mind

Nobody likes losing, and this is exactly how expired points feel like. To avoid this, customers will be more likely to remember your brand and their unused loyalty balance to keep participating in your membership program.‍

4. Easier program management

Without any limits placed on the number of loyalty points, companies can risk higher chances of fraud and liabilities. With an expiration policy, you can limit situations where customers with indecently high loyalty scores come into your store to claim dozens of free rewards in one go. Moreover, stagnant high balances make it difficult to differentiate active from dormant users.

Cons of expiring loyalty points:

1. Worse customer experience

‍If your expiration policy is not well implemented, it might lead to your customers feeling cheated. Loyalty programs should be built with both parties' interests in mind – the moment you start punishing customers for certain behaviors instead of rewarding desired ones, you might end up with a poorly performing loyalty program on your hands. There is a simple reason for that – urgency may yield quick results. However, allowing customers to feel safe about their points and letting them chart out their own loyalty journey with your brand will give you better satisfaction rates long term. Sure, the Finance department won't be happy about lingering liabilities – but it is easier to fix the backend than to mend a negative customer experience.

2. Punishment, instead of a reward‍

From the standpoint of customer experience, positive reinforcement always trumps punishment. Notifications that sound like this – "Your points are expiring in a week. Use them or lose them" – sound almost like a threat. Sure, they keep the brand top of mind but for the wrong reasons. Another thing is that not all members of your loyalty program are going to be daily shoppers with outstanding CLV and AOV. A big chunk of this segment will be more on the loyal-ish side rather than hardcore loyal. Think about this segment before introducing rigid expiration policies.

3. Bloated T&Cs

The success you will see with your rewards program is dictated by how intuitive it is to join and use. A complicated loyalty program with tons of conditions leads to confusion and misunderstanding, which can quickly turn into dissatisfaction.

Types of loyalty points expiration policies

The type of loyalty points expiration relies heavily on the industry you are in. The general rule is that businesses which offer more exclusive and not-so-frivolous products and services should offer longer expiration periods, if any. Think here of airlines, car dealerships, or real estate agencies. Interestingly, plenty of airlines are now pausing their expiration policies and allowing for unlimited points (airmiles) accrual (mostly due to COVID-19). On the other hand, everyday brands can offer shorter, or even better, dynamic expiration dates that rely not only on the calendar but also on dynamic factors, such as member inactivity.

Fixed expiration

Fixed expiration is based on the calendar. This approach is simple as all you need is to choose a calendar date when loyalty points expire. Typically, it's at the end or beginning of a new year. But the pros of this solution end here – fixed expiration is rigid in its nature and, as such, can turn customers down from taking an active part in the program in fear of losing their progress and membership benefits.

Dynamic expiration

Dynamic expiration changes with customer behavior, most typically customer activity. With this approach, you set an expiry date if a customer doesn't earn or use points in a predefined time (e.g., 6,12,18 months). In this setup, customers have bigger control over their points. This sort of expiry policy is more effective for incentivizing repeat purchases and active participation in your customer loyalty program. The biggest drawback of this solution is the lack of proper technology to manage granular expiration rules.

How brands manage points expiration for their customer loyalty programs?

Points expiration is definitely a controversial topic in the loyalty marketing sphere. To give you a better idea of how other brands handle this topic, I went ahead and investigated popular rewards programs across industries so that you can have a better idea of what kind of expiration policy will work best for your business.

* The following T&Cs were noted in November 2022.

• H&M – 24 months after customers earn points.
• Nordstrom – 12 months after inactivity.
• Urban Outfitters – annual expiration (at the beginning of each year).
• Sephora – 12 months of inactivity.
• UltaBeauty – at the end of the quarter, 1 year after customers earn points.
• MacCosmetics – annual expiration (at the beginning of each year).
• Starbucks – 6 months after customers earn points.
• McDonald's – 6 months after customers earn points.
• Burger King – 6 months of inactivity.
• Ford – 365 days of inactivity.
• BMW – 3 years after vehicle registration.
• Nissan – 24 months of inactivity.

As you can see, frivolous purchases such as food, beauty and fashion have much shorter and often dynamic expiration policies. On the other hand, serious purchases represented here by the automotive industry are usually much longer and tied to customer activity.

How to set loyalty points expiration with Voucherify?

With Voucherify, users can set a fixed expiration for loyalty points. It's an optional feature that can be activated for your loyalty program. Users can choose any number of months after which unredeemed points will be deleted.

For better control over the rewards program, users can choose to round up the points expiration date to a specified period after the earning activity. You can choose to round the period to the end of the year, month, quarter, half-year or a particular month).

With the above options, it is possible to define the following policies for your rewards program:

• Monthly basis – points will be removed at the end of each month.
• Quarterly basis – points will be removed at the end of March, June, September, and December.
• Half-year basis – points will be removed at the end of June and December.
• Annual basis – points will be removed at the end of the calendar year or at the end of any other particular month.

Anyone who has ever worked with dates and time zones knows about those pesky date nuances. So what about them? Not all months have the same number of days. Voucherify handles these cases by rounding down the expiration date to the last day of the month in which the points are due for expiration. In particular, for points accrued on the 29th, 30th or 31st day of the month, the expiration date is rounded down to the end of the month. So, for example, points accrued on 31/01/2021 with one month expiration period will expire on 28/02/2021.

Expiration periods can be tracked on multiple levels via the Dashboard and API. For instance, upcoming expirations are listed in the customer profile. They can also be quickly exported in the CSV file and transferred to appropriate data analytics tools.

With the Voucherify approach to points expiration, you get the best of both worlds – the Finances team will be satisfied with better tracking and program control, and customers will have transparency on when a particular set of points expires. As each earning activity can happen at a different time, Voucherify differentiates between those – the expiration period is set per individual set of points coming from a specific earning activity without wiping clean the total customer balance. To make points redemption simple, Voucherify also introduced a redemption mechanism that will always use the soon-to-expire points first.

Learn more: How to build a loyalty program with Voucherify?

Summary

What's the verdict then? Should loyalty points expire or not? There are pros and cons to both sides of the argument. Ultimately, it comes down to what you as a business want to achieve with your customer loyalty program and your overall marketing strategy. If you're looking for better liability management and more control over your program, then expiration may be a good option for you. However, if you're concerned about breaking customer experience and putting people off joining your rewards program, then maybe expiration isn't the best route. The next step is to analyze what other brands in your sphere are doing and test different approaches in a specific market and audience. Either way, you can use Voucherify loyalty software to set up the expiration policy that works best for you and your business strategy.

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