Liability Management

US: Walgreens reduces points expiry

By public measures, the Walgreens Balance Rewards loyalty program is an industry success story: 87 million active members, a successful mobile payments app, and a demonstrated ability to leverage program data and combine it with CX initiatives that build sticky relationships with Walgreens’ loyal customers. This week, however, Walgreens announced a notable change to the program: Beginning August 25, points earned will expire in one year instead of three. The usual griping from longtime members and mainstream media will certainly commence – but is the move really a bad one for Walgreens members? Let’s take a look at best practice.

By Rick Ferguson

Walgreens’ move is a common one in the loyalty industry, and is usually accompanied by a predictable social media backlash and a bevy of marketing pundits who will declare points-based loyalty programs no longer relevant in today’s digital, experience-driven marketplace. The truth is that there are often sound reasons to reduce points expiry dates – and in some cases, the move can actually benefit members.

Walgreens won’t say publicly what factors drove their decision, but we may surmise. The two most common reasons for reducing expiry dates are to: a) reduce program liability on the balance sheet due to unredeemed points; and b) encourage redemption by inactive members. Many currency-based programs rely on a certain percentage of “healthy” breakage, as unredeemed points expire and fall off the books, which allows the operator to bank the rewards costs. Too much breakage, however, can mean that members aren’t engaging with the program – and if members aren’t redeeming, there’s every chance that they aren’t changing their shopping behavior. A program that fails to deliver incremental revenue in the form of increased frequency or basket size is a program not long for this world.

Let’s say that, based on available evidence, we may surmise that Balance Rewards is overall a success for Walgreens. What factors, then, likely drove the decision? From my position as a detached observer, I’d place my money on a combination of two goals: Walgreens was likely seeing more liability than they felt comfortable with; and they’d like to see more redemptions by members. Three-year expiry dates are generous in the retail industry, as this money quote from the Chicago Tribune points out:

“Walgreens spokeswoman Emily Hartwig-Mekstan said in an email that company officials believe the new policy will encourage customers ‘to redeem their points more frequently and lead to more engagement with the program.’ Additionally, the shorter expiration window is consistent with other retailer loyalty reward programs, she said.

“Having points expire after three years is a model better suited for travel-related loyalty programs, like airline points, said Melissa Fruend, partner at Toronto-based consulting firm LoyaltyOne Global Solutions. ‘I don’t think Walgreens is the type of retailer where you want to save up and splurge,’ she said. ‘I would be shocked if somebody (wasn’t) able to redeem a dollar within a year.’”

There you have it – I’d take Hartwig-Mekstan’s explanation largely at face value: Shortening the expiry window will, Walgreens hopes, drive a sense of urgency in the program, encourage more frequent redemptions, and increase program engagement. In this case, shortening the expiry window benefits Walgreens members; there are no big-ticket items for which to save up large quantities of points, so there’s every reason to redeem them as frequently as possible. The shorter expiry window will, we may surmise, drive home the program’s value to members.

That is, of course, if Walgreens is proactive in encouraging members to redeem. Members should receive notification via the mobile app when points are within, say, 30 days of expiry. Similarly, frontline staff should be encouraged to proactively ask members at the till if they want to redeem their points for dollars off a purchase. The potential for backlash occurs only if Walgreens tacitly approves of members forgetting to use their points, and then banks the breakage.

Based on their public statement, we may safely take Walgreens at their word: They want more member redemption, not less, and have shortened the expiry window to sweeten the pot. That’s a net benefit to members, and a net benefit to Walgreens.

Rick Ferguson is Editor in Chief of the Wise Marketer Group.

2 Comments

2 Comments

  1. Pingback: What's Behind Walgreen's Point Expiry Change? - The Wise Marketer

  2. Stephen Rayfield

    August 17, 2017 at 11:22 am

    A well balanced article. Very to the point. If we are faced with a deadline we move on it. Three years really this is for items that are used in days, weeks or even a month. The deadline will get more people using it. Walgreens is right. And it will benefit their loyal users.

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