Last Spring I attended a Loyalty Marketing Conference at which the head of Best Buy’s Reward Zone program described how her company planned to handle a problem that seems to affect many large loyalty programs: inactive members. She explained that while the company was not about to throw inactive Reward Zone members out of the program, they would eventually forfeit their points if they failed to meet an activity threshold. I didn’t meet the threshold, and I just lost my points.

Best Buy

Why did Best Buy take this step? Is it something all loyalty programs ought to consider? And what does it mean for Zavee? At first glance it might appear that companies can safely ignore inactive members. They don’t do anything to tarnish the brand; many do make purchases, at least occasionally; and they don’t require much care and feeding.

In fact, all three of these assumptions are wrong. And companies that segment out inactive members from their loyalty programs are doing the right thing – provided they handle it the right way.

Although inactive members of a loyalty program may not be actively harming the brand, they are not evangelizing for it either. They may be willing and able to recount positive experiences and describe brand attributes, but they are hardly the brand ambassadors that the merchant thought it was getting in exchange for points or other loyalty currency.

This leads to the next assumption: that inactive loyalty program members remain valuable because they may not be completely dormant as customers. Here the risk isn’t that inactive members won’t shop, it’s that they will only buy on sale. Shopping only during promotions may be the behavior of a rational consumer, but not of a loyal one. Program members who shop only when the company has already reduced its margin arguably are the last customers who should be earning loyalty rewards. This is something merchants should bear in mind quite apart from the loyalty context: Customers who are purely (or predominantly) price-driven are a business’ least profitable customers because they return the lowest margin with their purchases. The return on investment of marketing to such customers is therefore lower than for other customers. Adding loyalty exposure only adds to that cost.

Finally, maintaining an inactive program member incurs hard costs. Programs that use physical cards have to print, issue and occasionally replace them. In the aggregate, data processing and storage needs are higher than if the program were limited to active members. Reducing the size of the program by setting inactive members to the side may reduce these costs.

How should a company handle the pruning of inactive members? Best Buy’s approach seems pretty good.

• First, the company communicated its intentions clearly and repeatedly by email – not that I paid a lot of attention.
• Second, Best Buy didn’t pretend to create an aspirational environment in which I could keep my points if only I shopped just a little more. I was so far from the activity cutoff (which was clearly disclosed in the email) that it would have taken the purchase of a high-end home theater for me even to get close.
• Third, the company increased its engagement with members who met the activity threshold by issuing reward certificates.
• Finally, they didn’t drop me from the program altogether. This was something the Best Buy exec emphasized at the conference. Taking away unused loyalty points from an inactive member sends the message that loyalty is a two-way street. But dropping a customer from the program sends the message that the customer should shop elsewhere. That isn’t a message any retailer wants to send. Instead, I was “annualized” – my point balance will be reviewed annually and I can keep my points if I shop enough.

Some of these principles apply to Zavee more than others. As a registered card program we don’t have the hard costs associated with loyalty cards, and unlike single-merchant programs we hope that shoppers can always find merchants they want to do business with. Instead of an annual cutoff based on activity we will forfeit a shopper’s unpaid reward balances only after 24 consecutive months of no activity.

However, the main difference between Zavee and a typical loyalty program is that Zavee is also a social shopping platform. Because active users of the program receive more and better information from fellow shoppers we believe that activity will largely be self-reinforcing. Shoppers who frequently write reviews and communicate with other shoppers will gain influence in the Zavee community as well as the opportunity to earn rewards and direct charitable contributions.

The Zavee takeaway:

• Dormant loyalty program members are bad for the brand. So are dormant customers. Increase your engagement or reduce your exposure, but don’t ignore them.
• Calibrate offers to avoid providing price incentives to customers who are already driven predominantly by price. Those are your most expensive customers and least profitable sales.
• Find ways to earn and reward customer loyalty that aren’t limited to price.