The effect of loyalty program expiration policy on consumer behavior

Although loyalty programs can help divert costs to the future by using delayed rewards, unredeemed program currency can become significant liability for the firm. To alleviate this concern, many programs have introduced a point expiration date or have shortened their expiration time horizon. This issue of point expiration has received scant attention in the literature. Contrary to an intuitive negative effect one would expect from a more stringent expiration policy, our real-life data and lab experiment demonstrated that a finite expiration policy can affect purchases positively but only for consumers who have the flexibility to adapt their behavior to such a policy. We identified usage level and engagement in multi-store shopping as two sources contributing to flexibility. Overall, our findings point to a need to understand one’s customer base to design the optimal point expiration policy and program communication.