Economic headwinds are impacting how consumers spend in Asia Pacific, with the savings ratio climbing higher than pre-pandemic. This calls for effective loyalty strategies for customer acquisition and retention as consumers reduce discretionary spending. The costs behind running a loyalty programme, particularly unused rewards or “points liability”, can be significant and hinder the return on investment of such schemes. An emotional loyalty strategy can serve as a key differentiator in the region to enhance long-term customer loyalty and deliver a balanced approach alongside monetary rewards.
Transactional loyalty is deep-rooted in Asia Pacific
Transactional loyalty remains a key battlefield among brands and retailers for client acquisition and retention, especially in the face of the current economic slowdown.
60% of Asia Pacific respondents participate in loyalty programmes to receive discounts or offers
Source: Euromonitor International’s Voice of the Consumer: Loyalty Survey in 2023
Most mature markets such as Japan, Korea and Hong Kong have a competitive transactional loyalty programme landscape. Companies are keen to establish their own loyalty ecosystems to help retain customers and drive engagement. Asia Miles by Cathay Pacific in Hong Kong, Rakuten Point by Rakuten Group in Japan, and L.Point by Lotte Group in South Korea are notable loyalty ecosystem examples in Asia Pacific. At the same time, the necessity to build a deeper, more emotional connection with the individual customer and create more purpose-driven platforms increasingly takes a central place in the region.
Multiple memberships mean unused rewards
Asian consumers are accustomed to spending with multiple loyalty ecosystems to receive the most benefits from day-to-day consumption occasions such as grocery shopping, food and dining, and transportation.
55% of Asia Pacific respondents tend to shop more in stores or websites where they have a loyalty card/membership or credit card, which is higher than the global average
Source: Euromonitor International’s Voice of the Consumer: Loyalty Survey in 2023
The more loyalty programmes each consumer signs up to, the greater the possibility of unredeemed or unused rewards lingering over a period of time. Over 50% of Asia Pacific respondents participate in more than one loyalty programme, according to Euromonitor International’s Voice of the Consumer: Loyalty Survey in 2023.
Unused rewards mean lost rewards in return for repeated purchases in customers’ eyes but also increased liability for companies. Unused points or “points liability” can often comprise a large portion of a company’s cost structure, challenging the return on investment as part of a purely transactional loyalty programme.
Points liability is a costly burden for any player
Typical breakage, or points liability, could be approximately 15% globally, depending on the specific industry, according to trade sources. Reducing points liability is key in lessening the costs of client acquisition and retention for higher profitability. One of the flagship loyalty programmes in the region by Cathay Pacific airline contributes to 33% of the current liability of the company.
Other players have adopted very successful strategies in increasing members’ reward redemption with the help of emotional loyalty tactics. Rakuten Point from Japan is an efficient loyalty ecosystem, allowing collection and redemption of points across segments such as transportation, shopping and travel. The loyalty programme has a breakage of only 2% compared to general breakage of 15% by embracing strong emotional loyalty strategies such as personalisation and gamification. It encourages interaction with other brands as well as cross-using points between affiliates such as winning loyalty points by playing lottery games. Adidas Group in Asia Pacific also embraces emotional loyalty by organising exclusive events for its members, such as a “BeSupportedBeYou” retreat in the region, to help expand its experiential reward offering.
Emotional loyalty as a white space for next-generation loyalty
Emotional loyalty will be the key differentiator to help players win over Asia Pacific consumers.
Almost one in three Asia Pacific respondents join loyalty programmes to stay connected to a brand they love, higher than the global average
Source: Euromonitor International’s Voice of the Consumer: Loyalty Survey in 2023
This means that there is interest among members to build more authentic connections with brands. Emotional loyalty strategies, such as personalisation and building brand communities, are efficient ways to elevate relationships with customers utilising existing resources.
Learn more about Asia Pacific’s loyalty landscape and how customer loyalty will look, moving forward, in our reports, Elevating Engagement: The Loyalty Landscape in Asia Pacific and Next-Generation Customer Loyalty.