Loyalty programs have been around since the early 80s. American Airlines was the pioneer in loyalty programs, with the introduction of its famous AAdvantage program in 1981. There is no doubt that a properly designed and run program like AAdvantage does drive customer loyalty. An example of how important these programs are is when Eastern, Piedmont and TWA airlines went belly-up – the buyers of these airlines all granted eternal life to the miles generated by the defunct airlines’ programs. So it begs the question: If companies understand the importance of their loyalty programs, then why are they continuing to restrict the use and benefits of their rewards?
The answer is both simple and complex. I have been a member of the AAdvantage program for more than 15 years and have earned nearly 2 million miles. Needless to say, the program has worked on me, at least until recently. I have found it nearly impossible to find flights that work for me with reward points without using double points. This has caused me to seriously question my loyalty to the program, and recently I have begun to book on other airlines.
The fact is that once a rewards program is instituted and engrained in the hearts and minds of its members, the company no longer views the continued loyalty of its customers as a new accomplishment. It begins to view the program more as an expense and not so much as a customer retention and revenue generation program. The focus now moves from initiates to excite customers and grow the program, to limiting the costs of delivering the rewards. Management finds it simpler to come up with initiatives to restrict benefits that deliver quick financial returns than strategic offers and benefits that change buying behavior and consumer psychology.
In the airline industry these changes are measured in the ratio of paid seats to non-paid or reward purchases. Once we go down this path, there is often a continual attack on benefits and additional restrictions. Companies slowly and steadily chip away at the features of the program that attracted you to it in the first place until you begin to wonder if it’s worth being loyal to them at all.
Now that we understand why loyalty programs often don’t make you feel loyal, is there any hope that these programs will ever get better? The answer is yes, but it takes time. The simple but most powerful equalizer in the market is good old capitalism. When a company goes too far and takes too many benefits from a program, rest assured the competition is watching.
A great example of this is the credit card company Capital One (News - Alert). Capital One’s highly successful marketing strategy has been centered on attacking the restrictive nature of its competitors’ loyalty programs. The reaction to Capital One’s less restrictive program has been changes in competing programs at other major banks. These other banks have begun to return some of the old benefits and relieve restrictions on their loyalty programs. These changes don’t come overnight, but they do come.
Looking at this dynamic, there are some lessons to be learned. Let’s first look at lessons for business:
• Don’t lose focus on the strategic benefits that drove you to institute a loyalty program initially. You can’t take for granted the loyalty of customers even when they’re part of a loyalty program.
• Set growth objectives that focus on increasing member adoption and spending versus reducing costs in delivering the rewards.
• It costs seven times more to acquire a new customer than to keep an existing one. Don’t be penny wise and pound foolish with benefits that matter to your customers. If you don’t give your customers what they want, your competitors will.
And here are some lessons for the consumer: Not all loyalty programs are created equal. Do your homework. Look at the terms, conditions and restrictions of your loyalty program before joining. Selecting a rewards program that gives you flexibility to redeem rewards when you want them without restrictions is a key factor in its ultimate value to you as a consumer.
Look for loyalty programs that provide ubiquitous access for you from all forms of media such as web, mobile web, mobile apps, swipe cards, no cards. Studies show that mobile offers are seven times more likely to be redeemed than paper offers. Why? You can redeem what you don’t have – your offers and rewards will be with you in your pocket wherever you go.
Edited by Stefania Viscusi