Let’s start with the statement — “loyalty programs are dead — long live loyalty programs.” Seriously, how many “loyalty” programs are you a member in, and how “thrilled” are you with the benefits? I use the term thrilled quite loosely. I’ve spent quite a bit of my career working in loyalty strategy, so let’s dig in on the salient points.
Big Themes —
- The best “loyalty” programs aren’t actually loyalty programs at all. Think about that for a minute.
- The value of loyalty points / member benefits in traditional loyalty programs continues to decline at an increasing rate.
- The competitive landscape is dramatically changing.
- We know more than ever before, so…
Let’s start with the first theme — The best “loyalty” programs aren’t actually loyalty programs at all. Stay with me here. A number of years ago, I led a consulting team tasked with developing the strategy for online shopping for a large, highly recognized grocery retailer. For months, we debated the merits of their existing loyalty program. What we learned was fascinating — at least as it relates to the mentality. First, the perspective was incredibly insular. Key stakeholders felt their loyalty program, which was like most others that you’re familiar with in the industry, was a key pillar in their strategy against Walmart’s growth strategy in the category. In particular, their belief was that the “lowest price guaranteed” business model used by Walmart was actually a liability as it didn’t allow for segmenting of their best customers. Take a moment to reflect on that statement.
Well, history now tells us that was incredibly assumptive by this entrenched grocery retailer. Walmart rolled out their Savings Catcher within their app and suddenly, their “lowest price guaranteed” had significant value. In fact, Walmart had learned a valuable lesson in legacy grocery loyalty. The lesson: As humans, we value money given back, money we can accumulate and spend, vs. savings. Savings are — in the moment because I’m already there. I’ve already decided to shop at your store. They’re also not very transparent. Let’s be honest, the pricing structure on SKUs change and discounts are a bit like playing against the house in Vegas. Walmart made it very simple. If we find it cheaper anywhere else in a print ad or online from other top retailers (note the disclaimer) within 7 calendar days, after you bought it from us, they’ll apply the savings to the app for redemption. OK, there’s been big news on this front in the past several months with Walmart discontinuing Savings Catcher. I’m fairly confident, we’ll see this strategy reappear in a different format in the near future.
So, what’s the takeaway beyond the failure of our grocery client to understand the enormity of what they faced? Humans want the ability to participate, to be treated with an equivalent benefit and, most importantly, they want to receive a tangible reward — psychological reinforcement.
To close this theme out — To say our grocery client was significantly impacted by their customer base shifting to Walmart is an understatement. Sometimes, old habits are just that — old.
Let’s dig a bit deeper. Why are humans loyal to brands? It could be the product quality, unique features / capabilities, the cache of the brand itself, the price / value, the benefit, simplicity, etc. There’s a myriad of reasons. I’m personally “loyal” to Uber. I get the fact that my Uber driver typically drives with Lyft, but I’ve had a tough time with Lyft from the early days. Do you remember when Lyft drivers had a huge pink stuffed mustache tied to the front of their grill when the service first came out? They made it pretty hard to miss your driver. Here’s the thing, I like Uber for its simplicity, it’s gamification — wait, why did my driver just turn on that street. Now he’s added 2 minutes to my pickup time or “nice job” — way to take the shortcut. You’ve just knocked time off the clock. Yes, Uber’s rolled out its new loyalty program, but that’s because they’re getting into everything that involves the use of wheels, and they’re trying to figure it out. In the end, I don’t care about their loyalty program. It’s not what’s going to keep me using their service over others. Now, when Tesla rolls out Elon Musk’s vision next year, that might change. Here’s the takeaway — Simplicity, lack of friction, great service, evolution and a quality product even in a world where commoditization creates risk, still wins.
The second theme digs deeper into the heart of the issue. The value of loyalty points / member benefits in traditional loyalty programs continues to decline at an increasing rate. I have millions of points spread across airlines, credit cards, apps, etc. What I’ve found is that my points are the equivalent of going to Chucky Cheese’s with my children years ago. Spend $25 bucks in tokens to get $.50 worth of throwaway items that they might play with long enough to finish the car ride home. Yes, as a parent — it’s mind numbing, but you know it when you walk in the door.
Whether we’re talking Capital One, Delta, Marriott or any other loyalty program, the cost to reward ratio is astounding. I fly a lot, and yet my points get me less rather than more as it’s a competition with everyone else. My spend level is significant, but unfortunately my flights are almost always domestic, so the person sitting next to me that’s flown twice to Bejing and three times to LA has me hands down when it comes to my 60+ flights per year. But wait, it’s way more complex — let’s look at the fare class, https://thepointsguy.com/guide/airline-fare-classes/, then let’s look at your current status, then let’s look at home much you paid for the ticket — well, that doesn’t really matter. The reality is, these programs, designed to incentivize each of us, haven’t really changed to the benefit of the consumer in a very long time. I’m a fan of Sir. James Dyson and Elon Musk among others. One of these days I’d love to see them take on the idea of loyalty — although Elon Musk’s announcement today regarding how much money you could make per year using your car as an autonomous driving contributor is interesting.
So, what’s the takeaway — loyalty as a whole has to be reimagined. The legacy platforms, the liabilities on the books, the tiers that drive poor customer experience have to go away. Think for a moment — why would you want to treat a first time customer poorly? Seriously, think about that. When you fly a different airline that you don’t have status on, what’s it like? When you stay at a hotel that you have no status at, what “perks” do you get that make you say — “I’m staying here again”?
Let’s keep going. The competitive landscape is dramatically changing. Cab medallions used to be worth enough for retirement when you resold them. Today, they’re on a precipitous decline. Why? — ride share. Cab companies had locks on cities. You had limited choice, so the quality was low, the cost was high and the experience was sometimes frightening, at best. The last thing your Uber or Lyft driver wants is a bad review because your feet are soaked from the hole in the floorboard from the rust eating away at the Yellow Cab — sorry Yellow. I could have listed any cab company.
Think about Airbnb, VRBO, Tripping, FlipKey, HomeAway, etc. What have they done to the hotel industry? They’re an interesting component of loyalty equation. Although I have a ridiculous amount of points at hotel chains, and I do use them every once in a while, I find the single bed, desk, bathroom, bad decorating and price combination to be — let’s just say less than appealing. I don’t need loyalty points to want to search for my next stay on Airbnb. Not many years ago, hotel chains felt they had a lock on the category and as a result, they’ve done little to reimagine their programs. Yes, new partnership; yes, stay on a Tues.- Thurs. and receive 4X bonus points, etc.
Remember, I’ve worked on these programs. They’re algorithmic, not individualistic. We know that when IHG runs X promotion and Marriott runs Y promotion in the same period, the results will look a specific way within a very small variance. We typically model back 5 years for trend analysis, and that helps to design the promotion based on where the hotel chain is in their year to date performance and their available co-promotion investments. So, the takeaway — there’s a consistent theme here — the value, product, and experience must align to the desired outcome; otherwise, all the points, the promotions, etc. are nothing more than noise.
On to the last point. We know more than ever before, so… We have big data, which for all intent and purpose is a lot of little data in one place. We have ML, we have AI, etc. and yet my in-box is still flooded with completely useless promotion emails. That trip to Maui looks great, until you realize it would take every point you have with your airline, and the quality of the hotel package included would make you cringe. Seriously — we have enormous data, but we’re putting it back into a legacy business model. We need to reimagine loyalty through the lens of the customer experience. What truly produces loyalty? Why are foundational industries being uprooted by companies that don’t have loyalty programs? If you look at most, the core of their value proposition is simplicity, value, quality, experience and behind the experience — great data that makes the brand valuable and desired.
So why do we just keep on doing loyalty programs pretty much the same way we’ve always done them? Because change is difficult. I’ve seen how many years it can take to just move from one loyalty platform to another. It’s not that the platform providers don’t want to reimagine or extend their core capabilities. Candidly, it’s a fear of change. It’s a “what do we do with the trillions of miles that have been accumulated over the years with airline loyalty programs?”
I hope this has been interesting and maybe, just maybe, it inspired a few thoughts on your part. Feel free to share them with the me — Bob Morris, firstname.lastname@example.org, on Twitter — @digitalquotient, or LinkedIn https://www.linkedin.com/in/bobmorris/.