Is your loyalty program destroying your brand’s value?

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I hit a perfect storm of customer service on my way back from SAPPHIRENOW. Told I couldn’t get an earlier flight because my cases had already been loaded, I found out that in fact they were still in New York – a whole leg behind me – and turned up a couple of days after I’d got home. I was left with the distinct impression that British Airways (motto: “To fly, to serve”) had simply decided that the easy option was simply to fob me off with a pack of lies so someone else could sort it all out. 

If you’ve ever had a bag go missing you’ll know it’s not just the hassle of waiting like a lost sheep at the carousel when you land, it’s the hours wasted when you do eventually get home, waiting around twiddling your thumbs to the ‘hold’ music, proving that your bag is your bag and so on. In the end it took an undue amount of effort to fix someone else’s mistake and if that shows me one thing, it’s that there’s precious benefit to being a frequent flyer. If you’re lucky enough to fly business class, you get lounge access anyway. So why bother if the only direction my expectations can go in is down?

For retailers, loyalty schemes make a lot of sense. They bring together all sorts of different strands of customer data that can be segmented, spliced and melded into invaluable insights. But for Joe Public, while the promises sound good in theory, they don’t always make it off the page and into reality. Even if you have managed to accrue tons of points, it’s not always easy to see what you can spend them on.

In the UK alone, almost 46.5 million people (92% of the adult population) are currently registered with at least one loyalty program. But at the same time, there’s around £6bn in unclaimed rewards. The average British Airways Executive Club member has £352 of unused points, Virgin Atlantic Flying Club members have £327 and Lufthansa Miles and More members have £335.

For most modern consumers, winning extra points on some nebulous scheme will always play second fiddle to price and convenience. It doesn’t matter how many brand loyalty cards are packing your purse, if it’s a simple product then cheapest and closest are what will make up most people’s minds. When there’s added cachet to ‘membership’ – such as social bragging rights – then it’s different as consumers are paying a premium to be seen to shop there.

According to a 2014 McKinsey report, loyalty programs may work well in some sectors (such as hotels), but in others (airlines, car rentals and food retail) they can actually destroy value for the companies that own them. The survey found that companies with a higher focus and spend on loyalty enjoyed comparatively fast-growing market caps, but had EBITDA margins that were about 10% lower than their peers who spent less. 

My frustrations with British Airways remain. Fobbing a customer off and then leaving them with the heavy lifting of making good your company’s error is never going to go down well. But the status quo shouldn’t be mistaken for the potential for change. What could they learn from the companies who do it right?

I’ll give you two examples: Amazon Prime and Under Armor. Amazon’s premium service is a really interesting example because it’s so straight forward. There’s no convoluted points accrual, simply a service promise based around the online shopper’s prime pain point: slow, unreliable delivery. Fixing that is a win-win and as a result Amazon Prime’s members spend more than its standard shoppers.

Under Armour is exciting because it combines innovations in its products (the Gemini 2 shoe has a built-in chip that tracks, analyses and stores workout data plus GPS info) with an ecosystem of products that affect the way you monitor and manage your quality of life: sleep, fitness, activity and nutrition. And it’s not about winning points for future discount. Instead, Under Armour is consciously developing a relationship that begins with the initial purchase but then evolves beyond the promise of better training or faster running. Instead it gives you the tools to improve your life.

This is clever stuff – and it goes pretty deep. At one end of the spectrum we’ve got the old-fashioned loyalty schemes where customers rack up points that can be swapped for goods. At the other, the new way of doing things is a customer engagement community that actually makes material, measurable changes to people’s daily grind and so creates powerful brand advocates. And you can bet that the more sophisticated the offer to customers, the more intriguing and useful the insights that companies will be able to find.

Is it the job of the older schemes’ owners to help people spend their points more easily? Maybe not technically, but in a world where service is key, and price comparison is already aging news, this has all the hallmarks of an area that’s ripe for disruption.

Download the “Connected Traveler” and get more information about SAP Hybris solutions for the travel industry: click here now.

Jamie Anderson
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35 shares
July 14, 2016
Jamie Anderson

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