The Competitive Opportunity In Loyalty Currency Devaluation
Millions of loyalty program members, especially the savviest ones, have grown numb to the continuous devaluation of their favorite loyalty programs. First-class upgrade? Fat chance. Any drink I want to reward my daily caffeine addiction? Not quite. Whether it’s Starbucks, Hertz or Kohl’s, consumers are getting frustrated of getting less. Smart brands will buck the trend and find ways to deliver more.
One of the great examples (and crimes) in Loyalty Devaluation is the dynamic pricing of airline rewards. It used to be that 25k miles got you a domestic coach ticket. Then capacity controls made them scarce. Next, there was the 50k mile “anytime” award that you could use whenever a seat was available. Now, reward seats are continuously re-priced according to supply/demand, removing the incentive for a savvy rewards consumer to shop for arbitrage opportunities. There’s virtually no way to make your miles worth more than about $.01.
BALANCING BEYOND BALANCE SHEETS
A driving reason for this currency devaluation is in the back office. Mounting rewards balances create serious liability that make the accounting side of a corporation pretty anxious, especially when consumers start hoarding those rewards. The answer is complex math that dilutes the value of points, replacing limits on previous “points never expire” claims, and finding ways to deliver what’s framed as “high perceived value” but consumers see as just cheaping out.
It’s getting to the point of many consumers saying, “Why should I care? I get the same basic, thin points and status everywhere, so instead of rewarding a few brands, I’ll just play the field and use price and convenience to influence my choices.”
The smart play for brands is to run counter to the devaluation trend and reframe value across experiences that build loyalty, not just reward loyalty. Let’s go back to airline miles. Even if limited seat upgrades are a sad reality, airlines can step in to build loyalty by having a reservation agent anticipate a passenger’s delay and re-route them in first class before they go through the IVR queue.
EXPERIENCE IS THE NEW MATH
I’ve been in the loyalty space for 15 years. Here’s a flat-out truth. First-generation loyalty programs are over 30 years old. While there have been three levels of generational consumer changes and massive technology disruption, the core strategies, economics and reward structures have not evolved. It’s all old math.
The new math is looking to the experiential and immediate wants and needs of today’s consumers—from Millennials and Gen Z to the affluent and savvy Boomers who have been a “member since” the first programs got off the ground.
Let’s start with experiences. Modern customers want more than points. They want experiences that are highly personalized and tailored to their preferences. That requires a fundamental shift in research to identify a customer’s needs and journeys and nuanced data analysis to profile customer segments and identify unique moments that matter.
Experience also means thinking beyond explicit rewards (points) to incorporate more implicit rewards (recognition, access, sneak peeks).
At T3 we do this by purposefully designing experiences tailored to each customer. We use design research to look for patterns in behavior and intrinsic motivations to find something deeper. A “hook” that compels people to join a program that has nothing to do with a bribe. In this way, we are not forcing consumers to fit an economic model. Instead, a holistic program surrounds the customer to build deeper loyalty.
NOW IS THE NEW NORMAL
Make no mistake, today’s consumers WANT. IT. NOW. They live in a one-click, Buy-Now world, and gauge the best experiences by tapping their way into a restaurant reservation, seat upgrade, and reward redemption.
Modern loyalty programs must be driven by a product approach to all digital experience with an emphasis on putting rapid prototypes into market, testing and ongoing optimization. A huge problem with legacy systems is that it’s hard to run tests. It can take weeks to design, develop, test and report on promotions. Alternatively, a best-in-class brand like Starbucks has the architecture to run infinity tests and quickly optimize against individual consumers. Hard-to-update rewards platforms and back-end systems need to be augmented or replaced by agile approaches to both design and development. Our use of a microservices architecture approach allows us to help brands test, learn and deploy new capabilities more dynamically.
If you can delight more of your best customers in the moment, you are starting to demonstrate a deeper commitment to their loyalty to your brand.
THE OPPOSITE ATTRACTS
In working with all of our clients, we constantly evaluate both their industry and what’s happening across the full loyalty landscape. Customers are smart. They feel trends. They rebel when a once-loved loyalty program does them wrong. Some treat that as a moment to switch their allegiance.
That rare moment is an opportunity for your brand to be there for them by doing the opposite—delivering true value (and not just rewards) in a time of devaluation. Work beyond the economics to enrich and personalize each customer’s experience with your brand—all things you could start tomorrow.