Points Taken
The Limits of Loyalty Programs
I just checked my wallet and my list of passwords and it turns out I’m enrolled in roughly two dozen customer loyalty programs right now. Two airlines, four hotel chains, three restaurant groups, three retailers…is there no end to my loyalty?
Or maybe it’s supposed to be their loyalty? I’m never quite sure. As a tool for customer relationship building, point systems have degenerated to the level of table stakes. Everybody has to have them, nobody can afford to discontinue them, but there’s no real competitive edge in most cases.
The problem, of course, is that loyalty programs are seldom more than a highly complicated discount plan. Spend now and get a coupon/freebie later. The economics of the programs seldom favor the customer. Consider airlines, as an example. Yes, I can check bags free and choose better seats if I’m a premium flier. However, if I book the lowest fare every time I travel, I’ll save more than enough to pay for those benefits.
If everyone offers points and all points are essentially the same, what drives a purchase decision? None of my own loyalty builders has anything to do with points. I like websites that are easy to navigate and customer service representatives who have actually been to the airports I’ll be visiting. I like to be able to work the voice mail prompts without having that irritating woman announce, “Sorry you are having trouble. Goodbye.” And if someone decides to waive a rebooking fee every once in a while, so much the better.
There’s no question loyalty programs are profitable for airlines, largely due to the credit card companies that pay the airlines for the points and use them as an enticement to get people to rack up charges and pay usurious interest. As is the case with auto companies that can make more profit from car financing than car sales, airlines can make more money selling miles than selling seats.
Beyond the profitability issues, though, how effective are loyalty programs in building loyalty? Do people in Chicago sign up with United and people in Dallas sign up with American because those are the airlines they were going to fly regardless? If so, is the airline paying for sales that would have come their way without the loyalty program?
There’s a lesson to be learned from the ubiquitous buffet of loyalty programs that do nothing more than offer a convoluted discount. If everyone is offering the same thing, nobody gets a competitive advantage. Yes, we might feel committed after racking up a balance of 300,000 miles, but there’s a difference between being loyal and being trapped.
Real loyalty doesn’t come from coupons and long-term relationships aren’t built on price. Customers will take the points if offered, but that’s not going to make them loyal.
Of course, that’s just my opinion. What do you think?
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