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The intention of a loyalty program is to show your customers that they are appreciated and encourage them to choose your business over any competition. These programs can create value and generate lifetime relationships with customers -- as long as the experience remains consistently pleasant.
However, a trend currently rearing its head in the loyalty program space, while seemingly grounded in fiscal common sense, is alienating customers and actually making previously loyal customers less loyal.
An excellent article on Forbes.com discusses a trend in travel, hospitality and retail, where businesses revamp their loyalty programs to favor customers that spend the most money – not necessarily in total -- but with each transaction.
Airlines are an excellent example of this trend. In the past, most major airlines’ loyalty programs rewarded customers with points based on the number of miles flown, flights taken, or both. The recent trend delivers a double whammy to customers as these airlines have shifted their loyalty programs towards money spent on airfare, which favors business travelers that tend to book flights last minute, paying premium fares for their flights. A traveler that booked their ticket in advance, or took advantage of a sale, could even be seated right next to the business traveler who paid a premium price, but that customer would earn less points for the same travel.
The second change involves how many points it takes to redeem rewards. Airlines have increased the number of points needed to earn free flights and made it more difficult for “normal” travelers to earn rewards.
While on the surface these changes make economic sense for the airlines – reward those who spend more per transaction – this strategy might just be backfiring. It would seem reasonable to project that the majority of travelers are NOT business travelers who book at the last minute and pay higher rates. But rather those “less-important” customers who plan ahead and take advantage of fare sales. If that’s the case, doesn’t this strategy of making it more difficult for the majority of your customers to earn rewards and, by default, making them feel less appreciated, mean that, in the long run, airlines could find that they’re actually losing money?
And don’t feel like this phenomenon is limited to the travel and hospitality industry. Just research the recent backlash that Starbucks encountered when it revamped its loyalty program in the exact same way. Rather than rewarding customers for visits, now their loyalty program points are earned by dollars spent. And consumers did not take it well -- at all.
Every customer is valuable. While it is certainly understandable that businesses want to reward their best customers, it may be a bad move to do so at the expense of others. That normal (or frugal) traveler today, may just get a new job and become that business traveler airlines so covet. Yet, when they were a normal traveler, they were treated as somewhat less desirable customers… at least that’s what the airlines loyalty program communicates to them. Because of that, they now base their travel decisions on convenience and price, rather than loyalty to the airline.
Consistency in how appreciation is shown to your loyalty program customers is imperative. Designed correctly, your loyalty program should reward customers who spend and visit more by default. Those customers will find it easier to earn rewards simply because they’re doing more business with you. And that’s exactly what a loyalty program is designed to accomplish.