Do loyalty programs actually work for brand growth?

Do loyalty programs work?

The conventional wisdom for the longest time has been that loyal customers are the best customers. Super fans equals super success.

So identifying, cultivating and rewarding these fans made sense.

Recently the head of Delta Airlines was hitting the PR circuit to unveil some of their strategic moves to do just that, highlighting the great outcomes directly associated with some of their unconventional decisions around loyalty.

Wifi on plans sucks. Delta chose to change that. Then gave away this costly perk for free, linked to their SkyMiles loyalty program (which has no cost to sign up).

Madness?

One of the key outcomes from their move to supply free wifi was a significant uptick in loyalty club memberships. A hundred odd thousand sign ups a month is nothing to sniff at.

The question remains though, was that an adequate outcome for the billion dollars it took to make good in-flight wifi a reality?

What wasn’t discussed was whether these new sign ups were already Delta customers. As one of the biggest airlines in the world, you would assume so.

The cynical amongst us might suggest existing customers were flocking to the rewards program purely for the newly instated freebies..

Maybe the Yankees should fly Delta..

Loyalty programs have been around for ages but proliferated in recent years as companies sought means to learn more about customers and their shopping habits.?

Personalisation is everything! We must capture data!

Loyalty programs came into existence when companies realised the competitive advantage they once experienced due to product differentiation no longer held amongst a proliferation of similar looking and “me too” products.?

Especially airlines - everyone flies the same planes, in the same configurations, to similar destinations.

The uptake was profound.

Accenture claims more than 90% of companies now have some type of customer loyalty program.

Accenture believes loyalty programs are one of the most effective tactics for increasing revenue and inspiring customer loyalty. In 2013, as many as 84% of consumers told Nielsen they’re more apt to stick with a brand that offers a loyalty program, with 66% of consumers telling Bain in 2001 that the ability to earn rewards actually changes their spending behaviour.

Add to these stats the theory it costs a lot less to sell to repeat customers than acquire new customers. This combination of factors has been the driver behind why brands invest in loyalty and rewards programs.

Fast forward to 2023 and the world’s preeminent school of marketing science believes the pursuit of retaining customers is misguided, as Dr Kelly Vaughan and Alicia Barker of the Ehrenberg-Bass Institute explained to Warc .

It’s presumed the easier target for marketers is retaining current customers because they’re already familiar with you (mental availability), so are more likely to choose you at the point of purchase. Reinforced by regular touch-points with your brand such as email updates, social media, a loyalty card in their physical or digital wallet.

Makes sense in isolation, right? Current customers know your brand and are more likely to notice your marketing efforts.

However, one of the empirical laws of marketing endorsed by the EBI, Double Jeopardy shows that brands of differing sizes vary greatly in customer numbers, yet exhibit similar levels of relative loyalty.

Turns out, people don’t care about your brand.

The challenge then becomes getting current customers to buy more than they need. It’s likely they’ll think of you when they do need to, but that won’t necessarily keep sales ticking along at a rate brands need.?

It won’t be enough.

Not to mention, it takes resources to consistently offer up value to these customers you’ve already won over. Not just the time and budget to communicate with them, but the efforts to prop up the value exchange.

Delta had to spend a billion real dollars to build an in-flight wifi system which worked to attract new subscribers. Were these 250,000 travellers new customers who don’t currently choose Delta, or existing customers seeing a chance to capitalise on something they’d never normally pay for?

Australia’s most infamous airline has teams dedicated to sourcing and negotiating offers and deals on a wide ranging catalogue designed to help earn and burn those precious QFF points.?

Does this make customers more loyal to these airlines, or just attract deal chasers loyal to the perks and perceived discounts? It might be smart to use your personal data currency to buy a perk for ‘free’, but that’s not a currency which is going to help brands keep the lights on.

Even still, does all this work help convince and convert ‘light’ customers into buying more frequently? Hard to say, especially when this strays so far from the core business of getting people from one destination to another.?

Sometimes on time, sometimes with luggage..

Shocking.

Considering Qantas recent track record, maybe they should become a retailer instead.

So, if rewards program customers are not going to buy any more than normal and become a distraction from core business - are these resources well spent?

Just like capturing data is only useful if you have the means - and the skills - to analyse and take meaningful action from it, your rewards program is only useful for reminding existing customers you’re there when it counts.

It won’t necessarily drive growth.

It also looks like the perks ecosystem is being challenged as well.

This proclamation from Delta comes at a time when some are heralding the end of an era in airline miles and loyalty programs. Just last week, NASDAQ listed Loyalty Ventures filed voluntary petitions for Chapter 11 bankruptcy.

No doubt affected by the years of restricted air travel experienced in recent years, compounded by poor management decisions on points expiry and a retraction of retail partnerships.

Air Miles lost a string of big retailers in Canada, with Sobeys , Safeway owner Empire Co. Ltd. and office supply retailer Staples scrapping the Air Miles program. A huge blow to the legitimacy and longevity of the program, which relied so heavily on mechanisms beyond its flights to drive value for members.

Launched in 1992, AirMiles is considered to be the first coalition or multi-partner loyalty program introduced to the market, predominantly in Canada but also the UK, Spain and the Netherlands.

So it’s not like they didn’t know what they were doing.

Last year, Qantas made changes to its Frequent Flyer program to reduce the number of points required to cash in on flights and hotels. The share price jumped. It appears investors see bloated points balances as a liability for our flying kangaroo.

So when it comes to loyalty, brands will sink a heap of resources into speaking to the same customers, who won’t necessarily buy more at a time when points are becoming a liability and customers are seeking value more than ever.

Awesome.

However, having a tribe of existing customers can be useful in acquiring new customers in similar segments. Brand partnerships have been around for a while, but are starting to gain proper traction as brand managers realise a rigid brand environment doesn’t necessarily serve their purpose of being seen and heard.?

Co-branding allows brands to reach a wider audience by partnering with a brand of a similar calibre. Like-minded brands with complementary audiences can share resources and find in-market buyers amongst their partners.?

New audiences - the name of the modern marketing game.

Not to mention the halo effect and shared brand equity of aligning, reinforcing your position in customer’s minds. The sum can be greater than the individual parts.

Scarcity works in lifting perceived value and its no different inside or outside the rewards club.

Over the past year, the two behemoths of the hotel world - Marriott and Accor - have been engendering loyalty with one-off experiences, including private tuition from top chefs to wildlife conservation, private boxes at NFL games and concert venues.

Fine for the ultra luxury set, but the thinking can be applied more broadly. Delta is able to flip the script and get Paramount Plus to pay for space in their entertainment systems because of an identified alignment between the two brand’s customer bases.?

Likely also influenced by the saturation of options in the streaming wars and shrinking available market share for content subscriptions, but the thinking holds true.

While most brands may not be able to offer private tennis lessons with superstar champions or multimedia entertainment platforms, there are a raft of value-adds which can help occupy a little more of your customer’s mental availability.

Knowing what your customers care about, aligning that with what you can offer which sits alongside your core proposition can help show some thought has been applied.

Turns out, tapping into a basic human need to feel appreciated can make people remember your brand. Go figure.

From free wifi to the money-can’t-buy, these mechanisms can help build familiarity, even if there’s no true loyalty on offer.

Many of us who have been blindly racking up Qantas points with online purchases during the pandemic are rueing the predicament we now find ourselves in, tied to a company who cares little for our wellbeing or delivering on any semblance of good customer experience.

If the goal is to be familiar, then a loyalty program gives plenty of opportunities to learn about your audience and provide a consistent stream of relevance and value which will keep you top of mind.

Just don’t confuse this with any kind of loyalty to your brand - or a path to real growth.

Thinking of starting a loyalty program? Let's find something better for you to invest in. Email me [email protected] for a free execution idea.