How Will Loyalty Programs Respond to Coronavirus?

During Q4 2019 I had multiple conversations with companies from the hospitality, retail and banking sectors that were either launching or redefining their loyalty programs. In all cases, companies were looking to provide greater value to their members and to stand out from the crowd of meaningless programs. As we all know, things have changed, and plans have been derailed by more urgent matters. There is, however, a tremendous opportunity right now for loyalty programs to step up during the ongoing Coronavirus crisis and show why being a member makes a difference.

Recognition Matters Most During Difficult Times

Some companies leave their loyalty programs on autopilot and do not put enough thought into the role that a loyalty program should play when normal business is disrupted. I was always baffled when a flight got cancelled and the entire plane was sent to line up at a customer service counter without a separate counter for elite members. I once asked an agent why there wasn’t a separate counter and the response was that since a flight was cancelled everyone had to be re-accommodated. Shouldn’t this be the moment when having the highest-level status matters most?

Coronavirus has brought the travel industry to its knees. Consumers are afraid of how Coronavirus will impact their lives both personally and professionally. Nobody can predict if it will last for weeks or months, but one day consumers will gather the courage to travel again. Will the brands that they were most loyal to before the virus threw the world into chaos be there for them? Or will brands choose to devalue their programs in an attempt to improve their financial health?

How Will Brands Position Their Loyalty Programs After Coronavirus?

Regardless of whether the recovery from Coronavirus begins in a few weeks or a few months, the following factors will exist:

-      Companies will be looking to recover losses and improve balance sheets

-      Consumers will go back to their favorite brands first

-      Consumers will be looking to conserve cash as much as possible, at least for a while

Companies will likely fear that consumers may start to redeem all of their accumulated points and miles in order to save money at a time when companies need to generate cash. There will be a temptation to limit this activity or to reduce the buying power of accumulated loyalty points. I would argue that the companies that do the reverse by increasing the buying power of their loyalty points and providing consumers with even more opportunities to earn those points when the consumer is in a time of need will emerge as the winners in the loyalty space in the long run.

Can Loyalty Programs Help Hotels Protect Price Integrity?

In the hotel space, there is an opportunity to leverage loyalty programs as soon as we see signs of a recovery. In my last post I talked about how hotels do not want to repeat the mistakes of 20 years ago, when a post 9-11 discounting war put hotels at a significant disadvantage. This time, companies with loyalty programs have an opportunity to offer unprecedented value to members at a time when they need it the most.

A promotion to bring customers back saying that your points go much further would be much healthier and appeal to the most valuable customers than the usual 40% off shotgun approach. Hotels without loyalty programs can and should start thinking about partnering with other companies (not necessarily in the hospitality space) that do have powerful programs in order to take full advantage of the opaque and targeted promotional opportunities that these programs offer. This would give hotels the ability to offer attractive added value to customers as an incentive that would make a tangible and meaningful impact on the guests’ lives beyond just their stay on property.

Alternative Currencies Going Mainstream

Aside from the loyalty programs of the airlines, most programs play a passive role in the mind of the consumer. This means that consumers are happy to collect points when they spend money with certain brands but that the program is not necessarily the driving force behind their purchase. 

The timing for loyalty programs to step up their game and to take a more proactive approach is perfect. The idea of using a digital currency is still far from widespread adoption. There is, however, a much greater awareness of alternative currencies and how they work. Companies with databases of loyalty members who are largely disengaged and who do not derive true value from the programs they are a part of should seize the opportunity to convert their commoditized loyalty programs into an alternative currency that consumers pay attention to. Showing consumers that the points from a loyalty program are an even more valuable alternative than the dollar itself will create a demand for the currency giving the company the ability to deepen engagement and expand the relationship with their customers.

As companies all over the world figure out how to weather this storm, many are also planning and preparing for a new reality. The duration of the crisis will influence how much consumers change behavior, and how much financial pain they will be feeling when the economy recovers. For the companies that have the capability to plan for the future, they should recognize that loyalty programs can play a crucial role in strengthening relationships with consumers, resulting in much greater long term profits.