Walking the Loyalty Tightrope

How do you reimagine your loyalty strategy without breaking the bank? By shifting the paradigm.

On 21 September, a selection of the best minds in loyalty will gather at the Hyatt Regency London Blackfriars for Loyalty Summit London, an intimate one-day conference centered on the theme of “Loyalty Reimagined.” In advance of the event, Loyalty Summit VP of Marketing Rick Ferguson will be queuing up the discussion with a series of articles on the re-imagination of loyalty marketing. Today’s article: Reimagining your loyalty strategy.

By Rick Ferguson

We’re all familiar with the business concept of the strategic “pivot.” When your current strategy is failing to the extent that it becomes an existential threat to your business, then survival dictates that you pivot—often rapidly and at considerable expense—to a new business model that more directly meets the needs of the customers you’re hoping to serve. Otherwise, you’re toast.

Business literature is rife with famous examples of the Pivot. In the 1980s, Nintendo transformed from a flailing playing card manufacturer to a video game innovator. Starbucks began life as a wholesaler of coffee beans and espresso machines. YouTube was once a dating site. When Apple’s iTunes product rendered Twitter’s original podcasting model obsolete, then-CEO Jack Dorsey gave employees two weeks to come up with a new business model—and they transformed Twitter into the digital town square.

Absent an existential threat, how do practitioners seeking to revive moribund programs and re-engage apathetic members engage in similar pivots? Loyalty has matured to a $4.5 Billion industry—and yet travel brands aren't reaching the full breadth of opportunity within their programs. How do loyalty marketers innovate to drive growth and impact at scale? Given the constraints on budgets and the pressure to deliver returns to shareholders, how can you reimagine your own customer strategy?

The downward spiral

The classic loyalty program “pivot,” if we may call it that, is to reduce program costs. In the past few years, the trade press has been rife with news of travel program operators tightening their belts. Both the airline and hotel industries have made program changes that have increased redemption costs and/or made it harder for members to earn elite status.

These devaluations have sparked backlash, causing loyal customers to feel unappreciated and discouraged. Elite customers find it more difficult to maintain their status, while members who aren’t top spenders don’t see their loyalty being rewarded adequately by the redemption options available to them. To make matters worse, these changes are often couched within complicated reward structures and communicated via jargon, marketing speak, or fine print. The result: Angry or disengaged customers and a firestorm on the travel blogs and in social media.

The end result can often lead a program into a death spiral, in which draconian cuts lead to member disengagement, which leads to lower ROI, which leads to more belt tightening. Granted, these death spirals are more common in retail loyalty programs, which often operate on razor-thin margins in which a few wrong moves can result in program cancellation. While modern multinational airline and hotel loyalty programs may be “too big to fail,” it may be na?ve to assume that they will be forever immune to death by a thousand cuts.

“Nothing gold can stay,” said Robert Frost. If travel brands don’t find a way to pivot their loyalty strategy beyond the usual cost-cutting, then Frost’s words may prove prophetic.

Marketing Loyalty

Unfortunately, a pivot of the magnitude executed by Starbucks and Twitter is out of reach for most legacy travel programs. With tens of millions of members in the database and tens of billions in unused points and miles on the books industry-wide, these programs are the equivalent of marketing battleships, requiring long lead times and massive expenditures to execute even minor course corrections. Given the overriding cost pressures facing most legacy travel programs today, is there a way to pivot that doesn’t involve massive devaluations?

You can start simply by changing the conversation within your own organization. Instead of viewing them as cost centers, what if we viewed loyal program members as generators of lifetime enterprise value? Instead of viewing unused points and miles as an accounting liability, what if we viewed them as an investment in customer relationships? Instead of thinking of programs as a set of tactics designed to make customers “more loyal,” what if we thought of them as a strategy to demonstrate our loyalty to our most valuable customers?

Once you make that organizational mind shift, other ways to pivot begin to seem possible. Instead of devaluating your program, you might offer third-party options for customers to redeem their points and miles. You might offer split-pay options, so members unable to reach the next tier or redemption level can still make use of their mileage bank. Instead of angering and alienating customers with your latest program changes, you can surprise and delight them with more options to redeem for rewards.

This paradigm shift offers an enticing vista of new ways for travel brands to increase engagement, heighten the experiential value of program membership, and increase your return on your program investment. Some methods of offering your customers more choice and flexibility include:

Broader redemptions: Under this model, members don't just save up X number of points or miles for expensive flight or room redemptions. They also shop with their points and miles for a wide range of rewards at different price points.

Meaningful service: Make even your lower-tier members feel more valued by making sure that each interaction with the brand, across all channels, strengthens the relationship and demonstrates your loyalty to them.

Connected ecosystems: Strategic partnerships with like-minded brands, both within and outside the travel industry, enable you to offer a range of products and experiences—gift cards, partner discounts, merchandise rewards—that build emotional engagement while removing liability from the books.

These sorts of strategic pivots are powerful because they widen program fungibility and introduce new, unexpected opportunities to unlock value both for members and the brand. While your variable costs may increase in the short term, sound accounting and data analysis may reveal that, over the long term, your return on program investment dramatically outpaces your costs. You’ll create a symbiotic relationship between your brand and your best customers—real relationships, valuable to both parties.

When we invite you to reimagine your loyalty strategy, that’s the kind of re-imagination we mean. You don’t need to pivot from selling playing cards to game consoles. You just need to pivot to a mindset in which your customers are partners in your success.

To reimagine your own customer strategy, join us in London for the Loyalty Summit on 21 September. VIP pricing ends on 11 August, so visit www.loyaltysummit.com to reserve your spot today!

#customerloyalty #loyaltymarketing #loyaltyprograms #customerengagement

Tommy Danielsen David Feldman Mark Dority David Slavick