Loyalty: Not Broken, But Fix It Anyway

Near the end of Jason Reitman’s 2009 film Up In The Air, corporate downsizer Ryan Bingham, played by George Clooney, achieves a nearly unprecedented status: ten million frequent flyer miles. To celebrate, the chief pilot of the airline joins him mid-flight and they share a toast. The chief, played by The Big Lebowski’s Sam Elliott, offers Ryan simple congratulations, “We value your loyalty.” But do they? Do they even know how to value it?

If you spend a day shopping, you’ll repeatedly hear the question, “Are you a member of our loyalty program?” Loyalty programs are expanding, which is not surprising given that today’s highly competitive marketplace has made having one a no-brainer. Most, even the most ill-conceived, tend to produce small, single-digit gains which, at scale can add up to hundreds of millions of dollars. Of course, loyalty can mean different things to different people. To industry insiders, loyalty largely means how often consumers visit and how much they spend. But loyalty is also an emotional state, one that is earned (not bought), and based on real world experiences.

For example, Moe’s Southwest Grill pushes a fairly standard buy-nine-get-one-free program. Meanwhile, Chipotle is one of the fastest growing and most valuable fast casual restaurants in the world - with no loyalty program whatsoever. Does that mean Chipotle is beyond loyalty? Absolutely not. But a punchcard won’t do much for them. A brand with real loyalty is going to want a more complex and nuanced loyalty program that can trigger more sophisticated and valuable behaviors. Every brand should want those things. In that spirit, here’s a list of four ways most traditional loyalty programs leave money and love on the table.

1. The program comes with a physical burden. The average consumer has thirteen loyalty cards. It’s impractical to carry that many, so loyalty programs lose. Even those who offer to look up accounts by phone number suffer from the path of least resistance (consumers decline). Luckily, many signs point to loyalty moving to mobile phones with NFC or specialized apps.That future can’t come soon enough.
2. The program is (mostly) an economic agreement. ”Ten punches and the next one is free.” “Five percent off future purchases.” “One point per dollar spent.” It all adds up to the same story: sign up and come back, and in return we’ll give you a small discount (in many cases so small it is eclipsed by existing coupons). While catnip to bargain hunters, our instincts tell us many consumers are engaging simply because it’s the economically rational thing to do (why not save a little money?). Loyalty programs need to evolve beyond pure economics. They need to begin to recognize the power of emotion in the equation. For instance, how many major loyalty programs allow the cashier to welcome the consumer by name? The strength of social reinforcement in games like FarmVille tells us this recognition is worth more than its weight in gold.
3. The program offers many rewards, but only one action. Imagine a game of chess made entirely of pawns moving one square at a time or Monopoly with nothing but passing Go. As a system designed to incentivize certain behaviors, loyalty programs are pretty one-dimensional. Yet, they all posses the basic building blocks of a more game-like experience. That means thinking carefully about expanding the actions available to the player. More actions means more decisions and more engagement as the player tries to maximize their upside (while also maximizing beneficial behaviors). In the absence of more ways to “play” a loyalty program, members may invent their own game on top of one (note the forums where frequent fliers share their relatively banal strategies for maximizing points).
4. The program has unintended consequences. Many airlines have moved to a model where checking bags costs money, unless you’re an elite flyer. The result? Hundreds of people trying to cram their bags into overhead bins that are routinely overloaded. This delays departures and costs airlines money. Turn this scenario on its head and you’d have overhead space reserved for loyalty members, and bonus loyalty points awarded to each cabin of people whose flight boards and deplanes faster than the airline average. Good loyalty design requires a lot of systems thinking, and keeping it simple doesn’t discount the complexity inherent in human systems.

What positive or negative trends have you seen in loyalty lately? What is your business doing to evolve its system to meet new consumer expectations? We’d love to hear from you.