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On this blog, beyond covering credit card bonuses, I love to cover loyalty programs and some of the ins and outs associated with them. Every now and then, we see banks or airlines/hotels make changes and reduce the value that members can receive from a loyalty program. However, in spite of these changes, we often continue to engage with these programs. Why is that? Is that irrational behavior on a consumer’s part? Let’s have a look.

Loyalty Program Ins and Outs

Why do brands run loyalty programs? They’re designed to drive engagement, increase customer interactions or touch points and make customers a part of an ecosystem that gives them rewards. In return for those rewards, a customer continues to transact with the brand as opposed to a competitor. This pymnts.com article sheds some interesting insights into how a loyalty program, by design, seeks to keep customers engaged.

The purpose of investing in loyalty programs is so brands can strengthen their customer relationships, gather key insights and grow revenue. Loyalty terms like acquisition, retention and usage are important in this process.

Keeping Customers Engaged

A loyalty program has two fold objectives. Acquire new customers via lucrative offers and more importantly, keep the existing ones active and engaged. Here’s how these objectives translate into the real world:

  • Frequent purchases: A loyalty program seeks to drive engagement levels by making sure customers don’t ‘forget’ them. How do they do that? They make sure there’s a quarterly or monthly promo that reminds the customer of their existence. While it may not end up in substantial savings, it still does reinforce top of mind awareness compared to a competitor’s brand. This is also an excellent way to reduce churn rate. Ever wondered why you seen those Amex offers offering a $10 discount on your next internet or phone bill? It’s simple. More often than not, customers set it and forget it. It gives Amex the frequency of purchase even after the promo period gets over.
  • Touch points: A loyalty program can help develop different customer touch points. Earlier, you were earning miles just for flying. Now, you can earn them while shopping online. Or, you can also earn miles with your next purchase of coffee at Starbucks. The more these touch points, the more the interactions and therefore, more the reinforcement of the brand in the customer’s mind.
  • Captive Audience: A loyalty program also helps build a captive audience. Let’s say you’ve built up a stash of 300,000 American Express Membership Rewards points. There’s every chance you’d want to build on that as you work towards your next vacation. So, you’re more likely to engage with a Amex related touch point like Rakuten to add to that points balance instead of going with a competitor. In short, the allure of a great trip keeps customers captive, as they want to build on exiting rewards to get a nice rebate when they redeem them.
  • Redemption rates: A customer is more likely to be engaged with a loyalty program if he’s convinced that the redemption rate would be reasonable. Again, what’s reasonable is subjective, but the brand should do enough to convince the customer that the redemption rate justifies the spend and the level of engagement by the customer with the brand.

The Pundit’s Mantra

Last week, I wrote about how brands can often drive away loyal customers by doing these shenanigans. The key here is really to keep your loyalty program simple. The simpler it is, the easier it is for more customers to engage and interact. The more the complexity, the more it benefits the company running the program.

Take the example of Marriott Bonvoy. The Bonvoyed moniker is indeed apt. The program is too complex and figuring out whether you’re eligible for complimentary breakfast requires sifting through well researched articles like these. In contrast, Hilton, despite all its shortcomings, is still my favorite hotel loyalty program. Complimentary breakfast is pretty simple to figure out. Also, I get upgraded more often than not and lounge access is always a given for Diamond members irrespective of the room they book.

When it comes to airline programs, I really like Air Canada Aeroplan, given the multitude of options it gives me to redeem for rewards worldwide, be in with Air Vistara in India, Singapore Airlines in Singapore or Emirates flights to Dubai. When it comes to banks, Amex Membership Rewards still remains my favorite, given the wide variety of options vis-a-vis airlines. I also hop on and capitalize on their lucrative points transfer bonuses every now and then.

Which is your favorite loyalty program? Tell us in the comments section.

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