Done right, loyalty programs do a great deal to drive revenue. Doing them right is much easier when the inventory of loyalty love is on the rise. Frequent flier miles that can never be redeemed can even damage customer relationships. When building a loyalty program it all seems quite easy. Set aside some inventory, in the airline example this would be seats, and increase the inventory a bit each year to keep up with the increasing number of loyalty customers and their increasing expectations and you are all set. This all comes to an unhappy end when the number of loyalty customers continues to rise, or worse accelerates, at the same time the inventory of awards contracts.
This is exactly what is happening right now with the airlines. The airlines have reduced their capacity by paring back schedules and parking planes. The people flying are mostly those that always fly -- those in the loyalty programs. This means fewer reward tickets, fewer upgrades, and eventually, structural changes to loyalty programs. My main airline just increase the highest level from 40,000 miles to 75,000 miles -- ouch.
We see the same thing happen to partner programs. While on the upswing there is plenty of loyalty love to spread around. In this case the loyalty love usually comes in the form of leads (opportunities for new business). When in a recession the flow of leads goes down and the focus on leads by partners goes up. Expectations up plus delivery down equals unhappy partners. Here are three things to do about it:
- Invest what you have in the right place: As painful as it may seem, the airlines are doing the right thing. They know they do not have the capacity to make everyone happy, and they are going to make sure the reduced number of happy people are the right ones.
- Add new features and benefits: There are always things that can be added to fill the gap. Soft benefits are not as good as hard benefits -- but better than nothing. As above, these new benefits have to go to the right places.
- Engage to grab market share: Vendor and partner both want to grow out of the cycle -- which in a down market means take market share. Since this investment is being made anyway -- make the most of it by working closely with key partners to drive increased revenue for both entities.
Yes all of this means we have to pedal faster in a down market. It is worth it however because the potential gains are tremendous.