Loyalty Programs Can Gain – Or Lose – A Customer’s Loyalty
Rewards programs can be lucrative for loyal customers, but when companies add lots of rules and restrictions to a loyalty program, it can actually have the opposite effect.
Customers are very perceptive, and they understand when something is a value and something is not. One example of this is when rewards expire. From a customer’s point of view, this doesn’t make any sense. They earned the rewards, and now the company taking them away? That is not the basis for a positive customer experience.
The background on this is that it’s actually the Finance department making those rules. When a customer earns rewards, that shows up as a liability on the company’s balance sheet. It may or may not have to pay out those rewards, so the money has to be set aside for if and when the customer decides to redeem them.
When rewards expire, it evens out the balance sheet and removes the liability. But it’s not a good experience for the customer.
Sometimes a customer simply takes a break from a brand for one reason or another. Perhaps they begin flying a route that their favorite airline doesn’t fly. Does that mean they should lose the rewards earned on their favorite airline? Does it mean they’re no longer loyal to that company? And yet most airline programs have an expiration clause that says that if you don’t earn or redeem miles within a certain period of time, you lose them.
Sometimes a customer simply takes a break from a brand for one reason or another. Perhaps they begin flying a route that their favorite airline doesn’t fly. Does that mean they should lose the rewards earned on their favorite airline? Does it mean they’re no longer loyal to that company? And yet most airline programs have an expiration clause that says that if you don’t earn or redeem miles within a certain period of time, you lose them
Thankfully, the tide is turning in the airline industry. Last month, United Airlines announced that its frequent flier miles will no longer expire, joining Delta and JetBlue. (American, Southwest and Alaska Airlines miles still expire with 18-24 months of inactivity.) This is a much more customer-friendly policy.
Similarly, cash back programs on credit cards often have an expiration clause that says cardmembers will lose the cash back or points or miles if they don’t use the card for a certain amount of time.
Does losing rewards make sense? Is this going to bring a customer back? Customers don’t like to be threatened, nor do they like lots of rules and policies. A better approach would be to tell customers that whatever rewards they earn, they keep forever — just like at United, Delta and JetBlue. Let the Finance department figure out the liabilities on the back end; this is not something that customers should care about.
The other thing the airlines and other companies have been doing recently is devaluing their rewards currency. Over time, as it’s become harder to earn miles and even harder to redeem them, the relative value of each mile has gone down. By making rewards more difficult to earn and redeem, airlines have lowered the value of the overall program, which actually goes against the original goal of loyalty. After all, if a customer works so hard to earn those miles and now they can’t spend them, why is it that they would continue to be loyal to that particular airline?
Customers today are seeking simple, valuable rewards programs that don’t require a lot of thought or work. Every change or policy related to a reward program is made not with a customer in mind, but with the Finance department in mind. How do we save more money? How do we reduce the expense of this program or the liability that the program presents?
These are the wrong questions to ask. The job of the Finance department does not usually include creating the best value for the customer, so it’s a slippery slope to have them dictating loyalty program rules. After all, if companies upset their loyal customers to the point that they leave, the bottom line is going to have a whole new set of problems.