The Biggest Problem Loyalty Programs Think They Face is Millennials, and They’re Getting It All Wrong

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Every industry conference I attend features a discussion of millennials. Loyalty programs are trying to figure out how to appeal to this generation. Their fears are being stoked by consultants selling an array of ‘solutions’.

It’s a long-term problem rather than a near-term one, since relatively speaking millennials don’t spend money yet. In most other contexts loyalty programs haven’t been thinking or working especially for the long term. Until very recently they were more likely to bury their hand in the sand over future problems, like the way technology could drive down interchange rates and with it squeeze lucrative co-brand credit card deals (two years ago I got blank stares talking about this, although by a year ago this discussion had entered the mainstream).


Copyright:stockbroker / 123RF Stock Photo

A simple formulation of what I’d call the ‘conventional wisdom’ about millennials is articulated by Grant Martin in Skift:

Knowing that most Millennials aren’t interested in saving up for grand scale rewards or top-tier status, programs are now looking more towards smaller-scale rewards and experiential redemptions in which younger, points-poor travelers can participate.

Consultants are telling loyalty programs that millennials are short term in nature. And they want experiences over things. But the solutions they’re selling are counterproductive.

Millennials aren’t that different from other generations. They want to go to Hawaii, too. Where millennials diverge from other generations is that they are less trusting of institutions. And that’s a huge problem for programs that have been singularly unworthy of trust as a result of failing to maintain the value of their currency (significant devaluations) and disingenuous communication (the worst sin for millennials who value authenticity).

Elite programs are a cornerstone of loyalty, which is equal parts recognition and reward. The idea that millennials “aren’t interested in” top tier status is silly. It may seem unobtainable, just as it seemed unobtainable to travelers who didn’t yet have status in previous generations.

When airline frequent flyer programs began they offered 5000 miles as customers drained their accounts, fearing that when a customer redeemed all their points they would become free agents and could consider new programs rather than needing to build their accounts. They no longer do this because they don’t need to — they quickly learned that rather than abandoning a program after redeeming points, consumers begin earning points more quickly. Redemption proves the value of loyalty to a customer. Redemptions aren’t merely a cost to a program, they’re an investment in future revenue generation.

When programs focus on small easy to obtain rewards, like Starbucks gift cards or merchandise (in the latter case violating the experiences maxim), they’re effectively giving up. They can show millennials they can get coffee or a toaster from what amounts to a rebate program. But they aren’t developing loyalty that drives behavior, they aren’t giving these customers something to strive for. This represents programs giving up and resigning themselves to failure at their fundamental mission.

The key to loyalty for millennials is trust and authenticity. That’s anathema to North American airline frequent flyer programs, and contrary to the history of some hotel programs and to programs like Amtrak and OpenTable which have devalued in the past with no notice and little communication.

Low value, easy to obtain rewards are fine but do nothing to drive long-term purchasing behavior or drive a revenue premium. And for lucrative credit card revenue, low value rewards are never going to out-compete the best cash back credit cards.

The solution to millennials is to offer a clear value proposition and deliver it, and to communicate honestly with members not in corporate marketing-speak. Don’t tell members you’re devaluing their hard-earned points (so they shouldn’t trust you) because it’s what members want and that negative changes are really enhancements. Loyalty programs don’t need to buy merchandise solutions from third party vendors, they’ll get much of the way towards their goals just by telling the truth.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Sounds good, but do you have any data to back this up?

    I agree that, human nature being what it is, generations don’t change all that much. When it comes to loyalty programs, I think it’s pretty safe to conclude that most customers will be preoccupied by things that are more important to them than the loyalty program, and that most folks aren’t rocket scientists. Everything else can be argued about.

  2. I disagree that they aren’t spending money on travel yet. The oldest group of them is 35 years old. I travel every week for work and am 34. Most of my peers are early 30s. You better believe I maximize my status.

  3. I somewhat suspect the previous generation would act in exactly the same way if we had encountered the same value proposition back in the day. For example United has stripped PQM/PQD and other elite benefits from their cheapest fares, which already offerred meager earnings. United then complaining that the segment of the population most tuned to the value proposition is not biting on their loyalty program and credit card offerings would be somewhat disingenuous. Instead they are focusing on the segment that is typically least cost conscious and often less loyal.

    I feel like their is now a vacuum to fill to provide a real “loyalty” program which drives customer retention and increases profit at the same time.

  4. it is Not just the Millennials that have the short term gratification syndrome. The Major Airlines KNOW that True Loyalty to a Brand is Very Limited and the Drivers for most people is PRICE and Schedule, which is precisely Why Most Programs have be Readjusted to Reflect this. Only the Very Highest Tier Levels are really “Valued” by the Major Airlines and That is Why they are catered to……which Should be the Case. Everyone Else is just looking at Grab as Much as You Can for the Least Amount of Money. People are basically cheap and want Perks/Freebies and the Airlines Know That, don’t fool Yourself in thinking Otherwise.

  5. @iahphx …any data to back this up? LOL… perhaps maybe the last few decades of experience observing hotel and frequent flyer loyalty programs? The onus should be on the hotels/airlines to prove that this new concept of marketing towards millennials is more effective, and I have yet to see one study that actually demonstrates this. Most of the people running these loyalty programs have no idea what millennials actually want, and it shows. If you can show me one study that proves millennials would prefer a free bottle of filtered tap water and a $5 Starbucks gift card for their loyalty rather than a free suite upgrade and lounge access / free breakfast (NOT the continental breakfasts) and I’ll venmo you $1000 right now. All of the points the author makes in this article are 100% accurate, the loyalty programs have no idea what they are doing anymore…

  6. Travel loyalty programs have been vilolating trust since 1985 – look at the lawsuits against Mileage Plus back then.

    Maybe the answer is to periodically provide unsustainable awards that get quickly devalued once a threshold is hit. Part of the excitement is “beating the system” while you can.

  7. The problem with attracting newbies is that today’s loyalty programs are lame and getting lamer at a remarkable pace.

    There’s a reason the Capital One ads were such a success. People know the loyalty programs are Ponzi games. And that ad came out over 10 years ago.

    Millenials aren’t stupid.

  8. For not being a Millennial, Gary is on point. Most of the biggest travel bloggers today (besides Gary) are Millenials. They seem to love “the game”.

    My (32) peers and I eat up rewards for breakfast. And as Gary said, having been invasively advertised to since birth, millennials have a pretty damn keen grasp on when someone’s trying to pull the wool over their eyes. The rewards programs aren’t concerned about how to *advertise* to millennials. They’re concerned with how to swindle them in a way where they’re less likely to get called out for it.

    I would argue that SkyMiles is an example of a program that is working hard to lay the groundwork right now. Variable rates. “Bargain” redemptions. Perception of value and exclusivity for those “in the know”, while still devaluing across the board. SkyMiles figured out that we Millennials can be pretty lazy. Award Charts aren’t fun, but “discounts” (even if the price was raised to meet the discount!) are fun. So devalue now, offer higher standard redemptions, then throw people a bone by offering time-limited “discounts”, feed the bloggers the details, and the millennials snatch up “discounted” redemptions today that were standard redemptions a year ago, all while instagramming how “awesome” delta business class is.
    Full Disclosure: I have multiple personal friends who have done this on instagram in the past year. Makes me chuckle every time.

  9. Marriott eliminated desks because they said they prefer to work on there bed with a laptop. When they hit middle age and have bad backs, then they’ll want desks too.!

  10. Why is it so hard for corporations to listen? Is it one of those “we know best” situations?

    Now, more than ever, tech savvy millennials have info at their finger tips from google, to blogs, to podcasts. In minutes, we can find out anything we need to know about a loyalty programs track record, value, and loyalty back to its consumer. While airlines try to be less transparent shrouding their devaluations as enhancements, there are over 50 bloggers being transparent about butt-in-seat level experience that speak true or at least authenticity to the corporate speak and spin in real-time. It’s a shame airlines think they can win this long term unless they’re truly wagering on the uncompetitiveness due to regulation of foreign carriers. Right now, they’re only fooling baby boomers. Ultimately, I’m going to guess that short term P&L management connected to EPS estimates is what’s really destroying the foundation of most consumer unfriendly decisions.

    Anecdotally, (I work in fashion) what we’ve seen is the model flip upside down in our space. Fashion houses used to define trends and editors use to disseminate those trends. Now, magazines are getting gutted and destroyed and fashion labels are being told what is relevant by social tribes and sub cultures in a way we’ve never seen. Obviously, brands have always looked to sub culture to steal and borrow, but now subculture has its on way to catch fire than the typical slow spread. Barriers to entry into retail due to ecomm and the democratization of voice is really making the millennial group the lead on development. And maybe we don’t spend the same amount on luxury as our parents since we don’t make as much, but it’s a very powerful voice and spend that moves and reacts quickly. It’s a force to be reckoned with.

    As you say time and time again, if the govt allowed competition, the legacy carriers would be singing a different tone. Unfortunately, right now it’s hard to voice your concern with your wallet because you may start buying based on price, but you can’t avoid a legacy carrier altogether.

  11. This generation is different. They are more experimental and open to new ideas and products. But they are not brand loyal. Look at wine and beer. Today folks at 25 years old are drinking fine wine. In the past people were 35 before they got into fine wine. And look at craft beers. In my generation you found a beer you liked and you ordered it every time if it was available. Today a young person is more likely to order a beer they never had before than one they had.

    However, devalued and disingenuous as the programs may be, it is still a way to fly in the front of the plane for free and to stay at luxury locations that otherwise would be unattainable. I believe the vacation begins when you step on the plane. I often get tempted to stay in a hotel or fly an airline that is not part of my loyalty agenda. In the end I come back to one of my two hotel chains and my one airline – often I fly with a stop when I could have flown nonstop and stay in a hotel that is a little further away from the meeting.

    Sooner or later those that are inclined toward this sort of thing will realize the benefits and come around. If you have to travel anyway you might as well get some nice benefits.

    Full disclosure: I am writing this from the Andaz Mayakoba in Mexico. With a confirmed suite upgrade – that includes 3 balconies that overlook a lagoon as well as a private Jacuzzi, it is probably the nicest property that I have ever visited. Highly recommended by the way. When I was shown my suite I couldn’t help but think, I’m glad I racked up those loyalty points.

  12. I’m a millennial and its true we want to experience things like unique vacations. However, I can’t afford nice hotels in Vietnam, Hong Kong, Bali, Singapore, and The Philippines but my Marriott Rewards points I obtain from staying with them for work and spending on their card helps me obtain that experience and makes my vacation more affordable.

  13. “The problem with attracting newbies is that today’s loyalty programs are lame and getting lamer at a remarkable pace.”

    Yep. Skymiles.

    “People know the loyalty programs are Ponzi games.”

    Yep. And we love Ponzi games. See also: US presidential election 2016.

  14. As a millennial who recently got into the points and miles world, you hit it on the head. Word.

  15. “The solution ……….. is to offer a clear value proposition and deliver it, and to communicate honestly with members……….”

    The statement above is a fundamental truth that transcends generations.

  16. Gary, a lot of your analysis is spot on.

    Here’s what I’ll say:

    1. The reason millennials haven’t earned as many miles/points is because the global recession of 2008 shafted our generation the hardest. We graduated to no jobs and ultimately no careers. We will be playing catch-up our whole lives as a result.

    2. We have more INFORMATION that any generation before. That means we are total free agents. It’s not enough to have one card with one airline. Airlines that continue to drive value and win the information game (in other words, when someone Googles: best place to accrue miles, that airline is the answer) will win the war.

  17. I also have many friends who will ONLY stay in an Airbnb as a rule. They never got accustomed to hotels and they don’t believe in them. Hotels will have to contend with that cohort.

  18. Catering to millennials is just an excuse to do things that are good for the bottom line and bad for customers. As a millennial myself (in my 20s), I can say that I absolutely care about aspirational rewards, desks in hotel rooms, elite programs etc. I wouldn’t be that sad to see the paper newspapers offered on jet bridges/lounges go though, as long as they are replaced by electronic versions that are accessible.

  19. People want value for what they spend and participate in. Period. Give us flight choices, hotel choices and don’t mess around with the value proposition (i.e. Number of points needed). Also give us an opportunity to fly free to Hawaii instead of making it difficult. Are we asking for too much?

  20. As a Millennial (under age 30), loyalty does have a shorter horizon. We’ll go to Starbucks because of their loyalty program, and we have an acct with practically every clothing and online retailer.
    Recognition for us means actual rewards, not aspirational ones. Most of us reading this blog are probably well-traveled and churn our signup bonuses, but many (younger) millennials don’t subscribe to pandering as easily and can do a quick Google seaech or Facebook shoutout.
    Many would choose a local credit union with little benefit over (for example), a Wells Fargo CC with a signup bonus. Many would delete Uber and pay more for Lyft. Many would use Airbnb than find a local Sheraton or Marriott.
    And with airlines, many are loyal to being unloyal– and value the ability to fly Southwest, JetBlue, Norwegian, or whoever else is cheapest– especially considering that air travel in the US isn’t exactly a glamorous thing relatively speaking. Instead of sitting in Business in a 737 transcon with a complimentary San Peligrino, they’d rather take a flight to Barcelona on WOW Air as a reward. Domestic and Intl air travel are getting cheaper, and “once-in-a-lifetime experiences” are becoming within reach. Recognition for your potential to spend is far less valuable than recognition for what you already have spent.

  21. I don’t believe “Where millennials diverge from other generations is that they are less trusting of institutions.” In dealing with institutions, I have the experience of at least two millennials. Therefore, I’m at least twice as distrusting of institutions as any rookie [millennial]. The only difference is that I can no longer read all the fine print exceptions without special glasses.

    Oh, and please tell me more about the Citi Double Cash Card. That sounds like a really honest program that puts me first without regard to some bank’s profits.

  22. The other problem is so-called “consultants”. I’ve often found that consultants are people who come into a corporation with a small army of newly-minted MBA’s who interview the existing employees about the problems they have doing their jobs, and what those existing employees would do to produce/perform better. The consultant then goes to senior management with a beautiful PowerPoint containing what the existing employees have said, and walks away with million dollar fees.

  23. Why is it so hard for corporations to listen? Because they have to report their profits four times each year in a highly competitive industry.

    American Airlines printed its own currency. It sold that currency to Citibank for hundreds of millions of dollars. When the liabilities got to high on its balance sheet, and conditions due to fuel prices were sufficient to allow it to happen, they dramatically devalued the currency they had printed and sold. They did it in an environment where the Supreme Court interpreted the law to say that state law torts couldn’t be used to do anything about it. And they also did it in an environment where market segmentation means you have virtually no choice in the matter even if you wanted to walk with your money, especially if you live in a hub.

    It is asking way too much to expect that any rational company that is publicly traded would have resisted the temptation to do the same. In our travel hacking community, we get all excited when Amex gives us the ability to redeem our points for two cents per dollar and are even willing to pay $450 a year for the right. We talk about jumping on deals when the getting is good.

    Well, that’s exactly what American Airlines has done. (As has Delta and United would like to as well if their computer technology didn’t suck so badly.) American literally printed money without anything backing it. It was the mother of all ponzis. It makes the pudding guy or the most hardcore coins enthusiast look like a piker. The hit it out of the park.

    Will there be long term effects? Have they killed the golden goose? Color me extremely skeptical. All we can really do is whine and predict “you’re shooting yourself in the foot.” Hoping that there’s something special about Millennials and their super fancy and heightened bullshit detectors that is finally going to give airlines their comeuppance (when those Millennials finally have money) strikes me as wishful thinking and tilting at windmills.

    I’m as pissed as everyone else at what these companies get away with and how savagely they beat the crap out of us and use marketing speak to pretend they are not. But pretending that they are going to be forced to be more honest, transparent, and to give better value in order to prevent Millennial dissatisfaction is wishcasting of the highest order.

  24. It seems to me that the stereotypical millennial has a short attention span. They chase the latest hot thing, the latest hot app. They supposedly change jobs frequently. Short attention spans mean they are unlikely to take the time to learn the ins and outs of horribly complex loyalty programs that are becoming more complex all the time. Knowing the fine print is the only way to know which program is best for each individual and the only way to get real value from any program. Gary and others know this and make a business out of booking award tickets and explaining ff programs.

  25. I agree. I think loyalty programs are like hiring employers in 2008. It was a seller’s market. Times have changed and all generations will vote with their feet if you give them little hope and low value. In addition you can drive away loyal employees or loyal customers by abusing them enough. It can worsen if there is a place or competitor they would rather work with or for. Airline loyalty programs are the worst. It’s like a race to the bottom.

  26. Why is it that newbies to Airline Loyalty programs have to do basic things such as add the Admiral’s Club at SNA to google maps whenever it’s been there for TWENTY SEVEN YEARS. Want proof?
    http://imgur.com/a/xDVG2
    https://goo.gl/maps/ufeZXQ9itBH2

    //s.imgur.com/min/embed.js

    //s.imgur.com/min/embed.js

    What’s the danger of adding it to Google Maps? Are you afraid that PP members are going to find out about it? doesn’t matter because it’s not contracted. Is it because no one is tech savvy enough to add it? Come on – it’s California, where all the tech companies are. Or is it because those familiar with Elite Status and Premium Credit Cards don’t want it established on Google Maps because they want it all to themselves? Could be. I can only surmise this that it’s either pure SELFISHNESS or pure LAZINESS – which there is no room for in this day and age and it’s completely unacceptable.

    Things that you have to go through to find an admiral’s club location after paying into the program:
    1. Go to the “Find A Club” on AA’s website and the search directory drop down box doesn’t work.
    – what should be a primary reference source doesn’t work – DOUBT CREATED
    2. Google “admirals club SNA” and it will link you to a functioning location page
    – as a shortcut link, it could be an outdated page, therefore not 100% reliable –
    – DOUBT STILL REMAINS, ANGER CREATED BECAUSE AA HAS THE RESOURCES TO FIX A LINKING ISSUE
    3. Search for a lounge review on SNA admirals club that produces results from 2014
    – the admiral’s club could’ve closed by now for all I know. – 3rd party reviews are considered a Tertiary reference

    I just want to make a beeline from gate to club so I can print out work documents first, before I can even think about using the club to relax.

    If this is what I have through to utilized a paid membership.

    Probably my fault for coming off a United flight and forgetting to check the AA app for admirals club locations. For all my failures, I still did the right thing and submitted the missing information to Google maps and the place creation was approved after peer review.

    Lovely first experience, no?

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