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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).
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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.
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