The problem with Delta’s new revenue-based mileage earning (rewarding you points based on the price of your ticket instead of the miles you fly) isn’t actually that it:
- Doesn’t actually reward high spenders, since the “break-even point” for earning the same number of points in 2015 as in 2014 is a ticket price of 20 cents per mile flown, which is twice as high as the revenue required by Delta to earn elite status in that element of its revenue-based reforms, and Gold elite members and higher will have to spend more per ticket than general members just to remain even. And Delta actually limits the miles that can be earned by top spenders.
- Misses the point on how to incentivize incremental business at the margin and contribute to the airline’s bottom line. Business travelers whose companies have contracts with Delta and pay for premium cabin and last minute tickets are locked into flying Delta, rewarding them doesn’t earn more business from them. And paying the highest prices for the last seat available on a plane may just displace another passenger who would have done the same and thus contributes zero to economic profit. Filling seats, on the other hand, that would have gone empty is nearly pure profit.
- Upends the most successful marketing innovation in history which is, itself, wildly profitable on a standalone basis. This is a billion dollar business – which isn’t actually in ‘trouble’ in any conventional understanding of the term — that’s being turned on its head.
No, the real problem with the program is that it destroys the romance.
There’s nothing inherently magical about ‘miles flown’. Earning points based on miles flown is a proxy, however, for time out of your life spent with an airline. With significant days, flights, hours, and trips you develop a relationship with an airline. And it’s an emotional relationship.
This isn’t S&H Green Stamps and it isn’t your neighborhood sandwich shop punch card. It’s a reward for your loyalty. The time spent with an airline becomes your reward, “you give us your business travel, you give us your paid leisure travel, and you become like a good friend that we will take care of down the road in the best way we can – with that free trip to Hawaii, with a business class trip to Europe for your anniversary.”
Frequent flyer programs changed what are essentially a commodity to be sold at the lowest price – an airline seat between any two cities – and turned them into a differentiated product with brand identity and customer loyalty.
But in explicitly rewarding the precise dollars that you spend rather than the time with spend with the airline (of which miles flown are an imperfect proxy), they’re re-commodifying the experience. They’re reducing points-earning to a transaction; a rebate instead of a reward.
They’re also further pitting employers against employees, creating incentives where folks spending someone else’s money explicitly are rewarded for spending more of that money. Elements of that already exist, of course – programs try to get customers to choose their associated airline independent of best price, in many cases they require higher fares to upgrade internationally for instance – but this makes the arrangement specific and explicit.
Instead of a romantic loyalty relationship, they reduce the frequent flyer program to a crass commercial transaction – which undermines the genius marketing insight that’s made programs so successful in the first place.
Delta has gotten its fundamental message out, I think, that they’re now going to reward their best customers even though they are not really rewarding their best customers.
To a large extent the media storm has passed. They’re likely feeling better about themselves on Virginia Avenue this week.
But the real storm is what’s to come, as they break the emotional bonds they’ve built with their customers over decades.
In this monkey see, monkey do industry other programs follow Delta’s lead at their peril.