When a loyalty program becomes less rewarding, it moves the needle with consumers less. That’s a fairly basic proposition.
It’s not any different than the idea that if you raise prices consumers buy less of your product. There are exceptions of course, where some goods become more desirable because they’re expensive, but those are real outliers.
This works fairly consistently and reliably. Sometimes there’s a lag. Consumers pay attention directly to prices at the supermarket, those are up front, but they may not be aware of reward prices until it comes time to use their currency (redeem for a reward). And they may not fully understand the change in value proposition from a single redemption either. But overall, on the whole, demand for a currency should change when it becomes worth less. Or at least there should be enough people who change their behavior that this shift becomes noticeable at the margin.
The counterexample to all of this is Delta SkyMiles. It’s a challenge to everything we know about how the world works. The more opaque the program becomes, and the less valuable SkyMiles are, the more customers seem to want them.
Delta projects straight-line growth, which seems unlikely because the total volume of charges will vary with the overall performance of the economy — and there seems a reasonable chance of recession in the next 12-18 months (it’s already been one of the longest economic expansions since World War II, the Federal Reserve is raising interest rates, the yield curve is flattening).
Nonetheless the point remains. They charge as much as 100,000 miles one way for business class between the US and Europe on Delta at the saver level.
Just four years ago the price was 100,000 miles roundtrip.
Normally we think there’s some limit to how much a program can devalue. But Delta seems to continue to grow its loyalty program in spite of devaluations, in fact the more they devalue the more they grow. The trust deficit should matter.
One possibility is that Scott Kirby’s theory is right, that all that matters is dominating a market with flights and people will sign up for your credit card. Delta dominates the Southeast and Upper Midwest and is largely the preferred airline in New York.
When Delta give away 60,000 or 70,000 miles as an initial credit card bonus, sure, pick those up — Delta miles do have non-zero value! And it’s a given other programs have devalued too, and even copied Delta because airline executives in the U.S. think Delta executives are smarter than they are and must know something they don’t. But I’m really interested to hear from those of you who collect Delta miles aggressively and not just because you happen to fly Delta, I’d love to know why.