In the October issue of Executive Travel, Randy Petersen adopts a controversial thesis in an article titled, “2 Great Frequent Flyer Programs” — what two programs is he talking about? Delta Skymiles and Southwest Rapid Rewards!
Why is it shocking that these programs would be dubbed great? I’ve redeemed well over 100 million miles for myself and for others, and from my experience and the near-universal experience of those I speak with, these two programs offer less value than their peers. Delta miles are difficult to work with and availability (at the ‘low’ or ‘saver’ level) is relatively poor. Southwest has a revenue-based program designed to reward buying expensive paid tickets and using points for cheap leisure travel on empty planes, with no possibility of aspirational international premium class travel.
What Randy is reporting on is a study of positive and negative comments about rewards programs in social media, Key drivers of success seem to be:
- Problem resolution. Both Delta and Southwest have relatively proactive online presences in social media, especially Facebook and Twitter, where they don’t just engage in one-way conversation but actually engage in customer service and problems solving.
- Expiring points. Delta eliminated expiration of miles in February. This appeals to the masses, the less engaged customers, the ones deriving the least value from programs to begin with. But it eliminates a frustration point. A social media study values every voice equally, and folks whose miles would expire care about a program no more than once every two years (Southwest’s current expiration policy). But there are enough members that these complaints register, and if it’s what folks are most vocal about it affects the data.
- Problems with redemption. This is where I don’t understand Delta’s score, though I don’t have access to the raw data of the study and have to assume while they’re doing well overall it can’t be because they’re especially better on the redemption side. Southwest, on the other hand, has historically been generous and I’d have to imagine that the study isn’t fully reflective of the new program launched in January of this year. Although at the same time, since the focus of redemption activity is largely on cheap domestic coach awards rather than more aspiration awards, Southwest can still find itself doing well even under the new regime.
- Immediate gratification. The study offers that programs rewarding members frequently, rather than delaying gratification for high value awards, get high marks. It’s in high value awards where both Delta and Southwest are most limited.
A program like Delta’s with non-expiring miles won’t generate ire from members who are disengaged from the program, who don’t interact with it for years at a time, and whose only interaction would otherwise be negative (when after several years discover that their miles are gone). Holding unexpired miles on a balance sheet is a real liability, other programs recognize significant revenue from expiring miles. So Delta has chosen to forego this revenue, investing large sums in its least engaged members, but it does well in social media apparently by avoiding the griping of the masses. My contention, though, is that these social media would-be complainers are not a program’s profitable customers, and they’re not likely to become such.
When studying satisfaction with a loyalty program, whose opinion you’re looking at matters. Just as in election polling, likely voters are a relevant metric, surveying the satisfaction of those that actually use a program would be a key variable. And explains the disconnect Randy identifies between this survey and online forums:
The reason this study result is shocking is that it contradicts other data, as well as sentiment on the street and in online forums.
Looking at a broad base of disengaged members, it’s also little surprise that the greatest value would be placed on low value rewards which come easily, rather than higher value awards which require delayed gratification. If the earning potential over any reasonable time horizon of a disengaged member is just a few thousand miles, they’ll certainly prefer redeeming their miles for iTunes than for the hope of international first class in a future that’s hard to imagine.
The lessons of the study purport to be that simplicity and immediacy trump. I spent the last couple of days at the pool reason Walter Isaacson’s Steve Jobs, and in terms of Apple’s success their tightly knit hardware-software-consumer integration (which failed them with the original Mac) and minimalist industrial design, combined with simple-to-use devices (e.g. insisting that nothing on an iPod require more than three clicks) has served them well in recent years. I suppose there is something to this, for the mass consumer technology market certainly, though despite Google’s clean interface they certainly offer some advanced, complex tools. Still, Apple is offering tight integration of experience at the upper end of retail. As applied to loyalty programs in this study, high score correlates with a lowest common denominator strategy. Which I think misses the point for a loyalty program.
Hilton’s take on this is, I think, similar to Delta’s and Southwest’s — customers don’t understand complex value propositions, so offering more value to consumers who don’t understand doesn’t make sense. That’s why Hilton devalued their points and started getting more aggressively into the promotions game.
The limitations of Delta Skymiles are many: fuel surcharges on several partners and several European departures, no international first class, a broken website which does poorly both finding seats and pricing awards, restrictive routing rules, poorly trained agents, no ‘holds’ over the phone (and most partner airlines aren’t available on the website), no changes to awards within 72 hours of travel, to name just a few. But most consumers don’t understand any of these limitations, or how programs differ on these fronts (at least until they’ve invested in the program and try to redeem). As this study and as Hilton’s Jeff Diskin point out, consumers only pay attention at redemption time and the general member doesn’t calculate value propositions. That’s why programs offer mileage redemptions for toasters.
But there really is a bifurcated market — folks you keep on the treadmill for years, some of whom may only engage once in awhile and get mad when their miles have expired after 18 months or 2 years, and the much more engaged, active, loyal members who pay more attention to the details of the program and care about higher value awards whose aspirational nature motivates their involvement.
Members of all stripes care most about a program at the point of redemption. And if your strategy is focused on 30 million or 50 million members most of whom won’t earn but a handful of points, it may not matter much what sort of value you offer to them as long as they get something for their trouble, and it will take them enough years to accumulate points for an award that the members will express happiness all along the way at least until it comes time to redeem and they’re presented with a price of 350,000 miles for a business class ticket to Asia (a la Delta’s website). The really engaged, profitable members though become so much more engaged when they’ve had a good redemption experience for a high value, life-changing even, reward — when a program helps them fulfill their dreams it becomes a part of their entire experience and they become evangelists for the brand.
Simple and low value works for general members and minimizes complaints in social media. But it isn’t a strong reinforcing value proposition that’s sustainable over time. “Social media recommendations” may rate Skymiles and Rapid Rewards more highly than other travel programs. I just have to hope that loyalty program managers don’t think that the social media label suggests that this study means anything more than that their least frequent customers complain less when their miles don’t expire, their problems get resolved, and they get an iTune or a Dallas-Houston flight every now and then.