On Sunday I covered remarks by the head of the Delta SkyMiles program where he explained, among other things, why Delta doesn’t try to offer awards that look like outsized value to the member the way that Air Canada Aeroplan does.
Delta Vice President Prashant Sharma explains that SkyMiles wants to offer “consistent and sustainable value.” Consistent means low average value, and sustainable means inexpensive to Delta to offer. If you want high value awards, don’t look to Delta, “so we are not necessarily trying to play the game with customers or with bloggers.” Delta “look[s] at value more holistically” and being able to use your miles is only part of it.
So it seemed worth looking at Mark Nasr’s comments at the same Skift conference. Mark is Air Canada’s Senior Vice President of Marketing, Digital, Product, and Brand and oversees the Aeroplan program. He explains why it’s important to deliver good value awards to customers in order to succeed.
- It’s important to design value propositions that deliver value to the vast majority of members and not worry too much that someone, somewhere might actually get a bigger benefit from the program.
- If a travel program isn’t delivering on aspiration to consumers they’re going to get outcompeted. If one Aeroplan point only got consumers one (US or Canadian) cent in value, you’d be better off with a good cash back card.
Just on your point of getting away with something, to use your words, if we were to design a program where that was not possible then that would mean we would be designing a program too strictly, not sufficiently generous.
The reality is the vast majority of members aren’t trying to game, aren’t trying to get away with something. You don’t want to design your program around a small minority. You want to design your program around the majority and just have some effective checks and balances and controls in place. I’d much rather lose out a couple percentage points at the time to win ten times that in frequency.
That’s the thought process we have as we look to creating terms and conditions around some of our promotions. We go eyes wide open knowing that there’s going to be some abuse and some gaming, but we do it so that it’s simple and easy and can make sure that it captures as many of the responsible customers which is the vast majority of our membership base.
And we like the aspiration because I can tell you that empirically customers make different decisions with points than they do with dollars. People enjoy luxuries, for example, or experiences or destinations often – not always, but often – that they wouldn’t partake if they had to pay in cash but they will partake if they pay in points. And points feel free in a sense.
It’s a very interesting psychology. People value and treasure and protect their points and they go out of their way to earn their points. But when it comes to redeeming it feels like you’re getting something for free. And so there’s something that’s very special as part of that.
One other point. If we had a fixed value then we’re no better off than a cash back program. And a bank will win 9 times out of 10 against us on a cash back program because cash can be used for anything, not just travel or iPads or hotel rooms like our program can… a bank has all the economics in a cash back program so at the same profitability level they can just deliver more of it than we can. I want to fight the batter where we can win commercially which is on travel and aspiration. I don’t want to fight the battle on cash where we can’t win.
Nasr talks about making sure there’s always a reason to continue being engaged, such as with the design of their Chase credit card in the U.S. starting with incentivizing $2000 spend with a 500 point bonus all the way up to $1 million a year where customers get a ‘Global Companion Pass’ allowing a second person to travel free even on partner airlines and even in first class. A number of people are on track to reach the million dollars in spend, and a few are close.
Delta on the other hand has both a strong brand and limited competition in key hubs. Passengers in the Atlanta, Salt Lake City, and former Northwest Airlines hub markets have few other choices. Northwest’s exxecutives used to say about the Upper Midwest, “it’s cold, it’s dark, no one wants to go there – but it’s all ours!”
Customers really would be better off using a cash back card and buying Delta travel (or things other than Delta travel) than spending on a Delta card unless the goal is spending towards elite status. And of course you can earn more points with a Membership Rewards card than a Delta one, and then those points transfer to Delta or to other programs (including, by the way, Aeroplan).
No one is going to choose Delta over a competing airline because of the redemption value of SkyMiles versus other currencies. People earn miles flying Delta, but they don’t fly Delta in order to earn redeemable miles.
SkyMiles has been a weak program for two decades but they’ve been able to generate a lot of revenue from American Express, in part due to the historical accident of Amex losing Costco and being the largest remaining co-brand that the card issuer could not lose. But no one spends 300,000 miles for a one-way business class flight to Europe and thinks “I can’t wait to earn more SkyMiles.” Delta can get away with offering low value and for several years other programs have tried to copy Delta but it doesn’t work as well for most airlines the way delivering low value works for Delta.