If You Want to Create Loyalty, Do More For Your Customers

Yesterday Hyatt’s Jeff Zidell tweeted an article from Harvard Business Review highlighting, “[c]ultivate gratitude and loyalty will naturally follow.”

The piece suggests that ‘loyalty needs to be reciprocal’:

According to a study by Kitewheel, three-quarters of consumers believe loyalty programs are for brands to show their loyalty to consumers. But two-thirds of marketers think the reverse: that loyalty programs are a way for consumers to show their loyalty to brands.

In a world where brands were loyal to customers, it suggests “Airlines and hotels would renew status levels for customers who took a hiatus from traveling when they had a baby or were between jobs.” And indeed there are a small subset that do (and more than allow ‘buy backs’).

And if you want to maximize profit over the long run, you need to provide superior value to your customers (of course at a price that exceeds marginal cost). You need to keep trying to add value while controlling costs, not squeeze value out of a program trying to see how far you can go taking things away from your customers.

That contrasts with using your customers as leverage (as a means to an end, rather than treating them as ends in themselves).

Things get worse when carrots turn to sticks and brands start penalizing disloyal behavior. Consider Amazon’s recent announcement that it would stop selling products that aren’t compatible with its video streaming service. Like other Amazon customers, I question how this serves its mission to be “Earth’s most customer-centric company.”

The author suggests that a brand can “create a sense of loyalty that is reciprocal, authentic, and emotional” by “focus[ing] on fostering the emotional response that is most likely to drive loyal behavior—gratitude.”

That goes beyond just ‘giving your customers stuff’ though rewards and recognition are both important. Here the advice is less actionable.

The strategy for generating sustained gratitude is to discover and foster a shared purpose with your customers, and to help them share that purpose with others.

It may not be easy to figure out the ‘shared purpose’ a business can help its customers with, individualize it, and build a program around it.

But a precondition and a starting point is treating your customers as people with goals that your business works hard to help with with, not as means to an end.

Customers are Not the Problem

When United moved to “identify and reward more fairly high value members” while saying that their problem now is they’re “inundated” with members, or they believe ‘over-entitled’ customers are their problem or when Delta says “when everyone’s an elite flyer, no one is” they make clear they see things transactionally.

When American’s President Scott Kirby mentioned during the airline’s third quarter earnings call that they planned to take away basic elite benefits some time next year from their most frequent customers who buy the cheapest tickets they offer, I was troubled.

    “I am not my fare.” I am a valued customer, or I am not, and how welcome I’m made to feel should not change between Tuesday on a full fare and Thursday on a discount one when I’m buying a ticket pretty much every week.

Business travelers are leisure travelers, just on a different day, so it doesn’t make sense to reward one “type of traveler” or another. It makes sense to develop relationships with customers you value, and treat them well every time you interact with them.

That doesn’t mean that everyone who flies a certain amount is a traveler you want to reward. Often travel providers don’t understand the difference between average fare and cost, and marginal analysis which is what drives profits. But once the criteria is set for whom a program wants to deliver for, it should do so consistently treating the customer as a person not as a transaction (treating them differently depending on the given transaction).

Rebates Aren’t the Same as Rewards for Loyalty

When Delta announced they were moving to a revenue-based frequent flyer program, I said the biggest problem was that they’re re-commodifying air travel.

I don’t see anything sacrosanct about rewards based on 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, or by making sure you get home to see your kids even when there’s a mechanical delay.”

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 you 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. United has followed Delta, and there are many flyers nervous that American will as well.

These programs also further pit 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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I recently suggested to United that they change the name of Mileage Plus from a “loyalty” program to a “rewards” program, because it no longer has anything to do with loyalty. The more you spend, the more you get. It appears that United’s objective is to only offer upgrades to those who are already flying on a paid Business or First Class ticket. In other words, only offer upgrades to those who don’t need them.

  2. Great analysis. I completely agree that loyalty needs to go both ways.

    I pay and travel with one carrier (a lot) and expect benefits (a lot of them).

    The problem is airlines now view this as transactional. Cut cut cut benefits, and expect my same behavior (They should be looking at lifetime customer value, but that’s us for another day).

    United has generally reduced my incentive to remain loyal to a united. Upgrades are difficult. Redemption for a family at reasonable rates is difficult. Meals are bad etc.

    But they have changed my behavior. I now buy paid F. Discounted, yes, but paid F.

    But without the other benefits, I don’t need to remain loyal. If I am paying for F, I get the seat I want… Priority boarding… Etc.

    Despite being a million miler with UA, and GS for numerous years… I have zero loyalty to United, and regularly fly AA… BA… Turkish… Really any airline I want. I pay lots for it, but UA has literally driven me into the arms of competitors.

    Loyalty should go both ways. Until an airline gets this, it will be transactional. UA gets some of my business (I live in IAH), but where i have choices, they don’t.

  3. Great analysis. I completely agree that loyalty needs to go both ways.

    I pay and travel with one carrier (a lot) and expect benefits (a lot of them).

    The problem is airlines now view this as transactional. Cut cut cut benefits, and expect my same behavior (They should be looking at lifetime customer value, but that’s us for another day).

    United has generally reduced my incentive to remain loyal to a united. Upgrades are difficult. Redemption for a family at reasonable rates is difficult. Meals are bad etc.

    But they have changed my behavior. I now buy paid F. Discounted, yes, but paid F.

    But without the other benefits, I don’t need to remain loyal. If I am paying for F, I get the seat I want… Priority boarding… Etc.

    Despite being a million miler with UA, and GS for numerous years… I have zero loyalty to United, and regularly fly AA… BA… Turkish… Really any airline I want. I pay lots for it, but UA has literally driven me into the arms of competitors.

    Until an airline gets loyalty is a two way street, it will be transactional. UA gets some of my business (I live in IAH), but where i have choices, they don’t.

  4. Gary, I wanted to report an issue with Citi Thank You Points and American Airlines. They used to charge normal pricing but now they’re charging a fare that is 91% higher than American’s fare.
    Example business class fare;
    PHX – EWR Jan 12, 2015 $463 published fare, Citi trying to charge $903.12

    This lowers the value of Citi points dramatically 🙁

  5. Well, Delta doesn’t believe that what they sell is a commodity. They believe that they offer a better product and that they don’t need to offer rewards to differentiate themselves from competition.

  6. Well said Gary. Hyatt has built a lot of my loyalty with true service and care for the many nights I send on the road. They get more business from me and my company/colleagues as a result that might not even show up on a metric. Lets hope Mr Kirby doesn’t get any grand ideas to drastically change AAdvantage. AA is profitable and attracts HVFs, don’t mess with a good thing. I like, many FTers, am not my fare, I spend countless days and tens of thousands on air travel annually. Take that away and I’ll Kayak like Tim.

  7. Great analysis! I think at the root of the problem is that airlines the airlines established the programs to build long-term loyalty – but at some point moved to treating them as (more or less independent) profit centers with a short-term focus. With that came a focus on transactions and a “legalized” exchange of benefits in return for a certain purchase behavior. And that is the end of loyalty, both ways! I feel that the marketing departments act about as “entitled” as some elite customers do!
    To earn my loyalty, any partner has to go above and beyond what they HAVE to do according to the program rules. Finding a room at a sold-out hotel or getting me home on another airline when they have mechanical problems. Those providers=partners will earn my business even when they don’t have the best schedule or best price. But I see that type of behavior less and less among the big US airlines and hotel chains – and that means that I’m transacting with them as well, buying the best deal at the best price…
    This short-term, transaction focus will come back to bite the airlines and hotel chains in the next recession – and they will throw lots of points and miles to win back the very customers they abandoned in the good years. And as with any customer relationship, it’s a lot more expensive to win a customer than to keep a customer!

  8. Airlines and hotels are short sighted in their attitudes toward long standing, loyal customers. It’s a “What have you done for me lately” concept. I have flown about 15 million miles over the years and stay in hotels an average of 200 nights a year. Nearly half of my miles have been on UA and Star carriers. After years of being 1-K, I didn’t qualify last year and that was the end. I’ve been RA with IHG and Diamond with Hilton for many years, but same thing. I didn’t travel as much last year, so am history to them. Too bad, as when I travel now, I do my best not to use any of those entities.

  9. Very well said. One other point: I think airlines fail to realize that that first plane ticket has to be bought on one of the airlines. If I don’t like my experience on that flight because, say, I’m stuck in the back in a middle seat because my purchase didn’t mean squat to the airline, then what is the incentive to buy the next ticket? I’ve been flying so long that I remember when flying was actually fun and I don’t think I’m the only one who regrets ever starting this “loyalty” game; I sure there are some airlines, etc., who feel the same.

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