When programs devalue in a really big way, that is an admission of failure.
I’m talking here about wholesale guttings of an award chart, not price bumps of 2-3% per year.
When a loyalty program executive finds themselves in a position of having to reduce the value of their currency by, say, 30% it’s a major business failure, or more likely many compounding failures.
In these really big instances it amazes me that we don’t see scandal and program executives resigning left and right.
I have dishonored myself, my family, and my company. I have managed this program so poorly that the value proposition no longer works. I have failed. The program has to be changed. I have submitted my resignation, effective immediately.
Now it’s true, programs need to satisfy members, and in a perverse way devaluations help do that. The programs issue too many miles. There aren’t enough award seats, especially with planes flying full. They need to either increase the number of award seats or increase the cost of each seat, otherwise you just have frustrated members who can’t redeem. Here’s the basic theory of miles as an alternative currency, subject to inflation.
At the same time programs don’t need to spend as much marketing to fill planes when planes are already full. But that’s an argument for reduced earning, not for changing redemption prices.
Some programs, already revenue-based, are supposed to reward spending at a fixed amount. But Southwest already devalued their new revenue-based program.
Nonetheless devaluations are predominantly an admission of incompetence or dishonesty on the part of the executives running the programs.
Here’s why programs devalue, and what personal failure each signifies.
- Sometimes a new program starts, and the people who designed it didn’t know what they were doing, didn’t understand how the program would work in practice. They may have been too generous from the start, or they got the rules wrong so members drove up costs in ways they didn’t predict. That’s an issue of competence.
- Other times programs have simply been badly managed. They short-sightedly printed too many miles, got themselves in trouble because they printed currency the program just couldn’t cash. (“Too many miles chasing too few seats.”) That’s equally an issue of competence.
- Travel providers also get in trouble, airlines went through bankruptcies, and they turned to their frequent flyer programs to generate business. They printed loads of miles, and predictably devalued. Classic pump and dump scheme. They convince members to buy tickets to earn miles based on a value proposition, and then change the value proposition. It’s tantamount to fraud.
- Other times programs just see everyone else doing it, and they think they can get away with it too. (“Everybody is doing it so why can’t we?”) Put another way, a program executive thinks that their program doesn’t have to be very good, it only has to be a little good and that’s relative to what others are doing.
We need to bring back the idea of shame.
There was once a stigma attached to failure. After decades of bankruptcies, and rewards for the executives who steered airlines through it, there’s no longer shunning of the executives that get the big decisions wrong and destroy value. That needs to change.
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