Why loyalty programmes lose member goodwill by the time the member becomes profitable

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It is rare that I base a Head for Points article around a response to an article published elsewhere, but a piece last week by Ravindra Bhagwanani, the CEO of Global Flight, was both interesting and chimed with other comments I have made recently.

(I know Ravindra and have spoken at a conference he organised but we have not discussed this particular article.)

A few weeks ago I wrote about my trip to Hilton HQ in Washington and how, when I was discussing loyalty with Hilton’s CEO Chris Nassetta, I told him that – as a man in my 40’s – I don’t trust any loyalty scheme benefit unless it was the word ‘guaranteed’ in front of it.  I have learned that lesson many times over.  This is why I don’t book Hilton when I need a late check-out but will book a Marriott or InterContinental – my status there gets me a guaranteed 4pm departure whilst being Hilton Diamond simply means the hotel will consider it.

(If you read my article on American Express Fine Hotels & Resorts on Sunday, you will remember that my enthusiasm for the scheme comes from the fact that the key benefits are 100% guaranteed.)

Ravindra’s article is called “Why Loyalty Programs May Work Against Lifetime Value Theories” and is based on similar ideas.  I recommend you read the full version here.

In summary, this is his thesis:

Loyalty schemes are making more of an effort to attract younger people.  In the hotel sector this is through a combination of online booking discounts for members, the introduction of cheaper brands (MOXY, Holiday Inn Express) which earn points and the ability to cash out small numbers of points for discounts on future bookings.

However, the scheme isn’t making much money from someone at this stage

The idea is that you will remain loyal to the brand as you move through you career.  Finally, as you pass 50, you are hitting your peak disposable income years.  You hopefully have money and time to travel and, if retired, you will be totally in charge of which brands you spend with.

However …. by this point in your life, you will have sat through many rounds of loyalty scheme devaluations, perhaps seem ‘lifetime’ statuses wiped out by mergers (eg BMI) and realised that many of the promised benefits are rarely fully delivered

What is the result?  At the point when you are the sort of freer spending, luxury seeking, time-to-travel customer that all of the industry wants, your ties to the loyalty schemes you’ve been a member of for 30 years will be a lot looser than they should be.

To quote Ravindra:

If you’ve been a member in whatever travel loyalty program for ten years or more, you’re very likely to have seen it all: Decreases of the value proposition, lack of transparency, failure to deliver elite benefits, irrelevant communication and so on. Each of these elements on its own would already be an obstacle to trustful relationships. Being exposed to several of them on a regular basis only worsens the picture. And in parallel, the overall customer experience as such needs to evolve with customer expectations. That means that a vast majority of members arrives very frustrated at the peak of their cycles of lifetime value. 

It’s no surprise that the two most respected hotel loyalty programmes, Starwood Preferred Guest (RIP) and to a lesser extent World of Hyatt, have been the ones which devalued the least and treated status members the best.

Of course, with SPG about to be swallowed on Saturday by Marriott Rewards, it is clear that the good guys don’t always win.  Hyatt only remains independent as long as the controlling family decides not to sell, so it is tricky to rely on them – and in any event it foolishly managed to alienate many elite members through a bodged restructuring recently which led to the loyalty head leaving the business.

Anyway, if you have five minutes today I recommend reading the full article.  As Ravindra concludes:

As lifetime cycles in the travel industry tend to be much longer than in other industries, we should understand the tremendous opportunities coming from that. But this also changes how programs need to do business. 

Doing such self-critical reflection how reliable you really are with your program over the course of many years is certainly a very productive exercise for each loyalty program manager – and it should also cover periods of previous loyalty managers. It can deliver interesting insights into what you may need to change to ensure that you don’t lose your customers when they should actually be the most loyal to you.

Loyalty remains what it is: a long term game, requiring day-to-day efforts.

(Want to earn more hotel points?  Click here to see our complete list of promotions from the major hotel chains or use the ‘Hotel Promos’ link in the menu bar at the top of the page.)

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  1. Mikeact says:

    Loyalty, what loyalty ? During my working life, I had to spend the best part of 40 odd years flying around the world. I reached BA Gold on many occasions, was for numerous years a Marriott top tier member, as well as a top Northwest member, (I would suggest not many have an engraved brass token, recognising 1,000,000 actual flown miles with them.) And then KLM, who are the only company who have recognised me with a Premium Elite for Life membership, which has been very useful on occasion. We haven’t stayed in a Marriott for years, why would we ? And with BA, I am obviously the lowest of the low….perhaps it would be nice in some small way if I was recognised as a previous heavy spender for many years, but times change. All we ask for nowadays, please, just get us there, safely.

    • “And with BA, I am obviously the lowest of the low….perhaps it would be nice in some small way if I was recognised as a previous heavy spender for many years”

      I thought this is what the “Lifetime Tier Points” was for – lifetime gold at 35k as long as you keep the account active ?

      • Mikeact says:

        You try earning 35 k when you’ve been retired a few years, and in the early days, tier points were not available.

      • They were only introduced in 2013 IIRC, and I’m not sure how far back they went to count…

        • As long as you’ve had a BAEC account continuously your TPs go back to the start even if “lifetime tier points” only started being a thing a few years ago. My Lifetime TPs include TPs earned in date the early 2000s when I started flying for business.

  2. Charlie says:

    I wonder if ‘guaranteed status benefits’ leaves the hotel open for grief. After all, Marriott’s terms state that if a ‘guaranteed’ benefit is not provided the member should be paid $200 cash on the spot (or local currency equivalent). I can imagine hotels pushing back against anything they have to guarantee, sadly for us.

    • Lady London says:

      No sympathy for the hotel. If they don’t like it then they should perform.

      • The hotels are in a difficult position. Many of the asperational hotels are actually indepently owned. Loyalty generally means staying in one brand, the reward for which is being able to use your points/status in one of these high end properties. As a whole the brand comes out ahead but from an individual hotel point of view the cheap ones ‘win’ by getting cash stays you may not normally consider while the expensive one ‘loses’ by having to give away an expensive room or benefits for points. I can see why hotels aren’t happy giving away breakfast, upgrades, lounge access, early arrival and late check outs when they know they could have someone in the room paying for all of those things.

        Of course the counter argument is that if the hotel doesn’t like the ‘rules’ it could leave the scheme.

        • Genghis says:

          I thought the individual hotels are compensated handsomely by “Central” for points stays?
          @Rob any idea how this varies by chain?

        • Compensated yes but I doubt it comes close to a cash stay. If it did why would they limit rewards availability?

          • IHG hotels get the full cash value when they are 95% full. Below that it is a token gesture to cover cleaning costs. Presumably similar elsewhere as the idea is that the hotel isn’t losing any revenue unless it would otherwise sell out.

  3. I’ve not really felt any loyalty scheme I’ve been in has been thinking much beyond the next couple of years, far less truly aiming to keep members through into their prime spending years (whenever that may theoretically be). BAEC and Tesco are by far the most stable and consistently make the difference to me buying their product. Hotels.com is interesting and would be easily improved by some kind of 5 year+ horizon (and reduction in marketing spam by 99%!). Accor, Hilton, Radisson, IHG and Virgin Flying Club are all temporary liaisons as far as I’ve been involved; with Accor the perfect example of putting me right off the underlying product all through my years as Platinum (at least they were consistently awful!).

  4. rams1981 says:

    OT as spire elite and with a free ihg night to use any tips for places to stay in Berlin where I may be able to get benefits such as free breakfast? I assume that’s a no at the intercontinental for example.

    • Holiday Inn Express 🙂 Is there a decent Crowne Plaza which gives lounge access? Usually the best bet for a Spire.

      EDIT: Just had an email from a reader who had been at CP Berlin for the athletics and got as a Spire:

      welcome drinks (2)
      compo breakfast
      restocked compo mini bars
      suite upgrade
      late check out

      • rams1981 says:

        Brill, thanks Rob. So basically makes more sense than Intercontinental as not likely to get much from them.

        • No idea how the two compare in terms of room quality, size, price, location …. I would get the full picture before committing.

      • Which CP – there are 2?

    • IC Berlin is nice if you can get a decent price – I stayed on a weekend promo they had which included breakkie. As AMB received a nice upgrade, late checkout and 2 vouchers for ‘any drink’ in the bar, so we had some rather tasty cocktails! Breakfast spread is superb too, of course only available on paid deal.

    • Hotels in Berlin are dirt cheap, I would not burn a voucher there. I you must I can recommend indigo Ku’dam. Great location, 3 minute walk to zoo station. Rooms a bit small. Mixed reports on status recognition though.

      • Will never go to Indigo Kudamm again. Got an upgrade as a plat but the bed linen was full of small hair and the back of the pillow full of dandruff as someone did not bother changing the bedsheets. Got a 600 points (yes you read it right) compensation from the management!

  5. Mikeact says:

    And how about Tesco ‘Loyalty’ ….Clubcard points severely diminished ….no more Direct…fewer Clubcard offers…….fewer coupons all round. They must be issuing far less points than this time last year.

  6. OT, but relevant to a number of the comments already posted: £30 off £100 Radisson spend (but on a HIGHLY selective set of their hotels) offer on 3 of our Amex Plat CBs today.

  7. Loyalty doesnt exist any longer.

    I dont mean that customers arent loyal – it is the companies who dont take the opportunity to sell themselves to loyal customers thats the issue.

    My wife sre fortunate in that we can take 7 or 8 cruises every year – we have a couple of cruiselines we prefer to sail with.

    You would think these companies would have a list of people like us – and to use it to sell us what we wsnt to buy.

    Forget it – websites arent fit for purpose, agents are untrained or disinterested. Nobody calls back.

    I recently emailed the UK head of one cruise line and explained how difficult it was to spend £30,000 with his business. He didnt reply and I got a couple of std replies from “customer care”.

    A month later, I tried to spend £5,000 with them but none of the issues had been resolved – a competitor got the £5k instead.

    I will now be spending 2 weeks with that competitor – what business in their right mind allows you to go elsewhere like that.

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