Points failure – why loyalty schemes do not create loyalty


Today’s date has long been marked in the diary of a modest but vocal subset of the UK population – one that includes yours truly. For we are the British Airways Executive Club, and today, everything changes.

Well OK, perhaps not everything. The details are rather arcane but essentially BA has torn up the rulebook for its popular loyalty scheme, redefining (in some cases dramatically) the rates at which members accrue both status points and air miles (Avios) and revaluing the Avios themselves. Silver members are feeling particularly hard done by, not least because they will find it much trickier to hold onto a status that gets them the metaphorical keys to posh airport lounges even when they’re flying in the back of the plane.

BA claims the changes have been made in the interests of fairness. Those affected don’t see it the same way.

Most of the rest of the world – assuming they even noticed it – will have greeted this news with a healthy level of schadenfreude. This, after all, is a “problem” that will mainly impact expense-account business travellers who are worried about missing out on free champagne and are moaning about how difficult it will now be to blow six-figure sums of Avios on long-haul holiday jollies (basically the only reason I care). This, surely, is the very definition of a first world problem?

Well yes, but it does come at an interesting time for loyalty and reward programmes in general. BA is certainly not alone in ringing the changes. Most notably, Sainsbury’s recently slashed by half the rate at which customers can earn Nectar points in its stores, prompting howls of outrage from a different – and far larger – section of the population. Sainsbury’s apparently made the changes (announced back in October) in response to the threat from budget supermarkets like Aldi and Lidl (and it’s probably safe to assume that BA’s decision had its roots in a similar shake-up in air travel). Presumably both businesses have done their sums but it’s hard to reconcile the notion of “loyalty” with moves that effectively punish regular customers.

Sainsbury's Nectar cards

What’s the point?

Brands feel they can afford to make such wholesale changes to loyalty schemes because they know that what’s at stake is not really loyalty at all. Those of us who collect points (of whatever flavour) by returning to the same vendor again and again are not displaying loyalty; we’re entering a secondary commercial arrangement with a brand, one that is only loosely connected to what we’re actually buying. The most committed shoppers become points addicts, not loyal customers. An entire collecting subculture has emerged, epitomised by George Clooney’s character in Up in the Air and the very down-to-earth tips and advice from The Points Guy.

In this transactional mindset, collectors keep coming back for more because they’re aiming for the next threshold, whether it’s points or prizes. And it’s been so since the day your grandparents started collecting Green Shield Stamps. But whether it’s about saving up for one of those new fancy electric kettles or a dirty weekend in Rome, all we’re doing is trying to get to the next level. It’s one of the most ingrained examples of gamification in business.

Any sense of loyalty generated in this way is little more than a byproduct of the programme. A natural degree of comfort and familiarity with a retailer or provider is sure to build up – and with something as potentially stressful as air travel that’s definitely not to be sniffed at. But is that loyalty? It’s hardly akin to a wedding vow or (stronger still) supporting a football team. And when a business suddenly changes the rules, negative reactions can actively work against true brand loyalty. However carefully they’ve run the numbers, and however many points bonuses they offer to longstanding customers, the Sainsbury’s move will surely see more customers head down the road to its no-frills competitors.

Points-based loyalty schemes remain a powerful weapon in the retailer’s armoury. Analysts at IDG say that for a growing seven out of 10 of us the presence of a loyalty scheme is a factor in choosing where to shop for groceries. And of course retailers learn all sorts of things about what makes their customers tick.

Indeed Morrisons, the UK’s fourth largest player, has responded to the new cut-throat reality of the supermarket scene specifically by entering the loyalty fray. Lancôme pushed the envelope a bit last year with a new scheme that rewards social media advocacy as well as custom. Taco Bell has just announced a scheme too.

But to instil true loyalty in an age when customers are far more active and engaged in their experience of brands, it’s going to take more than a simple points-and-rewards scheme.

There’s an app for that

As Taco Bell has recognised – it seems its new scheme will be app-based – the intelligent use of technology, particularly in the form of mobile devices, social media and data analytics is one of the key ways that brands can encourage loyalty (or at least repeat business) through a differentiated customer experience.

Starbucks is regularly touted as a pioneer in this space. Its app, which enables mobile payment and creates a real-time loyalty experience, is the centrepiece of a loyalty scheme that has apparently generated a cool 11% increase in revenue. Starbucks is even trialling pre-ordering via the app, which would surely be a huge plus in this ultra-competitive market.

Starbucks coffee and loyalty app

But while integrating points collection into mobile apps and other touchpoints in the modern, multichannel retail experience is a logical move – the natural extension of gamification in fact – it doesn’t change the fact that points-based schemes are still driving habit rather than loyalty. That may be enough for many businesses, of course, but smarter brands are looking for ways to create true brand loyalty – and its close cousin brand advocacy – not just repetitive behaviour.

Gesture politics

The loyalty scheme at Waitrose, for instance, doesn’t involve points collection at all, but does feature nice little touches like free coffee in stores (although no longer in its cafés unless you buy something to eat too) and the odd discount for members at the till. There’s nothing particularly personal about these touches but they do offer an instant reward (rather than an incremental step towards a distant goal) and do come across as gestures of thanks for being a customer. Which is nice.

Then there’s Pret A Manger. The sandwich chain’s policy of giving a free coffee to regular customers who look like they need it (or who the staff simply fancy) made the news last week, but in truth I know at least two people who have been loyal to the chain for some years, specifically because they have experienced such largesse. So it clearly works. (It’s no coincidence, by the way, that Pret A Manger is known for having a progressive and innovative working culture that empowers employees, rewards the right behaviour and creates an internal brand loyalty of its own.)

Pret A Manger cup over a counter

It’s not all about coffee, though. Luxury hotel chains are as keen on loyalty as the next business but they don’t tend to rely on points schemes to do the job for them. As Four Seasons CEO J. Allen Smith explained in a recent interview, “Our view of our guests and certainly our feedback from our guests is they’re far less concerned about accumulating points to be redeemed for rewards as they are being in a position where they’re recognized and we understand their preferences and can serve them in that highly personalized way they’ve come to expect.” He doesn’t rule out the launch of some kind of loyalty scheme in the future but it won’t be based on collecting points.

Meanwhile Ritz Carlton gives the “ladies and gentlemen” who run its front desks the discretion to spend up to $2,000 to spoil customers who have had cause to complain about some aspect of their stay.

A two-way street

What these examples have in common is a recognition that one of the best ways to gain loyalty is to make a customer feel special, thereby acknowledging that loyalty is a two-way street. That means understanding customers’ personal needs, expectations and frustrations and looking for ways to enhance their brand experience accordingly.

Technology has a part to play here, particularly in the “understanding” side of the equation. Social listening and data analytics, for instance, can helping businesses seek out opportunities for a direct response to a situation or predicting what kind of gesture might be appreciated, for instance, if a customer happens to be taking a flight on her birthday.

But while it may be an enabler, data is not the be all and end all. Far more significant is empowering those close to the customer – either physically or through social media connections – to use their initiative. They are the people who are best placed to demonstrate loyalty to a customer through gestures big and small that will enhance a customer’s brand experience.

(A case in point: I remain loyal to BA, despite my suspicion that my Avios are going to be harder to spend and I’m unlikely to reclaim my Silver status any time soon. The main reason? The out-of-the-blue upgrade into the club cabin I was handed the last time I flew back from JFK. See also: Europcar, whose Lewisham team not only found me a rental at zero notice last Christmas but also chose not to impose the full excess after someone scratched it in a car park.)

For too many brands – and too many customers – the only point of loyalty schemes is the points themselves: customers looking for ways to earn more of them and retailers changing the rules to give fewer away.

It’s time to shift the balance back to loyalty, not scheming.

Categories

  • Customer experience
  • Commerce
  • Loyalty
  • Loyalty schemes
  • British Airways