Creating The Right Loyalty Program: Why Flexibility And Options Matter
As CTO of Engage People Inc. Len Covello helps companies differentiate loyalty programs to deliver a better experience for their customers.
Published August 27, 2024, 8:00 a.m. EST
With summer travel in full swing, frequent flyer loyalty programs can be advantageous for consumers on the go. But before diving head first into signing up for that airline credit card to start earning miles and other perks, consumers have to be aware of the full breadth of credit card rewards options given the ongoing evolution of loyalty programs.
When it comes to loyalty program flexibility, for example, airline loyalty programs aren’t the most accommodating. Because travel redemption is part of these programs’ core rewards, they are set up to have consumers redeem in a specific way, typically offering a poor value proposition for other rewards if they are available. In contrast, loyalty programs offered through financial institutions can provide more flexibility by allowing consumers to use their points however they choose: for travel, merchandise, groceries, gas and more.
The bottom line is loyalty programs are numerous. And businesses offering these programs need to stand out from the crowd. Let’s look at a few types of programs that consumers have to vet for some inspiration.
When To Choose Travel And When To Look Elsewhere
The answer to this question isn’t black and white, but there are some considerations for consumers to keep in mind as they mull over which loyalty program to join. To start, the White House and regulators are looking into issues related to broader airline credit card programs, including point devaluation, interest rates and travel benefits. While an official path forward hasn’t been set, increased scrutiny is reason enough for consumers to take steps to fully understand what they’re signing up for prior to committing.
Travel-based loyalty programs may not be the most optimal choice for a person who doesn’t frequently travel or who plans to use a credit card only for travel-related expenses. In both cases, a limited points balance and insufficient spending to accumulate the necessary miles or points for a trip can lead the consumer to spend more money out of pocket to cover the difference for a vacation. Travel-related loyalty programs can be cost-prohibitive without proper planning.
While travel may be top-of-mind for many consumers because these programs are so aspirational, there are also alternatives. These include more modern redemption options like paying with points directly at checkout or basic offerings like cashback, statement credits, merchandise or gift cards. Rewards programs that offer a one-to-one conversion where a point is truly a point with no devaluation are the most favorable because the rewards go further.
What About Retail Loyalty Programs?
Just as airline loyalty programs are undergoing shifts, so too are retail loyalty programs like Foot Locker. According to Retail Dive, Foot Locker’s refreshed loyalty program comes as part of a larger customer experience overhaul, and now allows customers to redeem their points for discounts. Retail Dive notes that value-added perks like these help appeal to the everyday consumer and not just sneaker enthusiasts.
In addition, gas stations are continuing to flex their innovation muscles by adopting loyalty technology that allows customers to capitalize on discounts at the pump. Programs like BPme, Exonn Mobil Rewards+ and Speedy Rewards offer these discounts and have associated mobile apps that offer rewards tracking and other features.
Retailers can go even further by partnering with other brands to create a loyalty network. Gap is one example of a brand that has created a successful network among its sister companies, which include Old Navy, Banana Republic and Athleta. This means that loyalty program members can shop and redeem at any of these retail locations. Shell’s Fuel Rewards program is another example. The program allows members to earn discounts by spending at participating restaurants, online retailers and even when purchasing live event tickets.
Implementing A Program With Options
The average person belongs to nearly 17 loyalty programs but actively participates in only half. This is largely due to a lack of redemption options. For loyalty program sponsors to stand out, there are a few things they need to consider.
Regardless of the number of redemption options offered, if the actual redemption process is clunky, consumers may abandon their carts and think twice about actively participating in that program. There aren’t any technology limitations to ensure a smooth redemption process. It is purely based on the program and whether the company makes a choice to invest in it.
In addition, loyalty program sponsors can create engagement with a larger portion of their member base by offering items at lower point values with better rates. This helps consumers use points for everyday items, as well as aspirational purchases. Streamlining the redemption process while simultaneously providing more options to redeem can help make a loyalty program more desirable and foster brand affinity because it creates an emotional connection that goes beyond “hoarding” points to use on that next flight.
For consumers, the value of travel rewards versus other redemption options is subjective and depends on individual preferences and lifestyle. Travel-based programs make sense for some, but changes can devalue hard-earned points, making them less monetarily valuable. This alone serves as a call for loyalty program sponsors to look closely at their offerings.
Loyalty programs that thrive today are those that offer a diverse range of redemption options that cater to the varying needs and interests of members. Adopting this approach ensures that members feel genuinely rewarded for their loyalty and remain motivated to engage with the program long term. Offering a variety of options will soon be a requirement rather than a choice for loyalty programs to remain competitive.