Rethinking Loyalty – the next frontier

[Matt]

I’m undecided as to whether loyalty programs are stupid or genius at this time. I see them as stupid as I can gain huge value from them, but in the same breath, I see otherwise smart people falling over themselves to gain ‘status’. Status is a bad long term bet. You buy something with real investment today in exchange for a pattern of rules and offers that may change overnight. Once your money is in the system, it is a race to get a return on the investment before they move the goal posts on you, in any manner of ways:

• Dilute the tier via status matching (Hyatt.. Hilton)
• Devalue the per point redemption value (pretty much everyone, some tell you, some don’t)
• Throttle inventory, flying empty seats to avoid giving them away to their loyal members…
• Cannibalize inventory, blocking off seats from one group of elites so another can have them..

Where the gravy train began


It all started with a disconnect between price to redeem and price to acquire points. Especially true in the early days of points and miles, someone priced out ‘rewards’ but then another someone came along and made the awards super cheap as an indirect effect of selling miles to credit card firms. It seems to me that the loyalty programs are slowly catching onto this, and making changes.

Can you change with the times?


The glory days of points and miles were before my time. When I spent a week or two to learn them and achieve ‘expert status’ I basically read what was out there, and copied along. Sometimes finding my own little things along the way. More often than not though, I was doing this:

• Read award rules
• Read acquisition concepts

Optimize the two based on my available time.

The Vegas gig changed that


A key motivation behind the Vegas gig was that playing the loyalty game in this current age is fraught with risk. A risk that by reading their rules you trap your mind into the limits they propose. A risk that you present yourself as an unattractive customer to the program in an attempt to jump through its hoops. Never mind that the jumping is a negative aspect of your life.

For example, if you were chasing an award status tier with American, maybe an ‘EXP’ you might be 1000 miles short of the goal for the year, and then take a red eye flight to mileage run to EXP. This is brass tacks when it comes to ‘travel hacking’.

I called poppycock


My belief is that there is a hidden level of rewards that you don’t see advertized, but when you chase EXP or other such status offers that appear ‘quid pro quo’, you are actually helping the company screen you out of something better. You can see touches of this appear in things such as the American Airlines Helix system.

We live in an age of big data, but companies don’t always share. I learned this in Vegas where they told me that they don’t share ‘good customer info’. This is a closed ecosystem, but within it there are ways to target the highest value customers.

CACs, ARPUs and LTVs


These terms are familiar in the world of subscription based services, many coming from SAAS.

• Customer Acquisition Cost
• Average Revenue Per User (monthly)
• LifeTime Value per customer

These are the areas I’m playing with now. How can we present ourselves as the best possible tier of LTV in a brief encounter? And what will that mean to the business development team of a loyalty program (or just a business development team in general) with regards to how much they would invest in Customer Acquisition Cost.

In terms of loyalty, that outlay from the company is supposed to be a part of what they get returned from valuable customers over time.

Here’s a couple more examples that I’ve personally experienced:

Citi gave me 2 VIP tickets to Harvest in the square when we were in Manhattan, they retail for $400 per person:

Harvest in the Square

Now, when you think of Citi, are you thinking about Citigold and getting some fees waived and a fancy Gold debit card, or are you thinking about getting comped tickets to gigs like this?

How do you get them? I’ve found two approaches: be filthy rich, or have a bit of cash, show them potential and use social engineering. Just think about it.. beyond the stuff you read everyday in the points and miles world about earning points from Citi, they have comped tickets in supply for every event they sponsor. How can you get them?

Another eye opening experience for me was once earning an amazing stay at a hotel for simply using an ATM. The hotel bought ATM data from a competitor and used it to target me…

As I mentioned in Vegas, the other real draw of trying these types of gigs is that they are less transactional – you aren’t always earning and burning (and needing to earn again). Instead, you find things offered to you over a period of time, paying back like a perpetuity.

Everywhere there is upside (like Citi sponsoring events or owning stadiums) there is potential. Every encounter with that closed ecosystem is an opportunity.

It’s time to think beyond the rules.


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[smittytabb]

While I think that this is another way to "game" it, I cannot help but point out that you are already working from a position of privilege as a white male. People of color, women, and other minorities arguably are going to have a lot harder time pulling off the charade. That's just the way it is. For some, status is a way to even the playing field. If you have it, they actually need to give you what you are entitled to. Ask anyone who has status, who people assume don't have it, what it is like to have people walk right in front of you while waiting to board. People make assumptions based upon what is considered to be the norm for high status value, which is why this concept can work for you, arguably better than it might for others. Just check next time who is sitting in F and you will see that it is still largely populated by white males.

 

[Matt]

While I think that this is another way to "game" it, I cannot help but point out that you are already working from a position of privilege as a white male. People of color, women, and other minorities arguably are going to have a lot harder time pulling off the charade. That's just the way it is. For some, status is a way to even the playing field. If you have it, they actually need to give you what you are entitled to. Ask anyone who has status, who people assume don't have it, what it is like to have people walk right in front of you while waiting to board. People make assumptions based upon what is considered to be the norm for high status value, which his why this concept can work for you, arguably better than it might for others. Just check next time who is sitting in F and you will see that it is still largely populated by white males.

Before they have a hard time pulling it off, people need to understand it, and then try it.

It's really hard for me to bring race or gender into things because I'm that 'white male' but by the same token I know plenty of white males who don't think like this, or understand basic concepts. I like to think when it comes to playing at a certain level that such things become less important, but I don't know.

 

[smittytabb]

Subjectivity (the philosophical concept) matters when subjectivity (how judgement is shaped) plays a role. Your entire premise works off of the notion that others will ascribe more value to you than you actually possess. That is the essence of privilege. It's not a matter of whether one "thinks like this" or not. The doors open more easily just because of it whether the subject is aware of it or not. Being aware of own's privilege is probably less common if you have it. People with less tend to be more aware of how the power manifests in day to day interactions.

 

[Matt]

I'm sure racism and sexism is real and makes a difference, but there's also always an excuse.

I grew up in a town that was almost exclusively white, but had tremendous poverty and crime. It got more mixed (a little) but in 2009 was something like (from Wikipedia):

• Over 218,000 individuals are white; 1,106 are of mixed race; 2,215 are Asian – mainly Bangladeshi (1,015); 300 are black; and 1,195 belong to other ethnic group.

But despite that, from my school only 3-4 people went to college (other than myself) from a year of I guess over 100 kids. In fact, I think probably more than half didn't go to high school, and dropped out at around age 15 for menial jobs or just to Netflix and chill.

So let's say my school year had 99 white guys and one from Iraq (I used to play ball with him) and of that, 5 of us got to college. Do that 95 guys who dropped out really have a better chance of working the system that I outlined?

Why did I get away with it? Your answer (US biased) is that race and gender had an impact - but I could ask you to pick a dozen guys from the 100 in my school year and they would fail.

So what would the UK answer be? Class would be one. We have the excuse of classism in the UK, and if you asked the dozen guys why I would succeed where they didn't it would be more like 'he's posh' or upper class.

But the reality is that I grew up in poverty just like they did, had the same broken home, spent time living in council estates (projects). Things do matter, but I believe that it is very possible to do a lot more than most people think, if they start thinking a little differently.

 

[smittytabb]

My answer is hardly US biased. I used the term "subjectivity" on purpose because it cuts past the notion of gender and race per se. Where you are your subjectivity and how you are perceived shifts depending on the perspective of those you are interacting with. Your gig is about how people perceive you now. I admire what you have achieved and how you had the grit to do it. I am not big on excuses at all, but I think we all fight stereotypes. Some work to our advantage and others not so much.

 

[Matt]

My answer is hardly US biased. I used the term "subjectivity" on purpose because it cuts past the notion of gender and race per se. Where you are your subjectivity and how you are perceived shifts depending on the perspective of those you are interacting with. Your gig is about how people perceive you now. I admire what you have achieved and how you had the grit to do it. I am not big on excuses at all, but I think we all fight stereotypes. Some work to our advantage and others not so much.

But the bigger picture is not just using a stereotype to an advantage, but understanding the components that make the advantage, and stacking those properly. So while it is one thing to say 'a white guy can do that more easily' its another to watch two white guys both doing it, but getting different results based on the way they stack the dominoes.

That's the subject of duration that I discussed in Vegas - it's both about how to win, and what you can win.

 

[GettingReady]

Like everything else, when it come to loyalty programs, the bottom line is cost/benefit. I imagine for us, not being FFs, or road hogs, the benefit would be negligible.

Having said that, I will go for Diamond status in 2016. I can knock out 40k, reach Diamond, and more importantly get the additional points needed for our EU vacation.

Once this trip is behind us, I imagine focus will be occasional AA miles for kids to fly in free, and CB cards. While I'm really excited for a "first class" trip, it's just not the norm or reality for us., and I'm perfectly happy with far less.

I want to downsize and simplify life, investments, etc. Auto pilot can be a good thing.

 

[PurpleSquirrel]

Smitty,
I can relate to what you say. A real example of people with privileges. I have a very beautiful cousin and throughout her life, doors would open or help was offered, just because of how she looked. When she was in college, all the boys would offer to do her homework. She'd always be invited to birthday parties and thought that was normal. When she started working, colleagues wanted to date her and so on. However, she did realize that not everybody gets that kind of attention and grew over it.

While I'm sure Matt's white male background would help him in Vegas, I am certain that taking my cousin along to Vegas would do the same for me.

However, I view this as a constraint on my side and look at ways to overcome that constraint(or even sidestep it altogether). That's what Matt is trying to say. Look at ways that work and ignore what doesn't work.

 

[smittytabb]

Smitty,
I can relate to what you say. A real example of people with privileges. I have a very beautiful cousin and throughout her life, doors would open or help was offered, just because of how she looked. When she was in college, all the boys would offer to do her homework. She'd always be invited to birthday parties and thought that was normal. When she started working, colleagues wanted to date her and so on. However, she did realize that not everybody gets that kind of attention and grew over it.

While I'm sure Matt's white male background would help him in Vegas, I am certain that taking my cousin along to Vegas would do the same for me.

However, I view this as a constraint on my side and look at ways to overcome that constraint(or even sidestep it altogether). That's what Matt is trying to say. Look at ways that work and ignore what doesn't work.

As the parent of daughters (and sons), I must tell you that the honor of having boys offering to do their homework for them is not a privilege I encouraged my daughters to aspire to, despite their beauty. Yeah, I'll tell one of my daughters who finished #1 in her law school class that it's too bad she had to do her own work. A bit patronizing, no?

 

[ukinny2000]

I'm sure racism and sexism is real and makes a difference, but there's also always an excuse.

I grew up in a town that was almost exclusively white, but had tremendous poverty and crime. It got more mixed (a little) but in 2009 was something like (from Wikipedia):

• Over 218,000 individuals are white; 1,106 are of mixed race; 2,215 are Asian – mainly Bangladeshi (1,015); 300 are black; and 1,195 belong to other ethnic group.

As an aside, and off-topis, but are you a Swans fan?

 

[Matt]

As an aside, and off-topis, but are you a Swans fan?

I should be, but I've moved so much that I lost track

 

[swazzie]

I am applying this philosophy on a much smaller scale with cruising:

1) When I started researching cruise loyalty programs a few years back, I hadn't read anything about Princess Cruises offering discounts or free cruises to patrons using their casino but had heard of other cruise lines doing this. As my preferred line, I was hopeful that Princess would eventually follow suit so I've used the casino a small amount on every Princess cruise I've sailed where the casino was open, making sure to GET TRACKED while playing the penny slots (between $50 and $200 of my money spent per cruise). Princess has recently started promoting the casino more in their marketing and I've been getting targeted discounts for up to 35% off of a wide range of cruises. The first time I used the discount, the savings more than made up any funds I lost (~$50 between all of the cruises). And I'm targeted for the same discount again for at least one future cruise.

2) I'm aware that Carnival has had a few non-casino promotions where some folks who haven't cruised in awhile got offered a free cruise just to get them to get back onboard. My family took our first Carnival cruise last year and it was good, but not enough for me to sail them again unless I get targeted for a free cruise...and then, I'll only take it if it will be on a newer ship and longer itinerary.

For both of these endeavors, I'm not putting in any more effort that I think is needed to achieve the goals I'm seeking and I think that's one of the keys to not getting too hurt if things don't pan out. I see us all applying this on varying levels with MS avenues so that we spend just enough to earn a status level with whatever loyalty programs are most beneficial to us. I'm likely to give at least a little more to the company once that offer or status level is achieved so I can further maximize my investment. However, that offer or status level doesn't always lead to greener pastures, which opens the door to experimenting with other loyalty programs. I also don't go for an offer just to go for it, but hopefully it's available when a suitable opportunity arises to take advantage.

@smittytabb mentions privilege and the lack thereof, which spoke to me, and that definitely plays a role in determining if we're successful in being extended an offer when people can see and/or hear us and can make a judgement based on that. However, absent that, we don't know what we don't know, and it's possible that there's nothing we could do to be extended an offer (no matter how much we spend on the company) because the company just wasn't into us.