The history of airline travel was upended back in 1979 when Texas International Airlines introduced the first frequent flyer program.
From there, loyalty programs exploded in popularity and are now commonplace across almost every industry.
How Loyalty Programs Make Money Today
At the heart of a loyalty program lies a few key concepts.
- For the most avid users, it increases high-value purchases significantly above the cost of servicing the loyalty program
- For the medium users, it increases purchases above the cost of servicing the loyalty program
- For the low users, it doesn’t really make a difference
Loyalty programs make money by maximizing the delta between the value captured by offering a compelling program and the cost of providing the benefits associated with that program.
The critical element for a loyalty marketer is to get people “locked-in” to their program so, in a choice between two comparable products/services, a customer defaults to the brand with the loyalty program.
Like many people, I have personal experience with this. Over the past 5 years, I flew a lot. Because United has a hub in DC where I live, they often had the best set of direct flights. This led to an increase in status, perks, and more until I hit 1K level.
As I said on more than one occasion, “United owns me.”
In other words, they had “locked me in.”
The rewards started rolling in….mileage bonuses, upgrade vouchers and more.
Of course…when it came time to redeem those vouchers…well, that proved near impossible.
You know the drill.
How Loyalty Is Different in a Blockchain-Enabled World
In a world of distributed ledgers, there is a shared data layer accessible to everyone. What that means is that switching costs are essentially zero for the core product.
As I shared before, I switched Bitcoin wallets in approximately 40 seconds recently. That’s not something you can do with a bank, but you can do when your data is totally portable.
Going back to our airline example, what if I could port my entire travel history, average purchase price, favorite routes from the United app to the Delta app and then, with their intelligent agent, they could immediately assess the potential value of me as a customer and enroll me at the same (or better) level within their program?
What if I could do that with every airline at the same time?
Then, loyalty isn’t what it used to be, is it?
So, my loyalty to an airline becomes a function of best price, best convenience, best experience, best perks/rewards for that immediate next flight.
It’s almost as if loyalty gets shrunk down from the annual cycle (at least in the airline case) to the atomic level of the next flight.
In a sense, loyalty becomes a real-time activity in the same way that disciplines like SEM, Demand Gen, and Crisis Management have evolved.
I should add, that if you want a great deep dive into travel specific loyalty possibilities in a blockchain world, check out Trond Vidar Bjorøy’s, Blockchain in Travel for Dummies.
Changes Coming to Loyalty Marketing
In fact, there are a number of companies already beginning to attack it.
Some of the players in the loyalty area (all of these examples are taken from Trond’s article, so credit goes to him):
- Loyyal is a universal loyalty platform which can be applied to existing redemption networks, and brands can also choose which other brands they want to include in their own reward app on the blockchain. Norwegian AiSpot is one company which have selected Loyyal for its travel platform.
- Blockpoint lets you build your own distributed loyalty platform, lottery games, and gift card functionality.
- IBM and China UnionPay are developing a platform for trading loyalty points, demoed in a proof of concept back in September.
- TamTam Travels offers members discounts and benefits on a range of travel products and services.
What Loyalty Marketers Can Do Today
I think there are four areas to being exploring.
- Loyalty program interoperability
The more your points can be exchanged with partners for redemption of their products, services, and perks, the more value your points will have. Airlines and credit cards obviously do this already, though there’s a lot of friction in the process. The bigger the eco-system, the more valuable your core product.
- Loyalty program scarcity
If everyone is in your program, then it’s not really all that valuable. Ask anyone who is “Premier” on United what it’s like and they will tell you that it feels like almost everyone has it.But, what if you actually had a clear, blockchain-driven protocol that showed precisely how many spots were available in a given program? Then, the scarcity (measured in tokens) would increase in value as demand grows.
- Loyalty perk transferability
Instead of making perks difficult to redeem and utilize, view them as the most cost-effective means of new customer trial and acquisition. In a blockchain-enabled world, ownership of perks can be easily tracked, transferred, and fine-sliced into bits for micro-redemptions.
- Focus on “Love-in,” not “Lock-in”
Because switching costs will be so low for customers, lock-in as a strategy won’t work. Coming back to United (I know-they have had a rough month), last year I was 1k, but then my flight behavior changed…dramatically. There wasn’t much done to find out why?Was I traveling less, no longer finding value in the 1K status once I had achieved it, or had moved my business to another airline?
When I was “locked in,” all was great, but the key is “love in” so that whenever I fly, I choose United no matter what. That’s a tall order, but that doesn’t mean it’s wrong.
This world of blockchain-enabled solutions isn’t coming upon us today or tomorrow, but it is coming. So, unless you are retiring in the next 2 years or so, it’s probably a good time to start getting ready. In 5-10 years time, we’ll know who the smart marketers are.