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. 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 medium users, it increases purchases above the cost of servicing the loyalty program.
For 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 that in a choice between two comparable products/services, a customer defaults to the brand with the loyalty program.
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.
Going back to our airline example, what if I could port my entire travel history, average purchase price, favorite routes from the United airlines app to the Delta airlines 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 become a real-time activity in the same way that disciplines like search engine marketing, demand gen, and crisis management have become.
What loyalty marketers can do right now
There are four areas to being exploring:
1. 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.
2. Loyalty program scarcity
If everyone is in your program, then it’s not really all that valuable. Ask anyone who is “Premier” on United airlines 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.
3. 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.
4. 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 airlines, 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 I moved my business to another airline? When I was “locked in,” all was great, but the key is to “love in” so that whenever I fly, I choose United airlines no matter what. That’s a tall order, but that doesn’t mean it’s wrong.