The value of increasing point utility in loyalty programs

The value of increasing point utility in loyalty programs
The utility of points—or the number of ways points can be earned and redeemed or “spent” outside of a brand’s core product or service offering—grew significantly in the past few years. While there are many drivers behind this evolution, we dive into four primary factors increasing point utility.

Customers are more program savvy

In the U.S., 68% of consumers belong to one to four programs and 31% say they belong to five or more—that’s a lot of loyalty programs, even if most are likely active in only a selection of them. As members become increasingly familiar with loyalty programs in general, they also rise to the challenge of getting the most out of complex programs. Business and leisure travelers show off their airline status, and credit card holders boast how they’ve paid for experiences entirely with points. Without these most dedicated members, there would be fewer program tiers and fewer paid memberships.

Revisiting loyalty program design and economic modeling are key to maintaining active participation and managing successful programs. In addition, giving points (miles or stars) “longer legs” using creative partnerships and enhanced functionality is part of what keeps programs fresh and engaging for members. By providing members with more control over how their points return value, expanding earn and redeem options, and removing friction from the points journey, members can personalize their program experience and make it more meaningful.

Brands want to get closer to their (best) customers

During the pandemic, when consumer dollars shifted dramatically to essential goods and services, non-essential brands had to figure out how to stay connected to their customers. They did so primarily via one of two strategies: through new or increased promotion of everyday partners and co-brand credit cards. Partnerships, particularly between cross-industry brands, have increased as many strive to position themselves as lifestyle brands.

Food kits saw significant growth during the pandemic and served as a safe alternative to grocery shopping early on. By partnering with HelloFresh, American Airlines could stay top of mind while travelers stayed put. Even today, AAdvantage members can currently earn 2,000 miles when they sign up as new HelloFresh customers. In addition, American Airlines relaunched AAdvantage earlier this year to simplify the tracking metric for loyalty points: members now earn miles regardless of whether they’re in the air or on the ground. This is significant because it tells AAdvantage members their loyalty in using the co-brand credit card for everyday purchases and services is just as valuable as their loyalty in booking flights with American Airlines.

Most recently, Delta Air Lines struck a deal with Starbucks—what could be more everyday than coffee? Members of both Delta SkyMiles and Starbucks Rewards who link their accounts will earn 1 mile per $1 spent on coffee and double Stars for orders placed on days they fly on Delta.

While the idea of cross-industry partnerships isn’t new, so much friction is removed from the process in earning or converting points across loyalty programs through seamless linking and preference setting. Savvy brands also mine data to find the right partnerships that fit into their mutual customers’ lifestyles.

Digitally enabled customer experiences keep brands relevant

Spurred by the pandemic, many brands had no choice but to speed up digital transformation and adopt technologies to meet consumers online and in contactless ways. Delivering personalized, omnichannel, and connected experiences to consumers (whether they’re members of loyalty programs or not) is the goal for brands, though today most are at the multi-channel phase. Also included on the roadmap to a better customer experience is allowing members to pay for goods, including non-core products or services, with points.

Restaurants previously critical of third-party delivery services for eating away at already low margins suddenly had no choice but to accommodate online orders and/or partner with third-party services to survive the pandemic. Digital orders via third-party apps grew by 207% and digital orders via restaurants’ own apps and websites grew 98% year-over-year from March 2020 to March 2021. And while digital transformation was certainly not limited to restaurants, many brands used the pandemic as an opportunity to launch or revamp their loyalty programs, leveraging technology in new or different ways to improve the experience for customers. For example, Chipotle relaunched its loyalty program in summer 2021 to add reward flexibility. In addition to entrees, points can now be used to purchase other menu items, Chipotle swag, or to donate to a charity of choice.

Adoption of alternative financing and contactless ways to pay skyrocketed and are now must-have offerings for many brands. When asked to rate potential rewards features offered by Buy Now Pay Later (BNPL) providers, 46% ranked “redeem rewards to pay loan” and 35% ranked “redeem rewards at retail partners” among the top five most valuable features. Many major financial companies and big-name brands are upping the ante on point utility—for example, PayPal and U.S. Bank allow members to pay for goods with rewards dollars at check-out. In partnership with Bakkt, Wyndham Hotels and Choice Hotels allow their rewards members to convert points directly into cash via Apple or Google Pay, and even into bitcoin.

Points literally carry value

Points are also listed as revenue (or free financing) on balance sheets. Historically, the actual value of points was considered proprietary information, confidential within companies and between partners. Enabling members to convert points into tangible cash to be used outside of programs makes that information as close to public as possible.

When it comes to delivering a competitive loyalty program that offers differentiated value, increasing point utility is an effective way to keep programs sticky for members. Giving members the power to turn those points into valuable rewards of their choice is a win-win. Members get a highly personalized experience and brands garner valuable zero-party data through observing members’ behaviors.

At a time when inflation remains persistent, and recession is becoming more likely, enhancing loyalty program benefits and functionality for members is critical. While marketing dollars are often on the chopping block during times of financial trouble, it’s clear that brands that continue to invest in marketing see an increase in sales while those that cut back see a loss.

Loyalty programs serve as a valuable marketing channel in and of themselves and are key in retaining a dedicated base of engaged members and fostering advocacy for the brand that is resilient through times of disruption. For those that will be affected financially, being able to carry points further could be a way to save—or splurge—without breaking the bank. This helps brands show up for consumers when and how they need it most all while driving more long-term, emotional loyalty for the brand.

 

ICF’s global marketing services agency focuses on helping your organization find opportunity in disruption.
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Meet the author
  1. Lauren Sutherland, Senior Strategist, Customer Strategy, Insights + Research

    Lauren is an expert strategist with nearly 10 years of brand development and customer marketing experience. View bio

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