Loyalty programs have been around for ages but few consumers outside of the consulting crowd actively think about how their hotel stays and credit card spend return to them in the form of rewards dollars. By flying with United, we earn Star Alliance miles and by using our AmEx card, we accrue points that can be redeemed for gift cards and electronics.
These loyalty programs have made their way into the retail and quick-service restaurant (QSR) industries in the form of point-based loyalty schemes and punch cards. And with the proliferation of smartphones, independent parties like FrontFlip, Belly, LevelUp and Foursquare have taken a digital-only approach at loyalty schemes, through the use of gamification and location-based coupons in their mobile apps.
But unlike the relatively clear-cut store rewards programs of retailers and QSRs, those of travel providers and financial institutions are substantially more complicated. With complex contract terms and reward detail buried in the fine print, these businesses have done a fabulous job of reducing transparency into how consumer activity like card spend and travel translates into rewards.
The lifecycles of these loyalty programs and rewards schemes vary by provider but always begin with some type of initiation or enrollment, which can take place via e-mail, direct mail or in person, and may first involve an assessment of eligibility. It is in this stage where perks are amplified and key details are blanketed in lengthy brochures or online user agreements.
From there, a consumer might receive an introductory gift that keeps him or her pleased until reward transparency is inevitably lost. Statements summarizing the period’s activity are typically delivered to the consumer on a monthly basis (long after a consumer remembers activity made early in the period) and in paper or PDF format, which adds friction to the process of calculating value earned on incremental activity.
Few third parties have taken ownership of this ‘loyalty program evaluation’ space (what is there to gain?), leaving consumers to calculate savings and assess prospective offers on their own. In reality, it is the providers themselves that are tasked with providing transparency into rewards payout – a natural conflict of interest (greater transparency to the consumer ultimately produces a higher cost of rewards to provider and greater rates of customer attrition).
The fact is that consumers lack an adequate means for determining which loyalty programs give the best bang for their buck. Consumers should be able to enroll in programs that are best-fit for their financial condition and personal preferences. Talking with a sales representative is often how this is accomplished today – but wouldn’t it be nice if the process had an extra element of automation and equity to it?
Think about why you fly United over American or prefer Marriott to Hilton. Many of these preferences stem from a provider’s geographical coverage or history within your family. And even when the consumer looks past these factors, they are inundated with tempting promotional offers that fail to take into account what might actually be best for that consumer. A credit card offer from Citi might encourage a consumer to spend more than he otherwise would on dining out while the ‘Crossover’ program from Starwood might lure its loyal hotel customers into spending more on travel with their partners, Delta and Avis.
Marketing continues to be a common driver of program enrollment – one that creates noise in calculating true value gained from one’s loyalty. Offers tend to be circumstantial and tailored to the provider, making it difficult for a third party to mine through T&Cs and provide an ‘apples-to-apples’ view for the consumer. But after all, the goal of marketers is to conceal this detail and layer the consumer with coupons that encourage impulse spending. The marketer never considers the fact that one’s financial situation cannot support $500 worth of spending – but they’ll make sure that the consumer felt like they got a deal.
And yet, I as the consumer would like to know which clothing store will give me the best rewards for $200 worth of holiday spending on professional wear without having to sit down and crunch the numbers on my own. Unfortunately, there are many webs to sort through in identifying which loyalty programs offer the greatest value.
To no surprise, even the largest providers tend to mask reward payout. It’s difficult to know for sure which merchants officially qualify as ‘restaurants’ when paying with Chase’s Marriott Rewards card. Similarly, the value of points earned on a hotel stay is unknown until those points are ultimately exercised (due to the hotel category, location and date of the reward stay).
More than enough data exists to assist consumers in tracking, alerting and reporting on reward-based activity. A third party might develop a form that allows users to input loyalty preferences (i.e. ‘I spend a lot on gas’, ‘I fly to Washington D.C. on a frequent basis’, etc) that yields a simple illustration of the most ideal credit cards, hotel providers or airlines for them. A third party could also create ‘benchmark’ rewards so that consumers have some idea of reward earned on incremental activity.
Better yet, third parties may decide to leverage the powerful tool of mobile, which can better facilitate time- and location-based loyalty (i.e. three hours spent in the bar earns a consumer a free drink). Mobile enables consumers to regularly acknowledge the rewards they earn on their everyday activity at the physical point-of-sale (i.e. real-time coupons and points earned when walking out of Jewel-Osco).
Ample opportunity awaits any enterprise that can make a business case to enter this loyalty space. Several personal financial management (PFM) firms, like Check and Intuit, currently offer tools that promote the most rewarding transaction cards. Don’t hold your breath, but it’s possible that other PFM players like Money Desktop, Moven and Yodlee will eventually enter this space as a way of removing the clouds from the once-clear skies of consumer loyalty.