Loyalty’s Golden Rules – Steven Falk
January 30, 2015
British Airways has announced radical changes to its Avios air miles scheme. Economy class tickets will earn 75% fewer air miles while business and first class will earn 66% more.
In practice, the new rules mean an economy class ticket from London to New York will earn 865 air miles down from 3,458. Meanwhile, a business class traveller on the same flight will collect 8,645 miles, up from 5,178.
Before these changes, an economy passenger could have funded a free flight from London to Milan from their New York trip. After them, there is no destination served by British Airways that can be funded.
This is because redemption values for ‘free’ flights will rise by between 25-50% (for all ticket classes) with travellers also paying extra for taxes, fees and charges.
It is clear where British Airways is focusing its promotional effort. Business and first class tickets generate around 80% of revenue and it therefore makes sense to orientate its loyalty rewards accordingly.
After all, the whole purpose of any loyalty programme is to incentivise profitable behaviour.
There is an interesting parallel between British Airways and many Premier League football clubs where up to 80% of match-day revenue comes from corporate hospitality customers rather than match ticket holders. So what lessons can they learn from the air miles scheme?
First, ensure that contingent liability is limited. There is a saying about air miles that so many are in circulation the global economy would collapse were they all redeemed.
For this reason, it makes sense to ensure that only profitable transactions are rewarded and to place limits on the ways points can be redeemed to reduce balance sheet risk exposure.
This means that sports clubs must be sure that rewards are available for actions and behaviours that would not otherwise take place and that points are redeemed automatically if not consumed within the set timescale of say a season.
The second rule is don’t dilute the value of a point. No one likes saving up for a reward only to find that it will cost twice as much as they originally thought.
Barclaycard found this out to their cost when they reduced the exchange value and then withdrew their Privilege scheme entirely leaving customers who had saved points for many years without a redemption opportunity.
Sports clubs must match their redemption inventory to a fund of points that delivers perceived as well as actual value, for example, by offering digital downloads of content and imagery in addition to real merchandise.
It remains to be seen how British Airways customers will react and the long-term impact on sports organisations considering setting up their own loyalty programmes. As we know, there are two golden rules of loyalty – and British Airways has broken them both.
Steven Falk is director of Star Sports Marketing a consultancy providing advice on sponsorship activation, CRM, brand and affinity marketing. He was previously Marketing Director at Manchester United. You can follow him on Twitter @steven_falk or visit www.starsportsmarketing.co.uk
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