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By Dr. Samantha Bietsch
Faculty Member, School of Business, American Public University
It is no mystery that marketers have placed a heavy importance on loyalty in the past decade. For example, your key ring may now have a half-dozen loyalty cards on it or maybe you signed up online for a loyalty program.
Many loyalty programs are free and most come with nice incentives for loyal business. Oftentimes, the incentive is the more you buy, the more returns you get.
For these programs to successfully work, the incentive to patronize the business must be great enough to keep a customer loyal. Simply having a card that you swipe when you go to a store is not necessarily the point of a loyalty card.
These incentive programs are intended to foster a more in-depth relationship with current customers. The companies hope that you will choose to stay loyal to their particular brand.
Why Are Loyalty Programs So Important to Businesses?
There are many reasons that companies fight for loyalty to the point where they will offer incentives to make their customers stay loyal through a program. Currently, businesses focus on the Customer Lifetime Value (CLV).
Through research conducted in the past, companies know that loyalty can make a lifetime value of a customer very high. In addition, it costs a lot more money to gain new customers than it does to keep old customers.
Another reason that companies prefer to stay in communication with customers and use loyalty programs is to stay fresh in the minds of consumers when they are ready to purchase their next product or service.
A final reason that companies prefer loyalty programs is to collect honest and valuable feedback. Marketing research can be costly, but it is very valuable. Having loyal customers and open lines of communication with them helps businesses to collect some valuable information to provide the best possible service to clients.
Does It Pay for All Customers to Stay Loyal to Businesses such as Airlines?
Domestic airlines all offer loyalty programs to encourage customers to patronize their airlines. Some of the attractive perks include:
- Free trips
- Discounts
- Seat upgrades
- Priority boarding
- Free checked baggage
- Companion passes
For anyone who enjoys travel, these perks make it easy to be attracted to becoming loyal to an airline. But does it pay for all customers to stay loyal?
There are “road warriors” who spend much of their time traveling around for business. They rack up countless miles and easily earn these attractive rewards.
However, the rest of us may not travel as much as road warriors, but we still board multiple flights a year. Does it pay to stay loyal if we don’t fly as often?
The four big players in the domestic airline industry are Delta, United, American and Southwest. Reviewing the loyalty programs on the websites of these airlines is challenging; you see lingo such as “qualifying segments” or note that many airlines offer multiple credit cards.
Also, what about partner airlines? How does the partnership work?
To simply stay loyal by using one particular airline takes a lot of travel to pay off. For example, using a standard cross-country flight from New York City to Los Angeles, the average between the four airlines is almost 19 round trips before you earn a free flight.
In this case, joining the loyalty program is not an advantage for you. However, if you add in other factors such as credit card loyalty, the pot gets sweeter. With the additional incentive that some of these credit cards offer bonuses large enough to get you a business-class flight to Asia for free, you can see where the loyalty may pay off.
Airline loyalty is more complex than traditional loyalty programs. Part of that complexity comes from the fact that not all of us are utilizing the service at the same rate.
Airlines make it advantageous for business travelers to stay loyal. However, airline passengers who travel less frequently often go with the cheapest flight option and skip the loyalty program.
When evaluating a loyalty program, it is important to look at the big picture because simple airline loyalty will not pay off. The formula for deciding who may be your best bet for a loyalty program is complicated, but looking into it saves you time and money.
About the Author
Dr. Samantha Bietsch is currently an Associate Professor in the School of Business. She has an M.B.A. in business administration from American Intercontinental University and a D.B.A. in business administration from Argosy University. Prior to entering into higher education, Dr. Bietsch held numerous roles in the financial services industry.
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