Do Loyalty Schemes Drive Loyalty?

Loyalty schemes represent a multi-million-pound industry. Many businesses have got a finger within the loyalty ‘pie’. Tesco have the Club Card, Boots have the Advantage Card and Sainsbury’s are part of the Nectar network. The airline industry has had frequent flyer schemes for many years, and many of us have had the frustrating experience of trying to ‘spend’ our hard-earned miles only to find there is no availability to the destinations we want to go to.

With our wallets and purses at bursting point with loyalty scheme plastic, frequently for competing companies within the same sector, it seems appropriate to ask about the extent to which loyalty schemes are, in fact, driving loyalty.

Do loyalty schemes drive loyalty?

The first half of my career was spent at British Airways. At the time I was at BA the airline had a dominant share of business class traffic on the North Atlantic – the major driver of airline profits at the time. It would have been easy to assume that our transatlantic business customers were loyal, as I and other executives did at the time. It was only when we asked another question in our market research that the real truth began to emerge.

We asked customers what percentage of them would continue to fly with BA if there was a level playing field for other carriers operating on the North Atlantic routes. ‘A level playing field’ was defined as access to Heathrow for some of the strong carriers (who were forced to operate out of Gatwick at the time). This was also the time when many of the airlines had introduced frequent flyer clubs and customers were often members of competing schemes.

The answer that came back shocked us. We found that over half of our really profitable business customers would leave BA if there was a quality alternative available. So our customers were not as loyal as we had thought. They were hooked in by ‘unfair advantage’. Given the increasing pace of competition in the global airline industry, that was clearly something we could not rely on forever.

As a result, the airline started to look at ‘true loyalty’ based on the extent to which customers’ expectations were met (or not) in the context of stronger competitors and the absence of discounts – which (at the time) is really what frequent flyer schemes were all about. This spawned the development of a whole range of product and service enhancements that earned British Airways the title as ‘The World’s Favourite Airline’.

So-called loyalty schemes are much more sophisticated than they were in their early life at British Airways. Today they are as much about the collection of data on customers’ buying preferences so the organisation can personalise the offers it makes to us as customers. This doesn’t alter the basic truth we learned during my time at BA, which is if your customers are totally satisfied with the experience they receive they will be more loyal than if they are enticed by this month’s tactical offer.