The Shift to Revenue-Based Loyalty Programs
There’s a movement happening in the loyalty space. Traditionally, loyalty programs — like frequent flyer programs and punch cards — doled out rewards based on the number of miles flown or number of purchases made. But more and more, programs are adopting revenue-based models. Under these models, the programs reward customers based on how much they spend rather than how much they fly or how many touch points they have with the brand.
The Evolution to Revenue-Based Models
To understand why more companies are adopting revenue-based programs, we have to explore why companies implement rewards programs in the first place. Repeat customers are a valuable asset to any business, and by offering discounts or free goods and services, customers are encouraged to remain faithful to that company.
When major airline loyalty programs were first introduced, fares were largely tied to the number of miles flown — thus it made perfect sense to allocate rewards in the same fashion. However, as the industry evolved and low fare airlines emerged, the pricing model has changed and as a result, the vast majority of its loyalty programs have followed suit. In August, American Airlines will join Delta, Southwest, United and many other airlines in adopting a revenue-based model.
Revenue-Based Programs Benefit Brands
While popularized and very common among airlines, this revenue-based model isn’t just for travel brands. In February 2016, Starbucks, the world’s most popular coffee chain, announced that it was changing its transaction-based rewards program to a revenue-based one. Starbucks’ recent shift is interesting, because while it will take patrons longer to earn a free reward, it’s a more equitable treatment of all its members.
For example under the old system, if a customer were to purchase a tall blonde coffee twelve mornings in a row, they could get a free 101 Shot Espresso Latte (last time I checked this Starbucks’ most expensive drink). In this case, they would receive the highest valued product by purchasing lower tier items. But let’s say every morning I drink a Venti Chai Vanilla Soy Latte — considerably more expensive than a tall blonde — and yet, the tall blonde drinkers are still earning and burning the same awards even though I am paying nearly four times more on a daily basis.
Revenue-Based Loyalty Benefits Consumers
Change is never easy. The shifts to revenue-based models have initially been hard to swallow for a subset of customers who have typically accumulated points through lower tier purchases. While it will take these customers longer to earn rewards, the revenue-based system rewards those who should be rewarded: your brand’s most valuable customers.
Revenue-based models favor your profitable, high-value customers and benefits those who spend more — those who traditionally would have received comparably little in return for their larger purchases. Under this model, your most profitable consumers can rest assured that they are receiving proportionate rewards for big ticket purchases, and for their continued loyalty.
Revenue-based loyalty programs give credit where credit is due, helping brands focus on the highest value consumers and rewarding them accordingly.
Danielle Brown is the VP of Marketing at Points, the global leader in loyalty currency management. Via a state-of-the-art loyalty commerce platform, Points provides loyalty e-commerce and technology solutions to the world's top brands to enhance their consumer offerings and streamline their back-end operations.