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Business

The Failure of Big Data is the Death of Coalition Loyalty

By BusinessNo Comments
[Note from Tim: I found this post from two and half years ago in my WordPress drafts. A lot has happened since I wrote it. Air Canada bought back Aeroplan, I made a significant job change, and spoiler alert, coalition loyalty continues to tick along. But I think the article still mostly stands up so I’m publishing it now.]

Coalition loyalty programs are dead.

One more nail was recently added to the coffin when Air Canada announced it would sever ties with Aeroplan-operator Aimia—an entity it created in 2002 when it spun off Aeroplan—and launch a new proprietary program in 2020. Last year, the operator of Air Miles, Loyalty One, attempted to timestamp points and expire older ones in a bid to reduce their liabilities and improve the profitability of their program. Closer to my home, my employer and Overwaitea Food Group decided to go their separate ways with regard to collecting More Rewards points at Chevron stations in late 2016. And across the pond, grocer Sainsbury reduced the “earn rate” by half for customers at the expense of Nectar program members (Nectar is also an Aimia operated program).

The typical arc of coalition programs starts with buzz driving behavioural shifts and a period of happiness for all but eventually shifts to cost cutting by program operators, partners questioning value and reducing costs, consumers questioning whether the program is worth continuing their behaviours, and finally businesses questioning whether the program is delivering the financial outcomes they are paying for.

In Air Canada’s case, I congratulate them for taking bold action to abandon the program they gave birth to.

But what I find interesting about this coalition loyalty death rattle is not the story arc of buzz to cost cutting to disillusionment. That’s well known, at least to industry insiders. The real value of these programs was supposed to be in the data. Swiping your loyalty card was supposed to open up a world of bliss for marketers. A cornucopia of data to allow micro-targeting of advertising and promotional offers to drive highly profitable sales and increase customer satisfaction. A network of merchants aligned by a common loyalty program engendering undying loyalty. Those loyalty points are not costing you money, dear retailer! They’re making you money!

Except it’s not working so well anymore. Yes, there is still a points seeker segment. But changing the behaviour of “normal” customers is the name of the game. And if that’s not happening, then all you have is a big fat expense item as both an operator or retailer. And so, predictably we’ve seen the earn rates of programs diminished along with redemptions made more difficult.

But what ever happened with the value of loyalty data for coalition partners? I’m willing to bet very little trickles out to partners, even in the era of Big Data. Whenever I’ve seen reports come out of the major loyalty programs my impression is always “so what?”. Ultimately, they were pretty light on actionable insight.

I don’t see loyalty programs dying anytime soon. I think savvy operators will continue to use their databases to generate internal insights and drive sales. But unless the coalition programs start figuring out how to truly add insight for their customers, I think their relevance will continue to decline and we’ll eventually see some of them wrap-up.

For the Long Run

By BusinessNo Comments

A couple of good articles by Jason Kottke “Asking ‘who’s the customer?'” and a follow on from John Gruber “On the Long-Term Viability of Apple’s Customer-First Strategy” that are worth reading. They both have interesting comments regarding the Church of Maximizing Shareholder Value and how that undermines serving customers well.

Jason Kottke seems to characterise the “big investment banks, mutual funds, and hedge funds who buy their stock” as something completely removed from customers. But he doesn’t go quite enough with his logic. Those entities have their own customers, be they individual retail customers buying mutual funds or institutional customers like pension funds that are paying out to their customers, like the average retired teacher, civil servant, or factory worker (if the pensions are properly funded that is, but that’s another story…). So it goes full circle and perversely this customer pressures the mutual fund (by voting with their money) or institutional investor to perform, and they in turn push on companies to maximize shareholder value by making changes that aren’t necessarily in the interest of  the person who started the whole thing.

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Rebranding the Fuel Surcharge

By PricingNo Comments

I was shopping for a flight to London Heathrow in December and noticed that with the rapid drop in crude and fuel prices last Fall, Air Canada quietly rebranded their Fuel Surcharge to “Carrier Surcharge”.

From Air Canada’s site under International (emphasis mine):

Carrier Surcharges: Carrier surcharges are included in the Air Transportation Charges and are collected by airlines to partially offset certain volatile, unpredictable or fluctuating operating costs and fees, and certain fare Premiums linked to peak travel periods. These carrier surcharges can be used to offset some (among others) of the following costs: fuel, navigational charges, or select peak travel dates to/from certain destinations.

It’s not just about fuel anymore, you see? It’s about managing “fare Premiums linked to peak travel periods”! Which sounds a lot like increasing our prices when demand is high. Didn’t that used to happen by changing fares?

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