A few years back I posted (under my former name, Stepping Stones) the following parable:
Here we are, ushered into the board room of a major hotel/lodging company as flies on the wall. At the highly polished table sit a number of folks, the boss at the head.
The CEO speaks. "What exactly does this loyalty program do for us? Just wondering."
An earnest staffer replies, "Well sir, it does gain us recognition and keeps people coming back."
CFO now speaks positioning his glasses up from his eyes to his forehead. "Yes boss, but it is not free, it costs a lot of cash to maintain the program. And the rewards, the points that people earn, are carried on our balance sheet as a liability."
Another earnest staffer, sitting not very patiently, interjects, "Yes but it does bring folks back and back and back, and that helps the bottom line."
CEO raises his hand. "Wait, can anyone here tell me the net effect of this program? Are we in fact spending money needlessly to prove that people will stay with us, regardless of the presence or lack of this program? Has anyone heard how our competitors are doing with their loyalty programs? CFO you first." He points to the person sitting next to him.
"I assume that every chain is experiencing angst over the creation of these programs. First, they are not free to us or our partners. We have tried to bake the costs into the room charges but it is hard to escalate rates in a slowly recovering economy. Our franchisees are not happy with the reduced revenue they get from points-based stays. I would argue, as CFO, that the net effect of this program is negative--that the costs of building and maintaining it outweigh the benefits we derive from having it. In fact, I have an analysis that demonstrates this."
He refers to a chart on an easel. "As you can see the average guest pays this amount, and the average loyalty guest pays this amount. He points to a chart that shows each pays the same fees. "The person who is not a member of our program actually donates quite a bit of money to us, since we have factored in the cost of the program to which he or she does not belong. I need to add that in our analysis, we have no control group: that is no reference to what a group entirely composed of non-members would see as being negative if we canceled the program. Thus I can only speculate that there exists a large group of potential customers who would always stay with us regardless of having or not having a program." He sits back but he is not finished.
"Oh yes, I forgot to mention that we have a steady stream of new arrivals who continue to choose us over the competition. Most do not seem to care that there is a program to reward loyalty, based on what I have heard."
The CFO takes a deep breath. "Now as for our competition, I suppose in the heart of hearts of every CFO out there there is a desire to trim waste and cut costs. We have looked at cost cutting--elimination of little guest amenities, shortening hours at specialty lounges, abruptly ending most weekend meal vouchers, and of course not allowing suite upgrades, even though some properties from time to time violate that edict."
Earnest staffer is looking downtrodden. "I feel we can never end the program, even though the terms and conditions say we can. It would be a disaster for us. People would leave in droves, we would have to close properties."
Someone at the table whispered, "Looks like a stand-off."
The CEO closes his leather-bound notebook, the signal that the meeting is ending. "OK folks, here is what I have decided. Let's continue to push the level of benefits lower, regardless of what the guests think. Let's keep the program for now. See if we can have a meeting of other like-minded companies and agree to end these programs down the road, but not just us, all of us would do it."
The meeting ends.
OK: Fast forward to now, Father's Day in fact.
I am pondering the correlates of loyalty, and specifically loyalty programs, in 2013 and beyond, but first a dip into history.
Henry Ford first decided that airplane travel should resemble ship travel, with a Captain, Stewards, Ship Captain uniforms and the like for his Ford Tri-Motor airplanes. Ship travel had always had classes of service, first, second third and steerage (which might have been considered third class.)
Airplanes picked this up, in the prop days first class was in the rear, away from the vibration caused by the engines and props. Jets brought it to the front, Pan Am decided to call their Business Class something else as a mid-way place between FC and C (Coach).
Hotels until the advent of loyalty programs, never had this distinction. What you paid was what you got. Want a suite? If so then pay for it. Simple math, fill the rooms, charge all the same and by inference treat everyone the same. I had two elderly aunts who lived in hotel suites for years after their husbands died, and there were many other folks who did the same in the 40's and 50's.
Now, in my view, hotels the balance had shifted, and they have decided to reward the most loyal and at the same time create a system that engenders both a feeling of entitlement on the part of the most loyal, and a reciprocal (at times) feeling on the part of the hotels that the most loyal are deserving of the best deals.
Almost three decades later, the loyalty business model seems to be shaken to the core--recent studies have shown that loyalty is often trumped by price, that personalization rather than points makes for a happy stay and stayer, and that declining benefits (a reality in any point earning system) are a thorn in the traveler's side.
Like First Class on an airplane, where very few travelers have actually paid full fare, the best rooms are often filled by those program members with the most points and status.
In my view, hotel programs have created a false sense of entitlement among the most elite members, and naturally we (they) expect to be treated that way at a hotel. It does not always happen. Many of us (even me at times)m are more demanding than we should be, asking for things that put an associate in a awkward position. But we are Entitled!
When I flew a lot I adopted the "IAIFCAYN" (I am in First Class and You're Not) attitude, at first refusing to make eye contact with the tourist class passengers threading the narrow aisles en route to their cramped quarters in the back of the plane. Someone, a person with whom I flew a lot, told me that being smug worked better, but I never went to that second step. It's not nice and serves little purpose.
So, as far as rants go, that's mine. Maybe it's time to reconsider what and why there is a loyalty program, what we get and what the companies get, and (gasp) go back to a simpler time, one where you pay and you get what you pay for.