6/26/2014
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`An Open Economy in the Loyalty Rewards Space – Good For Whom? | LoyaltyShares
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`An Open Economy in the Loyalty Rewards Space – Good For
`Whom?
`
`Posted September 14, 2012 By Paul Hebert in Active Loyalty, Breakage, Loyalty Behavior, News, Redemption, Stock
`With | No Comments
`
`Recently Colloquy released a white paper on the future of loyalty reward programs. The whitepaper “An
`Open Economy: The Evolution of Loyalty in the United States” can be found here (free with registration.)
`
`The white paper walks through the evolution of loyalty programs (see image from the white paper below)
`and discusses the future of loyalty using history as a guide.
`
`An Open Economy
`The authors make a case for what they call an open economy…From the article:
`
`The open loyalty economy is a customer-centric marketplace—sparked primarily by
`technical innovation and mobility—in which loyalty rewards currencies function as a flexible,
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`http://www.loyaltyshares.com/2012/09/an-open-economy-in-the-loyalty-rewards-space-good-for-whom/
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`6/26/2014
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`An Open Economy in the Loyalty Rewards Space – Good For Whom? | LoyaltyShares
`fungible currency in commerce transactions. In that open economy, consumers will freely
`exchange and/or combine rewards currencies among programs and within an ever-expanding
`universe of merchants.
`
`The whitepaper provides data on points/miles, redemption patterns and who and how those rewards can
`be shared and transferred between programs. It’s all good info, and based on the obvious trend it does
`seem that there will be a day in the future where points/miles become just another currency – as ubiquitous
`and fungible as cash.
`
`And that – from a loyalty program standpoint – is a problem.
`
`Issuance Wars
`
`From a consumer standpoint I get that it is in my best interest to get as much as possible for my reward
`currency. That’s natural and normal. I also understand that a company wants their customers to be as
`happy as possible with their loyalty program and will do a lot to make sure they are.
`
`But just because customers want it doesn’t mean you should give it to them. What we all really want is
`customer engagement, and that requires a two-way street, not simply bowing to the requests of the
`customer and to the actions of our peer group. An “open economy” (IMHO) is a path to mediocrity,
`sameness and ultimately a devaluation of the whole loyalty ecosystem. We are setting up loyalty rewards
`as an entitlement – one side giving, the other side getting, and then demanding more and more. Where’s
`the end game?
`
`Here’s my prediction, once we enter the “open economy” we will enter an issuance arms race – where the
`loyalty program that issues the MOST points is the victor.
`
`When all the redemption options are the same – and they would be because a consumer can redeem
`pretty much for anything they want – then program differentiation can only occur on the issuance
`side of the equation.
`
`Complete ubiquity in redemption = escalating point issuance.
`
`If this happens, then loyalty programs become a very expensive way to give customers money. Why not
`just track the activity and send them a check? Better yet – track the activity and then give them a discount
`in real time?
`
`I also find it interesting the authors state in the introduction that the whitepaper will:
`
`…consider the implications for reward program operators, merchants and
`consumers.
`
`They do consider some of the possible benefits – but where are the downside risks? Those are never
`mentioned. I think there are some…
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`http://www.loyaltyshares.com/2012/09/an-open-economy-in-the-loyalty-rewards-space-good-for-whom/
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`6/26/2014
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`An Open Economy in the Loyalty Rewards Space – Good For Whom? | LoyaltyShares
`Loss of brand identity
`Loss of consumer control
`Loss of true brand loyalty
`Increased pressure to follow the leader
`Increased costs of issuance
`Possible decrease in breakage (not a big fan of managing to the breakage but it is and should be
`something to look at.)
`
`Is it just me or does this sound like an obituary for loyalty programs rather than an introduction to a
`glorious new age? Is this where loyalty programs end – back where they started as a simple discount
`program for multiple purchases?
`
`The authors conclude the white paper with this:
`
`…—it is incumbent on us all to balance the transition and remain firmly focused on
`customer-centricity. If we do this, rewards as “money” may indeed buy happiness for
`all.”
`
`Once reward programs become a proxy for cash any true differentiation between programs is lost. Once
`program differentiation is lost then it only makes sense to eliminate the cost associated with the program.
`
`Just send them the cash and that will make them happy.
`
`I’m I missing something here? How is making points/miles more “cash-like” making my customer more
`loyal to my brand?
`
`
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`Tags: Brand, Brand loyalty, Customer experience, Loyalty program, LoyaltyShares, Stock
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`« Marketer’s Pain and Loyalty
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