Airlines

Do Changes in Loyalty Program Terms Equal Changes in Customer Loyalty?

Do Changes in Loyalty Program Terms Equal Changes in Customer Loyalty?

Companies offering tiered loyalty programs change program terms to balance costs and benefits and to gain new customers. Do they go too far?

In May, Cathay Pacific Airways announced significant changes to its customer loyalty program. At the time, Paul Loo, the airline’s Chief Customer and Commercial Officer, said the changes came from “listening to our customers and…looking at ways to show how much we value their ardent loyalty to Cathay Pacific and Cathay Dragon.”

By Len Vraniak

Beginning last week, the airline now offers higher mile rewards on about 80% of its tickets, including its lowest fare classes. It has lowered redemption costs on many of its award seats and is making more award seats available across cabin classes. At the same time, many upgrades and premium cabin seats purchased with miles will cost more.

Will increasing benefits for cost-conscious or infrequent fliers while raising costs on higher-revenue, more frequent fliers impact the airline’s bottom line positively or negatively? It’s hard to say at this point, but the question has implications for customer loyalty programs as a whole.

Risks of tiered loyalty programs

Every company that operates a tiered loyalty program–airlines, hoteliers, and retailers among them–has to determine how best to balance costs and benefits among their various tiers of customers. The risks are significant for companies who get this balance wrong: alienating existing or potential customers, losing  money on their loyalty program and damaging the company’s reputation chief among the risks.

Retailers like Macy’s and Kohl’s have both recently bet that lower-level loyalty programs–not requiring customers to hold the store’s credit card to gain benefits–will help them add new customers. Some argue that changing programs where customer loyalty has long been tied to use of a store credit card will lower profits and risk alienating loyal and profitable credit card-holding customers.

While the jury is still out on impact of the loyalty program changes at Cathay Pacific, Macy’s and Kohl’s, the airline may have an advantage because of the reservoir of goodwill it has with its customers, potentially blunting any negative impacts that individual consumers feel about the changes.

Company reputation may lessen impact of program changes

Cathay Pacific’s reputation is outstanding, measured by third parties like Skytrax: #5 among the world’s best airlines in Skytrax’s 2017 World Airline Awards and one of just ten airlines in the world to earn Skytrax’s 5-Star Airline Award). The airline was also #6 in Money magazine’s list of Best International Airlines in their Best in Travel 2018 rankings, where criteria included price and overall customer experience, along with in-flight amenities and service.

Travelers also have high regard for Cathay Pacific, naming it one of the best airlines in Asia in TripAdvisor’s Travelers’ Choice Awards for 2018.

Has Cathay Pacific struck the right balance between rewarding their infrequent, low-revenue passengers and their frequent, higher-revenue passengers in the premium cabins? Time will tell. But their reputation for giving outstanding service customers at all levels gives them a good shot at weathering any criticism of these latest changes to their loyalty program.The airline’s strong reputation demonstrates its ability to tend to the emotional side of customer relationships, something that pays extensive dividends for companies.

Len Vraniak is a reporter for The Wise Marketer.

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