Loyalty programs - worse than cigarettes or crack cocaine.

[juddles]

Your post reminds me of Bossregie's lament "Am I a frequent flyer?" (for those of us that have been here long enough to remember). A number of us hit the wall but there's just as many who continue to prosper in the game.

I do not remember that specific post of his, but I vividly remember Bossreggie! His outrageous lifestyle and "flair" added a certain thing that I still sorely miss here in AFF.

But forgive me if some of what I post can be interpreted as some sort of "lament". Yes, I am jaded. (Am actually getting much better now due to non travel ) I am not rich like Bossreggie, and my status has come at a cost that has been a huge but necessary financial burden. When I whinge it is me being honest about what I actually feel in the moment. OK?

 

[juddles]

I get virgin lounge access from the Amex charge card, for my 5-6 domestic trips a year it's awesome...I love it and I look forward to it and enjoy it immensely

If I was there in the same lounge as a gold or platinum it'd just be a big meh.. IMHO

daft009, this is exactly true. I have my own saying: "If you wake up each morning feeling peachy, eventually you will get sick of peaches". This situation is something I have pondered a lot. My high-flying years have been short enough that I still remember what it was like before. International Y travel on the coughpiest airline on the cheapest ticket, with lounges something that were something that I knew existed but never dreamed of entering. I cannot actually remember the first lounge access I had, but I am certain that half the fun would have been taken away by me being uncomfortable and not knowing what to do.

But getting back to the Loyalty thing, I think that the hype that programs have achieved has been sensationally succesful, mainly due to their ability to talk highly about the "perks" whilst completely hiding the actual cost that a consumer will have to pay to get there....

 

[33kft]

I think the reward program operators are getting a bit too much credit here. They collect information, of that I'm certain. Their ability to then assemble and parse it into anything more than the most basic of offerings seems to be lacking. Unless they are deliberately playing dumb, I'm almost 100% sure no supermarket has yet been able to work out that the card in my wife's name, at the same address as me, that I tend to use on the same day as my own, with the same payment method as my own, at the same stores, is actually me on the other end. Not only that, they seem happy to alternate between the two with offers to entice me back, giving me endless opportunities for returns (for example today, I bought my cereal, rice and eggs with bonus points on 1 card with 3 x points per dollar, then bought the rest on her card with 5 x points per dollar, both off the back of having not used them for 3 weeks thanks to a Coles 10K points for $50 per week promotion to lure me back there).

The question I would ask myself is: If they are such master manipulators, what did I buy recently that I wouldn't have otherwise? Given the need to eat (hence the supermarket visits) and the fact that no DSCs lately have meant no compulsion to go holiday anywhere spontaneously, I could quite confidently say there has been little enticement involved and yet I've got $450 saved up at Woolworths (from money I would have spent anyway) and around $200 at Coles, and 350K points up at QFF simply by spending on my cards.

If I had instead chosen not to participate, would I be any better off? By my reckoning, I'd be $650 in supermarket credit and 350K in QFF points worse off.

 

[33kft]

On the flip side, if none of us participated than we'd probably all pay less. If the macro price reduction was equivalent to the costs borne by the program, you could say we were better off, unless you're one of the more prominent/informed customers. Many will not take up the loyalty program offers, and many won't even reach the level required to gain a reward. The skilled, however, can leverage a significant spend (which I do have, given we're a young family and work from home when not on the road) and combine that with some amount of leverage in knowing the program terms and how to extract as much as possible for any given spend, and you'll be significantly better off than those who never make the effort.

It might sound unfair, but it's a pretty much what happens every day in the real world with people's skills handling their own finances and most people don't seem particularly concerned about leveling that playing field.

 

[juddles]

On the flip side, if none of us participated than we'd probably all pay less. If the macro price reduction was equivalent to the costs borne by the program, you could say we were better off, unless you're one of the more prominent/informed customers. Many will not take up the loyalty program offers, and many won't even reach the level required to gain a reward. The skilled, however, can leverage a significant spend (which I do have, given we're a young family and work from home when not on the road) and combine that with some amount of leverage in knowing the program terms and how to extract as much as possible for any given spend, and you'll be significantly better off than those who never make the effort.

It might sound unfair, but it's a pretty much what happens every day in the real world with people's skills handling their own finances and most people don't seem particularly concerned about leveling that playing field.

I hear you. And I agree, with what you say and with what others here have expressed about loyalty schemes in general - if some of the traps are taken out, likewise the ability for us who study these things to exploit loopholes will also possibly be closed.

I do not try to profess to be an expert, but in my simpleton ways I think the following:

(1) Nothing is free. Ever.
(2) Loyalty schemes are profitable schemes for the businesses. Which can only mean that at the end of the day, in general, what these schemes offer is worth less in real cash value to the consumer than what they spend in real cash to obtain same.

 

[PDog]

(2) Loyalty schemes are profitable schemes for the businesses. Which can only mean that at the end of the day, in general, what these schemes offer is worth less in real cash value to the consumer than what they spend in real cash to obtain same.

(My bolding)
Holistically, yes- I agree with you. But on an individual level, no- I think it is possible to ‘win’ at the loyalty game, but likely that comes at the expense of other less diligent? don’t care? consumers. I think this was 33kft’s point.

 

[33kft]

(1) Nothing is free. Ever.
(2) Loyalty schemes are profitable schemes for the businesses. Which can only mean that at the end of the day, in general, what these schemes offer is worth less in real cash value to the consumer than what they spend in real cash to obtain same.

Couldn't agree more, however I think we tend to think of these things as zero sum games, yet in reality it can be a lot simpler than that.

Exec 1: Since we instituted this loyalty scheme, our metrics show sales are up 12%, with those using our loyalty card showing a year on year increase of 20% blah blah blah
Exec 2: It's magic! We had an outside firm value the loyalty program and they say it's worth $150m on its own!
Director: Well done, thanks for the free money, here's a big fat bonus

And yet nothing was for free.... supposedly.... Sometimes it's just goodwill, shifting margins around or brand value derived from a well structured loyalty scheme used as a competitive mechanism paying for these things. It doesn't strictly require a 2% tax on your strawberries to pay for my loyalty benefits just like your strawberry prices only very indirectly pay for hiring Mary at the deli counter.

 

[juddles]

Couldn't agree more, however I think we tend to think of these things as zero sum games, yet in reality it can be a lot simpler than that.

Exec 1: Since we instituted this loyalty scheme, our metrics show sales are up 12%, with those using our loyalty card showing a year on year increase of 20% blah blah blah
Exec 2: It's magic! We had an outside firm value the loyalty program and they say it's worth $150m on its own!
Director: Well done, thanks for the free money, here's a big fat bonus

And yet nothing was for free.... supposedly.... Sometimes it's just goodwill, shifting margins around or brand value derived from a well structured loyalty scheme used as a competitive mechanism paying for these things. It doesn't strictly require a 2% tax on your strawberries to pay for my loyalty benefits just like your strawberry prices only very indirectly pay for hiring Mary at the deli counter.

33kft, I think a similar thing re executives has been a central part of my recent overall disillusionment with Qantas. I am talking about my whole love affair with the national carrier here - not just my own personal travel experiences.

Unlike many AFF people, I actually hold Alan Joyce in very high regard. I think he is a person with vision, someone who recognizes the extreme difficulty in running an Aussie airline in the face of so much international competition, and someone who has both come up with a plan for the airline to succeed and prosper, and who also has the weight and tenacity to drive forward with that vision. But I also came to think, in contrast to the expressed fortitude of the Qantas Loyalty success, that QF Loyalty could become the eventual downfall of the airline. Essentially an enemy hidden in plain view. I formed this opinion after learning a bit about who the current crew is that actually run it. I think they are dazzling AJ with exactly the sort of thing you said - statistics and metrics etc. But I think that the harsh attitude we have here collectively to QF and their loyalty program is just a few steps ahead of the general public. There will be backlash. Things like the ACCC report I see as the start of this process.

 

[33kft]

With the recent headlines around VA I suspect any exec at QF would be spruiking their own pet projects as being the competitive advantage keeping QF in the black. They pulled off a (difficult) positive PR event around a deval earlier this year and are actively expanding their partnership reach. About the only thing that could stop it now would be the ACCC - maybe you should make a submission @juddles

 

[trippin_the_rift]

I agree with this, and perhaps the impact of this has more truth than what I think I feel. Those tiny releases of dopamine (or whatever it is called) are in my understanding a basic driver of human behaviour.

That is exactly how it works!

With the recent headlines around VA I suspect any exec at QF would be spruiking their own pet projects as being the competitive advantage keeping QF in the black. They pulled off a (difficult) positive PR event around a deval earlier this year and are actively expanding their partnership reach. About the only thing that could stop it now would be the ACCC - maybe you should make a submission @juddles

Yeah exactly - my hat goes off to Qantas for the spin. The media bought it, the public bought it. The devaluation will increase prices for consumers by placing additional demand on inventory. It's a brilliant move by Qantas.

 

[exceladdict]

Such a good thread. Wish I jumped on board earlier. My best attempt to catch up:

FF Programs have always been a tool where if you are at the right end of the knowledge bell curve that one can extract better value than most. Yes they can be addictive and I have occasionally been drawn into promos that I should not have been. But overall I am quite ruthless in earning points where I gain advantage after considering BOTH the time and effort involved.

By understanding how they work one can use that to ones own advantage, but yes one does sell ones data in the process. However there are ways that one can manipulate this to one's advantage.

Mrs Excel often reminds me that I am probably not as smart as the team of data analysts, etc that Qantas loyalty employ. While I like to think I am gaming the system, I think she may be right.

Could there be pokies jackpots if nobody gambled?

I still have a long way to go but I've always felt... If you've earnt the high status repeatedly.. It just stops being special.

It's a trap as then you have to keep aiming higher and higher to enjoy more.. Bit like lifestyle creep i guess

"A higher standard of living does not mean a higher quality of life". Andy Stanley from a four part series called breathing room.

I've been presenting talks at conferences recently about how airline loyalty programs are able to envoke emotions that no other marketing program is able to achieve. The method is done through what you seem to be experiencing as addiction.

The program itself is NOT addictive. What is addictive is the small moments of love/joy/freedom the program (via the airline) makes you feel at specific touchpoints throughout the journey. Your subconscious is then associating these feelings of love/joy/freedom with the airline/brand. As you repeat the feeling of love/joy/freedom with the airline experience (eg: "Welcome back Mr xx_ I have your favourite Chocolate onboard today......enjoy" -- the feeling you receive from this you may interpret as LOVE - therefore - creating a new 'small moment' of LOVE in your brain with the airline brand).

Repetition + emotion of love/joy/freedom
Repetition + emotion of love/joy/freedom
Repetition + emotion of love/joy/freedom
Repetition + emotion of love/joy/freedom
Repetition + emotion of love/joy/freedom
Repetition + emotion of love/joy/freedom

Eventually - you become addicted to that feeling.

That feeling you associate with the airline/loyalty program.

In short - it's not the loyalty program you crave.

Rather - It's the feeling of love/joy/freedom that you have consistently experienced when being part of the airline/program.

Love/Joy/Freedom are the TOP 3 emotions we can feel as humans, and these are our 'true state' - it's what we want to feel as much as possible.
Airlines are able to hit on all 3 of these feelings due to the nature of the product.

That's why they work.
That's why you feel addicted.

You're addicted to the feeling of the airline/loyalty program.

I seem to remember a psych concept that unexpected rewards are more likely to train a new behaviour ie when teaching a dog to sit, you only give a treat some of the time. Random upgrades (if ever), or award flight availability, fit this perfectly.

I think the reward program operators are getting a bit too much credit here. They collect information, of that I'm certain. Their ability to then assemble and parse it into anything more than the most basic of offerings seems to be lacking. Unless they are deliberately playing dumb, I'm almost 100% sure no supermarket has yet been able to work out that the card in my wife's name, at the same address as me, that I tend to use on the same day as my own, with the same payment method as my own, at the same stores, is actually me on the other end. Not only that, they seem happy to alternate between the two with offers to entice me back, giving me endless opportunities for returns (for example today, I bought my cereal, rice and eggs with bonus points on 1 card with 3 x points per dollar, then bought the rest on her card with 5 x points per dollar, both off the back of having not used them for 3 weeks thanks to a Coles 10K points for $50 per week promotion to lure me back there).

The question I would ask myself is: If they are such master manipulators, what did I buy recently that I wouldn't have otherwise? Given the need to eat (hence the supermarket visits) and the fact that no DSCs lately have meant no compulsion to go holiday anywhere spontaneously, I could quite confidently say there has been little enticement involved and yet I've got $450 saved up at Woolworths (from money I would have spent anyway) and around $200 at Coles, and 350K points up at QFF simply by spending on my cards.

If I had instead chosen not to participate, would I be any better off? By my reckoning, I'd be $650 in supermarket credit and 350K in QFF points worse off.

I would like to think that my spend $50 for 4 weeks target at Coles doesn't influence my likelihood to buy blueberries even though they're full price.

But I'm sure it does, and even if I do outsmart their data scientists, it can't make the masses better off or it would lose Coles money, as you have said.

On the flip side, if none of us participated than we'd probably all pay less. If the macro price reduction was equivalent to the costs borne by the program, you could say we were better off, unless you're one of the more prominent/informed customers. Many will not take up the loyalty program offers, and many won't even reach the level required to gain a reward. The skilled, however, can leverage a significant spend (which I do have, given we're a young family and work from home when not on the road) and combine that with some amount of leverage in knowing the program terms and how to extract as much as possible for any given spend, and you'll be significantly better off than those who never make the effort.

It might sound unfair, but it's a pretty much what happens every day in the real world with people's skills handling their own finances and most people don't seem particularly concerned about leveling that playing field.

Are we ok with pokies, tobacco, you name it ruining some people's lives, while the tax revenue from the masses pay for roads etc?

I think we are inherently flawed and selfish, and as long as loyalty programs make us feel important (read how to win friends and influence people), they will be successful.

Whether it's a toaster or a piece of toast at 30k feet, if you're made to feel important when you receive it, you'll quickly forget the money you may have wasted "earning" it.

Yet, I continue to play the game. Tut tut tut

 

[trippin_the_rift]

Who wouldn't be addicted to it?!

 

[33kft]

Are we ok with pokies, tobacco, you name it ruining some people's lives, while the tax revenue from the masses pay for roads etc?

Well I'm not sure exactly what this says, but Coles and Woolworths are divesting themselves of pokies and liquor arms in an effort to reduce their social impact, but keeping their loyalty program, so make of that what you will

Woolworths to offload its pokies, pubs and liquor businesses

Supermarket giant under pressure to divest from gambling after Coles announced its exit in March

www.theguardian.com

 

[Kolo]

I do not remember that specific post of his, but I vividly remember Bossreggie! His outrageous lifestyle and "flair" added a certain thing that I still sorely miss here in AFF.

But forgive me if some of what I post can be interpreted as some sort of "lament". Yes, I am jaded. (Am actually getting much better now due to non travel ) I am not rich like Bossreggie, and my status has come at a cost that has been a huge but necessary financial burden. When I whinge it is me being honest about what I actually feel in the moment. OK?

Absolutely. Forgiveness not required; I didn't think your post was a whinge, and there's nothing wrong with a lament. I no longer travel for business so have stepped off the loyalty game, relying now on my Amx for its various travel benefits (still a level of loyalty I suppose, but not wedded to one airline or one hotel chain). I still also play the CC churn game, probably the most valuable thing I have learnt on this site.

I suppose my comment notes that there are probably many of us that feel the same as you, and Bossregie, where all the striving for the benefits overtakes more important things in life, and recognising that helps bring balance and perspective to making the most of our love of travel.

 

[Dec1971]

Great post to kick start this discussion.

Often I sit there in the office dreamily looking at the view over Sydney Harbour wondering why I spend so much emotional ammo on maximizing status. I think if I was paying out of my own pocket then my view on the loyalty programs would be different. Fortunately the business pays to makes it easier to play the game a bit - mind you I am the majority shareholder so I am basically paying out of my own pocket in any case. And that my friends sums up the madness of it.

The freedom of not being aligned/married/indebted/under the control of/brainwashed by an airlines loyalty program I am guessing would be similar to going off grid on some desert island with no wifi or mobile reception. Invigorating, relaxing, and bloody scary lol.

 

[Pleb Status]

Rather than cigarettes or crack cocaine, I would like to argue that loyalty programs are more akin to gambling.

The loyalty programs generally market themselves as offering 'more' for 'less' (or even 'free'). This is similar to offering odds on a bet. Spend say $500 and get the chance of (as obtaining a particular reward is not guaranteed) a $1000 reward. The better the perceived odds, the greater the attraction to the loyalty program. This is why the airlines spruik J and F rewards (which have the highest perceived odds with the general public) but the chance of actually redeeming these rewards when you want them is low and the actual (not perceived) odds may not be worth the investment risk.

I estimate (and the loyalty program financial results prove) that most (say >75%) program participants actually lose money overall and would be better off if they were never involved (just like gambling). If most participants made a profit, the loyalty programs would operate at a loss...

What makes loyalty programs more insidious than say gambling at the casino is the cost of the bet and odds of the bet are obfuscated and can actually change at anytime (and generally the change is detrimental to the customer).

Almost no one actually sits down and determines the exact cost of being part of a particular loyalty program and most will massively overestimate the value of the rewards received (the value is the amount you would actually pay in cash for the reward, not the inflated value the program attributes to the reward). The perceived odds of the bet are therefore thought to be far higher than what they really are (and they could actually generate a loss).

The loyalty programs are highly profitable due the above. I would be confident that a forensic audit of many of those here who state that they make a profit out of participating in the loyalty programs actually make a loss (and these losses may be significant). Even if the audit revealed a cost neutral result, the investment risk (like an increase in redemption rates) may make participation marginal at best. Some will obviously make a profit in playing the game, but they are a small minority.

Problem gamblers must keep going back due to the feeling they get when they have a big win and they forget about all of their losses. Problem loyalty program participants must keep coming back due to their overestimation of the benefits received (like a recent example on AFF of scrounging a J reward seat, but you have to fly more than 7 hours out of your way and it also required an additional 15 hours of paid Y) and underestimation of the costs of participation.

We have legislation governing gambling so do we also need legislation governing loyalty programs? Particularly as loyalty programs are very opaque, can be difficult to understand fully and the T&C are very one sided...

 

[PDog]

Rather than cigarettes or crack cocaine, I would like to argue that loyalty programs are more akin to gambling.

The loyalty programs generally market themselves as offering 'more' for 'less' (or even 'free'). This is similar to offering odds on a bet. Spend say $500 and get the chance of (as obtaining a particular reward is not guaranteed) a $1000 reward. The better the perceived odds, the greater the attraction to the loyalty program. This is why the airlines spruik J and F rewards (which have the highest perceived odds with the general public) but the chance of actually redeeming these rewards when you want them is low and the actual (not perceived) odds may not be worth the investment risk.

I estimate (and the loyalty program financial results prove) that most (say >75%) program participants actually lose money overall and would be better off if they were never involved (just like gambling). If most participants made a profit, the loyalty programs would operate at a loss...

What makes loyalty programs more insidious than say gambling at the casino is the cost of the bet and odds of the bet are obfuscated and can actually change at anytime (and generally the change is detrimental to the customer).

Almost no one actually sits down and determines the exact cost of being part of a particular loyalty program and most will massively overestimate the value of the rewards received (the value is the amount you would actually pay in cash for the reward, not the inflated value the program attributes to the reward). The perceived odds of the bet are therefore thought to be far higher than what they really are (and they could actually generate a loss).

The loyalty programs are highly profitable due the above. I would be confident that a forensic audit of many of those here who state that they make a profit out of participating in the loyalty programs actually make a loss (and these losses may be significant). Even if the audit revealed a cost neutral result, the investment risk (like an increase in redemption rates) may make participation marginal at best. Some will obviously make a profit in playing the game, but they are a small minority.

This is interesting. My 'loyalty' program is velocity as that's who we fly for work, and therefore a boost towards earning status.
I'll churn QFF points when they're cheap & easy, and on reflection get better value out of these (most recently easily winning when the cost of points + tax in F is less than the Y airfare) Maybe 'better value' is easier to obtain when the transaction is more pragmatic?

 

[MEL_Traveller]

The loyalty programs are highly profitable due the above. I would be confident that a forensic audit of many of those here who state that they make a profit out of participating in the loyalty programs actually make a loss (and these losses may be significant). Even if the audit revealed a cost neutral result, the investment risk (like an increase in redemption rates) may make participation marginal at best. Some will obviously make a profit in playing the game, but they are a small minority.

I think there are two very different ways of participating in a loyalty program and trying to maximise the benefits.

Some will chase status in the hope of getting lounges, better seats and the chance of an upgrade. That's potentially going to cost a lot of money, and perhaps more than the benefits you receive. The international upgrade lottery is an example of squeezing every last dollar out of someone... you need to pay a higher fare just to be in the running for an upgrade, and you try and get platinum so you can be at the front of the upgrade lottery.

The other is not by chasing status, but availing the other opportunities... like buying miles. Many of us will have saved many tens of thousands of dollars buying miles through US Airways, American Airlines, Avianca, United, even British Airways (avios). The airlines are still making nice profits off all those sales, but we as consumers are also benefiting through much lower fares. Generally you are also protected against mileage devaluations because you buy the miles for a specific award (buy and burn fairly close together).

By not chasing status you also have the freedom to mix and match airlines, and take advantage of opportunities such as the Oman Air $500 business class flights from Asia to Europe (crediting to EY so you can get a free US domestic flight on AA at another time )

There is of course a third category... 'passive' participation. You accrue points through every day spending, but don't go out of your way to buy anything you wouldn't normally buy, and aren't tied to a single supplier. The risks here are very low, but so are the rewards.

 

[PDog]

I think there are two very different ways of participating in a loyalty program and trying to maximise the benefits.

Some will chase status in the hope of getting lounges, better seats and the chance of an upgrade. That's potentially going to cost a lot of money, and perhaps more than the benefits you receive. The international upgrade lottery is an example of squeezing every last dollar out of someone... you need to pay a higher fare just to be in the running for an upgrade, and you try and get platinum so you can be at the front of the upgrade lottery.

The other is not by chasing status, but availing the other opportunities... like buying miles. Many of us will have saved many tens of thousands of dollars buying miles through US Airways, American Airlines, Avianca, United, even British Airways (avios). The airlines are still making nice profits off all those sales, but we as consumers are also benefiting through much lower fares. Generally you are also protected against mileage devaluations because you buy the miles for a specific award (buy and burn fairly close together).

By not chasing status you also have the freedom to mix and match airlines, and take advantage of opportunities such as the Oman Air $500 business class flights from Asia to Europe (crediting to EY so you can get a free US domestic flight on AA at another time )

There is of course a third category... 'passive' participation. You accrue points through every day spending, but don't go out of your way to buy anything you wouldn't normally buy, and aren't tied to a single supplier. The risks here are very low, but so are the rewards.

Nailed it.

 

[RooFlyer]

Sorry, not time enough to read all of @juddles first post, but I got the gist. The TL;DR version above I think was on the money.

For me, I don't do 'loyalty'. Never done flybuys etc. Don't believe the $ savings are material, or, in the long run, even real to exchange for such intimate data on my spending.

i used to do hotel loyalty, when I did a LOT of hotel stays. It worked for a while, then they kept chipping away at the benefits, so I gave it away. Stuff 'em. A few coughpy lounge sausage rolls or coughpy breakfast coffee for staying at places that aren't convenient. Now I belong to all the major hotel chain schemes, stay where I want to, accumulate some benefits and occasionally get a cheap night's stay. Don't care if Doug-from-Montana recognises me or not when return.

I still do Airline FF schemes (love the distinction @amaroo ) but I'm not 'loyal' at all. Sure, my data is being sold, but hands on heart, I don't think I ever see, let alone take notice of ads which flow from it. I pick the eyes out of the schemes and let the rest go through to the 'keeper. I swill in the lounges, use the partner benefits, get priority, but it doesn't influence me to book my next flight with 'em. Screw 'em.