What is the price of loyalty?

Good loyalty programmes go way beyond logging points. They provide specific rewards — something that a 2 per cent discount cannot hope to match

As my friends and I were walking out of a restaurant we were handed a card, about twice the size of a standard visiting card. It had 10 numbers marked on it. The card we got had No 1 punched out and there was a small rubber stamp marking in its place. We enquired what the card was about. The person at the restaurant reception counter explained that this was the customer loyalty reward card. Once we complete nine meals in the restaurant, and had nine stamps on the card, the tenth meal was on the house. I kept the card in my wallet (it could be folded) but did not go back to the restaurant for many years.

If you are wondering which restaurant I am talking about, it is the one and only Rajdhani restaurant, famous for its thali. They just had one outlet in the crowded Zaveri Bazaar area in Mumbai. And the incident I just spoke of happened in the early 1980s.

Loyalty programmes have become a hot topic once again, what with Jet Airways selling, or planning to sell, their Jet Privilege FFP (frequent flyer programme), as a standalone asset.

The first ever modern day large scale loyalty programme was the American Airlines AAdvantage Frequent Flyer programme, launched in May 1981. That was quickly followed by United and Delta.

The joke doing the rounds some years ago was that all you needed to start an airline is a good FFP, since everything else could be ‘wet leased’.

In the US alone, $50 billion is spent by businesses on loyalty programmes and more than half of the top retailers have such a programme in place. According to a BCG review article, a typical US customer has 29 loyalty cards lying around his home (he or she cannot physically be carrying them around). But they are actively using around 12 of them. Even as far back as in 1993 the average airline traveller had 3.1 memberships running.

In the book How Brands Grow: What Marketers Don't Know, Australian academic Byron Sharp says that the benefits of loyalty programmes for companies is “disappointingly small”. The book goes on to build a case that brands grow only if they attract new users or ‘infrequent’ and ‘occasional’ users.

The NZ Marketing Magazine quotes a 2013 McKinsey study of 55 publicly traded companies across North America and Europe to show that companies with prominent loyalty programmes grew at the same rate or slightly slower over the previous 10 years than those with no or low investment in loyalty programmes.

So the news is not all that good — they add nothing of much value to the brand or airline or retailer concerned.

What about the outliers? Are there any?

From 1991 to 2010, Tesco achieved a 675 per cent growth in its bottom line, and experts agree that this was strongly aided by its loyalty programme, probably one of the best. The book Scoring Points: How Tesco Is Winning Customer Loyalty by Clive Humby, Terry Hunt and Tim Phillips captures the finer aspects of the Tesco programme.

Yet another global success story is the Starbucks programme.

What sets these apart?

It is said that most loyalty programmes are focused on providing discounts to members. These could be in the form of points to be redeemed or air miles that could be used for personal travel.

The better programmes go way beyond providing loyalty points. They recognise the individual members and provide them with specific rewards, something that a 2 per cent discount cannot match.

It is here that a programme like Jet Airway’s Jet Privilege FFP scores. It ranks every traveller based on their level of travel into Platinum, Gold and Blue. Based on the level, the airline extends various benefits that cannot be matched by a small discount. For instance, you are allowed to web check-in earlier than any other passenger. You are allowed to board along with full paying business class passengers. You are given upgrade vouchers and I remember shyly asking for an upgrade (with the voucher) on a flight from Mumbai to Colombo, and discovering that the airline staff were happy to oblige.

If you add all this up, Jet Airways has a valuable asset in its highly successful loyalty programme. It should be easy to ascribe a value to ‘loyalty’ and find a buyer who can invest and leverage the potential — something that may be a welcome addition to the host of services enjoyed by Jet Privilege FFP members.