BrainTrust Query: Is Breakage the Next Loyalty Dinosaur?
Through a special arrangement, presented here for discussion
is a summary of a current article from the Hanifin Loyalty blog.
Breakage — the
value of unredeemed points in loyalty programs typically due to expiration
or forfeiture — is a key influencing element of loyalty marketing financial
models. But attitudes towards breakage are changing, both from perspective
of the loyalty supplier community and consumers.
Brands aren’t in the
dark on this subject. In fact recent moves by Delta Airlines and Points.com
over the past month signal additional recognition that the accrued value in
loyalty programs is not a “shiny object” to
tease consumers with, rather it is truly an alternate currency that people
expect to have liquidity and be able to convert for value.
that it is teaming up with PayPal to allow its Aeroplan miles, American Airlines
AAdvantage Miles and US Airways Dividend Miles to convert into cash in member’s
PayPal accounts. It’s one thing to
flush your points for questionable value in the form of magazine subscriptions;
quite another matter to be able to convert miles into cash!
In concept, it’s
a great enhancement for Points.com and a boon for PayPal. The crucial driver
of success for the tactic will be the exchange rate set between the two currencies.
At this point, I’m not privy to the exact
exchange rate but I understand it will be distinct for each airline. Some consumers
are already crying about lack of value and we’ll have to keep a watchful
eye here. On the surface, it’s a great idea.
Delta Airlines meanwhile
announced that mileage no longer expires in its SkyMiles frequent flyer program.
Skeptics may contend that infinitely available miles will just make a seat
capacity problem that frustrates most frequent flyers even worse. Additionally,
it might seem to represent another step in making frequent flyer programs
tougher for the airlines to manage from a financial standpoint.
will opine that eliminating mileage expiration will spark brand affinity for
Delta in the short term and, if combined with some additional redemption options
(can Delta play in the PayPal arrangement or come up with some other ideas?),
will increase customer engagement over a longer term.
I’ll weigh in as
an optimist. With our estimates of Consumer 2.0 (those digitally connected
consumers including Generation Y and portions of GenX and Boomers) at or near
150 million in the U.S., brands that shift the emphasis of their rewards programs
from breakage to engagement will come out on top. Consumer 2.0 wants attainable
rewards on a more liquid basis. Conversion to cash through Social Shopping,
redemption at point-of-sale, and Social Giving are all options that this group
It’s good for the industry and for the consumer when
we witness brands encouraging engagement rather than hoping for breakage.
- Is Breakage the Next Loyalty Dinosaur? – Hanifin Loyalty LLC
- Points.com & PayPal Introduce a New Way to Use Your Miles – Points.com
- Delta Eliminates SkyMiles Expiration – Delta.com
Discussion Questions: Do you see retailers and other brands seeking new ways to engage their customers by making loyalty points easier to redeem? Will this improve short and long-term brand loyalty? What will the rewards structure around loyalty efforts look like in the future?