Will Points-based Currency Potentially Usurp Cash as King? (654)

Paula: Hello and welcome to Let’s Talk Loyalty and Loyalty TV, a show for loyalty marketing professionals.

Paula: I’m Paula Thomas, the founder and CEO of Let’s Talk Loyalty and Loyalty TV, where we feature insightful conversations with loyalty professionals from the world’s leading brands.

Paula: Today’s episode is part of the Wiser Loyalty series and is hosted by Aaron Dauphinee, Chief Marketing and Business Development Officer of the Wise Marketer Group.

Paula: The Wise Marketer Group is a media, education and advisory services company, providing resources for loyalty marketers through the Wise Marketer Digital Publication and the Loyalty Academy program that offers the certified loyalty marketing professional or CLMP designation.

Paula: I hope you enjoyed this episode brought to you by Let’s Talk Loyalty and LoyaltyTV in partnership with the Wise Marketer Group.

Aaron: Hi everyone, welcome back to another edition of the Wiser Loyalty Podcast series.

Aaron: This series continues to be brought to you by partnership with the Let’s Talk Loyalty and the Wise Marketer.

Aaron: And throughout 2024, the Wise Marketer Group, CEOs Bill Hanifin and of course myself, Aaron Dauphinee, who is the CMO of WMG.

Aaron: We both shared our insights on Loyalty constructs and topics that were inspired by one of our core courses in the Loyalty Academy’s certified Loyalty Marketing Professional Curriculum.

Aaron: And we use the short form CLMP for those who are unfamiliar with that.

Aaron: This year in 2025, we’re actually shifting from this more academic focus to seek out insights from practitioners of the trade such as our CLMPs and those who are leading from the C-suite in particular.

Aaron: Twice a month, we’ll bring you an interview with a C-level executive or CLMP who’s really transformed strategy into practical application and generated strong business results from customer loyalty.

Aaron: I’ve been looking forward to this conversation for some time now because it’s with an individual that I’ve known close to, oh gosh, 15 years now.

Aaron: And in my opinion, he’s one of our industry’s loyalty leaders when it comes to loyalty finance, as well as overall loyalty strategy.

Aaron: And that is, of course, Evert de Boer, who joins me from Signenborg today, while it’s actually his evening and my morning here in Toronto.

Aaron: But welcome, Evert.

Evert: Thanks a lot, Aaron, super to be here.

Aaron: Great.

Aaron: And then just before we hop into our conversation, and just because I know your story and it’s a well-storied career, doesn’t mean that others necessarily do.

Aaron: So if I could take a second to give an overview of your experience.

Aaron: For those of you who don’t know Evert, he’s currently the managing partner at On Point Loyalty, which is a global advisory firm that is exclusively niche to Loyalty Finance and Strategy, I would say.

Aaron: And he’s also the CEO at Fidivio.

Aaron: I’m sorry, I apologize if I get that off, but he’ll correct me.

Aaron: Which was the built, his company built the first off-the-shelf Loyalty Program Financial Analysis Tool.

Aaron: I think that’s the best way that Evert describes it.

Aaron: And we’ll come back to dig into each of these areas more in just a second.

Aaron: But to finish off the heritage, Evert’s roots in Loyalty are back to 2000.

Aaron: So, very similar to my own, in fact.

Aaron: He started on client side at KLM, then shifted to the agency marketing service provider side at Carlson Marketing and then AMIA.

Aaron: And that’s where we met.

Aaron: So, all up, he’s provided strategic guidance to leading companies globally, including more than 40 airlines at this point.

Aaron: And he certainly is recognized as an industry specialist, indeed.

Aaron: So my final comment before I let him tell more about himself is Evert is an industry thought leader, in my opinion, and has published numerous articles and white papers on Loyalty Strategy and Finance, including being published in the Harvard Business Review.

Aaron: And he’s now the author of two books.

Aaron: The first was Strategy and Airline Loyalty that he did in 2017.

Aaron: And now very recently, which is what we’ll spend time on today, his new book is out called Loyalty Programs and the Currency Effect.

Aaron: So welcome, Evert.

Aaron: I think maybe the first question to keep on talking about books is perhaps, it’s perhaps apropos that I say, you know, what are your, what is the book that you’re currently reading right now?

Aaron: And why is that the most fruit?

Aaron: And what are some of the most fruitful takeaways that you have from it so far, just to kind of get to know you?

Aaron: We’ll think about authorship here.

Evert: That’s a good question.

Evert: Before I go into the question, one addition, so my last book, I should say our last book, because it was co authored by my colleague, Xiao Yao Chin, who is a partner at On Point Loyalty in the Kuala Lumpur office.

Aaron: Fair enough.

Evert: I’m here as sort of elected representative today, but she’s very much also an author of that book.

Evert: Yeah, to come back to your question, I was looking around what books, I typically have books lying around and I read different books at different times.

Evert: And at the moment, I’m reading three books.

Evert: None of them have anything to do with loyalty, except one.

Evert: Oh, perfect.

Evert: So the first book I’m reading is a Dutch book about the Munich Olympics.

Evert: It’s like a documentary style book and it explains what happened there.

Evert: It’s called A German Winter.

Evert: No, sorry, A German Summer, I should say.

Evert: It’s a very interesting book.

Evert: The second book is A Perfect Sky, A Spy by John de Carre, which I’m just getting into.

Evert: Supposed to be really good.

Evert: And the third book is a French novel that I’m reading in Dutch because my French is nowhere near what it needs to be, which is called Connemara by a French author called Nicola Mathieu.

Evert: I think it’s a great book and there is one little story line in there or part of the story is around consulting, which is quite entertaining to read.

Evert: So yeah, sorry, nothing to do with loyalty, but sometimes it’s nice to do something else.

Aaron: Yeah, I think that’s refreshing and we all have to take note that loyalty for some of us is our profession, but it’s not our full person, right?

Aaron: And so it’s great to see that you got that diversity and find it fascinating that you can read three at the same time.

Aaron: Do you alternate between each of them?

Aaron: Is that your regular type of style in terms of consumption of books?

Evert: Yeah.

Evert: So typically I’ll take books with me when I go traveling, which is a lot as you can imagine.

Evert: So I’ll take one book and then it sort of rotates.

Evert: It’s completely random.

Aaron: Perfect.

Aaron: Perfect.

Aaron: Hey, let’s keep on this concept of authorship and dive into your last book that you just published with your partner.

Aaron: It’s called The Loyalty Programs and Currency Effect.

Aaron: And you’ve positioned it as essentially, I’ll read the subtitle, A Comprehensive Guide to Realizing the Power of Points.

Aaron: And so first, congratulations.

Aaron: But perhaps let’s start off with giving a top line to our listeners of what they can expect from reading this book.

Aaron: Because when I took a glance at it, it gets something different than other Loyalty books have.

Aaron: You’re getting at a root of a different type of view into Loyalty.

Aaron: And certainly that’s around the management of Loyalty currencies and their underlying value.

Aaron: Yes, maybe I’ll let you speak for yourself on this.

Evert: Yeah, Nobel, I think you’ve summed it up really well.

Evert: It basically in the book, or the book is a reflection of a realization that we made progressively over time doing all the work that we do in the Loyalty space.

Evert: And working with our clients, we increasingly realized, and also from observations from other companies in the industry or in industries, that loyalty traditionally sits in the marketing domain, and it’s very focused on advancing what some people call the Loyalty Effect, or what we describe as the Memory Effect, which you could sum up as trying to push share of wallet, increase retention, reduce churn, and all that good stuff.

Evert: And there is a never ending body of literature available on that.

Evert: How do you design the programs?

Evert: What kind of targets do you set?

Evert: How many tiers should you have?

Evert: And so on and so forth.

Evert: At the same time, what has happened is that loyalty programs have initially in an experimental way started to sell some currency, and started to realize that there is some revenues to be made from points monetization.

Evert: On top of that, the effects that are traditionally sort of pursued by a loyalty program.

Evert: So, and then I think we realize two things.

Evert: One is that by now, the selling of the points can actually be so material.

Evert: It can be perhaps as big as its original objective.

Aaron: Right.

Evert: And secondly, I think you know, I know, everybody knows that measuring the effectiveness of loyalty programs is actually quite difficult to understand, oh, a gold member, why does he or she stay in this particular hotel chain?

Evert: Is it because he or she is a gold member or is it because there’s a corporate deal or there’s lots of properties in the destination where these people travel or whatever reason?

Evert: So, distilling the net incremental effect of a loyalty program, we’ve seen this over and over again with clients, is really hard to do.

Evert: Whereas if we look at the currency side of the business, it is pure math.

Evert: It is super straightforward.

Evert: You sell points to partners.

Evert: They could be both internally within the group and external as well.

Evert: You buy rewards, you have overheads, and ultimately you have a bottom line.

Evert: So that you can express very simply as an income statement.

Evert: In an aha moment, we realized, so it’s not only material, but it also offers the benefit of being able to articulate it in a way that even the most senior levels of management can understand.

Evert: Because again, we know from experience, sometimes the CEO, CFO, the loyalty program, yes, we like our loyalty program, but how effective is it?

Evert: Don’t really know.

Evert: Yes, of course, we love our members.

Evert: It’s very important.

Evert: This currency effect does justice to the value and the ability to generate and articulate value.

Aaron: Yeah, I like the way you described that to get to that simplistic effect because as we talk with a number of brands and even marketing service providers, the call to action really as one of the decision makers is not just the CEO, but the CFO by and large.

Aaron: So breaking it down into a simple formula that they can understand at the C-suite, but then also the business and the operators can also understand through down to, you could argue even the analyst level, is a value add.

Aaron: Just building on that again, you talked about this kind of expansive loyalty programs.

Aaron: Adam Daniels, who is the CEO at IAG Loyalty, who operates Abios for those people who don’t know, wrote your forward for your book.

Aaron: He talks about looking ahead to a really key question on whether this proliferation of loyalty programs will be continued to be, as he called it, quote unquote unbridled.

Aaron: Can you outline for our listeners kind of the school of thought that Adam is referencing?

Aaron: I’m sure you spoke with him about this as you were developing the book and really what I’m more curious about is like in your opinion, what’s next on the horizon for loyalty and how do we articulate that and then how does it frame back to the book?

Evert: Yeah, I would suggest we can apply two lenses there.

Evert: The first one is looking at how big loyalty currencies are today and they are big.

Evert: And some people have said that loyalty marketing in fact is the most prominent or the most important marketing tool of the 21st century because of everything it offers and what it can do in terms of building relationships with consumers.

Evert: And it’s very big.

Evert: If you look at the scale of points today, so we did a bottom-up or top-down, depending on how you look at it, estimation of how many points are being generated every year.

Evert: In our estimates, 300 billion US dollars worth of points is issued every year.

Evert: And how did we do that?

Evert: Real quickly, we looked at middle-income, higher-income economies around the world, where there’s a reasonable assumption that loyalty programs are being used.

Evert: Then we say loyalty programs, they typically penetrate a certain percentage of household spent.

Evert: And then we know what is the rough investment rate.

Evert: So basically, we can calculate how much money is being spent on a household level, what proportion of that is earning points, and what do companies typically invest.

Evert: And roughly, that means give or take 300 billion US worth of points issued every year.

Aaron: And that’s globally, right?

Evert: That’s globally.

Evert: Yeah, absolutely.

Evert: And if you then sort of take into account outstanding balances, we come to the conclusion that, in fact, loyalty points are perhaps the third largest foreign currency reserve in the world.

Evert: In other words, it is the third largest after the US dollar and the euro, it is the largest foreign currency virtually cumulatively in the world.

Evert: So it is really, really big.

Evert: Then looking forward, I think what Adam is referring to a couple of different things.

Evert: And also, I think in the book, we identify future scenarios.

Evert: One is there still is room for growth.

Evert: And in fact, I think there is research, I can’t remember the company, we quoted in the book, but they say, so yes, a lot of companies, loyalty programs, the ones that don’t have it, the majority are planning to have it.

Evert: So it will grow.

Evert: Also, we think that people will invest more in loyalty currencies because of the unique characteristics of points.

Evert: And I’ll take a moment to explain that a little bit better.

Evert: So we think that points over time have become more and more like actual money, because it is clearly identifiable, it’s quite stable, the denominations work.

Evert: And also, it offers unique characteristics that cash don’t, or cannot, for companies, meaning people, consumers, they make different purchase decisions or have different price sensitivity when they’re using points.

Evert: You can use different channels, you can use different pricing tactics.

Evert: There are certain products or services that you would never discount because you want to maintain the integrity pricing.

Evert: But by using points in an opaque way, there’s things that you can do that you would otherwise not do.

Evert: So points are basically an extension of the toolkit.

Evert: One of the attractive features, of course, is that it’s fully within your control.

Evert: You set the redemption levels.

Evert: It’s like a central bank, but then even better.

Evert: So yes, companies like it a lot, they will invest more.

Evert: For consumers, the well-run loyalty programs, points represent an avenue to reward value that cash can never match also.

Evert: So the points unlock value, access to rewards, products and services, that cash not match either because they’re not offered for cash or at a pricing level that cash would never be able to match.

Evert: So in that sense, it’s to use an overused term, it’s a win-win.

Evert: It’s good for firms, can be good for consumers.

Evert: So that’s number one, there will be increased growth.

Evert: Number two, Trent, if everybody is going to have a loyalty program, that is too much.

Evert: In that case, we suspect there will be super currencies.

Evert: The winning currency that offer a lot of utility, and where people will basically say, you know what, I think the expression is, I’m going to hitch my wagon to a winning loyalty currency, and not run my own currency because I cannot compete with those super currencies.

Evert: So yeah, we think that will happen.

Evert: There is a third trend in the book that escapes me right now, but overall, I think there is still room for growth, and people are really starting to sit up and realize, you know, managing a loyalty currency, it can unlock a lot of additional value if done in the right way.

Aaron: I love that.

Aaron: And if I use the colloquialism to some degree, it feels like, you know, we always talk about cash being king, but this is like almost like point space currency is going to usurp cash to some degree, or is rising up in the monarchy, so to speak, because of the ways that you described that it can be utilized more effectively.

Aaron: And then second, what we are seeing is very much in line with this push towards a common currency that is not necessarily in the old coalition definitions, but certainly, as you described, it maybe is more eloquent in terms of there’s a super currency and others are attached to it as to rise up with them in it.

Aaron: So rising tides raises all boats, as opposed to going and creating your own.

Aaron: And there, of course, is just the, you know, from a brand perspective is can I live with issuing someone else’s currency or not versus my own and that’s a branding question necessarily versus applicability or an operational component.

Aaron: So that’s very interesting.

Evert: In that context, I think Qatar or IEAG and Qatar are interesting examples.

Evert: IEAG loyalties issues avials and Qatar Airways has made a evaluation to say, okay, you know what, we’re going to keep our own program, but we’re going to adopt avials as a currency.

Evert: And they must have looked at pros and cons and ultimately considered what are the upside, what is the upside from entering into a monetary union with a common currency and they went for it.

Aaron: No, it makes sense.

Aaron: And I think we’re going to see more and more of that.

Aaron: And travel, I think, is the right sector that will probably lead that, in my opinion.

Aaron: I know you’re well-versed in the travel sector, lots of experience, like maybe you can offer an opinion and perspective for how this plays differently in travel versus other sectors.

Aaron: Like what are the key drivers that loyalty markers need to think about from a perspective when they’re in the travel loyalty space with this and or if they’re transitioning from another sector into loyalty and travel.

Aaron: I know there’s a lot of us move around from sectors to sector in loyalty.

Evert: Yeah.

Evert: But to be honest with you, one of the, well, I wouldn’t say driver, but one of the considerations in writing this book, in a follow-up to the previous book or my first book, my first book was exclusively on airline loyalty.

Evert: And I think we can all look at airline loyalty and basically say, well, they’ve done a lot of interesting things and we can learn from them.

Evert: I think with this book, the currency effect, our hypothesis really is that it cuts across different industries.

Evert: Of course, in travel, when you are an airline or a hotel, or perhaps a cruise company, or perhaps a train company, you have tons of assets that are really aspirational, high perceived value, potentially low actual cost, because you’re dealing in perishable goods.

Evert: And that really puts you in a sweet spot.

Evert: And that may be different when you’re selling insurance or pharma, or fuel, then, yes, I agree, life is a little bit more difficult in that sense.

Evert: At the same time, one of the greatest kind of aha moments that we had in writing the book, and basically pouring all our cumulative knowledge into it, was effectively what you need to do, regardless of the industry, you effectively need to manage for two dimensions.

Evert: The first one is what we call preferentiality, the extent to which the points give preferential access to rewards that cash cannot match.

Evert: The example of travel, if I redeem, let’s pick on Aeroplan, I can redeem 70,000 Aeroplan miles and fly in business class from Vancouver to Hong Kong.

Evert: That value is cash can never match that, because the airlines will never sell you the equivalent of 70,000 miles at one-and-a-half cent per mile fares, because it will completely erode their pricing integrity.

Evert: That means a very high level of what we call preferentiality, and consumers love this.

Evert: The opposite end of the spectrum is a cashback program, where you say a point is worth a dollar, and you may say, well, that’s really transparent and really simple to get my head around, but there’s really no magic there.

Evert: So you need to consider, where do I sit on that spectrum?

Evert: Low preferentiality, high preferentiality.

Evert: This is challenge one.

Evert: The second challenge is, and this is something that’s certainly also against the backdrop in the context of AMIA made us think a lot, you have reward suppliers, maybe internal, external.

Evert: You need to decide jointly or somehow, how much are you going to pay them for the rewards that they provide to you?

Evert: Are you going to pay them the full opportunity cost, or are you going to pay them a discounted rate?

Evert: Because in some cases, there may be value in saying, you know what, I’m not going to pay you the full rate, I’m going to give you a discounted rate, but that could actually be matching the effective market rate because it’s perishable or out of season or whatever else.

Aaron: It’s just a sedentary conversation.

Aaron: Okay, yeah, very good.

Evert: Exactly.

Evert: And then by taking that sort of cut on the reward compensation, it allows you to invest in the customer value proposition.

Evert: So in other words, in some cases, you may want to run a program where you say, I want to have a preferential currency where I’m taking a little bit of a hit on how much I get for providing the rewards, but it’s going to pay dividends in a much stronger loyalty program that may be more effective.

Evert: In fact, will drive the member or the loyalty effects even more.

Evert: Also nowadays, with everything that’s happening, with companies setting up separate P&Ls and separate companies, I may benefit from a higher enterprise valuation.

Evert: Now, of course, some people will say, oh no, no, no, this is financial engineering.

Evert: It’s just trying to increase the valuation.

Evert: I would say, no, for two reasons.

Evert: Primarily, I think that there is a self-correcting mechanism.

Evert: You cannot yank value out of the value proposition with impunity, because your members, consumers are smart.

Evert: They seek out where the value is.

Evert: If you try to close the valves of redemption or steer people exclusively to lower cost redemptions, they’re going to walk away.

Evert: That will hurt your ability to monetize your points, either internally, because the program will be less effective or with partners externally.

Evert: That doesn’t really work.

Evert: The second point is, I think that it is really time for programs to come out of the marketing domain and ship that marketing DNA, to really appreciate the fact that if you run a currency, you need so much more than marketing.

Evert: You need data analytics, you need operations research, you need breakage reliability management, all sorts of marketing automation, all sorts of partner management.

Evert: You need dedicated finance people, you need legal counsel that are well-versed in loyalty programs.

Evert: With that, it makes a lot of sense to say, separate it as a P&L, as a profit center, and then it can generate a robust profit, ultimately for the group.

Aaron: Yeah, I think that’s an interesting topic.

Aaron: Let’s maybe move down that.

Aaron: The industry itself has often talked about the idea of creating it as a P&L to spin it off because there’s a creative value that is very clearly, market capitalization is in the jewel of market capitalization.

Aaron: Let’s say it that way, is actually the loyalty program itself.

Aaron: And so with airlines, so we’ve seen a lot that spun off and came out, Airplane was one, and now it’s back under the umbrella of Air Canada.

Aaron: Again, what’s your view on that?

Aaron: Is that when you set it up as an independent P&L, is that the path forward or as you talked about, because it needs to step outside of marketing and encompass all these other attributes, it should be actually infused and maintained within the larger organization and brand.

Aaron: Where do you see the future going on that?

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Evert: Yeah, that’s a very big question with a very gray answer, I would say.

Evert: I think one of the key considerations is, if you want to run an effective loyalty program, you need to be able to operate with speed and precision.

Evert: If you’re embedded or locked down in a marketing department, you don’t have the degree of autonomy that you need to, as you say, fire on all cylinders.

Evert: You need to be able to, and we see it with lots of clients.

Evert: They have a strong business cases, lots of interesting initiatives, but they can’t do it because there’s not enough resources or there’s conflicting resources.

Evert: That doesn’t work.

Evert: Our hypothesis is, there is so much value in the loyalty program, you need to let it run as course and let it run at full speed, and separation is a way to do that.

Evert: Then the second question is, to what extent do you want to put it in a separate entity and maybe do segmental reporting?

Evert: I think that’s a completely different question.

Evert: Yes, of course, everybody points at arrow plan and says-

Evert: Yes, but of course, arrow plan is also a bit of a standalone case in the sense that 100 percent was sold and then yes, it was repatriated later on, and I think for different reasons.

Evert: Yes, there have been other instances in the airline space in South America predominantly, where there was an equity carve out and later they were brought back in.

Evert: I think it’s hard to say that with that the model works or does not work.

Evert: I think arrow plan is probably one of the most interesting things about arrow plan is that, and I think to some extent Qantas is also a case study for that.

Evert: The separation and the resulting focus on the performance of arrow plan, I think really allowed it to focus on building the program that everybody seems to love and like today, where you say, wow, an arrow plan, the value that I get from my mouse, the ability to combine star lines carriers in a single itinerary, so being kind of metal neutral.

Evert: A number of other innovations that they brought to the market, I would be willing to say the catalyst for that was the relentless focus on the bottom line performance and the ability to turn that aspiration into actions.

Evert: And that has really propelled arrow plan to the next level.

Evert: Of course, you know, what happened to the shareholder level and what’s going on.

Evert: And yeah, that I think is a different discussion.

Evert: We can discuss to the different dedicated podcast perhaps.

Evert: But yeah, I think the value to say for, you know, I’m not saying everybody should spin off, not at all.

Evert: I’m saying let the program take on an organizational structure in which it can most optimally deliver its potential results, which are two things, the member effect and the currency effect.

Evert: And by the way, I know that some people are going to say, oh, but how can you pursue the currency effect?

Evert: It will be at the detriment of the member effect because you just like to make more money, right?

Evert: And again, I think that that’s not true.

Evert: I think that the member effect and the currency effect can only coexist because ultimately, you will only sell the points when partners and members see value in your points.

Evert: So when you switch off redemptions or when you have a punitive expiry policy, or when you make it really difficult in the UI UX, ultimately, members are going to walk.

Evert: You cannot do it with impunity.

Evert: And I think again, air miles in Canada is probably the best case study of that, where death by a thousand cuts, you slowly put the value proposition.

Evert: At some point, something will need to give.

Evert: Like I said, it cannot be done with impunity.

Aaron: Yeah.

Aaron: And it’s a little bit biased that we’re, you spend a lot of time in Canada and I’m Canadian here.

Aaron: So we’re focusing on these because we were in the organizations that were operating the aeroplane program.

Aaron: And I was at air miles as well too.

Aaron: So I’ve been on both sides of those organizations.

Aaron: But maybe you can just offer a perspective of around the world.

Aaron: You mentioned Qantas is a case study.

Aaron: We can stick to airline or move to others.

Aaron: Maybe it seemingly makes sense to stick in the travel space.

Aaron: But are there different perspectives on this around the world and is there a specific region that’s doing travel loyalty in a way that’s providing that member effect stronger or the currency effect stronger than others?

Aaron: Where’s the best cases that we should be looking to see as shining stars to learn from?

Evert: Yeah.

Evert: I think my take on it would be it’s actually surprisingly consistent.

Evert: So when we talk to clients in South America or in the Middle East or in South Asia or in the Pacific or in Europe or even in Canada, the dynamics are exactly the same.

Evert: You’re running a loyalty program.

Evert: One day, the CFO comes and says, how much is this thing worth and how much is it really delivering?

Evert: Somebody in finance is tasked with building a P&L, and they’ve never done that.

Evert: So they go and try and figure it out.

Evert: If you’ve done it before, it’s actually quite straightforward.

Evert: It’s the model that I explained before.

Evert: You sell points, you buy rewards, you pay salaries and rents, and I’m really simplifying it now, but you’re making a profit margin.

Evert: Those dynamics are surprisingly consistent from region to region to region.

Evert: In terms of the memory effect, I think the variance is really so wide, especially between programs and different industries.

Evert: I would say the common denominator on the memory effect, or what some people call the loyalty effects, is that it’s really, and we talked about this a little bit already before, it’s really hard to measure or to distill impurity.

Evert: Why is Aaron a platinum member with Hotel X or Airline Y?

Evert: Is it because you live in Toronto and maybe corporate travel policy or whatever reason?

Evert: There is lots of bias there.

Evert: So when our clients come and ask us, can you prove to me the ROI of my loyalty program?

Evert: We tend to decline it and say no, because it’s something that you can spin your wheels on indefinitely.

Evert: So we wouldn’t recommend that.

Evert: And certainly not build a business case, for example, to buy a new system, let alone to leverage it to raise financing, because financiers, investors, will never invest on the basis of the member effect.

Evert: They will invest on the basis of the currency effect.

Evert: It is the collateralization of the cash flows from partners, not on the fact that you have a bigger share of wallet or are less likely to go over a competitor offer.

Evert: Of course, the two are interlinked, because you want to get the miles or the points, because you like the redemption so much.

Evert: But yeah, so…

Aaron: I think it’s one of those things where it’s just a bit broader than the programatics, right?

Aaron: Like in our sector and industry, we oftentimes get hooked up on our own definition of what loyalty is.

Aaron: And when we think of loyalty, we go right to the program and those components when…

Aaron: You’re absolutely right, Evert.

Aaron: Like it’s more than just the program itself as to why you stick with a particular brand.

Aaron: It’s the customer experiences, the interactions that you have with the brand.

Aaron: Sometimes it’s the branding itself because the values and the brand promise that aligns to who you are as an individual and you can see your self-identity connected to that brand.

Aaron: All those three things come together and they are incredibly hard to measure the effect because if you ask the consumer that, this is my research background coming in, they can’t distill down to, oh, well, I’m more connected and sticky to this particular brand because of the program versus a self-identity equation that I haven’t even recognized in myself that aligns to what the brand positioning is, or it’s just because I had a really good customer service experience on an ongoing consistent basis.

Aaron: They’ll talk through those things, but they don’t do the connection to say, hey, it’s this over this, it’s all three of those combined.

Aaron: And that’s something that we talk about at the Loyalty Academy, and as well as a Wise Marketer of big L Loyalty versus little L Loyalty being more programmatic.

Aaron: And so that’s interesting in terms of those points.

Aaron: We’ve talked a lot about travel.

Aaron: Maybe just a quick commentary for you on speaking about holistically on loyalty because you’ve been in the industry for so long.

Aaron: One of the conversations we’re hearing lately is around this idea that loyalty is kind of stuck or that it needs to get unstuck.

Aaron: And I’d be curious on your perspective of is that true in your opinion?

Aaron: And if it does need to get unstuck, what’s the important go forward of things that need to happen to remove those barriers so that we get back into a flow of loyalty being predominantly a strong thing that rises up a business?

Evert: Yeah, to be to be pretty honest with you, I’m not 100% sure I get that loyalty is stuck perspective.

Evert: Well, certainly what we do see, what I see at least is that there is, and some people will not like it, but there is a transformation.

Evert: The economics of these programs are getting better and stronger.

Evert: So yes, the old crazy marketing bonanza, fly to Hawaii to qualify for Platinum next year, million-mile lucky draw, guy, the coupons wins a million miles.

Evert: All that stuff is a thing of the past.

Evert: I would suggest that is a good thing.

Evert: It’s better for the airline, it’s better for consumers, it’s better for the program.

Evert: Of course, there are some people who are vested interest and say, well, it’s not what it used to be.

Evert: No, but of course, it’s not what it used to be.

Evert: A great example of that is the whole move to revenue-based accrual.

Evert: The old structures where you award currency basis on miles flown, which we know in the airline industry is a very poor proxy of value.

Evert: I could pay $500 to fly to Shanghai from Toronto, maybe on a special offer, and $1,000 to go to Montreal to award me based on the miles flown to Shanghai.

Evert: It’s the same as the supermarket that would say, we give points based on how many cards you can fill, instead of how much you pay at the till.

Aaron: Oh, that’s a great analogy.

Evert: It doesn’t make any sense.

Evert: But when the airlines do it, typically the first reaction is people are up in arms and saying, oh, it doesn’t work.

Evert: In a similar note, so BA made some announcements some weeks ago, they’re redesigning their Elite Qualification Program.

Evert: One of the comments, I think it was on LinkedIn was, with these new rules, only frequent business travelers can qualify for gold.

Evert: Then I thought, isn’t that the original intent of these tier, top tier levels?

Evert: Long story short, I think yes, programs, they are getting much more economical and better run.

Evert: Also, I think, it is a function of what we talked about before, there is more and more currency being pumped into the market, because the base on which you can earn has broadened, more consumers are members of the program.

Evert: It also means that programs need to be much better at understanding member value and aligning member value to reward value.

Evert: Let’s say, if I’m running, as an example, I’m running an airline in Asia, I’m a member of a global alliance, there could be a situation whereby North American members that have been taught to book a year in advance, as soon as the window opens, if you would put no controls in place, all the North American alliance members would come and say, would eat up my premium inventory, and my own members would have nothing.

Evert: That doesn’t make sense.

Evert: Yes, this is a very somewhat silly example, but overall, programs are getting better at recognizing value, rewarding the tiers.

Evert: I think the whole tier qualification, it’s an area that we work in a lot with clients.

Evert: First, get a very proper understanding, who are your best customers?

Evert: Are your best customers in fact sitting in the right tier, or are the people who understand the program the best, sitting in the highest tier?

Aaron: That’s an important comment.

Aaron: I think people who get the mechanics of the program and are you giving enough credit to those who work within it and know the system and are doing the behaviors that you want to exhibit to get them to those tiers versus just to your point, happenstance arriving there because they had a massive bonus and they were able to step up into, you know, I think of the hotel chains where you’ve got a bonus night for the first quarter of the year.

Aaron: For every night you stay, you match up.

Aaron: Well, that puts me this year into, let’s use the Marriott Bomboy, into Titanium this year versus where I probably should be is back at Platinum.

Aaron: Does that mean I’m in the right tier?

Aaron: No, I’m probably in the next year spend probably going to be back at Platinum.

Aaron: The only reason I got to Titanium in that particular year was because of that first quarter bonus where there was a matching and I flew a lot in that quarter.

Aaron: So instead of having 20 hotel nights, I had 40 in that first bit of the year.

Aaron: So I like the way you’ve described that.

Aaron: Hey, I know we’re getting close to the end of the time here.

Aaron: This has been a great conversation.

Aaron: Maybe I’ll just open up the floor to you.

Aaron: Is there anything that you want to leave off with thoughts on for Loyalty Marketers and business leaders that they just need to know that neither ties to your book or just your Everett’s point of view on Loyalty overall?

Aaron: I’ll give you the floor.

Evert: I think there’s a couple of big takeaways.

Evert: So one is in Loyalty Programs, yes, very good, but it is not just a member effect.

Evert: I think there is a huge potential area of value creation with the Currency Effect.

Evert: If you want to pursue it fully, you need to have the right capabilities and organizational setup.

Evert: You really can become like a central bank, and it’s not just for those that have first and business class and hotel suites, also for other industries, the Currency Effect also includes breakage, optimization of that because that’s got nothing to do with the memory effect.

Evert: So I think that’s very important.

Evert: I think my second point would be, yes, it is also very important to realize that, and we’ve done some research that we’ll publish in the next couple of weeks with loyalty experts, do you think that monetization is done at the detriment of the memory effect?

Evert: The overwhelming majority thinks no, they can run concurrently, and in fact, they could reinforce each other.

Evert: Lastly, I remembered the third potential future trend.

Evert: So, number one was super currency, and number two was greater penetration or even growing scale.

Evert: The third one that we see, which I think is an interesting one, is tokenization.

Evert: Not to say blockchain, but I think what realizing is, if you are a loyalty operator, as I’m sure you know, you like to be in control of your currency.

Evert: You don’t want to see a secondary market where people start trading in your currency because you lose control.

Evert: You don’t want that.

Evert: With tokenization, if you can fully manage and control the life of a point, and set parameters within which the point can be traded, from a new perspective, from a channel perspective, who can touch it, who cannot touch it, I think that may be an avenue to basically broaden the ecosystem.

Evert: So that can unlock some of the network extensions or even secondary markets, but in a very controlled way, because as we said before, one of the beautiful things of it is the central bank with 100% control.

Evert: You don’t want to relinquish control.

Evert: Of course, you want to expand your network and pump more currency in a meaningful way in it.

Evert: But yeah, that may happen.

Aaron: Very interesting.

Aaron: That’s good.

Aaron: We can spend more time, a whole other podcast on that particular topic.

Aaron: I know that that’s burgeoning in a few different worlds, so I’m glad that you brought that up for our listeners.

Aaron: To tie off one of the questions that Bill and I always ask of our guests on the Wiser Loyalty Series is to take a look at your personal and professional life and to describe for us, if there is one and sometimes there isn’t, but more often there is with Loyalty experts, a true epiphany moment, like that one moment in time or a couple where it was like, yes, this is why customer loyalty works.

Aaron: This is when I knew.

Evert: Yeah, I think we had an epiphany moment in writing the book, and we had a kind of an argument, well, not to say an argument, but the publisher around the title, because at some point it became so clear to us that we convinced ourselves that we were onto something with that whole Currency Effect thing.

Evert: So yes, there is a traditional member effect.

Evert: Like I said, and this literature, both in academic and business literature around Loyalty Programs and how do you fine-tune them and members, and almost nothing on the financial implications, the Currency itself, and it seems like a complete dichotomy that all the attention is here, which in the end of the day is hard to measure, and there is tremendous value.

Evert: In fact, it could be the third largest foreign currency reserve in the world, and nobody, I think people are doing it almost subconsciously.

Evert: They’re selling some coins, they’re bringing in some revenue, thinking about it, it’s like they think it’s icing on the cake, but in fact, it could be the cake itself.

Evert: Maybe I can describe that hyperbology as an epiphany moment.

Aaron: Oh, that’s awesome.

Aaron: I think that’s a good tie in to everything we’ve discussed.

Aaron: Evert, as always, a pleasure to speak with you and really appreciate you taking your time.

Aaron: Wish you the best on the new book, and I’m sure our paths will cross very soon.

Aaron: With that, I would say thanks, and to everyone, thank you so much for listening, and to sign off, stay loyal, as always.

Paula: Thank you so much for listening to this episode of Let’s Talk Loyalty.

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