Adding a cash & points option to a program is one of many options companies have to ease the redemption challenge. It makes a program more accessible and more attractive to consumers with lower priced awards. And customers who realize awards are more engaged, returning to earn again and in greater volumes. That’s a core theory of the loyalty industry and one that many companies have successfully pursued. At this week’s Loyalty 2018 conference in Bangkok technology integrator Amadeus highlighted some results of the Miles and More program’s implementation of Cash & Points awards and the data delivers some interesting details but also one critical, unanswered question.
More redemptions, more revenue
One of the stand-out details from the presentation showed that consumers purchased, on average, more expensive tickets with the C&P option in place. Those who redeemed chipped in an extra 20€ on average, suggesting that the inclusion of points in the redemption reduces the price sensitivity that customers typically demonstrate. Only 10% of the redemptions in this category were paid wholly in points. Program members really do like having the option to mix currencies. Moreover, 30% of the passengers surveyed indicated that without the C&P option the transaction would not have occurred.
Recent data from study on @Lufthansa C&P efforts:
•Pax paid 20€ more than average to get the redemption.
•30% of pax said booking was driven by the availability of C&P.
•10% of tix paid all in points #Loyalty2018 #paxex
— Seth Miller (@WandrMe) February 5, 2018
This data all supports the traditional view that offering more redemption flexibility increases engagement and member satisfaction. There are two other data points presented under the heading of “Facilitate miles burning” that raise further questions about the overall impact of the new redemption channel to the program.
Cashing in or cashing out?
More than 60% of the tickets redeemed using the Miles&Cash offer from Miles and More had the points component pay off less than 30% of the total cost. And 70% of the bookings used more than 80% of a member’s account balance. The combination of redeeming most of an account and still only paying off a small amount of the total trip price suggest that many members are using the C&P offer to wipe a small account balance out, or get close to it. They’re essentially bankrupting their accounts, typically of what would traditionally be considered “orphaned” balances. And there’s nothing particularly bad about that.
Indeed, a consumer realizing value from a small points balance and driving the account to near nil could be seen as a motivating factor for that traveler to get back on the earning hamster wheel and repeat the process anew. That’s what most of the historical data about the “redemption rush” and what consumers will do to realize that emotion again. But it also could simply be a way to cash out.
Maybe the member had a few points left over after larger awards were booked. Or maybe they were never really all that committed to the program and only had a handful of points collected incidentally rather than as a concerted loyalty move. In both of those cases the cash out reads far more like a customer lost – or at least not particularly well maintained – than it does as a program win. Alas, the follow-on data about the behavior of those customers was not available in the presentation.
The earn and redeem cycle is a delicate balance for program operators. That euphoria a customer experiences with a successful redemption is hard to match, but the program must remain engaging beyond that. By opening up smaller such wins for members the challenge to remain relevant long-term is increased. The ability to “train” consumers to grow in to the larger awards also increases. Undoubtedly this is good for the programs, when done correctly.
That’s the trick, though. Making sure it is done correctly so as to not see that customer walk away.