When “Loyalty Programs” Destroy Loyalty

A friend of mine relayed a story that should serve as a cautionary tale to anyone operating a service business and trying to create loyalty.

This friend uses two of the dominant hotel chains and has Gold status with both. Recently, she received word that she had been “promoted” to what we will call Titanium status at one of the chains, with several additional benefits, including extra loyalty points for each hotel stay. She immediately began giving that brand preferential treatment, booking the majority of her stays there. This was exciting! A free vacation that much sooner!

So imagine her confusion when she received her next monthly statement and saw NO points accrued for four stays in the past 30 days. When she contacted the call center, the well trained representative explained that “the statement was in fact accurate, because guests are not permitted to receive loyalty credit for 2 hotel stays on the same night.” My friend tried to reason with the representative that other family members were traveling separately from her and staying in different cities.  But of course the one hotel room per night policy triumphed!  My disappointed and slightly angry friend received no credit for those 4 hotel stays.

So what did she do?  Now that she knows the rules, she is forced to put her family up in the competing brand’s property in order to receive “loyalty points.” And she has a bit of a sour taste in her mouth for losing credit for those four nights. Which translates to shifting 50% of her spend back to Brand X.

What was the impact on the hotel?  A less happy less loyal client and thousands of dollars of lost revenue annually.  Which translates into at least a $20,000 reduction in lifetime value from this very valuable client. All because of a misguided (and misnamed) “loyalty program” policy.

Finally, what is the lesson for the rest of us?  Be extremely careful when designing programs, policies, rules, or fees for your best clients! Don’t rely solely on business managers and product or program managers to design your rules and policies.  They are often too close to the situation, and it’s very difficult for them to view the situation from your client’s perspective. Follow the lead of service champions like Ritz Carlton and Southwest Airlines and engage your best clients in designing the products and programs you intend them to use!

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