Bill Hanifin
view more articles
The past few years we’ve seen somewhat of Cambrian explosion of products and services designed to help consumers burn their loyalty rewards. Colloquy has studied the issue and found that around 1/3rd of all earned loyalty awards go unredeemed. Clearly there is a market for helping consumers get the most from their loyalty earnings.
Continuing our coverage of innovations in the areas of customer engagement and liability management, we interviewed Paul Hebert – Sr. VP Marketing and Skip Kitchen – Sr. VP Business Development, to learn more about LoyaltyShares LLC.
Launched in October after two years of work, the New York City based company, enables loyalty program participants to redeem their loyalty earnings for shares of stock in the sponsoring company. If you’re a Delta frequent flyer with millions of miles – buy stock instead of stockings. If you’re a member of AMEX rewards and just can’t stomach another trip – grab a few shares of AMEX.
Based on experience designing and operating a similar program for a regional hotel chain, LoyaltyShares LLC assembled the technical and financial resources needed to create an interface, currently called a Loyalty Equity Acquisition Program (LEAPTM), connecting the loyalty program to a direct stock purchase plan. This allows members of the loyalty program to convert their earnings in the program – whether miles or points or whatever – into shares of company stock. The redemption event can take place monthly and the conversion rate is set by the sponsor. Consumers pay a small annual fee with their points to have access to the LEAPTM service and they can then execute a trade each month of the year for however many shares they wish to purchase.
What is interesting here is that not only do consumers win by getting a rather unique redemption option – the sponsor also gets a win by having what is a liability – their reserve for unredeemed points – converted into equity – stock in their company. While any redemption would reduce the company’s liability, this option enhances its equity as well and would seem to be have a positive impact on a company balance sheet.
The partners in this effort also believe – and some research does back them up on it – that customers who own stock in a company are more loyal and likely to recommend the product or service. It does make sense that investors/owners would want their stock to increase in value and therefore would talk it up with their social networks – both virtual and real. Points don’t grow in value if they sit in an account waiting for redemption – but stock can increase in value.
Buyer beware though – stocks can also go down in value. When consumers redeem for stock in a company they run the risk of losing some of the value they had accumulated in points or miles. We’ll recognize that risk but also say that it’s manageable compared to allowing points to go unredeemed and “break”.
In my conversations with Paul Hebert, I learned that LoyaltyShares has a patent pending on the application and have received great feedback from their early discussions with loyalty sponsors and industry insiders. Though most sponsors may not be able to connect its program members with shareholders, the company believes an opportunity exists to capitalize on a defined group of shareholders who are also members of their loyalty program, opening up new avenues for customer engagement.
My Take
- With liability for unredeemed points on the increase and consumers looking under every rock for a reward option that creates excitement and value, LoyaltyShares has potential.
- Converting points to stock invokes math similar to cash back – one of the most traditionally desired redemption options – yet this option has the potential to increase a customer’s loyalty value over time.
- On an emotional level, I have to believe that consumers who are stockholders will be more inclined to become brand advocates in order to protect their investment.
What do you think?
- Will offering equity in a company change the way consumers define customer loyalty?
- Do you think consumers will take the risk of redeeming for stock? Could people see this as a way to recap loses in 401K’s with “free money”?
- Will Social Giving and Ownership Loyalty become two pillars of the changing loyalty landscape in 2012?
Either way – in my mind the redemption space just got a little more interesting.
