Loyalty Truth

The first generation of value propositions for members of loyalty marketing programs was centered on accumulating a promotional currency and exchanging it for a reward. Those rewards were quite predictable and in most cases were limited to travel, merchandise and gift cards.

In the early days of the 1990’s, consumers demonstrated high levels of satisfaction with this choice of rewards and reinforced the logic for loyalty providers to offer this reward “triple threat” as a standard solution. The popularity of the triple threat reward combo gave reason for many rewards providers to make delivery of rewards essential to their business model. In the end, the “redemption” model became the standard among loyalty providers as many gave away program design and other front end services in hopes of setting up a multi-year stream of member redemptions for travel, merchandise and gift cards.

One of the groundswells in the provider business is the need to change that early model. It’s not an easy task and many loyalty sponsors and their providers continue to offer shiny catalogs full of late-model merchandise as evidence that they haven’t yet found a better solution.

I was thinking about this as I was flipping through the Marriott Rewards merchandise magazine that landed in my mailbox last week. Full disclosure is that Marriott Rewards is near the top of my personal favorites list lately as my travels have landed me with substantial earning power and benefits. I’ll also say that the presentation of the catalog is beyond well-done, it is one of the most attractive I have seen.

The question that nags me is whether there can still be a good value proposition created for loyalty program members by redeeming their points in a merchandise catalog.

I looked at 5-6 items that appealed to me in the catalog and did some “loyalty math” to understand the value of my points when redeeming for merchandise as well as the perceived gap that existed between the perceived and actual value of my points.

The group of rewards I evaluated ranged from a restaurant gift card to a Garmin fitness band, Samsung Shape Speaker, an Expresso machine and even a Foosball table (It’s the closest I can get to being a World Cup player).

Here’s what I found: the average value of my points when redeeming for these items was about 30 basis points. Considering that 1% is a minimum perceived value for most points programs, this was a disappointment.

Establishing a high perceived value with merchandise is even tougher given that retail has changed dramatically over the past decade. There is no longer a suggested retail price for most products. Instead there is a “best online price” which only seems to go lower each day as behemoths Amazon, Walmart and others fight to offer the absolute lowest daily pricing, while daily deal providers Groupon and Living Social stand by to trump those low prices with their one-off deals.

Merchandise redemption values suffer in comparison with room redemption in Marriott and other hospitality programs. The perceived value of redeeming points for hotel stays lands closer to the 1% range and customer satisfaction is more easily obtained due to the emotional benefits that accompany an experiential reward. I was quite happy to redeem some points last week when looking for a hotel room in San Francisco at a time when the city was overbooked with conventions and room prices were sky-high.

Marriott and other brands sponsoring loyalty programs may be thinking “if it ain’t broke, don’t fix it”, but change will be slow as long as the vendors that support these programs have merchandise fulfillment at the core of their business model.

As in most cases, it will be the customer who will lead change and that change is just around the corner.