The Evolution of Loyalty Marketing in the USA

American Airlines' American AAdvantage was the industry's first sophisticated loyalty program. It aimed to disintermediate and strengthen American Airlines' relationship with passengers. As hard as it is to believe now, travel agents handled 95% of airline bookings at the time! By removing these third parties from the picture, American Airlines centered its focus on its passengers.

Until this time, American Airlines didn't even know their customers' names.

They lacked essential information. With American AAdvantage, passengers were required to register their names and addresses and allow American Airlines to track their journeys. To encourage fliers to provide their information, American Airlines offered a free flight after collecting a total of 25,000 miles. With this, the fundamental architecture of the contemporary loyalty program was established. The early success of American AAdvantage was astounding. Other airlines followed suit, introducing their own programs. Hotels, banks, credit card firms, and even shops joined in. Customer databases grew significantly. By analyzing data and tracking consumer behavior, organizations were able to better target offers and content to the correct customers, enhancing the customer experience and adding value. However, as more loyalty cards and frequent flier programs entered the market, customers stopped going out of their way to collect points. Over time, programs evolved and became commonplace. To be economically sustainable, airlines have to devalue their programs. Collecting incentives got difficult. Other programs, such as credit cards, tended to commoditize loyalty programs by simply providing customers with cashback on their accounts. (Most people claim to love cash, but they don't value cashbacks since they don't feel it.) Rewards became homogeneous and failed to provide significant value. It became clear that organizations either didn't know their customers or couldn't effectively forecast their Customer Lifetime Value. As consumer engagement fell, the quality and availability of data deteriorated, making it more difficult for marketers to truly understand their customers, provide valuable rewards and relevant experiences, and maximize consumer Lifetime Value.

Mass Customer Loyalty Approach (2000s-Present)

The introduction of mobile phones, the Internet, and social media cleared the path for the mass loyalty model. Instead of conducting loyalty programs independently, brands developed coalitions and strategic alliances amongst themselves. Customers accumulated points through transactions and burned them across brands. Coalition schemes that were successful in Europe, Canada, and Australia were mainly ineffective in the United States, and the American loyalty market never fully embraced multi-brand programs. One exception was coalition programs in which all participating brands were owned by a single parent business (e.g., Hilton, Marriott, Pottery Barn, and 1-800 Flowers). This was not the norm, however. Overall, decreased customer happiness and involvement contributed to coalition initiatives' short and unremarkable run. Beyond coalitions, loyalty program partners switched from loyalty cards to contact number-based solutions for collecting and redeeming customer points. This strategy allowed for direct mass marketing and promotions via email and text. The emergence of social media increased users' reach. On the plus side, clients no longer carry numerous loyalty cards. Businesses reduce the costs associated with operating a card-based loyalty program. However, the paradigm prioritizes transactions over strengthening and enhancing client relationships. That poses a significant concern. For example, when Johnny orders a $50 dinner from a restaurant, he earns points that he may use to get products or a discount from one of the restaurant's loyalty partners, which could be a nail salon or a tire store. There is a clear gap between the experience and the relevance of transitioning from one brand to another. Mass marketing across numerous brands might result in spamming users with completely irrelevant communications and deals. Furthermore, organizations face challenges in maintaining consumer privacy. They fail to discriminate between registered clients and family members who have the same phone number.

This results in inadequate customer insights, which corresponds to an inability to build and provide personalized experiences.

As a result, this method frequently leads to a decline in interest among program applicants. What is the end result? The bond between the brand and the consumer deteriorates. New Tech Paradigms and Data Security Issues The modern deterioration of the brand-consumer relationship is exacerbated by an increased awareness of data security concerns. Consumers are becoming increasingly sensitive of their data. They want to know what data is collected and how it is being used. Their fears are justified. To address these concerns, data protection laws such as the GDPR in Europe and the CCPA in California were enacted. However, modern customer loyalty programs struggle to learn more about their target consumers due to limited data access. The introduction of digital voice assistants has further restructured brand-customer relationships. When a consumer orders a pizza using Alexa or Google Voice Search, Amazon or Google receives the customer's information, not the pizza store. Amazon or Google can utilize the information to determine the size of the household as well as the consumers' preferred toppings. The pizza shop lacks the necessary information to strengthen client connections, promote loyalty, and build trust. Nike's decision to terminate relations with Amazon was part of the loyalty landscape. The athletic brand revealed that it was leaving the Amazon marketplace due to a desire to engage customers directly, among other reasons. "As part of Nike's focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail," the company's press release said. With Amazon out of the picture, Nike has complete control over its consumers' data. This allows Nike to develop programs that completely resonate with their target consumers and locate more highly qualified clients to incentivize. This return to a more close interaction with consumers represents the future.