Can Loyalty Survive Recession?

A lot has happened since the ’80s, when American Airlines initiated the first frequent-flyer program. Needless to say, every airline, and most hotels and rental car companies, around the globe have adopted the idea of rewarding loyal customers. And loyalty programs have worked in almost all cases. That is, until now.

This year has become the turning point for loyalty programs. Suddenly, frequent-flyer programs have had to demonstrate their value to the companies that run them, as well as to the customers that patronize them.

Most of us, as consumers, have become locked ever more securely into purchasing patterns dictated by the limitations of our loyalty program memberships. Not only is the consumer conscious of this (albeit voluntary) choice limitation, the consumer is also questioning whether the payoff for this limited freedom (previously understood as loyalty) is worth it.

In a time of recession, like the one the U.S. and, probably, most of the Western world is experiencing, loyalty undergoes significant challenges. Is customer loyalty strong enough to ensure, for example, that passengers will continue to choose American Airlines despite the recent terrorist incidents and the November crash in New York? Will Swissair’s loyalty program be effective despite the fact that, on paper, it has only enough money to survive until March and despite its sister company’s recent accident in Switzerland, believed to be the result of pilot error?

As occupancy rates in hotels fall worldwide (Disney parks and resorts have suffered a downturn in occupancy of as much as 25 percent this year) and, as a consequence, tariffs drop dramatically, will regular hotel visitors feel loyal to their usual hotel chain? Or will many of those consumers choose better value over accumulating points?

Well, most companies believe consumers will still go for the points. Just last week, Marriott offered its customers double points and double nights as long as they chose to pay for their stay with their Visa cards. Most airlines are following the same trend: using points as discount vouchers to attract customers.

Still, the fact that these companies exhibit a belief in the efficacy of points in attracting and retaining customers doesn’t prove that these programs are working. The question remains: Do consumers think reward points are reward enough for loyalty? Or do they think some other type of reward, outside loyalty-card schemes, needs to be developed to attract ongoing customers and secure sales increases?

According to Philip Kotler, a well-known marketing writer and professor of international marketing at Northwestern University’s Kellogg School of Management, recession is not about profit. It’s about surviving. Keeping 10 happy customers through a recession is more rewarding than trying to make a big profit out of them during an economic downturn and, most likely, losing them in the process.

The answer lies somewhere in-between. Without existing loyalty programs, the travel and hospitality business would have been in deep trouble by now. However, no loyalty program has been built to handle the looming recession. So perhaps what the reward-scheme world needs, to convince consumers that it’s worth remaining loyal to a brand, is a combination of toolkits that work outside their existing systems. Who knows? Only time will tell if the wheels on reward schemes have fallen off.

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