Are loyalty program points the next hard currency??


The analogies of points as a currency are not new. There are a few programs out there today that already have "pay with points" types of functionality available, but there are still a number of limits on those systems.In most cases they can be used only for specific purchases, mostly travel related, or via certain merchants. American Express Membership Rewards are one of the most easily spent on non-travel events, though the point valuation of that channel is not very attractive.

Listening to representatives from the loyalty programs and the companies who help them make the programs work at the Randy Petersen Executive Travel Summit a few days ago, however, it seems that the idea of defining a specific cash value to points and allowing full fungability of them is not too far away. Loylogic has partnered with Etihad to put their PointsPay product in the market, allowing points to be easily redeemed for value on a credit card, making points instantly spendable anywhere that credit card is accepted, for example.

Other companies at the event spoke of the shift from points to real currency with different levels of optimism and excitement. Some were lobbying for full transparency on the points, noting that many customers have already figured out what the values are anyways. Others suggested that the opacity of the specific value actually increased the perceived value, making the customers feel that they were getting a better deal and allowing the programs to remove the liabilities more quickly.

Still other companies suggested that the best way to increase the perceived value of the points is to offer up redemptions that are less utilitarian and more creative. Whether it is allowing customers to use points to redeem for space travel, a week on a private island or cashing in 386,000,000 points for a yacht, the options are, at least in theory, endless. That those awards generally are never redeemed makes it easier to offer them and the perceived high valuation since they are still too far out of reach for most to attain.

One concern voiced (by me, among others) regarding this apparent shift is the potential that it will erode or displace the travel award segment of the programs, effectively taking away some of the variable value of the programs and making them truly fixed rebate opportunities. Most present in the room and in the private conversations in the halls seem to think that this point hasn’t arrived. At least not yet. The cynic in me still sees great potential for that time to come, sooner than not. A few carriers are already very close; JetBlue, Southwest and Virgin America come to mind, though they are all still essentially only travel for the redemptions. Switching from that closed redemption network to an open, fixed-rate system actually wouldn’t be too huge a leap, at least on the conceptual side of things. The actual work to make it happen isn’t so trivial.

I’m not throwing in the towel quite yet; there are definitely still opportunities to play the game and come out ahead as a customer. But they are getting harder and harder to find. The market seems to be shifting in that direction, both on the supply and demand side of the programs. This is definitely an area to keep an eye on in the coming months.

Related Posts:

Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.


Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

3 Comments

  1. I think this quote is key to the value of loyalty programs:

    “the opacity of the specific value actually increased the perceived value, making the customers feel that they were getting a better deal and allowing the programs to remove the liabilities more quickly”

    It motivates purchase decisions based on a reward that is perceived to be high in value but which can be delivered more cheaply, and where many customers may redeem cheaper rewards. A penny a point is a 1% discount and will be much less to motivate purchases. Loyalty programs that directly monetize their points do so at their own peril

  2. Yeah…for those of us who redeem miles for international F or C class tickets this would certainly be an enormous blow. And it would likely mean I basically bow out of the game because it just wouldn’t be worth it to me at that point.

Comments are closed.

BoardingArea