Should we raise hurdle rates for a customer loyalty rewards program?
We are a travel company with a B2C loyalty program. The program is currently expanding, allowing members more opportunities to earn points. At the same time, we have significantly increased the number of points needed to receive some of our rewards, to ensure that the program breaks even.

Currently, the program has two base levels of earning, depending on the booking made. Level 1 = 10 points and Level 2 = 15 points. 50% of our members earn 15 points on their bookings. Regrettably, the program needs to eliminate the higher earning tier.

My question is, should we keep the base earning at 10 points, as it is today, or should we increase the base earning to 15 points, so that we are not penalizing the members who were already reaching this amount? There is some concern that by increasing our base earning to 15 points, that it will appear that we are trying to mask the fact that we had to make changes on the reward side.

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Companies in the travel business, such as airlines, saw customers lose both faith and interest in their customer loyalty programs when they raised qualification hurdle rates. Also, making customer loyalty reward programs pay off – unless the customer data they create is actively leveraged, such as with companies like Tesco – can be a huge challenge. Rather than invest in better use of customer data, some companies have curtailed their loyalty programs altogether in favor of more active, general price competition. However, this is a big mistake, because they are commoditizing rather than differentiating.

Although it may feel counterintuitive, rather than confuse customers and further diminish/dilute the value of the loyalty program and potentially damage customer relationships, a better strategic option may be to phase out and eventually eliminate the program and replace it with a suite of value-add benefits. Some companies have leveraged customer profile information with targeted promotional offers, services and information to provide enhanced value. These can be introduced on a pilot basis, and then on a cascaded basis to minimize risk and learn as these approaches are rolled-out.

This was first published in March 2009