From the New York Times this weekend:
“Frequent-flier programs are becoming one of the most prized assets in aviation.
“Loyalty programs are now indispensable to some airlines, generating healthy profits in good times and blunting losses in downturns. By one estimate, the programs are worth hundreds of billions of dollars globally, accounting at times for a large share of the value of the companies that run them.
“The loyalty ecosystem is fueled in large part by credit card spending, particularly in the United States, where it is widespread and most major airlines work with banks to issue cards tied to frequent-flier programs. Three of the biggest U.S. carriers — American Airlines, Delta Air Lines and United Airlines — earn billions of dollars annually from cards and loyalty programs, revenue that has been vital to their success.”
The Times goes on:
“The programs have reinforced the hold that the biggest U.S. airlines have on air travel, providing an edge over smaller or low-fare airlines, some of which are losing money. The loyalty programs have helped those large carriers attract and retain customers, who often book with their favored airline because of the perks even if they sometimes pay more … But the cards that underpin those programs have also attracted critics. Restaurants, retailers and some lawmakers want to overhaul and effectively lower the fees that make loyalty programs particularly profitable for U.S. banks and airlines. For now, those efforts at change have had limited success in Congress.”
KC’s View:
This story grabbed my attention because it focuses on the importance of ancillary income – revenue that does not come from the core business, but that can a) drop right to the bottom line, and b) make the difference between profitability and losses in bad times and between profitability and extreme profitability in good times.
But, it seems to me, there is a third possibility (which can co-exist with the first two) – which is that the ancillary income becomes so seductive, so addictive, that the business takes its eye off its core value proposition. It becomes like a kind of marketing heroin, with the business unable to quit it. No matter what.
I think an argument can be made that this is exactly how slotting allowances/failure fees/promotional allowances have corrupted food retailing, and even the relationship between retailers and suppliers. It became less about what the customer wanted or needed, and less about the brand image the retailer wanted to communicate, and more about generating those dollars whenever and wherever possible.
This is what I worry about with retail media networks – that retailers will become so addicted to those advertising dollars (which, industry-wide, can amount to billions of dollars in supplemental income that they stop paying attention to whether or not the networks are enhancing their brand and the consumer experiences. It is , as they say, all about the Benjamins.
Now, airlines have tried to do a good job of creating value-added when they team up with banks to issue these cards. Sometimes it is points. Sometimes it is an airline member lounge membership. And there are other connection points being made as well. The question is, are retailers focused more on the ancillary revenue than in building and sustaining relationships?
To be clear, this doesn’t have to happen. But it can happen. And it is up to retailers – which have the closest relationship to the ultimate consumer – to make sure that they nurture that connection, not abuse it.
Otherwise, the whole relationship can crash and burn.
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