Delta’s New Take on Loyalty Programs: Boost or Bust?

This past week, Delta Air Lines announced changes to their frequent flyer program, Delta SkyMiles. The changes, which include rewarding travelers based on the amount of money they spend on tickets rather than simply on how far they fly, raised questions about the evolution of loyalty programs in the airlines industry. Goizueta marketing Professor Michael Lewis conducts extensive research on loyalty programs and consumer behavior. He spoke with us to offer his perspective on the shift in reward programs and who it ultimately benefits.

Goizueta: What are your initial thoughts on the program? How would you evaluate their changes?

Lewis: If we think about the program based solely on consumer behavior principles, it is an elegant program. The consumer is constantly presented with incentives to invest in her relationship with Delta. Think of a new consultant living in a non-hub airport region. This program increases the dynamic incentives for her to go out of her way to fly Delta.

The Delta program is striking in how explicit they are making the connection between the economic value of a customer and customer treatment. Loyalty programs have always been intended as a mechanism for improving the experience (and thereby loyalty) of the firms most valuable assets but the means have always been less direct. Now there is no doubt. Spend more money and the customer gets more.

Goizueta: Do you see any drawbacks to the new format?

Lewis: One potential issue is the factor that the person taking the flight is often not the entity paying the bill. Often companies are the ones carrying some, if not all, of this expense. This new program actually has a structure whereby the employee booking the travel has an incentive to search for higher fares. This would probably only happen on the margins, but the consumer whose firm is paying the fare has an obvious incentive to switch from say the 8 am flight with a fare of $300 to the 9 am flight with a fare of $500. It will be interesting to see the reaction from businesses to this change.

Goizueta: How do you see this new format changing how current SkyMiles members view their relationships with Delta?

Lewis: Only time will tell, but loyalty/reward programs can often change the tenor of brand-consumer relationships. These programs can sometimes create an almost contractual-feeling relationship where the consumer believes they are owed the rewards they have earned. When this happens, the loyalty program creates what academics call “behavioral loyalty.”

Goizueta: What is “behavioral loyalty” and what would that mean in this situation for Delta?

Lewis: Behavioral loyalty is repeat purchasing without increased affinity or loyalty. In other words, the program operates more like a job to consumers, making it less effective in developing any real loyalty for the brand. If you consider the airline industry, you can see how little true preference exists between the major carriers. Contrast that to the deep attitudinal loyalty that exists for brands like The Coca-Cola Company, Nike or Apple. When you reward a consumer for using your service, there is always the risk that this will be the result of the nature of the relationship.