In today’s economy, loyalty points have evolved from mere customer perks to significant financial assets. Airlines, retailers, and credit card companies are increasingly treating these points as tradable commodities, integrating them into their financial strategies. This shift reflects a broader trend of financialization, where non-traditional assets gain monetary value and even influence corporate valuations.
Airlines are a great example. Frequent flyer programs, once a simple rewards system, have become substantial revenue streams for this type of company. During the pandemic, airlines like Delta and American Airlines leveraged these programs to secure financing, with valuations reaching tens of billions of dollars. These programs generate income by selling miles to credit card issuers, who then offer them to consumers as incentives.
However, the increasing complexity of loyalty programs has led to consumer frustration. Delta Air Lines’ revamp of its SkyMiles program to prioritize spending over miles flown sparked outrage among frequent flyers. American Airlines also faced backlash and reversed its policy requiring corporate travelers to book through specific channels to earn miles. Some US regulators, including the Department of Transportation and the Consumer Financial Protection Bureau, are investigating major airline loyalty programs for abusive practices.
Beyond the airport gates
Retailers are also capitalizing on loyalty schemes. American supermarkets and convenience stores, like Tesco and Sainsbury’s, have started to implement or expand their loyalty programs, offering premium benefits to frequent shoppers. It’s a remodeling of the good old coupons, distributed over magazines and newspapers when the world still didn’t count on digital systems.
Credit card companies are targeting younger demographics with enhanced rewards. American Express, for instance, has seen a substantial increase in its stock value (over 15% during the past year) after offering perks like dining credits and exclusive experiences to attract Gen Zs and millennials. This focus on personalized rewards has increased Amex’s costs, for instance, but is viewed by their management as a long-term investment in customer loyalty.
It is not just a way to attract new customers or generate recurrency among the existing ones. This strategy can build companies a valuable asset, since loyalty programs not only boost sales but also provide valuable consumer data, which can be monetized. Data is the new oil, so they say in the global markets.
Is it worth it?
Yet, the value of loyalty points is diminishing over time. This happens because these points cannot be invested to offset inflation, leading to a decrease in their purchasing power in the long term. For example, 50,000 points accrued in 2020 are now worth approximately 41,300 points. For the customer end, experts suggest redeeming points soon after earning them to avoid further devaluation.
The financialization of loyalty programs has also influenced corporate strategies. As crypto and AI systems evolve, companies are trying to build new models and assure the point’s value over time, focusing on retention and income generation. Some companies are even exploring blockchain technology to manage their loyalty programs and offering peer-to-peer transactions over these new platforms.
The financialization of loyalty points reflects a broader trend of monetizing customer engagement. While these programs offer benefits to both companies and consumers, they also introduce complexities and challenges that require careful management to maintain trust and value.
