Issue #24: The Points Behind the Headlines

One of the richest subscription programs in restaurants was apparently too rich to make the economics work. Panera’s rebrand ‘Sip Club’ is now limiting itself to 30 self-service drinks a month, while keeping the price the same at $14.99/month or $119.99/yr. From the consumer side, this program should be a no-brainer in that it pays for itself in just 4 drinks a month. On the brand side, it only works if Panera drives incremental transactions that also attach food. Anyone drinking and leaving (or drinking, drinking, drinking, then leaving) is a money loser.

Panera’s change is a cautionary tale for brands when it comes to naming a program around a benefit. Suddenly your fine-print rule changes are laid bare in the name change. (Check out SMP issue #4 for more on program names). And members are raging — many finding out from a news article, not from Panera itself.

Despite the PR debacle, I also think Panera could have kept the “unlimited” nature of the drinks and changed the rules in other ways to perhaps make the numbers work. Why not require a minimum food purchase for the second and subsequent drinks to be free? Why not have different price points for the membership— a higher one that is truly unlimited and a lower-priced one that has limits? There were so many other combos to try before landing here.

In issue #14 I admitted that Cobrand was winning, but asked whether Loyalty was. The billions in dollars flooding airlines from the banks weren’t making the programs any richer, or the points worth more (to a member). Now, a recent WSJ article takes it further: airlines are choosing routes, adding gate spots, and building lounges based on the high # of and potential co-brand customers.

From the brand standpoint, this makes economic sense. Why not tilt every decision toward what makes you the most money—regardless of how that money is made? But I fear there is no end here.

Is the future an airline where the only loyalty members allowed are cobrand holders? Heck, what about an airline where you can’t fly unless you carry the cobrand ( how does ‘Bank of America Airlines’ sound)? Sounds far-fetched, but I don’t think it is. No airline seems to be able to survive on airline economics alone. Cobrand revenue is propping up the entire operation, and loyalty is fast becoming the gateway to a level of exclusivity previously only seen at a Hermès store.

On July 8th, Delta announced new fare categories that included new classes within Delta One, their fancy-schmancy premium product. Basic Business forgoes the lounge, the Delta One check-in desk, and seat selection for the (all things considered) lower price versus Delta One Classic and Delta One Extra. But it goes further and cuts the miles earned.

For years the pitch was “fly more, earn more, get closer to status/rewards.” Then the “fly more” went out the window, and it became just “spend more,” then “spend on our credit card.” The gateway to a cobrand customer is exactly a Delta One flyer—either a business traveler with lots of $$ to give via an expense report, or a wealthy leisure traveler. It surprises me that Delta would pull back mileage earning on this cohort. You want points in this person’s account. Starving the highest-value cabin is optimizing the fare but undercutting the cobrand flywheel you’ve bet the whole airline on (as I wrote about above).

In fact, reducing mileage earnings is the only real cost-cutting in Basic Business: reducing access to the lounge and the check-in lane doesn’t reduce costs, just reduces crowding. Delta could have cut the Missoni amenity kit, the onboard meals, or the wine to reduce the fare. Personally, the only things I care about in business class are the flatbed and a nice blanket. The rest of it I rarely use. But when spending a nice amount, I want the full amount of points I’m entitled to, and I reckon I’m not alone.

Maybe our industry is so used to airlines doing things like this, we’ve become numb. But imagine the reaction if, say, Sephora said: “We’ll give you 10% off that lipstick to earn fewer points”. It just screams the opposite of what the program is about and makes loyalty something we are enticing our customers to avoid.

🎯 +👕 Target & PacSun teamed up in a partnership, but left out the loyalty play

PacSun and Target have two of the best loyalty programs in retail, with generous earning rates, nice benefits, and few annoying fine-print rules. So when they recently announced a multi-year partnership to have a tween PacSun line at Target, I kept looking for the loyalty info. Surely there would be a way to earn PacSun points on the purchases, right? Linking Target Circle and PS Rewards, right? No and no. Not even a mention like “in the future there will be loyalty linkage...”

So what’s going on here? Seems like a straight licensing deal and a brand expansion for PS, and loyalty be damned. And that’s a shame. Maybe Target is spooked after their breakup with Ulta last year, or neither brand wanted to spend the money on (likely) expensive program integration. It’s definitely harder to unwind a partnership when points and status are involved. But there are only so many good loyalty partnerships, and we need more and I hope this doesn’t start a partnership trend—one where loyalty is left out completely.