A loyalty parable

Discussion created by anadyr on Apr 3, 2012
Latest reply on Apr 7, 2012 by anadyr

The fictional parable begins in a hypothetical space and time.

Any similarity to any corporation, loyalty program, or persons is purely coincidental.


Here we are, ushered into the board room of a major hotel/lodging company as flies on the wall. At the highly polished table sit a number of folks, the boss at the head. 

     The CEO speaks.  "What exactly does this loyalty program do for us?  Just wondering."


     An earnest staffer replies, "Well sir, it does gain us recognition and keeps people coming back."


     CFO now speaks adjusting his glasses up from his eyes to his forehead.  "Yes boss, but it is not free, it costs a lot of cash to maintain the program.  And the rewards, the points that people earn, are carried on our balance sheet as a liability."


     Earnest staffer sitting not very patiently interjects, "Yes but it does bring folks back and back and back, and that helps the bottom line."


     CEO raises his hand.  "Wait, can anyone here tell me the net effect of this program?  Are we in fact spending money needlessly to prove that people will stay with us, regardless of the presence or lack of this program?  Has anyone heard how our competitors are doing with their loyalty programs?  CFO you first."  He points to the person sitting next to him.


     "I assume that every chain is experiencing angst over the creation of these programs.  First, they are not free to us or our partners.  We have tried to bake the costs into the room charges but it is hard to escalate rates in a recovering economy.  Our franchisees are not happy with the reduced revenue they get from points-based stays.  I would argue, as CFO, that the net effect of this program is negative--that the costs of building and maintaining it outweigh the benefits we derive from having it.  In fact, I have an analysis that demonstrates this." 

     He refers to a chart on an easel.  "As you can see the average guest pays this amount, and the average loyalty guest pays this amount.  He points to a chart that shows each pays the same fees.  "The person who is not a member of our program actually donates  quite a bit of money to us, since we have factored in the cost of the program to which he or she does not belong.  I need to add that in our analysis, we have no control group: that is no reference to what a group entirely composed of non-members would see as being negative if we canceled the program. Thus I can only speculate that there exists a large group of potential customers who would always stay with us regardless of having or not having a program." He sits back but he is not finished.

     "Oh yes, I forgot to mention that we have a steady stream of new arrivals who continue to choose us over the competition. Most do not seem to care that there is a program to reward loyalty, based on what I have heard." 


     The CFO takes a deep breath.  "Now as for our competition, I suppose in the heart of hearts of every CFO out there there is a desire to trim waste and cut costs.  We have looked at cost cutting--elimination of little guest amenities, shortening hours at specialty lounges, abruptly ending weekend meal vouchers, and of course not allowing suite upgrades even though some properties from time to time violate that edict."

     Earnest staffer is looking downtrodden.  "I feel we can never end the program, even though the terms and conditions say we can.  It would be a disaster for us.  People would leave in droves, we would have to close properties."

     Someone at the table whispered, "Looks like a stand-off."

     The CEO closes his leather-bound notebook, the signal that the meeting is ending.  "OK folks, here is what I have decided.  Let's continue to push the level of benefits lower, regardless of what the guests think.  Let's keep the program for now.  See if we can have a meeting of other like-minded companies and agree to end these programs down the road, but not just us, all of us would do it."

     The meeting ends.