Why Points Without Expiration Work

With all the travel you've probably done over the holiday season, you might be wondering about your frequent flyer miles. How many did you earn? How long do you have to use them? Do they expire? Every loyalty program takes a different approach — if you're flying Delta, JetBlue, Southwest or United, you have the rest of your life to use your miles. They don't expire.

In August of 2019, United announced that its frequent flyer miles will no longer expire. United wasn't alone; Southwest also announced that their frequent flyer points will not expire. Delta and JetBlue did so years ago. So you may be wondering...

Why are airlines eliminating expirations on frequent flyer miles?

While there are plenty of reasons for airlines to eliminate expirations on frequent flyer miles, there are two that are most likely. First, a happier membership and second, a higher Customer Lifetime Value.

Happier Members

Why do lifelong points create a happier membership? Because they put members at ease. Members no longer have to worry about their points expiring before they get to use them, and never have to go through the disappointing experience of seeing their miles expire.

From the program perspective, more miles in more member's account allows the program to maintain a mechanism of encouraging loyalty. That mechanism will be more effective for some members compared to others, but it's there.

For example, an inactive member that is halfway to an award is likely much easier to re-engage to active status than an equally inactive member with zero points. Doing away with expiration rules keeps those points in a member's account, preserving the "points incentive mechanism" for that member.

Higher Customer Lifetime Value

Customer Lifetime Value — or CLV — is arguably the most important metric of any frequent flyer program. CLV is the profit a particular program member has generated to date plus expected future profit. Elevating CLV should be the goal of every frequent flyer program because it ultimately means more profit. And since CLV focuses on profit, it is influenced by increases in both top line revenue and program costs.

Eliminating expiration rules will certainly increase redemption cost (and the program liability), putting downward pressure on CLV. But the resulting happier membership will be more engaged, increasing retention and top line revenue from members and putting upward pressure on CLV.

In addition, smart loyalty programs will leverage the points incentive mechanism to further increase CLV.

For example, consider the cohort of inactive members that are halfway to an award. Within this cohort there will be a lot of diversity, and each member will behave differently. For some, a re-engagement campaign will drive the member to just do enough to earn the rewards and then never come back, causing their CLV to decrease due to the poor ROI on the campaign cost.

For other members, the right re-engagement campaign may convert the member to a highly loyal customer, dramatically increasing their CLV.

For loyalty programs (particularly those without expiration rules), understanding how the points incentive mechanism influences CLV, and how this mechanism differs across each member, is critical to maximizing the program performance.

Eliminating Expiration Rules - What You Need To Do

With more and more airlines recognizing the CLV increase possible from points without expiration, frequent flyer programs are becoming better managed loyalty programs. However, this better management isn't happening overnight.

If you're interested in making your program one that eliminates or shortens point expiration, you'll need to understand a few things. First, you'll need to be able to accurately estimate your program's breakage. Second, you'll need to understand and predict CLV depending on program adjustments and specific member behavior. (It's important to note that neither of these things can be done accurately with only a spreadsheet and calculator — but there is a solution that can help!)

Elevating CLV is the core reason loyalty programs become and remain profitable. So when you're wondering why all of your miles haven't expired by next holiday season, just know it's because these airlines are smart — they want you to become a lifelong, highly engaged member.

To learn more about a solution that elevates CLV and engages members check out, What To Look for In a Loyalty Rewards Program Software.

 

 

Len Llaguno
By Len Llaguno
Founder and managing partner of KYROS Insights. I'm an analytics nerd and recovering actuary. I use machine learning to help loyalty programs predict member behavior so they can identify their future best customers, and recognize and reward them today.

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