Travel loyalty programs are ubiquitous.
The Points Guy has 3 million followers – most looking for inspiration and ideas to maximize their travel and credit card rewards. Seeking value is a big business. “Our readers spend time making sure they maximize their loyalty points. That could be a flight, an upgrade to first class or a non-travel reward,” remarked Nick Ewen, Sr Editorial Director at The Points Guy.
While Gen Z is thinking about how to use their points to expand their access to the booming Experience Economy all of us welcome ways to increase our access with points we earned.
“Credit card companies and travel companies are often turning their loyalty programs into experience platforms,” Joe Pine, co-author of the book The Experience Economy, remarked in our call. “This allows their fans to access concerts, sporting events and the travel experiences that they aspire to take. This ranges from Capital One to Delta and so many more.”
Adam Rossbach, President at live event ticketing and technology company TFL commented on Mr. Pine’s insights. “Our research indicates that increased choice and personalization – including giving consumers access to pay for rewards with both points and cash – encourages more reward redemption and increases brand consumer preference.” Mr. Ewen added, “Many of the best loyalty programs create increased flexibility. Younger consumers want experiential rewards like concerts, sporting events and festivals.” Ewen elaborated, “There are billions and billions of dollars in points liability. The upgrades and experiential rewards are a crucial way to get consumers to spend their points or points and dollars beyond travel.”
The American travel loyalty market is as saturated as it’s ever been, according to a recent report from iSeatz called The Tipping Point: How U.S. Travel Loyalty is Evolving, A Three-Year Perspective. The report stated that while only 55 percent of consumers say they belong to a loyalty program that allows them to earn or redeem points for travel, only 82 percent of loyalty programs claiming to offer travel rewards – up 19 percent from 2023.
“As travel rewards proliferate across loyalty programs, the standard for what constitutes a ‘standout’ or ‘compelling’ travel loyalty experience is raised,” said Erin Groh, head of marketing at iSeatz. “Brands that can differentiate themselves with experiential rewards, thoughtful UX, and recognizable value will increase redemptions and connect with their members more effectively.”
In today’s competitive business landscape, loyalty programs are more than just a marketing tool—they’re a critical element of customer retention and brand engagement. But beneath the surface of these programs lies a challenge that many major brands grapple with but infrequently discuss: points liability.
It’s an issue that, when managed strategically, can transform from a business risk into a powerful opportunity for customer connection and profitability.
Gen Z Wants To Burn Not Just Earn Their Reward Points
For loyalty programs and particularly for Gen Z, creating a transparent and compelling value proposition for members is the key to making the most of that opportunity and increase consumer access. The implicit contract at the heart of every loyalty strategy is that in exchange for their repeat business, brands will reward customers with perks, discounts or benefits that they find relevant and, well, rewarding. This is why in iSeatz’s survey, the top-ranked goal for travel loyalty programs was building a robust earnings and redemption portfolio. Without a value-rich “earn-and-burn” approach, points-based loyalty programs will not only accumulate the liability of unredeemed points, but they will fail to achieve their core aims.
“Loyalty programs like Starbucks commoditize their brand by only offering more coffee and products they sell.” Pine added. “Consumers understand they are paying too much as a result. Airlines and credit cards, however, are offering unique experiences from first class upgrades to tickets at an event they may not otherwise have accessed.”
The Evolution of Airline Loyalty Programs
Airline loyalty programs have come a long way since 1979 with what was then Texas International. What began as simple incentive schemes have evolved into complex systems leveraging technology and data analytics to meet the ever-increasing expectations of consumers. Today’s programs offer points for spending, repeat purchases, referrals, and even birthdays, making them more accessible and impactful than ever before.
As loyalty programs evolve, so do consumer expectations. According to Henry Harteveldt of Atmosphere Research, younger consumers want flexible rewards that seamlessly integrate into their lifestyles. For example, as highlighted in a recent report from TFL and the Incentive Marketing Association, Delta’s partnerships with Starbucks and Uber exemplify how high-frequency, low-cost rewards can complement low-frequency, high-cost programs. This shift underscores the importance of adaptability in meeting diverse consumer needs.
“The Starbucks example really is an interesting one,” Sally French, a travel rewards expert at NerdWallet, shared with me. “It’s unlikely anyone is going to Starbucks enough to net anywhere close to an entirely free flight off those miles alone. But it feels good to earn those points — even if they aren’t actually worth that much. It’s a daily reward for a daily coffee habit — and its continuous affirmation that your loyalty is being recognized.”
Understanding Airline Point Reward Programs & Points Liability
For businesses, the concept of points liability is straightforward but impactful. Points liability represents the outstanding cost of loyalty points that have been issued but not redeemed. These points, while an asset in terms of customer engagement, also sit as a liability on the balance sheet. Managing this liability effectively is essential to sustaining a successful loyalty program.
Ms. French continued, “A good loyalty program should be like that old friend from childhood. They’re always there when you need it and easy to understand. Most importantly, maintaining that friendship with them is never a hassle. Loyalty programs need to be that same way.”
Accenture research reveals that members of loyalty programs generate 12-18 percent more incremental revenue than non-members. However, to unlock this potential, brands must encourage members to redeem their points. Engaged members drive profitability, while unredeemed points can become a financial burden.
Three Strategies CMOs Should Evaluate to Mitigate Points Liability
- Expiration Policies: Setting expiration dates for points can reduce liability, but it risks alienating customers. Instead, brands should focus on understanding how and when customers want to use their points.
- Flexible Redemption Options: Marina Hodges of Blackhawk Network (BHN) emphasized the importance of choice and digital accessibility. Brands should allow split-tender options, enabling consumers to combine points and cash for higher-value rewards.
- Emotional Connections Through Memorable Rewards: According to a TFL survey conducted with the Harris Poll, 72 percent of respondents value experiences over material goods, with memories of live events leaving a lasting impression. Offering experiential rewards like concert tickets or sports events not only engages customers but also strengthens their emotional connection to the brand.
Meeting Customers Where They Are
The modern consumer expects more than just transactional rewards. They demand meaningful experiences that add value to their lives. Today’s loyalty programs must prioritize:
- Personalization: Tailor rewards to individual preferences.
- Accessibility: Ensure rewards are easy to redeem.
- Relevance: Align offerings with what customers truly value.
The Future of Loyalty Programs
Loyalty programs are entering a new era, one shaped by the expectations of younger generations and embraced by all demographics. Consumers want brands to contribute to their overall quality of life—providing flexibility, meaningful rewards, and seamless redemption processes.
While points liability poses a financial challenge, it also presents an opportunity. By offering rewards that resonate emotionally, like live events, brands can encourage point redemption, reduce liability, and foster long-term loyalty. As the loyalty landscape continues to evolve, the brands that succeed will be those that view loyalty programs not just as a marketing expense, but as an investment in customer relationships.
In the words of Mr. Harteveldt, “Like any middle-aged adult, loyalty programs may need a tune-up.” The time to innovate is now. By aligning with customer values and delivering unforgettable experiences, brands can turn points liability into a cornerstone of their growth strategy.