Do consumers treat loyalty points the same way that they treat traditional money? And, how do they choose to spend one versus the other? The authors of this article present research findings from their analysis.
In the years since The Economist spotlighted the astonishing scale of loyalty points — particularly frequent-flyer miles — as a potential global currency rivaling traditional money in 2005, usage has grown rapidly in size and scope. For example, the number of flight redemptions at Southwest Airlines doubled from 5.4 million in 2013 (representing 9.5% of revenue passenger miles) to 10.9 million in 2023 (representing 16.3% of revenue passenger miles).
In many contexts, such as air travel and hotel stays, points are routinely used in place of money. This dramatic expansion of usage asks some important questions: Do consumers treat loyalty points the same way that they treat traditional money? And, how do they choose to spend one versus the other?
It turns out that consumers are very heterogeneous in their attitudes toward points and money. In a recent study, we analyzed data describing over 29,000 unique loyalty points earning (accrual) and spending (redemption) transactions made during two recent years by 500 airline loyalty program consumers. We found that points users fell into four distinct categories:
Money advocates, who prefer holding cash over holding points, even when their value is identical in terms of purchasing power. Faced with the choice of spending $100 worth of points or $100 in cash, they would rather expend points, finding it less psychologically taxing. This preference leads money advocates to cling to cash, placing money at the forefront of their value system.
- Money advocates, who prefer holding cash over holding points, even when their value is identical in terms of purchasing power. Faced with the choice of spending $100 worth of points or $100 in cash, they would rather expend points, finding it less psychologically taxing. This preference leads money advocates to cling to cash, placing money at the forefront of their value system.
- Currency impartialists, who regard points and cash interchangeably, valuing them equally based on their financial worth. For these individuals, loyalty points are akin to money, effectively another currency in their eyes.
- Point gamers, who actively seek out the most advantageous point redemption opportunities, opting to spend points particularly when their value significantly surpasses that of cash. They experience both benefits and joy in discovering lucrative deals for point redemption. For these gamers, points represent a playful challenge.
- Point lovers, who value points more than money even if their purchase power is the same or lower.
This segmentation is reflected in discussions on social media platforms such as Flyer Talk, where participants debate the value of a point and how to decide whether to pay with points or money. Some advocate for redeeming points only when the redemption value is exceptionally favorable, while others prefer to use points at any opportunity, reflecting a broader skepticism about the financial value of points.
(Read the full original article at https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/unlocking-the-next-frontier-of-personalized-marketing)
