So What’s The Point Of Points?

Ben Schlappig is living a first class life.

Literally.

The 26-year-old blogger, travel hacker and all-around world traveler was profiled by Rolling Stone earlier this summer as part of a travel itinerary that would see Schlappig bounce from Hong Kong to Tokyo to Jakarta to New York — all in 69 hours — and without ever leaving an airport.

“I’m very fortunate in that I do what I love,” Schlappig told Rolling Stone. “An airplane is my bedroom. It’s my office, and it’s my playroom.”

He’s not kidding about it being his office. Schlappig keeps tens of thousands of readers enthralled with his travel tales on his blog “One Mile at a Time.” In the last year alone, Schlappig has circumnavigated the globe six times, traveled 400,000 miles and estimates he spends at least six hours per day in the air.

That office typically has some rather steep rent — the first class suite where he sat for his profile typically costs around $15K a whack — if one is paying with money.

Which Schlappig most emphatically is not. He’s part of an Internet subculture that has dedicated itself to gaming frequent flyer points programs so as to outwit the airlines and fly for free as often as possible.

Ben Schlappig is the Michael Jordan of this sport, and he is absolutely unapologetic about what he’s doing and who he’s doing it to.

“The fact is, we are beating the airlines at their own game,” he said last year at a gathering of the hobby’s top talent. “The people who run these programs are idiots. And we’ll always be one step ahead of them.”

In the wake of that article, many pieces emerged to debate the morality of Ben Schlappig and his fellow hobbyists and whether he and his ilk are best classified as clever consumers or thrifty thieves.

And while that is an interesting issue, the existence of the hobby itself and the degree to which the exceptionally committed can capitalize on it point to a bigger problem.

The problem with points and the troubles that loyalty programs that attempt to leverage them can often find themselves staring down.

The good news is that most merchants will never have points become so problematic that they find themselves giving away luxury accommodations to someone who delights in publicly calling them an idiot.

The bad news is that points — though a perfectly logical incremental loyalty/rewards program — are a shockingly hard program to get right.

When do they go right, and where do they go wrong?

PYMNTS has your guide.

 

Why Points Are So Popular

PYMNTS has already covered the difficulty inherent in using discounts as a rewards tool, because in some way those discounting efforts work at cross-purposes to loyalty plays. Consumers buying a bargain aren’t necessarily the same as consumers who buy a brand, and those bargain hunters are only loyal until a better deal comes along.

Points plans are a logical counter-strategy. Instead of offering the consumers a “reward” in the form of a discount for every visit, the consumers instead are rewarded with points (credits, miles — there are various titling schemes), which are less about rewards and more about chits applied toward a future reward.

After the consumer has raked in enough points by making enough purchases, they get their treat. That might be an upgrade to a new tier of membership with a host of perks, a la Starbucks; it could be the ability to trade those points for valuable items, a la American Express; or it could be something as simple as getting a free sandwich, a la your local deli.

Whatever the perk, the strategy is always essentially similar: Points give customers an extra incentive to keep going back to a particular store or card, and repeatedly revisiting a place has the a habit of, well, becoming a habit.

And when points programs work, they work well.

Earlier this summer, American Express launched its general consumer reward play in the form of Plenti, a points programs that allows users to rack up and spend points within a large consortium of businesses.

“It is a very different set for merchants that participate in a program like this,” Abeer Bhatia, chief executive of U.S. loyalty at American Express, told MPD CEO Karen Webster in an interview about the program.

“From their point of view, the value is whether they are attracting more points than they are paying out and are they engaging consumers in a better way and are they encouraging consumers to come in more.”

 

The Problem With Points I — Lack Of Immediacy

Unlike discounts or cashback offers, points don’t offer consumers that immediate thrill of the save. And most of the collected Interweb wisdom of solving for the problem with points focuses on this specific issue. Consumers don’t like waiting, which means you have to overcome their desire to jump ship to someone who will reward them faster (even at the expense of their long-term loyalty).

That can be overcome by making sure that rewards are A) actually something a customer might want enough to wait for and B) varied enough that working toward a reward remains something that is worthwhile in the long term.

The conventional wisdom also holds that the points-based rewards program has to be pretty simple and transparent, because if a user has to apply advanced mathematics to understand and claim their reward, they are not going to stay engaged in the program.

Best Buy is often held up as an industry best in this regard. Its Rewards Zone program assigns one point for every dollar spent.

Airlines are frequently criticized as being the other end of that spectrum, with rewards programs that are often derided as hard to redeem, hard to understand and subject to constant and illogical changes.

It’s almost as though they don’t want people using their rewards program…

 

The Problem With Points II — Freeriders

Which brings us back to Ben Schlappig and his fellow hobbyists — a group who represent a big part of the reason airline points programs have gotten so very complicated in recent years.

Though failing to engage consumers is a clear problem the average points program can face, the flip side of that coin is the points program that over-engages consumers. The prize is so valuable, and the points system is so accessible that it attracts a very special class of consumer willing to wholly and completely dedicate themselves to gaming the system.

Consumers like Schlappig, whose willingness to essentially live on an airplane has made their life a model of how a point system can get hijacked by a cleverly obsessed user, are a testament to this attraction. While all such points hacking is not quite this extreme, points hacking all operates on a similar premise. Exploiting a points system allows users to rack up large numbers of points for small cash buy-ins.

This gives the points offering merchants every incentive to curb those offerings, make the system less accessible and just make it harder on the whole to cash in those points.

“These people have the ability to cause serious financial harm,” says Henry Harteveldt, an industry analyst and former airline loyalty program manager, told Rolling Stone. Harteveldt has spent decades studying airline points-based reward systems and the users that abuse them.

“No one’s hands are clean in this fight,” he adds. “The gamers have dirt on their hands, and airlines have dirt on their hands.”

Harteveldt also categorized the fight as a “war of attrition … between two equally obsessive tribes.”

You know something has gone wrong in your loyalty program when 25 years after it has launched, it has been described as a “war of attrition.”

And while the tale of the airlines may have become a bit extreme — the cautionary tale and the problem with points is obvious — they represent an awfully narrow needle for a merchant to thread.

If the rewards aren’t good enough or the system isn’t easy to use, it’s not engaging enough to make a difference. If the reward is too good and the system is too easy to exploit, lots of very smart people will show up to exploit it.

Time to think about a new way to engage the consumer.