Loyalty programs work as one

Lodging conglomerate InterContinental Hotels Group (IHG) has become the first hotel to join the Global Points Exchange (GPX) on Points.com.

GPX, which has been operating in beta for a few months, allows users to set values on their earned rewards points and miles from a variety of loyalty programs, and then trade them for points accrued by other GPX members.

GPX participation is largely made up of airlines, such as American Airlines AAdvantage, Delta Air Lines SkyMiles and Iceland Air Award Points, but parent company Points Interna­tional Ltd. intends to add to its participant base, both within the travel industry, as well as with complementary companies such as the recently signed Harrah’s Entertainment Group.

The growth of Points Interna­tional and GPX this year may be an indicator of what’s to come in the loyalty market, particularly in the travel industry.

Offering a new method of points redemption may help loyalty pro­grams stand out in an increasingly crowded market.

A recent Colloquy survey found that the average American household is a member of 12 dif­ferent loyalty programs, but was only active in 4.7 rewards pro­grams, meaning that programs need to find new ways to grab consumer attention and drive better engagement from exist­ing members.

“The more opportunities you have to either post or receive miles or credits, the better, so for us to have not only airlines, but also the hotel realm, makes a much more robust and attractive marketplace for our users,” said Rob Borden, CMO of Points International Ltd. “It’s a compliment to IHG that it realized the value of providing this new opportunity to its mem­bers, and we’re thrilled to have it be our launch partner, because it does represent a very large, global customer base.”

“Global Points Exchange really deepens our relationship and provides priority club members more redemption choices,” said Mark Shepherd, director of alliances in the Americas for IHG. “Members can redeem for the rewards currencies that are most important to them at the rate they decide, so it’s really less about us than about giving members more choices and more flexibility with their points.”

Shepherd said many Points.com mem­bers are involved in multiple programs. “Hopefully, this will drive engagement with existing members who see that choice and value in our currency,” he added.

IHG has been working with Points.com since 2002. The companies’ previous work together allowed Priority Club Rewards’ 40 million members to track, buy, earn and redeem points online. Members also could swap points with family members and friends, but not with the wider com­munity of Points.com members.

IHG helps drive users to the Points.com site by offering click-through buttons to purchase points, get points and perform other Points.com-hosted tasks.

Borden said that he didn’t know of many competitors in the points-trading space, and that the company is going forward with its growth plans for 2009.

Total revenue for Points International was $20.4 million for the third quarter of 2008, an increase of 183% over the third quarter of 2007, and up 18% from the sec­ond quarter of 2008.

As consumers with squeezed wallets look for more value in their relationships with companies, tradable loyalty points are one potential way to ensure that customers get rewards that they find meaningful.

“In difficult economic times, this is a great opportunity to unlock the untapped value that consumers have sitting in their wallets,” Borden said. “I think people are very recep­tive to that kind of message, [for example], ‘I can use my points for gift certificates at places like Amazon.com and take care of my holiday shopping.’ It’s an opportunity for us to introduce the concept of using points and miles as an alternative currency.”

The pairing of IHG with Global Points Exchange makes sense on many levels, especially as companies in several leisure verticals look to stand out from the crowd, said Kelly Hlavinka, a managing partner at Colloquy, a loyalty research and consult­ing company.

“Alot of hotels and airlines are looking for ways to add more partners, more reward inventory and more options to what cus­tomers can do with their points,” Hlavinka said. “They are looking for more options so they can differentiate their programs from all the others in the market.”

Along with flexible points exchanges, Hlavinka said Colloquy expected to see more partnerships between companies offering loyalty programs. Such partner­ships would offer more flexibility in points redemption for consumers and cut down on the costs for providers.

Some question, however, whether com­bined programs really serve the intended purpose of a loyalty program.

“These points and rewards take on a life of their own, where they have almost noth­ing to do with the business that originated them, and they simply become things you can broker and combine and sell to some­one else,” said James Kane, a Pennsylvania-based independent loyalty consultant.

However, Kane does see some benefit in the exchange model. He said that loy­alty would grow if more companies took a more holistic approach to rewards pro­grams, offering what consumers might really want, rather than pushing their own products. Exchanges, if they work properly, would help deliver these outside-the-box benefits.

No matter how they work — through partnership, exchange or completely solitary — loyalty programs need to be nurtured in a down economy.

“Loyalty programs are not where you want to be cutting back right now because they’ve already attracted a company’s best customers, who have raised their hands and who could be making up a huge percentage of sales,” Hlavinka said. “If anything, companies will want to com­municate with loyalty program members more at a time when consumers are going to be cutting back.”

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