Bank of Montreal agreed to purchase LoyaltyOne’s Air Miles reward program. This insight explores what happens when loyalty programs encounter big changes, how that will impact both vendors and customers, and the key steps to follow.
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Introduction – Loyalty Programs
Loyalty programs (sometimes called reward programs) were believed to be an invention by American retailers in capturing customer retention through a “premium” marketing tool in the late 18th century. These retailers would give customers copper “tokens” as part of a purchase. These tokens would then be exchanged for products in the future.
Copper tokens were given to customers to reward them for loyalty back in the 1800s.
The concept of earning points for future product/service redemption has not changed in the two hundred-plus years since. Almost all major retailers operating in different segments from bakeries to airlines, from car manufacturers to luxury department stores have their program in place to capture relevant data that drives a more personalized product or service with the objection to improving sales.
LoyaltyOne’s Air Miles Program
The current version of the Air Miles program was launched in 1992 as Air Miles Canada. The program revolutionized how Canadians collect miles at different retail brands concurrently rather than the popular one program per brand concept. It was great for consumers as they have the flexibility to earn and redeem miles at more than 100 merchants. The concept also reduced the infrastructure and operating costs for retailers to start their programs.
Owing to the program’s success, it was acquired by Alliance Data Systems six years later. The company settled on the rebrand to LoyaltyOne in 2008.
Today, the Air Miles program has nearly ten million members. It is one of the top three most subscribed loyalty programs in Canada which also include Air Canada’s Aeroplan and President Choice’s Optimum programs.
On March 10, 2023, the company announced that it has received an acquisition offer from its anchor partner, Bank of Montreal, after filing for bankruptcy protection. In a bulletin posted on top of its customer-facing website, the program stated that “this process will not affect collectors’ reward miles balances or their ability to collect and redeem AIR MILES reward miles.”
Why Did The Bank of Montreal Acquire the Air Miles Program?
The acquisition will need to go through the regulatory and shareholder approval process with a time frame of up to a year. Without any challenges, the acquisition will be approved and the program will form part of the Bank of Montreal’s portfolio.
There are many benefits for the Bank in acquiring the Air Miles loyalty program:
1. The Bank already has credit card products integrated with the program. It could have a material impact on the Bank’s finances if Air Miles ceases to exist or is brought out by a competitor. While the Bank also has its own loyalty program called BMO Rewards, it is not as popular as Air Miles and is limited to specific credit card product holders.
2. Direct control over Air Miles may lead to access to merchant transaction data which could assist the Bank to improve vendor relationships and customer experiences.
3. The Bank will wholly own one of the biggest loyalty programs in Canada. This could facilitate tighter integration with its products and services similar to ScotiaBank’s own Scene+ program.
There are some drawbacks as well:
1. Beyond the Bank of Montreal, the Air Miles program has a partnership with American Express Canada. The acquisition could trigger a contract review as the Bank may be perceived to have unfair access to the loyalty program mechanics, membership details, and business intelligence.
This could lead to American Express Canada reviewing whether they would like to continue having a relationship with the program or focus directly on their own competing Membership Rewards loyalty program.
2. LoyaltyOne’s bankruptcy protection filing shows that its current business model was not sustainable. Bank of Montreal will likely review the program’s business practices and make appropriate changes (e.g., staff reduction and modification in miles earning/redemption rates, etc.). This may have direct implications for vendors, customers, and employees in the future.
Business As Usual?
It will take some time before the acquisition is approved by the regulator and shareholders. There are likely many questions from customers and vendors that will go unanswered for the next six months or longer.
Proactive vs Reactive
LoyaltyOne has stated that the Air Miles program continues to operate without any interruptions on earning or redeeming miles at over 300 merchants. Given there will be customer anxiety over negative program changes in the future, Bank of Montreal, LoyaltyOne, American Express Canada, and other vendors should act proactively by creating a separate area in their webpage, social media assets, newsletters, or mobile applications to discuss updates and address questions.
This is also the perfect time for Loyalty One/Bank of Montreal to engage consumers/merchants on their loyalty program expectations and needs. This valuable data can 1. show consumers/merchants that they are listening to any concerns and 2. relevant program changes can be made based on direct inputs.
Both consumers and merchants would react more favorably if program changes are reported in a transparent, upfront, and timely manner. Staying reactive through the process wil encourage some consumers may choose to redeem all their miles and abandon the program entirely. The same can be said about merchants who might renegotiate their contract with Air Miles if they believe the new program would not serve their business needs or the fee structure of the restructured program may be too high.
Uncertainty yields opportunities. In the lifestyle loyalty program category, the aforementioned leaders such as Scene+, Aeroplan, and Membership Rewards can use the shakeup to encourage merchants to switch over to their programs with attraction processing rates, data analytical tools, and marketing support. PC Optimum leadership may want to open their program to include merchants that are not part of the Loblaws Companies Ltd.
Similar to PC Optimum, Canadian Tire’s Triangle Rewards Program, Staple Canada’s Rewards Program, and Royal Bank of Canada’s Avion Rewards Program could stand to benefit from this loyalty program disruption by extending their walled system to include merchants they don’t own or partner with.
Contractual matters aside, any loyalty program that wants to “adopt” any of the 300+ merchants in the Air Miles program must be able to demonstrate that system, data, and account transition would be seamless, painless, and cost-efficient. Otherwise, these merchants would be better off staying with the existing arrangement or starting their own program.
Merchants staying with Air Miles, leaving to join another loyalty program, or starting their own endeavor should remain diligent in broadcasting any implications to customers, employees, or other relevant stakeholders.
Any major changes in acquiring or using points in the future should be communicated fully with an awareness program for employees and customers. Transitions are never easy. Empathy directives should be built into any customer experience design changes in the engagement, acquisition, onboarding, or maintenance stages. Challenges experienced by stakeholders should be received and resolved in a timely manner.
The Canadian loyalty program landscape is disrupted by Bank of Montreal’s acquisition of LoyaltyOne’s Air Miles program. This will lead to new challenges and opportunities for many stakeholders to engage, build, and transform relationships. Demonstrating value across different avenues will be key to retaining contracts or empowering change.
Retail Mashup will continue to monitor this acquisition and provide updates on how Bank of Montreal and Air Miles perform in managing merchant, consumer, and stakeholders’ expectations moving forward.
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