A Big Lesson From A Small Tweak

Last week, Delta Air Lines announced that one of the qualifications for its highest published elite tier, Diamond Medallion, would require spending at least $15,000 on Delta travel – or spending $250,000 annually on Delta Amex, a change from the previously required $25,000 on the credit card. The change is effective next year for 2019 status.

The secret Diamond Medallion Facebook page and other sites page lit up immediately with most commenters threatening to switch carriers or credit cards.

What might we learn from this loyalty marketing leader?

  1. Diamond Medallion is Delta’s highest published SkyMiles membership tier (there is an unpublished higher tier). It is for Delta’s most valuable customers – not American Express’, in spite of the long strategic partnership between the brands.
  2. The prime benefits of Diamond Medallion are mostly soft: higher upgrade status and availability; access to SkyClubs; and other perks such as checked baggage priority (sans fees), boarding and prioritized re-accommodations. In other words, a better customer experience, which trumps transactional loyalty benefits in today’s world of Loyalty 3.0.
  3. Delta has long pursued a business strategy that prioritizes high yield frequent business travelers, and its SkyMiles program largely reflects this. Delta’s margins on travel revenue are larger than its yield on Amex credit card spending (revenue share, etc.).

Delta’s move perfectly illustrates the fundamental principle of loyalty marketing: customer differentiation and discrimination (the economics definition, not the social one!). We define that in practical terms as “paying attention to customers and acting accordingly.” If you are really paying attention to customers, and you have one that spends more directly with you and another who spends a similar amount with a partner, which customer is more valuable? It’s a simple question of math and strategy.

When you consider the opportunity cost of not being able to serve every high value customer equally, $15,000 spent on Delta travel is more valuable – in dollars and intent (loyalty) – than $25,000 spent on Amex. So with this change, Delta improved its bottom line and reinforced the company’s commitment to focusing on high yield customers. Delta is doing exactly what a loyalty leader should do: align its customer marketing and customer experience strategy to its business strategy.

What do you think?