It’s not just the US dollar that’s feeling the pinch of inflation — loyalty programs too have been increasingly caught in a spiral of “less for more”. Though it’s a lot more frustrating to see your cash balance erode at the gas pump or supermarket, it’s also problematic when something you’ve been saving up for for years (e.g. a large trip paid with miles) suddenly becomes unattainable or materially more expensive. On average, each American belongs to 16.7 loyalty programs, and the value of unused points is well over $100Bn, so we are individually and collectively very exposed to shifts in the loyalty program “meta-economy.”
If loyalty programs and users want to avoid the pitfalls of loyalty program inflation and devaluation, gamified approaches may hold critical answers. This is a short series on the topic, with a few different lenses for considering gamified design as an alternative way of creating engagement without devaluation.
We’re Back to the Punch Card
Loyalty programs operate large virtual currency systems, not unlike national currencies or massive online games. In fact, the biggest games and loyalty programs even employ economists to help them manage their currencies and keep the economy in balance. That means, they need to match the inflows (issuance) of points with the desired outflows (redemptions) of points to ensure that the game everyone is playing has consistent patterns.
Unlike some national currencies perhaps, loyalty program economies tend to “redeem” into fiat money at some point, meaning they must watch the relative value of their currency to the USD at all times. Games, and gamified loyalty programs that adhere to my SAPS model don’t worry as much about the USD equivalent because they don’t rely as heavily on cash redemptions. But still, the USD “exchange rate” is a key indicator that most currencies watch.
When faced with too much money chasing too few redemptions — or when they simply want to reduce the points liability on their books — loyalty program executives will make the decision to devalue their currencies. This is the same last-resort thing national monetary boards do when inflation gets out of control with a fixed-redemption currency and they can’t stop it. Countries like Argentina, Israel, Zimbabwe and…