In short, BA overestimated the quality of their service and loyalty of their customers. They probably have this understanding that as long as they undercut their competitors with a reasonable price difference, customers will pick them regardless of their services etc.

People are more likely to stick to a loyalty scheme which is sustainable, e.g. feasible to achieve the tiers, which is not the new BAEC scheme. There is a reason why these are called "loyalty" scheme. Loyalty goes both ways.