The commercial and customer value of your programme

08 May 2014 Iain Webster Senior Loyalty Specialist, ICLP

With the loyalty landscape constantly evolving and heightened focus on demonstrating return on investment, there are increased pressures for loyalty managers to show that their programmes are generating incremental revenue and improving profitability whilst providing an improved customer experience and increasing loyalty.

Understanding and accurately identifying all the elements needed to calculate commercial value can be difficult; from evaluating and managing all components of the programme and increasing customer engagement, to measuring the influence of interactions and transactions or determining and correctly allocating the direct and indirect costs of the programme.

Our performance checklist, based on loyalty in the travel industry highlights the key areas of consideration to balance the customer value proposition of your programme whilst positively impacting revenue and profit for your business.

Reviewing your programme promise
Whilst travel loyalty began over three decades ago by promising free flights, the reality today is that ‘free’ rarely exists with airline redemptions. Hotels and car rental companies are the ones continuing to deliver against this promise. A key consideration in reviewing performance in this area is how much of your product is being given away to members.  If the percentage is too high, too many rooms or flights are taken up with members using points as payment impacting commercial performance. Alternatively if the award ratio is too low, the risk is that the fundamental customer promise of the programme could be broken, negatively impacting the member’s perception of the value they can realise.

Benchmarking the customer value proposition
Aligned to the programme promise and with continual evolution of programmes, it is essential to ensure the overall customer value proposition favourably compares with that of competitors and meets member expectations.We have a proven and proprietary framework to model and benchmark your competitive position on 5 core drivers; Reward, Recognition, Communication, Operations and Interactivity.  Understanding your areas of strength and strategies for improvement will enable these to be fully modelled to determine the commercial implications of these strategies. We have seen many brands match propositions as opposed to differentiate without understanding the risks and potential impact.

Measuring the right things
Indirect costs can be a challenge to determine as they are often hidden from view and can quietly grow dangerously high. Breakage, dilution and opportunity cost are just three of these latent concerns that must be actively managed. Many airlines and hotels have an unhealthy and overwhelming obsession with the total volume of members within the programme. Whilst this is an important key performance indicator, it is more important to measure and evaluate those metrics that can truly drive business performance. ICLP believes there are 8 indicators of highly effective loyalty programmes. These can be challenging for any individual organisation to calculate but having been involved with many different programmes across industry sectors, we are uniquely placed to help benchmark your metrics.

Maximising insights from data
Starting with a hypothesis to prove or disprove, rather than adopting a more exploratory modelling approach, is unquestionably the most efficient way of using expensive analysis resource and gaining actionable insights.Increasingly in the interactive space, the ability to combine social data with transactional, loyalty data and even third party data, provides a huge opportunity for driving greater customer understanding, engagement and ultimately revenue. Is a frequent flyer no longer flying with you because of reasons outside of their control such as company policy? What are the reasons that a frequent guest no longer stays with you in one city but has become a regular in another property in another city?  The ability to overlay individual context to communication is becoming increasingly important and expected to ensure messages are intelligent and reflect current situational needs rather than purely being based on historic transactions.

Exploring the long middle tail opportunity
Hidden potential undoubtedly lies in your entry level base members.  Whilst these members are not currently giving you much business, it would be dangerous to assume they are infrequent travellers. You might be surprised to learn what they are doing with your competitors. As there are so many of them, a slight behaviour change from just a small percentage of them will yield much greater results than an increase in spend from your top tier.These members along with leisure travellers might also be prepared to pay for the benefits to which they are not entitled as a lower tier member. Bundled benefits and paid memberships are becoming increasingly common and can provide a significant incremental revenue stream for the business.



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