Travel loyalty programmes have been around for more than three decades to reward and recognise those considered to be the best customers. 'Free' flights are seldom free and with the substantial devaluation of the perceived value of loyalty points as well as declining ability to transform them into real value for the consumer, many programmes are becoming less effective.
Change is continuous but three key themes are significantly impacting the view of customer loyalty and how it can be achieved both today and tomorrow:
- Rapid advances in technology have enabled today's consumer to be connected - 24/7
- The consumer is more astute than ever in their search for the best value
- The importance and influence of peer-to-peer recommendations has significantly increased
Today & tomorrow's valuable customers
Traditional loyalty programmes usually define the most valuable customers as those who have the highest commercial value or are the most profitable. It is these customers who often purchase the most frequently or spend the most. Typically these people will represent up to 25% of the customer base and contribute around 70% of the total revenue.
However it is commonly recognised that the majority of customers tend to get ignored. These are infrequent purchasers and who are often in the lower tier or potentially not even linked directly to a programme at all. Is this significant proportion of customers being mistakenly ignored because they generate only 30% of the revenue? Or is their potential to become "more valuable" an unknown?
Despite whether they are the "most valuable" or not, these groups of customers seek their own sense of "value" from a brand and programme. Like "loyalty", the definition of value can vary greatly and we look at three customer segments and the challenges involved in creating value for them based on their needs:
1. Loyalty programme members
Due to the dramatic decline in the average purchasing value of a frequent flyer mile combined with huge increases in fees and taxes, loyalty programmes need to add value to both earning and burning of points in a way that is viewed as relevant and personalised for the customer.
Adding value to earning - It is becoming more and more common for loyalty programme operators to offer an online shopping portal where members can earn points from purchasing a wide range of goods and services.
Adding value to redemption - Offering redemption beyond the core product is a great way to ease the pressure on restricted inventory. It also provides the potential to lower the threshold redemption level. A redemption option such as an iTunes download or a magazine subscription can be priced such that it is easily attainable to less active members with lower points balances.
All this is of key importance because of the power of what ICLP research has determined to be the 'Golden Moment'. That is, the increased engagement and commitment demonstrated once a member has redeemed for the first time. It has also been proven that the earlier this happens, the more positive the impact on their behaviour and their transaction rate will rise measurably in the months following that first golden experience.
2. Latent customers and non-elite members
Many consumers are prepared to pay to receive similar added value benefits where they are not entitled to them. In the category of paid-memberships there are a host of airline lounge programmes which seek to make their non-elite customers more valuable. Consumers also independently purchase annual memberships such as Priority Pass.
Several travel providers are already earning recurring fees from paid memberships. Most of these restrict the added value to include core product benefits. One of the frequently quoted barriers to this approach is the danger of cannibalising benefits which are also offered to top tier members as a reward for their loyalty. The trick is how the bundle is packaged to minimise the potential risks whilst maximising the commercial opportunity.
3. Influential consumers
Consumers are increasingly prepared to both share and value the opinions of others, and social media has further enabled this. Airlines and hotels need to identify key influencers and add value to their relationships with the brand to harness the commercial value of these individuals.
Estonian Air is a great example of an airline that has prioritised using social media to leverage existing customer relationships and reach untapped audiences to whom they can engage, offer added value and generate new incremental revenue opportunities. Estonian Air have implemented a Facebook app (AirScore) which rewards customers and fans for being strong online advocates without having to fly.
Redefining the meaning of valuable
There is no doubt that the definition of "loyalty" and how it is achieved will continue to change and evolve based on both brand and consumer perceptions. Airlines and hotels are having to work much harder to maintain their positive impact on purchase behaviour and engage the more lucrative frequent travellers. Whilst still relatively immature, the power of social media influencers and peer recommendations are ever-increasing and the business opportunity presented by these online and mobile advocates needs to be evaluated.
It is essential that airlines and hotels relook at their definitions of "valuable" customers to determine and invest in the most appropriate strategy for adding value and maximising the commercial opportunity both now and in the future.
The State of Customer Devotion in Retail: Part Two
The State of Customer Devotion in Retail: Part One
Airlines are moving from rewarding for distance to rewarding for spend – but is this a smart move?
Festive Spirit doesn't last forever, but customer loyalty can
The Changing Face of Loyalty: 5 ways the loyalty industry has evolved
Infographic: The Data Dilemma