Loyalty is a big business in travel - travelers accumulated an estimated value of $48 billion in loyalty points last year, while companies spent around $2 billion in actual cash. And yet, according to the CMO Council, only 13% of marketers believe their program has been "highly effective."
With all of this money floating around - and the business revenues attached to it - here are some insights on leveraging this opportunity into true loyalty that effectively drives top-line revenue.
Defining 'Loyalty'
"Loyalty" is an amorphous concept that often lacks concrete definition in the travel industry. It's loosely defined as creating a product, service or program that users love enough to return often as a "regular." Loyalty breeds passion, brand evangelism and dedication that should boost income and guest satisfaction.
Beyond this general definition, there are many questions, questions with answers unlikely to be shared by any two travel brands. Who are these loyal customers? Are they the right customers for the brand? What motivates them? How can we reward the loyalty of customers most likely to bring repeat business? What is the monetary value of a loyal customer to our brand?
And what about loyalty across channels? How do we approach loyal customers on mobile, on the web and in-person? Exploring these questions are an essential lead-in to building a successful loyalty program - or revisiting a currently existing one.
The Holy Grail: Permission
I spoke with Howard Schneider of Metzner Schneider Associates about some of the important considerations that brands must make when building a loyalty program.
The first key consideration is the point of a loyalty program - what are the goals for the program, and how much is the brand willing to spend on perks and benefits?
"Loyalty itself is kind of a misnomer - we're not talking about loyalty to a dog, but loyal behavior which is defined as: Measurably incremental profit driven by customer engagement, enabled by an understanding of individual customer needs, interests and behavior."
In order to understand individual customer behaviors, brands need permission to collect and analyze this data.
The very first airline loyalty program at American Airlines was predicated on this very fact: the airline had many customers and yet they had absolutely no knowledge about them. So by offering the loyalty program, the airline was able to identify, and get permission from, their customers.
"The real purpose of a loyalty program in today's environment is to get actionable data via a permissioned relationship.
You communicate with people via email and mobile; lots of businesses have data on customers through data overlays and other traditional ways of obtaining data. Yet they can't use that on an individual basis for communication because they don't have permission. [Loyalty] ensures a permissioned, transparent relationship with your customer, and the value lies in gathering that data."
By first getting the participant's permission, brands can then begin owning the client relationship with direct, measurable interactions that build incremental revenue.
Reward vs. Risk, Emotional vs. Rational
There are also some key risks within this permissioned relationship, centered around the key components of any loyalty program: the Emotional and the Rational.
On the emotional side, it's important to throughly trigger the reward side of a particular customer's motivation equation. By giving them rewards that activate a key emotion - whether it's status, access or a feeling of belonging - brands can forge an emotional bond with their customer.
Schneider looks at the emotional component of a loyalty program when determining its structure. By determining what triggers the right emotions, companies can formulate a perk structure that encourages the desired behavior.
Howard Schneider:
"Loyalty is inherently emotional: you want people to feel good about doing business with you.
Companies must give something meaningful to people so that the emotion is still there. It's also value driven. For example, if I have to fly 100 times before I get a reward, I'm going to feel cheated. On the other hand, if I fly only once and get a reward that might be too easy.
Loyalty isn't to reward the best customers - it exists to motivate the best customers to stay in addition to motivating identified segments to do more."
In reality, and in perception, loyalty rewards must be valuable enough to motivate the customer. And yet, the rewards need to motivate the customer towards a behavior that they might not otherwise have had.
Customers will gladly take rewards even for behavior they were going to do anyway, and at the same time it's easy to give away rewards to the wrong customer. So beware both the under- and over-reward, as well as the misplaced reward.
After considering the emotional component of the loyalty program, companies can then look to the rational side for the actual mechanics of the program. Determining the program's related return and variable costs, companies can see the peak ROI for a particular program by plotting out the Program Return ($, etc) against the Reward Value (%).
Schneider finds the rational side oftentimes lacking, where businesses get the emotional component but fail to grasp how it will make them money:
"Ultimately, all businesses considering a loyalty program should run the financials to determine how much they can afford to spend to get a 1% increase in loyal business.
The big risk is to not totally understand the economics and to give away too much - or do something in a program that's uneconomical.
You have to do the financials. These are financial based marketing programs and they are highly measurable so you can understand how you're doing. Understand the economic risks, and balance them with the value received on the customer side."
The equation could be posited as such, where the final Loyalty Value is a percentage increase in revenues, Reward Value is the actual face value of the reward, Reward Cost is the full variable cost for the labor, goods and program admin, and the Percentage Increase is how much more a loyal customer spends in percent:
Loyalty Value = Reward Value/Reward Cost * % Increase in Business From Loyal Customer
By considering these various elements - and taking a dual-pronged Emotional + Rational approach - even the smallest of businesses can create and periodically tweak a loyalty program that rewards desired behavior from the right customer.
It must be noted here that NOT considering the financials - by just "going with the gut" without analyzing true behaviors - businesses of all stripes risk over- or under-rewarding, alienating customers, and losing money.
Beyond Points: Loyalty Across Channels
Loyalty doesn't only have to refer to a program that provides points to customers as rewards for patronage.
Loyalty is also an essential component to build across other channels, such as a consumer-facing travel app that wants to encourage regular visitors. From badges on Foursquare to Yelp's Elite Squad, there are many different models for loyalty across the travel industry.
In a recent whitepaper, the data specialists at Kontagent urged readers to "Don't fly blind," offering lessons in loyalty for travel app owners. The idea being that the mobile channel provides its own unique context for loyalty, and that brands must consider this channel specifically when building a loyalty program.
The key lessons offered up by Kontagent (read them in full here) are:
- If you build it they won't come. Discovery is hard, there are many apps, and competition is fierce. Segment across channels and use analytics to optimize the highest ROI channels. Oh, and build a fantastic, super-engaging app that people love!
- Downloads don't mean anything. 95% of people who download won't even use your app! So monitor the behavior of super-users and optimize accordingly. Find the spots where the engagement is highest and build from there.
- Revenue shouldn't be your #1 priority. App should offer content and/or utility that hooks consumers, followed by long-term revenue strategy. Engage customers now on mobile, which is primarily a discovery tool, and use the actual user behavior to inform monetization.
- Agility wins. Measure and improve constantly. Be a work-in-progress, follow your user through extensive analytics, and use data to drive development decisions.
- Mobile is not like the Web. Different analytics and metrics needed for understanding how users navigate the app.
By taking these mobile-centric tips to loyalty, companies can enact a sub-loyalty program for each channel that works together to drive desired behavior within each channel individually in addition to pushing customers across channels for various transactions. Companies like
PunchTab are building full businesses in driving the cross-channel engagement that can help companies of all sizes develop communities of loyal users.
The final channel that many consumer-facing brands with brick-and-mortar locations is the in-person experience. Here is where we leave it with you, dear battle-weary reader. What are some considerations that brick-and-mortar brands with in-person customer service (hotels, airlines, tour companies) must make when attempting to use a face-to-face interaction to reward, increase or encourage loyalty?
NB: Loyalty image from Shutterstock