Delta and Starwood recently announced a watershed moment in the loyalty program space: a joint loyalty program that will provide perks across brands, aptly called Crossover Rewards.
This is truly an innovative partnership, portending a shift in the way that brands are considering their loyalty programs. By working together on a partnership that shares benefits across programs, both companies stand to both gain new customers and entrench loyalty from their existing customer base.
The shared benefits in the Crossover Rewards program could very easily draw frequent traveler loyalty away from other airlines and hotels, soley due to the expansive advantages of status with either Delta or Starwood.
Rather than having to build up loyalty to gain status at both companies, travelers need only focus on one program to reap the benefits.
Up to this point, these partnerships had been entirely limited to airline alliances and random partnerhsips across other verticals aimed squarely at getting frequent travelers to spend more money on their credit cards with partner businesses - for example, the RewardsNetwork that fuels many of the largest airlines' crossover ancillary loyalty programs.
But what exactly does this Crossover Rewards development mean for the loyalty component of the travel industry? Tnooz spoke with some of the industry's loyalty mavens to find out just how significant this marriage is.
Increased rewards equals more customer value
By increasing the level of rewards, customers will find these programs more valuable, providing a win-win for both companies and customers.
LoyaltyOne Consulting Partner Fred Thompson:
Loyalty programs have been building to cross-brand solutions for a while now. Partnerships in which grocery stores across the country have teamed with gasoline retailers to offer consumers fuel discounts are a prime example. These types of partnerships are a logical extension for two brands that share a similar core audience.
Cross company partnerships began in the airline industry with airline networks in the late 1990s. Now, we should see more hotel arrangements and cross-branding in other travel related verticals, including the car rental industry.
When partnerships drive additional value and utility for consumers, we view that as a good thing. Partnerships that feature reciprocal benefits, versus simple point exchanges, are particularly exciting. They provide great benefit to business travelers.
These sorts of joint programs have already seen success outside of the United States, which means that Delta must continue to innovate to both solidify and differentiate its position from its competitors.
Outside the United States, in Canada, the UK, Germany and elsewhere, coalition loyalty programs are very popular. Multiple companies reward customers for spending with businesses within the coalition. Participating consumers carry one loyalty card to earn points for their grocery, travel, retail and credit card transactions. These programs are popular with consumers because they make earning and redemption easier and faster on everyday purchases.
With the recent USAirways-American Airlines merger announcement, Delta now needs to think creatively about how it can solidify its foothold with the business traveler. Crossover Rewards is an excellent first step, but a simple matching strategy from Delta's competitors can erode this differentiation quickly.
Travel companies need to continue to push the boundaries of how they can customize and personalize the travel experience. With rewards continuing to become more table stakes in these programs, loyalty is being further driven not by richer programs, but by more relevant experiences.
Switchfly's Chief Marketing Officer Dario Ambrosini concurs:
Loyalty programs benefit all customers, but their biggest goal is to retain the highest value patrons by providing them with the most benefits. Program status is really just a customer segmentation exercise where the best rewards are reserved for customers who spend the most money.
By targeting SPG Elite and Delta SkyMiles Medallion members, Crossover Rewards provides additional benefits to each programs’ highest value customer segments – benefits that would otherwise not be available, such as an SPG Platinum member receiving priority boarding or a free checked bag on Delta even if they don’t have SkyMiles Medallion status.
A natural step in the evolution of loyalty programs
Loyalty programs were bound to evolve into some sort of joint-status mechanism, as high-value customers continue to be reliable sources of revenue and very profitable given their status-versus-price sensitivity.
Dario Ambrosini believes that securing the most valuable members - even across programs - is a smart business move.
This is a natural step for loyalty programs as they continue to differentiate themselves by providing their highest value members with the most benefits. This serves two key purposes of keeping valuable members happy while also luring high value SPG and SkyMiles members to join each others’ programs.
That second point – the ability to lure high value members from other programs – is the true glimpse into the future of loyalty. We see the role of loyalty programs evolving from pure customer retention to also include customer acquisition. As loyalty programs embrace their new role, we expect to see more promotions like Crossover Rewards.
These programs are increasingly essential to travel companies, pointing to their continued evolution as more than just mere rewards programs - selling loyalty rewards has become big business on its own.
Dario continues:
Loyalty programs are extremely important for the travel business.
In addition to helping differentiate the product offering along with traditional drivers such as product offering and price, they allow companies to engage with their customers at a much deeper level than is otherwise possible. The best loyalty programs are using this to move beyond customer retention and use their loyalty program to drive incremental revenue.
JetBlue Getaways, for example, allows members to save on package deals and earn TrueBlue points based on the entire value of the package, including their hotel and car rental. In short, they are combining the benefits of shopping directly with the airline (earning loyalty points) and a third party OTA (package savings) to create the best of both worlds for their most loyal customers. Companies who embrace this approach and include their loyalty programs as an integral part of the selling process will ultimately be the most successful.
Looking forward: complete spinoffs of loyalty programs?
What happens when a loyalty program becomes a thriving business on its own? Some companies might consider spinning off their loyalty programs as standalone businesses, providing the ability for the programs to develop more in-depth partnerships and consolidate benefits for loyal customers.
This could indeed appeal to high-value customers who would rather patronize a collection of companies with a core set of easily understandable benefits. And rather than monitoring points across myriad complicated programs, customers would also benefit from this centralization. Companies would trade ownership of that loyalty information in favor of increasing the overall pull of brand-specific loyalty.
Dario Amrosini points out that this is already happening in certain areas:
One of the more interesting trends we’ve seen is the spinoff of loyalty programs to become independent entities. I see that as a partnership issue because the relationship between loyalty programs and core business operations has evolved from a subordinate division to a full scale partnership.
Aimia started the trend with Aeroplan, and now we see separate operating structures for Multiplus (TAM spinoff) and even Club Premier (JV between AeroMexico and Aimia). The loyalty programs have become independent entities that partner with the core business to drive long term profits for both. We expect to see more of this in the future as loyalty programs continue to expand their influence from customer retention to customer acquisition.
The biggest question is how will these alliances evolve if other programs follow their lead. Will we see a closed alliance system or an open one? In other words, will each major hotel program and frequent flyer program sign exclusive deals with each other, or will they allow members to choose benefits from multiple partners?
Regardless of how loyalty affects your business, the new Delta/Starwood Crossover Rewards is a significant indication of the alternative partnerships to come. Businesses are increasingly seeking cross-pollination with different verticals, as it provides a relatively low-cost way to serve an entirely new segment of customers.