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Are customers truly engaged in loyalty programmes?
The question of whether loyalty programme operators are actively seeking redemption is nothing to do with a moral or ethical quest for inner peace, but more to do with whether or not they are encouraging programme members to redeem the points or currency they’ve earned, according to Mike Atkin of MJA Associates.
Loyalty experts tell us that programme members are not fully engaged with a loyalty scheme until they have redeemed their points or miles and, therefore, operators should encourage ‘burn’ in the same way that they encourage ‘earn’.
Of course, some cynics say that many operators would prefer to enjoy the ‘breakage’ rather than endure the redemption. Indeed, we are seeing lots of creative ideas and offers that encourage participants to earn more points and miles (with double or triple points promotions and other bonus offers abounding), so why aren’t we seeing similar campaigns to encourage redemptions?
Typically, Tesco is enabling its Clubcard members to increase the value of their points by redeeming them for higher margin products, or with programme partners (thus reducing liability, increasing the perceived value of the points, and driving business for the partners).
This not only improves the value proposition for the customer but, of critical importance, it also means that customers don’t use their points to buy things they would have bought anyway. In other words, it avoids discounting the shopping basket.
We see offers from airlines, hotels and other travel loyalty schemes that are designed to get consumers to book flights and accommodation, and to earn bonus points. So why can’t consumers have offers that encourage them to burn their points? There have been a very small number of these campaigns recently, but why shouldn’t every programme offer “points are worth double” offers for the right kinds of reward redemptions?
Technology has improved significantly in respect of bonussing capabilities, and it is time to see some more creative bonussing efforts to help reduce funding liability and increase customer satisfaction.
This article is an extract from the 30 chapters of detailed coverage in ‘The Loyalty Guide 4’, which is The Wise Marketer’s latest global guide to customer loyalty and engagement techniques, best practices, models, metrics, practical advice, market data and research. The report provides hundreds of detailed case studies, forecasts, trends, tables and visual materials to support new initiatives, presentations and proposals. See how customer data can increase profits, reduce churn, and increase frequency, spending, and share of wallet, and find out where your competitors are succeeding or failing, and why.
25 years of Ancillary Revenue, what will the future hold?
The next significant development was the offering of in-flight duty-free sales, introduced in the 1970s, followed by car and hotel bookings. Although these “extras” were available, they rarely sold successfully. Pre-internet, it was difficult for telephone reservations clerks to convince customers that an airline could reliably sell anything beyond plane tickets.
When the dotcom boom happened in the late 1990s, airlines realised they could now use their websites to drive ancillary sales of other travel-related products and services. This, combined with soaring fuel prices and an increasingly competitive market, first saw the low-cost carriers seek to generate new revenue streams with bag check-in charges, which, given its success, quickly spread to the legacy carriers too.
Today, however, the term “ancillary” can be applied to two different elements of airline revenue.
First, there is the revenue from unbundling. This really is nothing more than changing the pricing structure in an effort to avoid having to raise ticket prices.
Although unbundling charges have been reluctantly accepted, there is no easy way for customers to compare the true total cost of their own specific itinerary. Unbundling continues to be profitable, and some carriers continue to innovate, motivated by the margin available from packaging their own inventory. However, unbundling can be developed only so far. Continental Airlines recently reported that 70% of its business customers now choose not to check in their bags at all.
Second, airlines are generating more and more revenue by offering added-value products and services from third parties throughout the online booking process. Brands such as easyJet, Air Asia and British Airways all present relevant, useful hotel and car hire options as an integral part of the online customer journey.
At the recent Aviation Outlook conference in Singapore, one travel insurance supplier noted that 99% of its success comes when the sale is seamlessly incorporated as an integral part of the booking process, and only 1% from the extraneous “book insurance” tab on the home page. Offering customers a choice of destination-relevant insurance just after they have booked their flight is a great example of how to provide the right message, to the right audience, at the right time, allowing for ancillary offers to be further tailored to the choices the customer has already made.
This approach represents the true future of ancillary revenue and will see airlines thinking beyond journey options and towards adding value to the customer proposition. The most valuable asset any business has is its customer base, and with their long history of frequent flyer programmes (FFPs), most airlines are sitting on an untapped gold mine of customer data. Also, airlines are in a unique position because they have permission to use this data, presenting the opportunity for predictive data modelling that can be used to forecast trends and provide customers with products and services tailored to their needs.
One way for airlines to capitalise on this is to consider the success of the banking industry in offering customers added-value accounts. In the UK, banks collectively earn about £800 million a year from charging current account customers a small monthly or annual fee for additional services, which include banking services as well as lifestyle and travel-related benefits. The fact that many customers now buy their travel insurance and airport lounge from their bank should be a major wake-up call to airlines that are missing out on this revenue stream.
Providing consistently branded online shopping portals, where customers can pay cash or redeem loyalty currency, also has huge potential. Both Cathay Pacific’s Asia Miles and Virgin Blue‘s Velocity shopping portals are excellent examples of where third-party goods as diverse as homeware, jewellery, iPods, clothing and even food and drink are offered in return for customers’ points, thus generating shared revenue and customer engagement regardless of whether consumers will actually be flying with the airline.
Finally, as the world goes increasingly mobile, the future of ancillary revenue, combined with real-time GPS technology, will see airline brands offering customers additional products and services based not only on who they are, but where they are.
The key to adding value though ancillary revenue, and building a relationship with customers, is relevance, both to an airline’s brand position and also to its customers. With that in mind, the next generation of ancillary revenue or, as we call it, AR2, will be centred around creating profitable customers for life, by adding value, not adding costs; by rapid implementation of new technologies, products and ideas; and by seamless targeted customer interaction.
Airline industry facing up to death of Airmiles
New research we commissioned, in conjunction with Airline Information, shows that 90% of airlines are being forced to find new, more profitable ways for customers to redeem their frequent flier currency.
These include partner offers such as hotels and insurance, with less than 50% of Airmiles programmes reported to be profitable.
Respondents cited accounting pressures, such as the need to record loyalty currency on balance sheets as a taxable liability, rising operational costs and shrinking seat capacity as a combination of factors causing the majority of airline brands to lose money on every seat they give away.
This shift to airlines seeking a broader range of redemption platforms is reflective of a wider trend in Airlines’ ancillary revenue and loyalty activities.
Consumers today demand more choice of how they redeem loyalty currency, and airlines are increasingly able to offer additional products and services from partner brands, seamlessly and securely, via their own sites. This allows airline brands to both enhance the customer value proposition and deliver enough revenue for redemption programmes to be, at the very least, self-funding.
Airline brands are clearly being forced to continually adapt their loyalty programmes in what is still an incredibly tough business environment. New models demand high levels of customer engagement, with tailored reward and recognition content that drives loyalty from a wider customer base.
Whilst broadening their redemption offering to consumers, it will be crucial for Airlines to add value by using their customer data, developing genuine insight and applying it to offer customers more relevant benefits, products and services. Airlines are uniquely placed to leverage their customer data, as they not only have a large volume of data collected about their customers but more importantly they have permission to use it.
Offering memberships via unique bundling of, for example, travel insurance or wi-fi and airport lounge access provides a platform for airline brands to build a relationship with customers. It’s by focusing on the relationship instead of the revenue, that the airline industry will be able to develop additional sustainable streams of income.
Airline Redemption Opportunities Survey
Thought it might be interesting to update you on our recent redemption survey. Working in conjunction with Airline Information for the 6th Annual ARAC / FFP Mega Event in Montreal this year we surveyed attendess and found some interesting results.
The survey revealed that:
- 100% of airline industry respondents wanted to have more redemption content in their portfolios
- Only 50% have redemption offers which deliver them profits rather than costing them money
- Two thirds feel that customers who engage with a redemption programmes are more loyal to the core loyalty programme
It seems that airlines are starting to look into how effective redemption programmes are, as well as considering additional partners and methods of delivering content to customers, perhaps to widen programme appeal, so its not just frequent flyers that get value out of FFPs. This should be great for the not so frequent flyer, but also should provide even more benefit for frequent travellers!
If you want to see the full survey results and report please give me a shout.
Paul
Ailrine ancillarys set to soar
Even the Telegraph are joining the airline debate: http://www.telegraph.co.uk/travel/travelnews/8078219/Airlines-extra-charges-continue-to-soar.html
As Jay Sorensen rightly says, “the ancillary revenue movement is gaining strength”.
It is clear the ancillary revenue generated from unbundling is a necessity in order for low cost airlines to survive. However, what is also evident is the growing consumer and regulatory demand for transparency in additional costs.
It is crucial for the future of the industry that airlines act now to add value to their ancillary revenue strategy; it should focus less on the baggage and credit card fees, and more on additional services and benefits offered to their customer base to enhance the customer experience and increase brand value. By analysing their customer data to develop insight airlines could offer relevant, bespoke benefits to consumers, such as travel insurance or wi-fi and airport lounge access.
Airline brands should concentrate on a return on relationship with passengers then new, sustainable revenue should follow.
From relevance to revenue 