Why loyalty programs are more relevant than ever for the travel sector

Loyalty programs drive in repeat purchases. Source: futuristman/Shutterstock

LOYALTY programs could serve as a make-or-break deal for divisive customers, something the hospitality industry knows too much about.

Whether in the airline or hotel industry, these programs promote repeat purchases and are seen as the cornerstone of customer loyalty.

A Bloomberg report revealed that airlines make more money selling miles than seats, with the miles business considerably growing in volume and value.

Joseph DeNardi, a senior airline analyst with Stifel Financial Corp. in Baltimore, told the publication that investors have failed to comprehend how crucial loyalty programs are to airline profitability.

One man who can attest to the importance of loyalty programs is Adam Posner, CEO and founder of Directivity, a marketing agency based in Victoria. His expertise lies in loyalty marketing and his firm has helped develop rewarding programs for a diverse range of brands.

He told Travel Wire Asia that loyalty programs aren’t just for what it promises in its name, that is, to encourage loyalty – they can also be used to improve service.

“Loyalty programs are important because they give [businesses] the opportunity to have direct relationships with their customers. So loyalty programs are often put in place to gather customer data in order to understand who their customers are,” he said.

These programs are also important to drive targeted behaviors to add value and velocity of purchases for brands.

For instance, if a brand is targeting frequent business travelers, they want to be rewarded and remunerated based on how long they might stay in a hotel or how much they might spend on an airline ticket.

With third-party agencies and online travel agencies (OTAs) such as Expedia and Traveloka keeping afloat in the market, loyalty programs can also help hotels and airlines fight their case for direct bookings.

Last year, hotel giants like Hilton and Marriott pushed out aggressive marketing campaigns to broadcast the perks of direct bookings, including making use of loyalty programs. The move was largely employed by the hotel industry to push back against high OTA commission rates.

SEE ALSO: Hotels gain from direct booking in war against online travel agencies

In the battle between hotels and OTAs, hotels have an edge on the grounds of direct, personalized relationships, something that robust loyalty programs can help facilitate.

Posner said any good hospitality and travel brand should think about generosity in their program structure to see tangible results. This is executed impeccably by brands like Wyndham, known for its flexible and inclusive rewards scheme.

Airline miles can gain travelers access to airport lounges or seat upgrades. Source: Shutterstock

“How much benefit are they giving to their regular guests? Are they driving relevant communications?” Posner said on the measures of a good program structure.

“Are they surprising and delighting them with upgrades and various other experiences that perhaps the travelers never expected? Are they fundamentally showing their offers and their benefits to the traveler in an easy and valuable way?”

If brands can answer ‘yes’ to these questions, their marketing team is probably doing something right.

Perks and benefits that travelers like to reap are special check-in counters at hotels or airports, or invites to exclusive events; it’s all about making customers feel “taken care of” and – rather flagrantly – “better” than customers without loyalty memberships or flyer miles. Who doesn’t want to feel special once in a while?

But other challenges emerge in the age of the sharing economy where younger travelers may be swapping out loyalty schemes for lower prices altogether and more “authentic” experiences.

We’ve not yet reached a stage where hotels are scrambling to win Airbnb customers on a global scale, but Posner said “hotels are doing everything they possibly can to have a direct relationship with a large base of loyal customers”.

SEE ALSO: Airbnb wants to give stronger voice to property hosts

Melissa Browne, author and financial adviser, said, “I think the lesson to be learned is not to be apathetic and believe that change will never happen to your sector.”

She added that traditional brands need to learn from change and use disruption as an opportunity to tap into their target customers’ psyche.

“I think one of the biggest lessons we can learn from disruptors such as Airbnb, Uber or other disruptors is to really lean into [the] customers and find out what they need,” she added.

However, news that broke out last year about Airbnb’s loyalty partnership with Qantas proves the house-sharing company is not averse to the tried-and-tested methods of reward schemes.

Despite speedier transactions, instant bookings, and swift turnovers, one thing that remains a qualitative factor for customers is personalized service, and that’s where loyalty programs can truly shine in its role.

Adam Posner and Melissa Browne will be speaking at The Travel Industry Exhibition & Conference in Sydney next month.