Skift Global Trends Report: The Reinvention of Airline and Hotel Loyalty Programs
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Skift Global Trends Report: The Reinvention of Airline and Hotel Loyalty Programs

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Loyalty programs have become a multi-billion dollar revenue stream for travel companies, yet this success has come at the expense of their original purpose: forging stronger connections with ...

Loyalty programs have become a multi-billion dollar revenue stream for travel companies, yet this success has come at the expense of their original purpose: forging stronger connections with customers. How can marketers capitalize on new innovations in technology and shifts in traveler behavior to build more genuine customer loyalty and larger profits in the future?

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Skift Global Trends Report: The Reinvention of Airline and Hotel Loyalty Programs Skift Global Trends Report: The Reinvention of Airline and Hotel Loyalty Programs Document Transcript

  • The Reinvention of Airline and Hotel Loyalty Programs SKIFT REPORT #11 2014 Loyalty programs have become a multibillion dollar revenue stream for travel companies, yet this success has come at the expense of their original purpose: forging stronger connections with customers. How can marketers capitalize on new innovations in technology and shifts in traveler behavior to build more genuine customer loyalty and larger profits in the future? By Jeremy Kressmann and Skift Staff This material is protected by copyright. Unauthorized redistribution, including email forwarding, is a violation of federal law. Single-use copy only. If you require multiple copies, contact us at WWW.SKIFT.COM trends@skift.com.
  • Subscribe to the Skift Trends Report Get the twice-monthly Skift Trends Report for the latest intelligence on the travel industry. Each edition in our new series of reports will brief you on a specific trend, providing insight into the current state of the market, the context around the trend, and where the industry is heading in the near future. After you subscribe, you will receive 24 reports direct to your inbox for an entire year. Reports are delivered as a downloadable PDF. Subscribers also receive access to our archive. For any comments or questions, email us: trends@skift.com. Subscribe and check previous reports at: Skift.com/travel-trends. Subscribers have access to the Trends Report archives for the issues covered in his or her subscription
  • The Reinvention of Airline and Hotel Loyalty Programs SKIFT REPORT #11 2014 Executive summary Loyalty marketing is a multi-billion dollar revenue stream for the travel industry and the programs, as measured in terms of total number of enrollments, are more popular than ever. But changes to the industry landscape and changes in consumer behavior have many observers questioning if they still serve their original purpose: building connections with customers. This question is all the more urgent as new technology tools give travelers access to better information about their travel experience, opening up more information about everything from prices to customer reviews than ever before. This information is also creating new learnings for travel marketers as well, who are gaining more ability to selectively personalize the travel experience and identify pain points as they happen. While the “points for rewards” loyalty paradigm still rules, there are plenty of new loyalty strategies that are challenging this model. A tidal wave of data, coming from customer mobile phones, social media and digital behavior on booking websites offers new opportunities to better personalize services, surprise and satisfy customers. Meanwhile, this huge wealth of information is also forcing many companies to rethink how and why they are deliver rewards to loyal customers, becoming more transparent and responsive in the process. Those companies that manage to incorporate this wealth of travel data into their loyalty offering stand to reap significant rewards, both in terms of customer perception, but also in terms of their bottom line. 3
  • The Reinvention of Airline and Hotel Loyalty Programs SKIFT REPORT #11 2014 Introduction Source: Nick Harris, Flickr Travel loyalty programs. A simple idea to create product differentiation following airline industry deregulation in the late 1970s has morphed into a global marketing juggernaut adopted by virtually every corner of the travel industry, from airlines to hotels to rental car companies and beyond. The amount of money at stake is immense: COLLOQUY, a marketing and consulting research firm, recently found consumers had amassed more than $48 Billion dollars worth of rewards.1 Yet despite this wild success, there is a growing sense among both travelers and marketers that the programs are flawed. A system that was designed to create stronger bonds between travel customers and travel businesses has turned into something else entirely—a massive revenue stream. The program revenue generated via alliances with credit card issuers and consumer businesses that profit off loyalty programs are making travel businesses rich, but the original goal— forming an emotional bond with the customer—has been lost, with potential long term consequences. In fact, the changes are already happening: a recent survey of traveler perception of loyalty programs by Deloitte found that just 14 percent of respondents always fly the same airline, while just eight percent always stay at the same brand of hotel.2 4
  • The Reinvention of Airline and Hotel Loyalty Programs SKIFT REPORT #11 2014 According to travel industry analyst Henry Harteveldt, the entire concept of loyalty marketing needs a complete overhaul. “If I were running loyalty at a travel company, I’d probably want to see how quickly can I end my current program, and how do I ‘green field’ something new that reflects the new competitive dynamic of my industry and what are my real objectives. These loyalty programs have stopped being about customer loyalty and they’ve turned into cash cows for their sponsors.” As hotel and airline loyalty programs become less important in purchase decisions, they’re simultaneously being disrupted by several changes to the industry landscape: • Continued industry changes in how rewards programs are structured and how the rewards are earned and redeemed • Increased transparency of program value due to technological innovation, decreasing brand competitive advantage • Shifting preferences among travelers’ for finding, booking and taking advantage of rewards while traveling • New and more types of traveler data that help travel businesses better respond to and personalize the travel experience before, during and after it happens. 5
  • The Reinvention of Airline and Hotel Loyalty Programs SKIFT REPORT #11 2014 Table of contents Executive Summary 3 About Skift Introduction 4 Behind the trend 7 The birth of loyalty: creating the rules of the game 7 Credit card co-brands surge 8 Increased transparency and mile hacking 9 Metasearch and new digital comparison tools 10 Devaluation hits the industry 10 The rise of online influence and loyalty consequences 11 Experiential loyalty marketing 13 Smartphones, data and loyalty 14 Digital case studies 16 Kimpton InTouch Rewards 16 KLM Surprise 17 Strategies to increase the value of loyalty offerings 18 Further Reading 20 About Skift 21 6 Skift is a travel intelligence company that offers news, data, and services to professionals in travel and professional travelers, to help them make smart decisions about travel. Skift is the business of travel. Visit skift.com for more.