Executive Q&A: Smart Loyalty Programs Need to Balance Transactional and Emotional Benefits

This sponsored content was created in collaboration with a Skift partner.

Many brands in the travel industry have been rethinking their loyalty offerings lately. In just the last six months, American Airlines has made it tougher to earn elite status, Leading Hotels of the World relaunched its paid loyalty program, AccorHotels and Marriott unified their loyalty programs, and Virgin Group announced a new program.

Collinson, a global leader in customer benefits and loyalty, commissioned Forrester Consulting to conduct a study that surveyed senior loyalty experts from around the world. The research uncovered some of the leading reasons why brands are re-examining their loyalty programs.

Steve Grout, director of loyalty at Collinson, shared insights from the report in a recent interview with SkiftX. He explained that brands shouldn’t treat loyalty programs as a marketing tactic. Instead, loyalty programs should be an element of their overall growth strategies. Grout also discussed the challenges of creating a personalized loyalty program that balances transactional benefits with softer, more experience-focused offerings.

SkiftX: What are some challenges that travel brands face when it comes to loyalty programs?

Steve Grout: Travel brands often view their loyalty program as a panacea for everything, but the true value is realized when it’s aligned with the overall business strategy. One of the most significant challenges for executives is getting a single view of the customer across disparate systems. Many businesses in the industry still have legacy systems, and often, multiple systems. This is one of the reasons why 64 percent of loyalty decision makers don’t understand why their customers are loyal to their brand.

Loyalty programs also have to juggle the desire to evolve while keeping all the members happy. We recognize that loyalty is a significant investment, and change is not always easy. The key to creating a well-designed loyalty program is to continually listen, engage, and evolve. These are the programs that end up driving substantial returns.

SkiftX: What can companies do to think about their loyalty offerings more strategically?

Grout: A brand should first define what its overall objectives and strategies are, as well as understand what drives profits. It should also think about the specific types of travelers it wants to attract, such as high-value travelers, frequent travelers, or those who are likely to purchase ancillaries. Once a brand identifies a core group of travelers to focus on, it can work on how best to target, engage, and monetize this group. The only way to ensure success is by making loyalty a strategic focus throughout the company –– including amongst leadership –– with customer centricity at the heart of it all.

SkiftX: The study shows that 68 percent of executives do not have a framework to measure loyalty in the context of business results. How can brands address this challenge?

Grout: Many brands don’t have a good grasp on their key performance indicators or have a clear measurement framework. They have multiple systems that don’t connect. We help brands tie those systems and data points together and understand what that framework should be.

Brands should also differentiate between transactional and emotional loyalty. It’s becoming increasingly important to measure customer experience and put that into a framework that balances transactional and softer measures like online engagement and brand advocacy.

SkiftX: Many airlines focus more on the transactional value of a customer with revenue-based loyalty programs. Should airlines re-evaluate how they identify a high-value customer?

Grout: Airlines continue to focus on creating reward programs based on dollars spent, versus miles flown, which indicates an increasing focus on the transactional value of customers. Successful brands add the more qualitative measures to the evaluation process as well so that they can create a complete picture of a customer’s worth to the business. For example, a traveler making only two annual trips might be recommending the brand online. This traveler could be an advocate, and is therefore worth a lot more money to the brand than the revenue from the two annual flights.

Brands should also consider the future value of customers. Are they spending more with a competitor? Can we win them over? Loyalty programs that don’t take these elements into account risk missing out on revenue opportunities.

SkiftX: We often hear brands tout personalization as a key differentiator. How can companies be more effective when trying to set up personalized offerings?

Grout: Brands need to truly intend on becoming a customer-driven business, and need to invest time, effort, and technology to create real personalization. It often takes a major transformation, and is a continuous process. Currently, only 31 percent of businesses have a flexible loyalty program that provides customized experiences.

True personalization can be seen in how a company uses technology to collect data from various touchpoints and convert it into cohesive experiences across all channels, while using artificial intelligence to predict behavior. The frontline staff are a company’s most valuable asset. Ensuring that they are trained, empowered, and can access data to offer personalized experiences is key to success –– however, this is a rarity. The goal is to make customers feel that the brand recognizes them, knows their value, and rewards them for their loyalty.

SkiftX: There’s evidence that customers are willing to pay a membership fee to be part of a loyalty program, as in the case of Amazon Prime. Do you think similar programs can succeed in the travel industry?

Grout: Absolutely, yes. Some of the earliest known loyalty programs were in fact clubs with membership fees. Our own product, Priority Pass, is an example of paid-for-memberships and has withstood the test of time by keeping the traveler experience front and center. It is a 25-year old membership-based program that gives access to around 1,200 lounges and airport experiences worldwide.

Amazon Prime is another present-day success story. It started with delivery and has built other benefits and rewards around it, successfully engaging a diverse range of consumers. Instant gratification has been key to its success.

The subscription economy also continues to gain traction, especially among millennials. People are accustomed to buying products and services on a monthly payment system. Many airlines are already exploring subscriptions beyond co-branded credit cards with fees as they offer subscriptions for bundled ancillaries like United’s checked baggage or Wi-Fi subscriptions. This is an important trend, and it will become more important in the future.

SkiftX: How can companies get creative and go beyond a standard points system?

Grout: We’re seeing softer benefits make a real difference. For example, fast-tracking customers at airport security doesn’t offer a payout in the form of miles or points, but it offers real value and an improved experience to the customer. These little things encourage emotional loyalty and fuel brand preference.

Loyalty currency, however, does still have a place, and offering customers varied ways to earn and redeem these points can make membership statuses more attainable and the programs more engaging. For example, co-branded cards and card-linked solutions that allow customers to earn points on everyday purchases and a more diverse set of redemption options like concert tickets and merchandise drive engagement beyond the travel experience itself.

SkiftX: We’re seeing continuing consolidation of travel brands as a result of mergers and acquisitions. What are some of the challenges to consider during the merger of associated loyalty programs?

Grout: Companies are already faced with the challenge of evolving their loyalty offerings to be more personalized and competitive, and integrating programs complicates it further. It’s difficult, both operationally and technologically, to combine programs with varied reward systems and valuations.

The key to a successful merger is understanding why these programs and companies are being brought together in the first place, and to not get too wrapped up in the operational aspects. Brands should focus on the benefits they intend to bring to consumers as a result of the merger to help avoid short-term disruptions and customer disillusionment. This will drive long-term engagement and profitability.

SkiftX: What elements of loyalty programs are most engaging to customers?

Grout: Everyone likes the nice surprise and delight moments. We found that 72 percent of loyalty executives are currently using or piloting surprise and delight rewards. However, customers will also admit to valuing the transactional wins. Rewards such as a free flight or free upgrade drive loyal behavior.

Customers expect these rewards. They engage with brands in a multitude of ways and are constantly reviewing experiences online. They’re looking at the best loyalty offerings in other industries and bringing those expectations to the travel industry. The challenge for travel brands is to keep up with these relentless expectations.

To learn more about the role of loyalty in travel today and receive actionable takeaways for how travel brands can get loyalty right, check out Collinson’s eBook, “Putting Loyalty Back on Track in the Travel Sector.”

This content was created collaboratively by Collinson and Skift’s branded content studio, SkiftX.