In the last few days I've met with two airlines and discussed with each what we consider to be "best practices" for frequency marketing programs. I also got a personal experience, courtesy of British Airways, in "worst practices" for frequent flyer programs. In Martha's and my opinion, the best frequency marketing programs (whether for airlines or other firms) have five qualities: Insight, modularity, openness, customer management, and simplicity. 1. Insight. The best practice is never to waste an opportunity to gain insight about a customer. Best-practice programs might offer a choice of services or treatments that reveals something about a customer. For example, by allowing customers to identify their own prize in advance, marketers gain additional insight into what motivates particular customers. Loyalty programs in financial services take advantage of the insights gained by identifying people who might choose an award for lifetime achievement, versus those who choose the largest prize for short-term behaviors.
2. Modularity. An effective program is structured in modules, enabling participants to mix and match aspects to their own preferences. Modular offerings are a practical way to allow for customer-driven personalization without going to the extreme of full (and costly) customization. Key aspects of a program, like member qualification, can be developed with several alternatives, and customers can be offered a set of guided choices to select from. A sophisticated marketing approach would offer different sets of choices for different groups of customers based on their value - so everybody wouldn't be choosing from the same set. For example, lower value airline customers might chose from rewards alternatives that include additional upgrades, while high value flyers might have choices including additional redemptions. In addition, modules should allow partners to be added or subtracted from a program through a kind of "plug and play" method.
3. Openness. Consumers value openness - a service or a program which works with others. The more open the system is, the more beneficial it is to customers. Transferable points and rewards offer the customer the greatest flexibility in using program earnings. The goal of the loyalty program is not to "buy" the loyalty of customer (that's not possible), but to act on insight about each customer, and then deliver what each customer wants, how they want it. The consumer-perceived barrier to switching brands is less about economics (i.e., the value of points), but more about convenience (having to "teach" another program about the consumer's own desires and preferences). Openness is an inevitability in loyalty programs of all types, including frequent flyer plans. And the benefit of a loyalty program for the marketer is customer insight - so the more choices available to the customer, the better!
4. Customer management. All frequency marketing programs should be managed around customers, and not products, routes, regions, or channels. So align the organization with identified sets of customers, and measure your managers by the positive impact they have on customer behavior. Organize your marketing effort so the customers whose behaviors you want to change are taken care of by people whose annual evaluations are based on improving the numbers. That way you'll send a clear signal to the Marketing Department that you want to make progress in each customer segment.
5. Simplicity. A program with fewer rules and restrictions is more engaging for the customer, and it's more trustworthy. It's better for an airline to narrow its offers to those that can be delivered dependably, rather than including elements which can't be relied upon. Every time a frequent flyer tries to redeem miles and is frustrated by the lack of "mileage" seats available, his trust in the brand declines. If you can't deliver reliably on what you promise in your loyalty program, you risk undermining trust in your brand. So, while it's important to manage the provision of free airline seats in an economical way, it may be better not to offer deep-discount prizes at all, if they can't be made available to the vast majority of flyers who will be seeking them out.
BAD EXAMPLE: British Airways mileage upgrades. BA just announced they will allow members to use their BA miles to upgrade their flights. Hooray! I thought, BA is finally doing what other airlines have been doing all along. But not so fast. I soon learned that this new BA policy is not "simple" at all, but extremely complicated. Guess what? If a travel agency books your flight (as is probably true of most business travel), then you aren't eligible to upgrade with miles! I complained, and here's the "fine print" that makes BA's mileage upgrades not so simple:
"Miles for Upgrade is permitted on eligible British Airways published fares only (Fare classes are: J, C, d, R, i, W, E, T, Y, B, H) but is not permitted on bookings made with a travel agent. Miles for Upgrade is not permitted where flights are sold as part of a package holiday or where flights and ground arrangements, such as prepaid hotels, cars, transfers and experiences, are booked and paid for in the same transaction. Flights booked and paid for separately from any ground arrangements remain eligible for Miles for Upgrade. Miles for Upgrade can only be applied to bookings which are made in the member's Executive Club membership country."
Come on, BA, can the marketing department at any company really be that stupid?