Loyalty's Lift-Off: Gaining and Retaining Traveler Loyalty

Hotels and airlines have been rewarding their loyal customers for a long time. But today's more discerning travelers want more than points. They want to be rewarded by a great experience.

Everyone values loyalty and organizations have been racking their brains to try and turn one-time clients into loyal customers who will want to do business with that particular brand. Cognizant that customers might need a little push to become loyal to a brand, organizations have been enticing them with programs that reward loyalty.

These programs have come a long way since the 1890s, when The Sperry & Hutchinson Company, Inc. (S&H) launched its Green Stamps program, the earliest known version of today's loyalty program. According to McKinsey & Company organizations in the United States spend a staggering $50 billion on loyalty programs every year. Getting them right is crucial since these programs can generate up to 20 percent of the company's profits.

Hotels and airlines have been at the forefront of creating loyalty programs, trying to charm customers into continuing to do business with them. A 2009 survey by Forrester showed that 52 percent of online travelers in the U.S. actively use travel loyalty programs, with business travelers being 25 percent more likely to belong to a travel loyalty program than those who travel for leisure.

But these points-based programs aren't always enough. A new survey unveiled by Deloitte found that customer loyalty to travel brands has suffered a steep decline. A Restoration in Loyalty found that only 8 percent of respondents will always stay at the same hotel brand while 14 percent will always fly on the same airline. Deloitte notes that while the travel industry has long considered reward programs as the cornerstone of customer loyalty, in reality these programs ranked low in importance for influencing customer loyalty for both hotels and airlines. In fact, only around half of respondents are satisfied or very satisfied with their hotel or airline loyalty program.

This indicates that travel companies aren't doing enough to create loyal customers. As Adam Weissenberg, vice chairman of Deloitte LLP and U.S. travel, hospitality, and leisure leader, puts it, travel brands need to up their game if they want to drive genuine loyalty among consumers. "With heightened competition and eroding customer loyalty, hotels and airlines, now, more than ever, need to focus on enhancing and personalizing the consumer experience," he notes.

Going beyond points-focused loyalty strategies

Experts believe that the main problem is that loyalty programs are not that different from one another. "With most airlines and hotel brands offering some kind of "points for rewards" model, loyalty programs all began looking the same," says Mark Dority, director of marketing at loyalty technology provider KULA Causes. A major mistake that organizations, including hotels and airlines, tend to make is to build loyalty programs that focus too much on the points that customers earn and are largely interchangeable from one company to another since they don't leverage the unique experience that particular brands can offer. Successful loyalty programs go beyond simply offering points in return for purchases. Instead, forward-thinking organizations are striving to give added value to their most loyal customers, rewarding them with experience-focused initiatives. "Successful loyalty programs provide a positive member experience enabled by behind the scenes member engagement, dynamic targeting, analytics, and business rules," notes Forrester analyst Emily Collins in the report "TechRadar For Customer Intelligence Professionals: Customer Loyalty Programs, Q1 2013."

Kelly McGuire, Ph.D., who leads SAS' hospitality and travel global practice, highlights the need to create loyalty to the brand rather than the program. McGuire notes that several travel businesses, especially airlines, are making the mistake of creating repeat customers who are loyal to the loyalty program rather than the brand. "If another company creates a similar program, they might switch," she notes.

"For people to sustain long-term loyalty, it's not just about points," says Nicki Powers, engagement strategist at Maritz Motivation Solutions. Michael McCall, Ph.D., professor and chair at Ithaca College's Department of Marketing and Law and visiting scholar and research fellow at Cornell University's Center for Hospitality Research, School of Hotel Administration, agrees. "You might be getting repeat patronage, but customers aren't doing business with the company because they love it," he says. Unless companies provide a great experience, customers might only be doing business with them because they don't want to lose their loyalty tier. But the moment a competitor swoops in and offers them entry at the same tier, they are very likely to switch because there's no emotional connection to the brand. This poaching has happened, and unless companies offer more than points, it will be successful.

Instead, organizations need to focus on experience-related perks, for example access to the lounge. "Create exclusive access experiences that keep them loyal," McGuire notes. For example, if a customer's loyalty tier is printed on the boarding card it's a nice gesture for flight attendants to thank them for being loyal customers as they're boarding the plane. "Rather than the monetary value, give them the experience," McCall suggests. How would a frequent flier feel if he's driven to the side of the aircraft in a limousine?

Vail Resorts is one organization that's striving to make the move from a product-centered loyalty program to one that focuses around delivering a great experience to its customers. As Darren Jacoby, the company's director of CRM, notes in this 1to1 Media article, the organization wants to use the unique characteristics of its resorts to provide an experience that its customers won't be able to get anywhere else, like inviting them for an early morning ski before the trails are open to the public. This is a way to make customers feel special and individual.

Giving more than monetary value

Organizations are also making the mistake of creating price-sensitive customers by offering discounts and upgrades. McGuire notes that most really loyal customers aren't price-sensitive and will make an effort to remain loyal to their favorite brand. In fact, a survey by travel publication Frequent Business Traveler in collaboration with online travel community FlyerTalk, found that almost three-quarters of business travelers prefer to stay at their favorite hotel brand, and more than half will do this even if the properly isn't conveniently located. Similarly, close to 80 percent of respondents would choose to fly with their preferred airline even if more convenient flights were available with another airline. But regular giveaways and price reductions can devalue loyalty programs, turning even the most loyal customers into price-sensitive ones.

Some loyalty programs make it virtually impossible for travelers to gain enough points to either move up to a higher tier or redeem their points. McCall notes that this is pushing some customers who have gained tier status with a particular brand, for example a hotel chain, to start doing business with another in order to get a similar level and enjoy the tiered perks that both organizations offer.

JetBlue has come up with an imitable strategy to make sure that its loyal customers don't lose out on their points. In order to differentiate itself from its competition in a cutthroat industry, the New York-based airline partnered with Kula Causes to make it possible for fliers to redeem unused loyalty points to make charitable donations to their chosen aid organization.

Finally, social media and mobile platforms offer novel ways for organizations to entice customers to participate in their loyalty programs and to differentiate them from the competition. Maritz' Powers recommends introducing a layer of gamification that turns points and rewards into game mechanics and inspires competition among customers. By connecting the loyalty program to social channels, members will be able to showcase their statuses and levels of achievement to their social contacts. This strategy kills two birds with one stone since apart from enticing customers to participate by allowing them to boast about their statuses, social gamification also acts as a marketing technique. "You're inspiring advocacy," she notes.

Similarly, organizations should offer customers a way to link their loyalty program to their mobile devices, giving the company a way to reach out to clients with relevant information wherever they are, notes David Lewis, senior product marketing manager at Smith Micro. Further, smartphone apps, like Apple's Passbook, allow brands to incorporate their loyalty programs in one place. "The app aggregates multiple loyalty apps in one location, allowing users to access each program's rewards conveniently on their mobile devices," says KULA's Dority.