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According to many experts, loyalty programs have been one of the most profitable innovations in the history of the travel industry, especially for airlines. When American Airlines created AAdvantage on May 1, 1981, it was the birth of what we know to be a valuable and important industry incentive that can also be a big player for a company’s bottom line.
These programs were originally a way to capture traveler information and attract future business through points and miles. But loyalty programs have evolved into major profit centers for companies. Some have even spun them off as separate entities. Decades ago, Air Canada even sold its affiliated Aeroplan program while still using it for mileage earning and redemption resulting in a nice chunk of change for the carrier at a time when it was facing bankruptcy.
Delta Air Lines was able to climb back from bankruptcy in part thanks to a forward sale of SkyMiles to credit card partner American Express. In fact, most major brands now have affiliated credit card partners that contribute direct revenue to the parent company through the sale of miles and points or bonuses for acquisition of the card.
These programs have also given travel brands the tools to offer more personalization and targeting of services. Studies show that they remain relevant and of interest to consumers although ever changing rules and benefits sometimes add confusion. Perhaps one of the biggest changes in the industry was the shift to revenue-based programs by airlines awarding miles based upon how much someone spends instead of distance flown. This resulted in the majority of travelers earning fewer miles from their trips; it only incentivizes the top spenders.
With all of these changes, what will the future of loyalty look like? As programs evolve, will customers tire of the complexity? Or will they ride the wave of change so that they can continue to reap the associated benefits?
What Travelers Want
Loyalty programs are no longer a novelty, and people want to feel appreciated with personalized perks and awards.
Travelers want a loyalty program to be simple to understand and rewarding. The more complex a program becomes, the easier it can be to lose business to a competitor. This means that the experience must remain relatable and user-friendly (making it too difficult to redeem points for an award can have the opposite desired effect).
Travel brands should not lose sight of the purpose of these programs: to reward the customer in a way that makes them feel valued. This can take on myriad forms including immediate recognition (elite status benefits during travel) or the accumulation of points or miles to redeem for free travel later.
As needs evolve, so to have the rewards. Most recently, we have seen a growing number of experiences and activities available for redemption. Instead of a free hotel night or flight, travelers are using their points for backstage passes to concerts or hot air balloon rides over the Grand Canyon. These types of redemptions help travelers feel especially connected to their preferred brand through the loyalty program and the experiences they are able to enjoy as a result.
This allows loyalty programs to provide more redemption opportunities beyond a free night or flight while also removing the liability of unredeemed miles from their accounting books. Dedicated programs like Marriott Bonvoy Moments and World of Hyatt’s FIND Experiences are designed specifically around providing redemption opportunities for experiences that are otherwise hard to attain on your own. You can’t just purchase backstage concert passes, but redemptions like these help travelers to remain especially connected and loyal to a brand.
Travelers want a loyalty program to be easy to use and rewarding. The more complex a program becomes, the more likely it is to lose business to a competitor. This means that the experience must remain relatable and user-friendly from start to finish whether through the use of uncomplicated online or mobile app booking and simple methods to join, earn, and redeem rewards from a program.
While many programs (especially in the airline industry) have made the process of achieving elite status more complicated, travelers seem willing to learn new rules because they value the perks. Some travelers may have a breaking point, but the promise of free travel remains a strong motivator.
The Future of Loyalty
According to Jerry Rash, general manager of loyalty and customer strategy for Associated Luxury Hotels, “transparency is the new black.” He believes that consumers want transparency and authentic communication whether it is a hotel, airline or retail program. The focus should be on gaining and promoting trust, not confusion.
Several years ago, Delta SkyMiles deleted award charts from its website leaving travelers with no guide as to how many miles it would take to redeem for a free trip. Instead, the cost in miles for an award trip can vary and seems to be more closely tied to the fare. This type of dynamic pricing removes the aspirational element to saving up miles to redeem for a specific trip and leaves travelers, especially those new to the program, confused. United soon followed suit.
This causes damage to a program’s perceived value adding complexity instead of convenience. This is why many people find credit card loyalty programs like American Express Membership Rewards and Chase Ultimate Rewards more valuable. Points can be redeemed like cash to offset the cost of travel providing a transparent and easy-to-understand benefit to members.
Flo Lugli, founder and principal of Navesink Advisory Group, LLC and non-executive chair of the Global Hotel Alliance, says that consumers are more demanding than ever before. People may have initially joined a loyalty program as a way to save money, but if they are to remain engaged, they want special treatment and a feeling of recognition. Millennials are more likely to want “in-the-moment” experiences that they can share via social media. The growing trend of redeeming miles or points for experiences shows that.
“One of the biggest motivators of true loyalty is the emotional connection a consumer has with a brand, and yet most rewards are based on transactions,” says Lugli.
Loyalty programs will need to evolve beyond basic interactions to remain relevant and beneficial to travelers. In the coming years, we will continue to see changes in the way that brands structure loyalty programs and how customers benefit from them. The creativity in what brands can offer members will only enhance the way we travel and interact with our favorite travel brands.
There is a lot of outsized value to glean from navigating the loyalty program landscape carefully. Travelers who are dedicated enough to understand how to maximize a loyalty program and “roll with the punches” when rules change stand to benefit the most. The future of loyalty is brighter than ever; we just have to be flexible enough to take advantage of it.