First Published on 10th January, 2017
Ai Editorial: Is the redemption rate of airlines’ loyalty programs taking a beating? Airlines need to re-assess the situation as redemption can have a tangible impact on members’ behavior, writes Ai’s Ritesh Gupta
A frequent flyer program might undergo a major transformation owing to accounting and liability pressures, but if the redemption rate isn’t up to the mark, then the whole point of creating an aura around a brand and boosting loyalty is missing.
Yes, loyalty programs aren’t the same anymore, especially with the advent of spend-based models.
Airlines are grappling with pertinent issues today - have frequent flyer programs become too transactional in nature? Are infrequent travellers or relatively “low-spenders” being alienated? Is the redemption rate of airlines’ loyalty programs taking a beating?
Airline executives themselves acknowledge that the legacy of being rewarded for distance travelled has set an expectation amongst customers which is difficult to reset. The commercial benefit of changing to revenue based rewards is just too great for program’s to ignore. So if travellers aren’t redeeming miles accrued, then they are not actually engaged. As highlighted by 500friends, a Merkle Company, there is a need to engage leisure travellers, a segment that is being “overlooked”. Airlines need to minutely assess how to improve upon the redemption rate, evaluate an appropriate benchmark for the rate that fits their business, and also avoid too much focus on short-term margin and direct revenue.
We look at some areas:
Ø Assess the utility of everyday spend: The option to be rewarded from everyday purchases has opened up the realms of the FFP to the infrequent traveller. As per the current trends in the digital loyalty commerce arena, as indicated by a survey conducted by Collinson Group, members appreciate the ability to earn points on everyday spending. Around 46% of respondents mentioned that they liked this feature about their airline loyalty program. “Expanding the potential and the velocity of earning means more travellers can participate and get real benefits from a program. Most retail and financial card earn options are already spend based so are a natural fit with spend based airline points,” says Nik Laming, General Manager - Loyalty at Cebu Air Pacific Air.
Ø Perception – getting it right: According to Collinson, two major challenges with loyalty programs are availability and affordability of the rewards. Perception of the value of a programme’s currency continues to be an issue. As per one of the studies last year, Collinson found that over 50% of survey participants didn’t expect that they would “ever be able to earn enough points to redeem anything of value”. According to 500friends, airlines need to identify gaps that exist in rewards structure. Leisure travellers are earning fewer miles than they did in the past and without mile-attainability driving their loyalty, travellers start “focusing more on price, convenience, service, and other factors to choose their carrier”. So these need to be included more in the program structure so that members end up perceiving adequate value. Loyalty program need to offer something substantial – a sense of instant gratification, and aspirational value, too.
Ø Count on the power of coalition: A coalition program of organisations with differing purchase cycles, margins and customer emotional attachment can be very powerful. While a program does away with the limitation of only offering a limited range of rewards, adding credit card, supermarket, department store, petrol and other retailers massively expands the share of disposable income going through the program. The reason a coalition model appeals to infrequent travellers is simple - share of wallet. A person will spend a small proportion of their disposable income on air travel in a year. With higher total spend within the program ecosystem more points are earned and so even the most infrequent traveller can attain those reward flights.
Ø Count on data: More tailored the offer, more the chances of redemption. Airlines are looking at their members’ demographic, behavioural, and tier data. Attempt is being made to understand members better by profiling and segmenting them not just based on tiers but also their airline and non-air preference and behavior. “Airlines need to work on data-driven offers ones that pave way for context-sensitive merchandising and understand the pain and joy points in the journey,” shared an executive. The loyalty technology are constantly being developed and enhanced to ensure the real-time data are captured and further manage members’ experience in ensuring miles are credited timely.
Plus, there is a need to work with strategic partners to study daily transaction behavior e.g. banks, petrol, online retailers to provide more value to members. Of course, a major challenge today is whether airlines are capturing enough data. “As much as we captured the flying data; but there are elements of daily purchases such as co-brand cards/ financial partners/ petrol partners/ online retailers partners that we need to capture and able to monetize our members with value added rewards,” shared an airline executive from Asia.
Ø Keeping it simple and communicating well: How to redeem against your loyalty program should be easy enough to understand. Also, if a member is inactive, then airlines need to identify appropriate reason or context, and present themselves via a push notification or an email. Be it for an email about long-forgotten points, or pushing offers and rewards via one’s preferred channel in real-time, such initiatives can take a member closer to redemption. Location based triggers, too, can work. According to one of Sweet Tooth’s recent blog posts, a case study about Expedia+ indicated that the program does create a web experience that is fully committed to member recruitment. But there is lack of clarity about how it works, and expiration dates are “hidden”.
Ø Evaluate online activity: According to a study by Sweet Tooth, actions that encourage a member to engage with a brand’s social accounts “have a larger impact on average redemption rates than any other action”.
· Programs that are rewarding for Instagram follows have a redemption rate that is 7.76% higher than average.
· Programs that reward for Facebook likes are 12.26% higher than an average program, and
· Ones that reward for Twitter follows are 16.39% higher than the average rate. This is likely due to increased brand exposure.
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