Redefining loyalty in travel – the rise of the experience economy

The traditional business model for loyalty in travel isn’t dead, it’s just evolving. As mobile and cognitive technologies continue to advance, consumer expectations are changing, forcing loyalty programs to adapt to remain relevant in an over-saturated marketplace.

Throughout numerous areas of the loyalty landscape, change is inevitable. To keep up, travel firms will need to find a balance between the demand for both consistency and change if they’re to thrive and build long-lasting customer relationships.

Loyalty schemes have a long history when it comes to the travel industry, with everything from airline frequent flyer memberships to hotel loyalty programs. And while many travellers are still active on such programs, most are suffering from fatigue.

Research from the 2017 Colloquy Loyalty Census shows that even as loyalty continues to proliferate, more than 54% of loyalty memberships in the United States are inactive.

Then there are those who believe loyalty programs just aren’t worth their time, with 28% of consumers have abandoned a program altogether without ever redeeming a single point or mile.

Writing for Skift, Head of Travel and Tourism Research at Euromonitor International Caroline Bremner, suggests that the lack of mobile readiness in most loyalty programs could be a challenge for travel firms anxious to retain customers.

In fact, 26% of Colloquy’s respondents abandoned a loyalty program because it did not offer a smartphone app. Other reasons included the time it took to accumulate the points or miles needed to be rewarded and a lack of personalisation.

According to findings from a UK consumer survey carried out by Deloitte, securing a customer’s loyalty will soon go beyond having a traditional loyalty program.

Deloitte’s study revealed that most consumers consider being rewarded for their loyalty as the norm, but not a differentiator. When asked, 42% indicated that they needed more than points to shop with a brand.

Not all doom and gloom

Don’t hold out just yet, there’s still hope for the travel industry. Colloquy’s research also notes that while participation in loyalty programs is dwindling, consumer attitudes towards loyalty are still positive.

To be exact, 73% of Colloquy’s respondents felt that loyalty programs are still worth their time and effort. The problem facing brands is that consumers want to be recognised and rewarded as individuals, not as faceless numbers stored on a database.

In her report for Skift, Caroline suggests that the traditional model for loyalty is fundamentally flawed due to its tendency to exist separately or within the boundaries of a coalition. If loyalty is to have its salvation, it must exist as a key pillar of the ‘Experience more’ framework.

‘Experience more’ is a global phenomenon and will have a huge impact on the travel industry. Identified by Euromonitor International as one of the top eight megatrends for 2017, the framework will be vital for building long-lasting brand relationships.

We live in an experience-driven economy, and recent economic uncertainty has ushered in an era of consumers who prefer to spend more on experiences over material possessions. Shoppers now crave rewards based on their personal tastes and prefer to interact with brands on their own terms.

Growing interest in creating, capturing, and sharing memories amongst millennial travellers has also been a key driving force for the experience economy.

And with most millennials now in the workforce, they command up to $1.3 trillion in annual consumer spending worldwide. Presenting a huge opportunity for the travel industry.

The current state of loyalty

Throughout the travel and hospitality sectors, greater personalisation, unique experiences, and simplified loyalty programs are already new and emerging trends shaping the industry.

Access to a mobile app is also a differentiator for those actively participating in travel loyalty programs, with numerous airlines and hotels already using their apps to offer the ability to reserve a seat or select room preferences.

Premium hotel chain Marriott upgraded its existing rewards program in response to changing consumer behaviour. The new program, aptly named the “experiences marketplace”, launched late 2016 and enables Marriott customers to redeem points on a range of curated experiences.

Customers who participate in Marriott’s rewards program are given the opportunity to keep increasing their status as they go, giving them access to more exclusive experiences through a kind of levelling system.

Elite members are given a variety of exclusive extras, including access to a concierge service. Gold and Platinum guests are guaranteed late check-out when making a reservation either over the phone, through Marriot’s mobile app, or upon arrival.

Customers who are truly committed to the program can even achieve Lifetime status. Once achieved, this status can never be revoked or expire, giving dedicated members full access to Silver, Gold and even Platinum benefits.

Speaking to USA TODAY, Thom Kozak, Vice President of loyalty at Marriot, exclaims “Points are not the point anymore”. Talking on how guests are craving more personalised experiences, he adds “We weren’t keeping track of how consumers were changing their behaviour”.

Of course, Marriot is only one example of how travel brands today are racing to improve their customer loyalty programs. Airlines, for instance, have slowly moved away from a mileage-based model to a revenue-based one.

Brands like United, Delta and American Airlines, have all shifted to a revenue model, rewarding members based on the price of their ticket instead of the distance of their flight.

The American Airlines AAdvantage program, for example, transitioned to a revenue-based model in 2016, adding with it a ‘Platinum Pro’ tier with progressively higher miles per-dollar-spent earnings. In the same way, Delta’s SkyMiles program also offers its members a four-tier system that enables them to earn and be rewarded.

Disruption is the new norm

Travel brands know and understand that they need to build an emotional connection with their customers, and many believe that’s what they’re already doing. Yet, on the face of it, they’re merely creating a transactional one.

Maintaining a strong understanding of today’s rapidly evolving loyalty landscape will require brands to keep a close eye on the key disruptors in their industry to stay ahead.

Already, disruptors across the world are using technology to increase personalisation, real-time earning and redeeming. Not only that, they’re also removing the friction points that exist in loyalty programs by simplifying the user experience.

Elsewhere, other disruptive programs are partnering with retailers, requiring customers to link their credit cards for greater data collection, accounting for larger areas of consumer spending. Some are even bypassing third party and traditional providers altogether to streamline the customer experience.

Securing both the hearts and minds of consumers will require a combination of relevance, exclusivity, and engagement across multiple channels. A key challenge for travel firms yes, but a necessary one nonetheless.

Inevitably, loyalty schemes must give a customer control over curating and selecting rewards and the level of interaction they have with a brand, otherwise, they just won’t cut it in today’s digital arena.

Brands should also adapt their loyalty programmes collaboratively with their customers to increase their chances of success. Acquiring customer data is crucial for providing a personalised and relevant experience, so communicating to consumers what they get in exchange for their data is vital.

More and more, travel brands are being put under pressure by their customers to realign their loyalty programmes and deliver a relevant and engaging experience, whether it’s through their website, via an app or elsewhere.

Traditional points-based loyalty schemes simply aren’t agile enough to meet the rapidly changing expectations of travellers in the same way that new technologies are.

To meet demand, travel firms will need to leverage the power of new technologies and data science across multiple touchpoints, to deliver a more relevant and timely experience for their customers.

If industries can learn and grow by carefully watching the disruptors and innovators in their field, they will have the knowledge to greatly improve their approach to loyalty.

Here are just a few of the disruptors identified by Euromonitor International that are transforming the loyalty landscape as we know it…

Blockchain

Famous for being the technology responsible for bitcoin, blockchain will soon give birth to more dynamic loyalty programs that offer unique and secure transactions along with real-time rewards through portable data, going beyond the limits of traditional loyalty programs.

Customers crave faster redemption. Travel firms that miss the opportunity to make this happen, are also missing an opportunity to create memorable customer experiences that could greater enhance loyalty.

The beauty of blockchain is that it can enable a transaction to be recorded and accessed by multiple parties in real-time, increasing the chances that a loyalty rewards program provider can avoid incoordination to credit points faster.

The struggle to manage separate loyalty programs is thus nearing its end. Blockchain will allow for instant redemption and enable consumers to freely exchange points across numerous programs via a single network.

The need for third-party mediators is also removed, as the payment process can be simplified, resulting in reduced charges and much faster transactions.

For brands, maintaining a blockchain based loyalty network will also be more cost-effective thanks to smart contracts that report secure transactions, reducing the chances of fraud.

Blockchain loyalty programs will also be considerably more secure due to their inherent nature to be difficult to hack, providing multiple levels of security not previously possible with traditional loyalty schemes.

Firstly, all points in a blockchain network would be tokenized, giving them unique identities that are extremely difficult to counterfeit. Secondly, for someone to successfully access or corrupt the information recorded on a blockchain, more than 51% of its nodes would need to be hacked.

A major disruptor for the industry, companies are already teaming up to harness the possibilities presented by blockchain. Recently, for example, IBM partnered with start-up Loyyal, to build a blockchain infrastructure specifically for loyalty programs.

In time, smaller loyalty programs could use a blockchain network to band together and compete with larger programs. Naturally, these networks would then be anchored by either an airline, hotel chain or a consortium of smaller travel firms.

Slowly but surely, blockchain will connect the vastly disconnected world of loyalty rewards programs, lower costs, reduce friction, deliver real-time crediting and redemption, and offer a secure environment that gives travellers control of their personal data and brand interactions.

Artificial Intelligence (AI)

Developments in voice recognition technology like Amazon’s Alexa, and virtual reality, will make brand interactions more personalised and targeted, improving the customer experience and enhancing brand loyalty.

Current technologies have been helping travel brands improve their ability to capture customer data for years, but the analytical capabilities are limited. However, advancements in AI will help brands take their loyalty programs to the next level.

Reward members want to be recognised as unique individuals with unique requirements. Using AI algorithms, travel brands can identify those unique preferences for hundreds of individual users in real-time, enabling them to deliver relevant rewards and increase conversions as a result.

AI also combines speech recognition with natural language technologies to create Intelligent Assistants (IA). These assistants are adept and highly efficient at helping customers’ access information and complete tasks.

Travel brands could utilise this IA technology to implement chatbots which can reward customers for good behaviour at different points in the user journey.

Numerous travel and hospitality brands are already using AI in their search processes, as well as chatbot technology to enhance their online communications. Hilton for example, partnered with IBM’s Watson program to create an AI-powered concierge robot named “Connie”.

Guests staying at the Hilton McLean hotel in Virginia can ask Connie questions about anything from hotel information and tourist attractions, to directions for nearby restaurants.

Connie uses a mixture a natural language processing and travel information to provide personalised recommendations. Of course, this kind of technology is a long way from fully transforming the travel industry, but its making progress.

Mobile

Mobile usage continues to rise. Rapid growth in smartphone penetration, as well as the shift to 5G mobile networks, has allowed for improved brand interactions with consumers and the increased availability of data.

Reporting for Skift, Euromonitor International highlights the travel industry’s adoption of mobile sales, showing that travel products have generated $2.3 trillion in sales this year alone, $280 billion of which was spent on mobile devices.

In addition, 3C Interactive’s 2017 Mobile Loyalty Report indicates that brands are already successfully bridging the gap with consumers when it comes to mobile-enabled loyalty. The study revealed that 64% of brands have seen an increase in loyalty program membership over 2016, with mobile being the biggest contributor.

Apps and greater access to personal data will continue to help personalise mobile loyalty programs. Hotels for example, regularly utilise downloadable smartphone apps that enable their reward members to check the status of their room, check-in when its ready and even use their phone as a key.

Consider mobile wallets too, where apps are integrating payments and loyalty together to create a seamless customer experience. Using this technology, brands can effectively drive more traffic with real-time, location-based offers that can be further personalised with big data.

For example, the Starbucks app offers its customers the ability to both place an order and pay for it. Reinforcing the brand as a lifestyle enhancement, the My Starbucks Rewards Program also enables its users to redeem rewards in real time.

Soon, mobile proximity payments will also ease the burden on consumers’ wallets by providing mobile-enabled loyalty identifiers which can help to create a frictionless checkout experience.

Transitioning traditional reward programs to an app will be a key driving force for building customer loyalty in the years to come. The convenience of using an app will help brands instil more trust through providing a consistent user experience.

As loyalty evolves, so too does the need to understand the consumer, their motivations, and the needs that drive their behaviour. Travel firms need to identify the fine line between creating a personal, emotional bond with travellers whilst optimizing the value of their transactions.

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