Monday, December 28, 2009

Is airline & hotel loyalty missing the mark?

Airlines and hotels around the world are struggling to strike a balance between maximising revenue and ensuring long-term customer loyalty, according to research by loyalty marketing agency ICLP.

Almost one-quarter (24%) of those surveyed revealed that increasing the profit of their loyalty programme was their main objective for the next 12 months, yet 70% of respondents are potentially focusing their efforts on the wrong customer group. pmariani This article is copyright 2009

Loyalty programme managers must always clear about their goals, and those seeking to increase revenue from the loyalty programme were split between increasing membership numbers (31%) and increasing spend from existing members (36%).

A surprising 21% of respondents cited "new acquisition of members" as being their main objective, demonstrating the strategic value of creating a direct and ongoing customer relationship and communications channel. Only 13% cited "improving programme ROI" as their key goal, showing that the value of a loyalty programme cannot necessarily be measured purely in terms profitability.

Stuart Evans, general manager for ICLP, said: "Airline and hotel loyalty programmes need to strike the right balance between maximising revenue and retaining their customers, but more important is to understand their overall contribution to company success."

The survey also revealed that 52% are focusing their efforts incorrectly, either on top tier customers (31%) or base tier members (21%). Neither of these sets of customers provide a significant opportunity to increase revenue, according to Evans, who suggests that middle tier members and non-loyalty programme members can provide a greater opportunity to increase revenue.

"Top-tier customers may be the most valuable but it is difficult to provide new incentives to them which will drive more revenue, mainly due to their saturation with rewards," explained Evans. "The focus should be on the less committed customers further down the programme who present a real opportunity to generate significant incremental revenues."

Evans admits that, while maximising short-term revenue is essential to the survival of many travel businesses, it is difficult to know through which streams revenue can come without risking customer loyalty. "For example, airlines could easily sell lounge access as an add-on, but this would run the serious risk of alienating loyalty programme members who in many cases have travelled the world for the privilege of using an airport lounge."

As a result, airlines and hotels simply need to ensure their loyalty programme is well managed and is aimed at generating long term benefits rather than short term profits. Customer behaviour must therefore be evaluated to gain valuable insights which can then be used to build relevant propositions that address individual needs without the risk of alienating other customer groups.

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