When Structured Loyalty Programs Aren't the Answer
By Robert King General Manager, Travel & Hospitality, ClickSquared | October 10, 2010
"Repeat business or behavior can't be bribed. Loyalty has to be earned."
Earning customer loyalty is the goal of virtually any commercial enterprise, and is especially important in industries like travel and hospitality where ongoing patronage is essential to success. A loyal guest is someone who actively seeks your brand, uses it and advocates for it. Guest retention rates, repeat rates, share of wallet, lifetime value and a host of the other common key performance metrics attest to the importance of "loyalty" to business health and growth.
Contrary to common opinion, creating loyalty is not the exclusive responsibility of the marketing team. Guest loyalty is achieved through the successful delivery of all aspects of service, and how well that service aligns to the overall brand promise (i.e., the entirety of the guest's experience relative to the guest's expectations, from initial reservation through check-out). Guests generally reward an organization for meeting its brand promise with increasing loyalty over time. When expectations are not met, (or not met as well as the competition) customer loyalty is difficult to achieve.
That said, marketing can and should play a key role in promoting customer loyalty. While marketing's role is multi-faceted (development of the brand promise, product/service design, customer research, promotion, etc.), no aspect is more critical than the means by which the organization communicates directly to its customers. In the travel and hospitality industry, structured, membership-based loyalty programs have become a common approach for the larger brands to identify and engage with the "best guests" and grow the guest relationship over time. However, as we will explore below, there may be far more appropriate –and far more effective – loyalty-building alternatives for the vast majority of travel and hospitality providers.
Structured Loyalty Programs... and their limitations
While the origin of the "loyalty program" can be traced back to S&H Green Stamps in 1896, it was arguably American Airlines which transformed the travel industry with its AAdvantage frequent flier program in 1981. According to the 2009 Colloquy Loyalty Marketing Census, airline loyalty programs now include over 277 million U.S. members, and hotel loyalty programs boast nearly 170 million U.S. members. While there are a myriad of permutations, these programs are typically highly-structured, membership-based schemes where a member can earn a given currency (miles, points, stays, etc.) for specific patronage or behavior that can later be redeemed for some benefit or reward (free ticket, free night, upgrade, etc.).