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Understanding Airline Loyalty Program

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Chapter : Loyalty Marketing & Branding

The Goals of Loyalty Marketing: Loyalty marketing has five main goals:

  1. Enrolment:  Enrolment is the logical and chronological beginning of loyalty marketing because it results in the creation of a customer file. And the customer file is the foundation for all future loyalty-marketing activities: tracking, analysis, communication, and targeted benefits and offers.
  2. Customer Activation: Having enrolled a potential customer in a loyalty program, the next step is establishing regular communication (newsletters, statements, ad hoc mailings), designed to raise awareness and, ultimately, induce trial. Activation is an important milestone in the customer-company relationship, because the earnings (points, miles) from that first purchase must be supplemented with earnings from future purchases in order to reach award thresholds established by the program.
  3. Customer Retention:  Customer retention is the core goal of loyalty marketing. As is often pointed out, it is significantly less expensive to retain an existing customer than it is to develop a new one. So if a loyalty program succeeds in protecting a significant portion of the company’s proven customer base, it will have made an important contribution to cost-efficient revenue production.
  4. Maximize Share of Customer:  By the same logic-of-efficiency which underlies the customer retention strategy, loyalty marketing seeks to increase the share of the customer’s total category spending.
  5. Customer Reactivation: The customer database at the heart of loyalty marketing programs allows a company, through tracking and analysis, to identify not only current customers, but also lapsed customers: those who have stopped or significantly reduced their use of the company’s product or service. The goal: reactivate them.
In most countries, loyalty marketing has become a key element in many Airlines’ marketing mix, because it has proven to be measurable, and measurably effective. In fact, many airlines have shifted large portions of their marketing budgets from mass-market advertising to direct marketing generally and loyalty-marketing programs in particular. There are several key concepts underlying the design and execution of loyalty-marketing programs.

Lifetime Value of the Customer: Airlines view their customers–actual and potential–on the basis of their expected purchases over the course of their lifetimes. A business traveller, for example, could spend more than half a million dollars on airline ticket purchases over his or her lifetime. This long-term perspective is largely responsible for the new emphasis on “relationship” in today’s consumer marketing. In the context of a long-term relationship with a customer, loyalty marketing seeks to maximize the share of the customer’s category spending over a lifetime of purchases.

Cost of Retention: “Cost-to-Retain” Versus “Cost-to-Acquire” Depending on whose estimate you choose to accept, it is 4 – 15 times more expensive to acquire a new customer than to retain an existing customer. Loyalty marketing leverages this disparity by focusing on customer-retention: the more frequently you purchase our product, the greater will be your reward.

Building Brand Loyalty for Frequent Flyer Programs: Business travelers are the most profitable customers for an airline can accommodate. In fact, Airlines discovered that only 5% of their customers accounted for over 40% of their business. This means that every business traveler, or frequent flyer, was more than 10 times more valuable than an occasional flyer. Obviously, questions were raised on how to keep luring these highly lucrative travelers to the product the airline has on offer and consequently build brand loyalty. One of the answers was Frequent Flyer Programs. Recent research revealed that customers want to be rewarded for their loyalty expressed with repeat business.

 

Participating in a frequent flyer program is only a small part of the decision making equation for a traveler since factors like flight frequency, connection possibilities and departure times are the starting point for each journey. Airlines offer to fill these needs, while luring the most lucrative passengers to keeping choosing their business. Basically they encourage businessmen and women to purchase higher priced goods with the money their company put at their disposal with the purpose of collecting miles for personal use. When looked at it like this, wouldn’t the business traveler be defrauding his company if he could book the same flight at another airline for a lower price?

Loyalty Program as Status Symbol: Loyalty programs are seen as status symbol as they offer many privileges that common flyer does not get.  Frequent flyers keep seeking these privileges to get the feeling of being different from others. That is one of the reasons why most airlines brand their loyalty programs.  Some programs have grown so much that they themselves have become brands for the airline.  Aadvantage, Krisflyer, MileagePlus, Miles&More are some of the brands of Airline Loyalty Programs that are great brands associated with Loyalty.

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