Loyalty is a big business in travel – travelers accumulated an estimated value of $48 billion in loyalty points last year, while companies spent around $2 billion in actual cash. And yet, according to the CMO Council, only 13% of marketers believe their program has been “highly effective.”  With all of this money floating around – and the business revenues attached to it – here are some insights on leveraging this opportunity into true loyalty that effectively drives top-line revenue.

Defining ‘Loyalty’

“Loyalty” is an amorphous concept that often lacks concrete definition in the travel industry. It’s loosely defined as creating a product, service or program that users love enough to return often as a “regular.” Loyalty breeds passion, brand evangelism and dedication that should boost income and guest satisfaction. Beyond this general definition, there are many questions, questions with answers unlikely to be shared by any two travel brands. Who are these loyal customers? Are they the right customers for the brand? What motivates them? How can we reward the loyalty of customers most likely to bring repeat business? What is the monetary value of a loyal customer to our brand? And what about loyalty across channels? How do we approach loyal customers on mobile, on the web and in-person? Exploring these questions are an essential lead-in to building a successful loyalty program – or revisiting a currently existing one, understanding that what we look for is a loyal behavior which is defined as measurably incremental profit driven by customer engagement, enabled by an understanding of individual customer needs, interests and behavior.

The Holy Grail: Permission

IIn order to understand individual customer behaviors, brands need permission to collect and analyze this data. By first getting the participant’s permission, brands can then begin owning the client relationship with direct, measurable interactions that build incremental revenue.

Reward vs. Risk, Emotional vs. Rational

There are also some key risks within this permissioned relationship, centered around the key components of any loyalty program: the Emotional and the Rational. On the emotional side, it’s important to throughly trigger the reward side of a particular customer’s motivation equation. By giving them rewards that activate a key emotion – whether it’s status, access or a feeling of belonging – brands can forge an emotional bond with their customer.

Loyalty isn’t to reward the best customers – it exists to motivate the best customers to stay in addition to motivating identified segments to do more. In reality, and in perception, loyalty rewards must be valuable enough to motivate the customer. And yet, the rewards need to motivate the customer towards a behavior that they might not otherwise have had.

After considering the emotional component of the loyalty program, companies must then look to the rational side for the actual mechanics of the program. Determining the program’s related return and variable costs, companies can see the peak ROI for a particular program by plotting out the Program Return ($, etc) against the Reward Value (%). The equation could be posited as such, where the final Loyalty Value is a percentage increase in revenues, Reward Value is the actual face value of the reward, Reward Cost is the full variable cost for the labor, goods and program admin, and the Percentage Increase is how much more a loyal customer spends in percent:

Loyalty Value = Reward Value/Reward Cost * % Increase in Business From Loyal Customer

By considering these various elements – and taking a dual-pronged Emotional + Rational approach – even the smallest of businesses can create and periodically tweak a loyalty program that rewards desired behavior from the right customer.

Loyalty Across Channels: what to do with the mobile channel

Loyalty doesn’t only have to refer to a program that provides points to customers as rewards for patronage. Loyalty is also an essential component to build across other channels, such as a consumer-facing travel app that wants to encourage regular visitors. From badges on Foursquare to Yelp’s Elite Squad, there are many different models for loyalty across the travel industry.

In a recent whitepaper, the data specialists at Kontagent urged readers to “Don’t fly blind,” offering lessons in loyalty for travel app owners. The idea being that the mobile channel provides its own unique context for loyalty, and that brands must consider this channel specifically when building a loyalty program. The key lessons offered up by Kontagent (read them in full here) are:

  1. If you build it they won’t come. Discovery is hard, there are many apps, and competition is fierce. Segment across channels and use analytics to optimize the highest ROI channels. Oh, and build a fantastic, super-engaging app that people love!
  2. Downloads don’t mean anything. 95% of people who download won’t even use your app! So monitor the behavior of super-users and optimize accordingly. Find the spots where the engagement is highest and build from there.
  3. Revenue shouldn’t be your #1 priority. App should offer content and/or utility that hooks consumers, followed by long-term revenue strategy. Engage customers now on mobile, which is primarily a discovery tool, and use the actual user behavior to inform monetization.
  4. Agility wins. Measure and improve constantly. Be a work-in-progress, follow your user through extensive analytics, and use data to drive development decisions.
  5. Mobile is not like the Web. Different analytics and metrics needed for understanding how users navigate the app.

By taking these mobile-centric tips to loyalty, companies can enact a sub-loyalty program for each channel that works together to drive desired behavior within each channel individually in addition to pushing customers across channels for various transactions. Nevertheless, until recently, mobile channels had been pinned as last-minute discount channels where travelers could find deals specially on hotel rooms. Hoteliers bought into that notion and were giving inventory to distributors at deep discounts. But with the growing number of hotel bookings coming via the mobile device, hoteliers, aggregators and OTAs must evolve their strategy to distribute and price inventory on mobile channels correctly.

A poster child for the last-minute strategy is HotelTonight, which markets “last-minute hotel deals” throughout its app. “Hotels give us last-minute deals on their unsold rooms, with discounts up to 70%,” the company boasts on its website.Travelocity most recently introduced Lastminute.com, a booking app that promises “instant access to 3-5 star hotels with discounts up to 55%.But hoteliers are figuring out that, as more people spend time surfing on tablets and smartphones, they’ll pay the same rate for a hotel room through those devices as they will through a desktop site or over the phone. Therefore, revenue managers more often are being advised to keep the mobile channel in parity with other distribution channels.The folks who are setting the pricing and setting the channel mix need to understand that mobile is no different than the desktop and they might not have to discount the channel.