In this new content series, we show what a world-beating loyalty program would look like in four different sectors, and discuss the brands currently showing the potential to build that ‘world-beating’ program.

First up: the travel & hospitality sector.

Travel is one of the most venerable loyalty sectors – so it may surprise some that leading brands often approach Currency Alliance, asking for help to find additional loyalty partners.

Actually, this is quite understandable. The world has changed a lot in the last 20 years.

Competition and opportunities have proliferated beyond travel brands’ core markets. New spending categories, such as subscription services, home delivery of virtually everything, asset sharing, etc., are now ripe for inclusion in loyalty coalitions. There are plenty of customers, not currently earning loyalty currencies with these brands. This represents a great deal of untapped potential for existing leaders.

Furthermore, new operators of mobility and financial services solutions are keen to enter the fray.

Revisiting the mix of partners is also timely because the technology needed to take advantage of broader collaborations is now widely available – digital payments, AI, social media, mobile, etc. – and changing consumer behavior is impacting the legacy loyalty model, and setting the stage for new leaders to emerge.

In this unchartered territory, brands are desperate to learn more about their customer, and personalize their marketing accordingly.

Loyalty should be the answer to these needs. The program can be the glue that binds capabilities with customer experience, to deliver more value.

Brands know that if they can add partners, unshackled from the legacy (direct and indirect) cost of managing many additional lower volume partnerships, those partners will yield vital data, and become the ‘earn and burn’ opportunities, as well as the personalized experiences that customers desire.

AI in particular holds the potential to automate personalization and hyper-targeting – but AI needs data to work, and the best data about customer preferences will come from a wide network of collaborating brands.

Yet, most big travel brands remain hooked on only the most obvious partnerships in their core markets. As a result, their loyalty programs have evolved into a spider’s web of lookalike programs that only cover 10-20% of a customer’s discretionary spending.

This means that their programs only appeal to their most frequent customers – and they know very little about the 80% of customer that make up the mid-tail and longer-tail segments.

At Currency Alliance, we’re now having so many of these conversations, it seems more efficient simply to show everybody where the greatest potential lies in their sector.

We hope our new infographics, released through this paper and the following 3 instalments, support your own efforts to build a world-beating loyalty program of your own.

A world-beating program in travel

The infographic below shows the categories of customer spending typically included in an airline´s current loyalty program – and how much more room there is to expand partnerships into new categories.

A world-beating loyalty program will have partners across almost every spending category, so the customer can earn and burn on 80-90% of their monthly spend.

Obviously, this graphic is not exhaustive.

The central brand should have multiple partners in most categories; not just one. In addition to a chain of gas and convenience stores in mobility, you’d certainly want a ride-sharing partner like Uber, and probably a car brand such as Ford, which now has a basic points-based program.

There is also some overlap. Where Starbucks can tell you if a member has traveled with a competitor, so might Green Mountain Energy – if the member’s electricity usage drops to practically nil for 2 weeks.

Safeway’s insight, that the customer buys organic, or is vegan, could equally be a good signal to offer carbon offsets.

And some of the untapped potential lies not in new spending categories, but existing ones – ‘no-brainer’ partnerships but in new geographies, for instance, or where additional data can be shared.

The point is to show that the ‘Blue Ocean’ exists by crossing various spending categories, so a person who only travels for leisure twice per year can earn enough points on grocery, pharmacy, DIY, gas, childcare, apparel, etc., and keep that aspirational trip they are dreaming of top of mind by concentrating share of wallet among partners throughout the year.

Some categories may only be relevant to a customer once a quarter (or once in their life), but they’re still important.

If your brand is present in one or more of these open loyalty collaboration networks, you can be relevant to customers when the need arises.

Based on my research, the closest thing to this ‘Blue Ocean’ ideal, currently, is Virgin Australia’s Velocity Program.

Velocity: a leader in modern loyalty

If you asked anyone to name an airline loyalty program, few would start with Velocity from Virgin Australia – in large part because Australia, by itself, is a fairly small market, and far from North America and Europe.

But in Australia, it would frequently be mentioned first – even by those who don’t fly often.

The big news this week is the re-purchase of an investor’s 35% stake in the Velocity program by its originating airline, Virgin Australia. The program has been hugely profitable, generating AUD$122 million in ’18/29 and doubling in market cap over 5 years.

For those in the know, this isn’t a great surprise.

As with many newcomers in aviation, which operate primarily in modest domestic markets, Virgin is spurred on by necessity to differentiate. As a result, the team behind Velocity has shown far greater foresight in the design of their loyalty program.

The Velocity program has such strong appeal partly because it is positioned as a lifestyle brand. While anchored to an airline, it appeals to virtually everyone, because of the wide variety of earn and burn partners.

They call their currency, “Points” rather than miles. This isn’t just logical (given that very few brands still award units based on how far the customer flies); it also enables a less aviation-centric currency.

This brand position is reflected in their mix of partners.

Like most airline programs, they have formal partnerships with carriers which are popular with their local base – Singapore Airlines, Hawaiian Airlines, Etihad and about 15 others – as well as hotel, rental car, and bank partners.

But they also have ‘earn’ partners across a vast swathe of consumer spending categories, including grocery and department stores, fuel retailers, fitness, ride-hailing, etc., and a good selection of co-branded credit/debit cards.

On the burn side, there are several partners in most spending categories – and not only in Australia, so they are giving members the freedom and choice to use their loyalty currency value in a very open manner.

This of course, resonates with customers in a very compelling and memorable way.

You can easily see the mix of partners on their website.

Screenshots showing the variety of ‘earn’ opportunities in the Velocity program

The nature of the partnerships matters

Coalitions have typically granted exclusivity to partners in exchange for committed promotional support and transaction volume. Velocity is one of the first where the quality of shared data also takes center stage.

Some of the airlines in the Velocity program are partners only for code-sharing, others are only earn partners, but many are earn and burn partners – which means they are giving customers quite a lot of freedom to use their points beyond Virgin Australia. This mixture shows a rare willingness to experiment and innovate to find the most profitable partnership model that incentivizes member activity.

Flybuys is a particularly interesting partner in itself because of the relationship with Coles supermarkets and liquor stores, their own openness to collaborate with partners, and the way in which they provide considerable redemption freedom to customers.

More importantly, many of the Velocity partners have a real-time connection to issue points to improve customer experience and share insightful data. And most of the banking partners, BP, etc. allow customers to automatically sweep point value into Velocity – which removes friction and promotes openness/collaboration.

This contrasts with programs such as Avios or AAdvantage because, while these big loyalty programs (especially in travel) advertise a lot of partnerships, actually, they’re not ‘real’ partners.

Real partners help each other maximize value delivery to customers by leveraging insight for recognition and personalization, as well as using shared technology components to keep costs down – so more value can flow to the customer.

The American Airlines AAdvantage program, for instance, claims 1,000 ‘partners’, who should be able to unlock a vast amount of useful data.

As a server of food, American Airlines should like to know that a customer orders beef-based meals 70%+ of the time, or that they experiment with exotic restaurants from various ethnic or cultural regions.

But in truth, 90%+ of AAdvantage’s ‘partners’ are aggregated by third parties, such as Rewards Network. This means a transaction is taking place to issue points, but the data about what the customer is actually buying is limited.

When a customer opts-in to personal data sharing in a more robust partnership, the customer is enabling access to unique customer insights, so each partner can improve understanding and personalization.

This allows every partner to make every member – elite and otherwise – feel valued and recognized, while increasing the visibility of partner brands.

Velocity has fewer partners than many other airline programs, but those brands involved are real and active partners, rather than aggregated brands, or brands that simply have a distanced, transactional relationship.

Velocity’s main competitive threats

Virgin Australia has plenty of upside by expanding the mix of Velocity partners domestically and internationally.

However, Velocity could easily be overtaken in the next 2-5 years by any loyalty program which figures out how to deliver higher perceived value to customers, forges smart partnerships across the full range of customer spending, or by a foreign brand that enters the market.

Cebu Pacific, another relatively new player in a small domestic market, has big ambitions and a progressive loyalty strategy delivered through the GetGo coalition.

A useful window on its approach is this promotional video for its ‘GetGo’ loyalty program. The actress is playing a passenger totally unlike that of a typical frequent flyer: a middle-income young professional who uses the program and her every day spending to achieve her travel goals.

“As a young traveller, I look of course for the most affordable flights… One of my targets is to travel to different parts of the country…. They allow me as a young person to explore different parts of the world. It makes it so much more achievable”

In fact, GetGo directly advertises that you can “Fly for Free!”[i]

Of course, the flights aren’t free – they’re funded by a wide network of earn partners in the GetGo program.

And then, there is Booking.com.

Booking Holdings already has agility on its side. Their experience as a technology-driven market enabler, with their relatively new, non-points-based ‘Genius’ loyalty program, is showing very promising signs at improving retention.

Only last month, the OTA announced that Etihad Guest members would now be able to earn Etihad Guest points on Booking.com[ii]. They also quietly offer FlyingBlue miles while their sister company, Agoda, has been issuing points in many programs for years.

With one fell swoop, Booking.com could make Genius points more valuable than most existing travel programs. And, they could add non-travel partners with ease.

Quality of data is paramount

The quote:

“Data is the new oil”

…is attributed to Clive Humby (of Tesco Clubcard fame) in 2006. I find it interesting that this observation comes from a loyalty marketer.

Accurate and timely customer data is so valuable, the importance of participating in a proper data-sharing partnership becomes paramount. Access to that insight far exceeds the importance of being the brand that leads the coalition, or issues the currency.

Of course, the customer may have a preference for a currency other than your own – but their real motivation is the customer experience they may receive by participating in a particular program. Customers have demonstrated for decades that they will share data with brands which help them achieve those experiences, to uncover better value, or to simply feel recognized, understood, and thanked for their patronage.

And yet, the arrogance among many brands, dictating that customers can only earn their loyalty currency, is precisely what is holding back most companies from engaging their mid-tail and longer-tail customer.

As a result, major loyalty brands have mostly only done the minimum with the data – which of course has produced skeptical customers.

There is so much more that can be done, and many more customers will actively participate in co-creating better value for all stakeholders.

I can understand perfectly that you may require customers to earn your currency first, but for mid-tail and longer-tail customers, they will only bother if they can shift (exchange) that value for where it has maximum perceived value.

Chase Rewards, Citibank Rewards, American Express and a very limited set of other brands recognize how much liquidity or fungibility between programs enables them to get mid-tail and longer-tail customers to become and remain engaged. Brands that cater to the long-tail, like Amazon, Airbnb, or Walgreens could become very significant competitors if they set their mind to it.

But even these brands have some way to go, to understand the value of becoming collaborating peers in an open loyalty ecosystem, rather than self-interested parties competing for dominance.

In most loyalty programs, the focus of partnerships has been primarily on transactional data. You do this, I give you points. But transactional data unlocks only a portion of the value in a partnership between complementary brands, yet unlocking the additional value in data has almost no incremental cost.

Very few loyalty coalitions operate like real partnerships, and most are half-blind due to a poor data-sharing framework.

This is often because the coalition operator can’t, or won’t allow more power to shift to participating brands. To ensure the best customer experience, collaboration must be peer-to-peer, rather than allowing one anchor brand to dictate terms and conditions.

And, as brands become peers, they should allow more value to go to the customer, rather than fight over who keeps breakage or captures the margin on points sold to partners.

When a brand puts the customer´s interest at the center of their strategy, they will quickly be able to sidestep the legacy constraints that make most programs appealing only to highly frequent customers.

Consider a high-performing sports team. All team members are equal by right, but certain members end up with much more influence due to their skill, preparedness and leadership traits.

Striving to create a collaboration between complementary brands where each is a peer will resonate with nearly everyone, but in practice the brands that are most prepared and proactive will reap the lion´s share of benefits.

In loyalty, that means striving to optimize outcomes around the best-possible customer experience, rather than try to skew dominance in the central brand’s favor based on heavy-handed tactics.

In one example, such tactics contributed to the downfall of Plenti in the USA.

In another, a huge portion of AAdvantage miles are bought solely by Citibank, through a commercially beneficial (but data-tenuous) relationship that is leaving a great deal of customer value on the table.

In reality, all the major loyalty programs suffer milder cases of the same problem. This is a weakness waiting to be exploited by those brands that will win over the next 2-5 years.

Any significant brand could usurp any of the current leaders in travel loyalty by building a collaborative program around the customer, rather than around themselves.

Catch up with loyalty, before other brands catch up with you

It’s important to note that Velocity is used in this article as an example only; some (but not many) others could take center stage.

And as Ernest Hemingway said:

“change comes very slowly; and then rapidly.”

Brands outside traditional loyalty sectors are making significant strides. Media companies are investing faster than travel brands; healthcare, faster than retailers. Somehow or other, banks have even fallen behind manufacturing firms[iii].

At the current pace of change, with competitive threats on all horizons, you would have a hard time, as a long-standing loyalty executive, knowing which shoulder to look over.

By the time existing business leaders overcome real or imagined constraints – whether that’s culture, business model, or technology – it may be too late to adapt without first losing a great deal of existing member engagement.

The regression of Nectar, and the diminished dominance of Air Miles, shows how quickly powerful loyalty coalitions can get choked out by new programs that deliver more customer value. Their struggles also reinforce the observation that an open or connected loyalty network should not be led by a single anchor brand – because that power distorts healthy market forces.

The biggest problem can often be the CFO (or the CEO), who manipulates the loyalty program in order to meet investor expectations when the rest of the business is not performing well. Healthy marketplaces cannot be manipulated on whims for self-serving objectives.

Continuing to break what the customer perceives as a ‘promise’ is actually how many loyalty programs are destroying the loyalty they were established to create.

Other business leaders – such as those at Virgin Australia – are embracing the power and ROI from loyalty marketing, and actively driving down breakage in exchange for more engaged customers.

As we have seen, loyalty program leadership is a very dynamic phenomenon – influenced by many factors.

Future winners will rely more on marketplace factors to create value for all stakeholders and less on dictating the rules of engagement for their own benefit.

This means offering more choice, reducing friction, improving collaboration and data sharing across complementary brands, and finding new ways to be present across many channels as the customer pursues their own objectives.

Brands focused on enabling their customers to achieve desired outcomes have steadily been beating brands focused on their own desires – for decades now.

That will play out in loyalty as well. Fortunately, most loyalty programs have lots of tools at their disposal to deliver real value.

The question is whether they will put those tools to use.

Any incumbent that remains too greedy, or too slow to act, will find many competitors ready to take the lead.

IBM rebuilt themselves from the ashes over the past 25 years, but thousands of other brands that clung onto aging business models did not recover.

The odds are very much stacked against those brands that don´t proactively evolve.

Find out more

The loyalty industry is migrating towards an ‘open loyalty’ partner network.

That does not mean totally ´open´ and willing to collaborate with everybody. You should choose your partners (or let them choose you) and determine the commercial model. Being too open actually defeats the purpose of a loyalty program in the first place.

Participants in this new ecosystem will build their programs around a marketplace model, rely on low-cost micro-services to assemble the technical architecture, and a mix of partners that collaborate as peers to optimize value for 80% of their customers, rather than the typical 20% today.

Currency Alliance was founded to enable this more productive future for loyalty brands.

Our SaaS platform makes it easier for loyalty brands to forge the partnerships that appeal to each customer.

The software fits as a lightweight layer over your existing loyalty technology. It’s low cost, free to try, and with the easy API connection, you can be up and running within days.

Find out more, or click here to get in touch.

 

References

[i] https://www.getgo.com.ph/

[ii] https://www.timeoutdubai.com/travel/413030-members-of-etihads-loyalty-programme-can-now-earn-points-on-bookingcom