What the airline industry needs to know about social loyalty

Are airlines getting it right when trying to identify the perfect loyal customer? What are the airlines missing in their loyalty programs? Should they get more social?

NB: This is a viewpoint from Jaybind Kumar Jha, senior business analyst at Interglobe Technologies.

Loyalty programs came into existence as a mechanism for customer retention in which the airlines used to offer some rewards to the traveller in return for the purchase of travel on their aircraft.

In the early years, the Frequent Flyer Program (FFP) was designed around the concept of mileage flown – i.e. the traveller earns one FFP mile for each mile flown.

Another format which emerged was a revenue-based model where the traveller earns points (not miles) for the money spent on tickets. These accrued points could then be used to purchase a ticket on any other flight.

This revenue-based model is more prevalent in low cost carriers .The legacy carriers still continue to use mileage based programs. Virgin America, with its Elevate program in 2007, was one of the first airlines to implement a revenue-based scheme and later the idea was taken up by the likes of JetBlue and Southwest.

Mileage based FFP Vs Revenue based FFP

For a customer, the benefit of a mileage based program lies in the fact that he or she can earn miles on cheap and long flights and redeem those miles for expensive tickets.

However, the flip side is that the numbers of these award seats available at desirable price points are very limited (or may be not available at all) on popular routes during a peak demand period.

Airlines offer limited seats on every flight for redemption of accrued miles and they give preference to revenue space over free tickets. The good thing about revenue-based programs is that a customer can book every seat on every flight using the accrued points. No restrictions have been imposed on award seats in revenue based model.

The statistics below (from Inside Flyer) point at some of the underlying problems with the miles-based design of loyalty programs:

  • 80% of frequent flyer members never actually earn enough miles to redeem a flight
  • Some 9.7 trillion frequent flier miles go unredeemed every year.

It should be noted that award seats on a flight are a scarce commodity and the miles eventually remain unused because of unavailability of avenues for redeeming the miles in traditional airline programs.

In the case of revenue-based programs, the travellers can still use these fixed-value points to find seats when fares go higher; obviously they need to spend more points than before. Only difference is that the customer would use points to buy any available seat.

Are airlines able to identify the loyal customers correctly?

1. Airline perspective

For the sake of clarity, let’s consider two customers – Customer A & B. Customer A, flies once a year from San Francisco to Chicago in full fare premium class paying around $3000.

In the process, the traveller accrues 3000 miles. Customer B, flies the same route in cheap economy class, 10 times a year by paying average of $300 each time and accruing 30,000 miles. In the current scenario, airlines considers customer B more valuable than customer A because of more miles flown, even though the dollar amount spent is same.

However, for the airlines, customer B may not be more profitable than customer A, because the airlines have to expose themselves to various risks ten times compared to one time risk of carrying the customer A.

Some of these risks are airlines paying extra to put the customer in a hotel because of delays, arranging for taxi vouchers & meals, delivering the baggage to the customer in case of mishandling. Airlines will have much lesser margin on flying and processing customer B. In some cases, they might have to incur losses in the whole process.

2. Customer perspective

A typical customer might believe that the loyalty level towards a particular airline will depend on their engagement level and the amount of time that they spend on those flights. Initially the customer’s goal was to garner the free miles and get free occasional travel but it has changed dramatically in today’s scenario.

In the current landscape, it is more about the status than anything else. Getting registered in most premium flyer category with any airlines separates these travellers from the so called “Regular” travellers.

Long queues at the airport check-in counter, long security lines, and long wait at the gate only to see the filled overhead space in the aircraft are some of the annoyances which the occasional travellers have to go through.

On the other hand, elite customers enjoy the luxury of an extra checked-in bag at no additional cost, selecting a seat, getting to the aircraft earlier etc.

What is missing in the existing structure – the “Social” angle

None of the current incentives have made any difference to customer’s social interactions. Currently, the customer receives no value in return for sharing his good experiences. At best, a passenger might get a response from the airlines.

Given the magnitude of social media activities that are happening in all the stages of travel lifecycle, it is important that it be ingrained into the airlines DNA.

The airlines need to understand that any comment posted on these forums by an individual can greatly impact the purchase decision of such products by other people in the same network.

Question that needs to be answered is therefore: why would a customer bother to share reviews, read an airline’s blog and leave a comment?

Social loyalty – the way forward

The proliferation of smartphones and high speed data networks have opened up a new avenue for customer interaction with a brand. This new avenue is social channel where customer seeks advices from their peer group and shares their experiences with a particular brand.

For most of the airlines, there have been considerable efforts in making their presence felt on social media sites and it has been embraced as one of the most effective medium to connect with the customers.

It gets substantiated by the fact that, on one hand it took 30 years for 179 airlines to have some form of loyalty programs but in just four years, 191 airlines have joined Twitter.

Also, most of the frequent flyers have a very high level of consumption of social media. Facebook and Twitter have been the forums which have been leveraged the most by both travel brands and customer.

Tables below demonstrate this point:

Presence of various airlines on Facebook and their engagement level with the customers.

Presence of various airlines on Facebook and their engagement level with the customers. Source: Study by Unmetric, January 2013

Presence of various airlines on Twitter and their engagement level with the customers.

Presence of various airlines on Twitter and their engagement level with the customers. Source: Study by Unmetric, January 2013

Twitter has been used as a medium for customer communication and sometimes for providing customer service as well.

On the other hand, Facebook is used for creating brand awareness and some of the airlines like Delta have provided the ability to book the tickets on their Facebook page by embedding the booking engine.

Social loyalty is an effort towards rewarding not just the high value customers based on the transaction amount but rewarding brand advocates as well. These are the customers who talk on various forums about their good experiences with the particular brand.

Customer earns loyalty points by engaging in various activities such as sharing their experiences, “liking” or tweeting products information and promotional deals, watching videos, commenting on articles, reviewing, posting photos on Instagram, and participating in polls. Hilton’s social H Honours is one such example.

However, for a brand its presence & listening ability merely on Facebook and Twitter is not enough, they also need to be responsive about the voice of customers which are being echoed on other touch points like blogs, online discussion forums, review sites etc. This way, they can have a holistic view about who are the brand evangelists and who are the brand detractors.

Social loyalty conceptual framework

The basic premise of this framework is to reward the customers who turn into social advocates by creating and spreading positive energy about a particular brand.

Traditionally, airlines have been rewarding only those customers who purchase the services from them or other partners in their network.

Though such programs ensure customer satisfaction to some extent but they fail to effectively engage a customer during the whole travel life cycle.

Airlines need to understand the fact that the positive reviews from a person of well repute or person in the customer’s own network has a lot of influence on travel purchase of other customers as explained in below chart.

Social Loyalty conceptual framework

Social Loyalty conceptual framework

However, currently there is no incentive for such brand advocates to keep endorsing the brand of their choice.

The first step in generating loyalty is to get the customer buy your product / services. Once the customer is satisfied, his confidence in the product/services as well as trust in the company increases. This leads to positive word of mouth (WoM) about the particular brand on various social channels.

These satisfied customers start becoming the brand ambassador which helps in creating lot of positive buzz.

If these advocates are rewarded for their social behaviour then it will further strengthen their loyalty and it ultimately results in increased brand equity and further consumption of services offered by that brand.

What it takes to implement social loyalty?

1. Long term vision

The focus should be on converting the loyal customers into brand advocates. The airlines should not focus much on one time transactions; rather they should spend their time & energy towards increasing the interaction and engagement level with the customers. This will ensure constant revenue streams for their services.

2. Technology infrastructure

In order to monitor their brand mentions and the sentiments being echoed in those conversations, airlines needs to invest in procuring listening tools and analytics tools. There are many such social media analytics tools like Attensity, Visible etc.

These tools take the input as the raw conversation happening on various social forums like FaceBook, Twitter, YouTube, LinkedIn, Flickr etc and filter out the irrelevant information and find the sentiments hidden in the relevant comments. These tools help an organization listen to those conversations, analyze it and then decide their brand advocates.

Social Loyalty - Behind the scenes

Social Loyalty – Behind the scenes

The new technology infrastructure will have to co-exist with existing airlines systems like loyalty system, reservation System, inventory system etc. as explained above.

It is important to note that it is not sufficient to only invest in social analytics tools; what is needed is to understand and relate the information provided by these tools with products/customer/locations as explained in the diagram below.

Phases of social loyalty engagement

Phases of social loyalty engagement

Airlines would need to figure out whether these advocates are already enrolled in existing loyalty programs or not. Also, they need to clearly identify the entire experience lifecycle for those brand advocates. This is where a lot of integration is involved within the existing airlines ecosystem.

3. Organization structure change

Social media efforts and loyalty programs are run by two separate departments of airlines which may have differing business goals. There is a need to unify these two departments in order to provide superior customer satisfaction. A collaborative culture needs to be developed where multiple groups work together to achieve a common goal of maximizing the customer satisfaction.

Current initiatives in social loyalty space

Some projects identified by Simpliflying include:

1. Estonian Air ‘Air Score’ – first airline in the world to launch a social loyalty program on Facebook in Oct 2011. In this initiative, the Customer earns scores (Air score) for sharing a review of the airline on their Facebook wall or tweeting offers & deals or sharing any generic information like airfares, information about cultural and sports events happening in Estonia. The customers or so called “Ambassadors” of the airline are rewarded with discounts for social media advocacy, without even having to fly the airline.

2. Jet Blue “Go Places” – JetBlue provides loyalty points to its customers when they announce on Facebook that they are at a Jet Blue terminal. This drives the end goal of engaging the customer and loyalty.

3. Virgin America – The passengers, who were roaming in the new San Francisco Terminal (T2) with a smartphone were asked to locate new amenities that were offered and asked to check in via foursquare. In return of announcing their location on Facebook and Twitter, participants were awarded badges which could be redeemed against prizes.

Other design changes that are needed in redemption of loyalty points

The below measures will ensure that the loyalty points are used to enjoy privilege services.

1. Ability to trade loyalty points

Airlines should allow buy, sell and exchange of loyalty miles/points through a common exchange platform which will ensure that the miles do not get wasted.

For example: If a customer has 500 loyalty points from Airlines A and 300 loyalty points from Airlines B, he should be allowed to combine these points to purchase a ticket on Airlines C. Also, there should be a provision to trade points with friends & relatives.

Currently there are very few service providers which provides such services; with www.points.com being the prominent one. However, the exchange rate is so high that customers end up losing around 60 % in the exchange process and hence the adoption is very limited.

2. Co-creating the redemption avenues along with the customer

Airlines should organize online brainstorming session with their customers and try to understand the redemption avenues which customer values the most. The user adoption is bound to increase if the avenues are created as per their liking and will inculcate loyalty in its true sense. Air Baltic has already initiated efforts in this direction to improve the design of Baltic Miles – their loyalty program.

3. Use loyalty points for purchasing ancillary services

One great way to push ancillary services might be by enabling the customers to use loyalty points for purchasing services like priority boarding, extra leg space, in flight Wi-Fi while booking a flight ticket. This is a win-win situation ensuring that the points are utilized as well ancillary services become popular.

4. Cross-over loyalty

It simply means that, the customers can leverage their top tier status in a particular airlines loyalty program to get preferential treatment from other related or unrelated service providers as well. Flying a particular airline will get rewards which can be used for consuming other services like staying in a hotel.

Delta and Starwood recently rolled out a program which is no less than a defining moment in the loyalty program space: a joint loyalty program that will provide perks across brands, aptly called Crossover Rewards. By doing so, both companies will gain the new customers and ensure loyalty from their existing customers.

5. Points for gifting/CSR purpose

Customers should be given the ability to gift the points to their friends or family or donate their loyalty points for the “Environmental” aspect. This will ensure that the miles don’t go unused.

A few scenarios can be: When a customer donates some reward points, few tree plantations may be done by the company. Similarly, it might be used to fund a child education needs or for helping the underprivileged population. By doing so, the customers will develop a sense of pride and corporations will further strengthen their resolution to increasingly adopt “Go Green” measures and increase their participation in CSR activities.

NB1: This is a viewpoint from Jaybind Kumar Jha, senior business analyst at Interglobe Technologies.

NB2: Social icon image via Shutterstock.

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

Comments

  1. Shafiq Hamid

    Good read – for sure they need to get ‘social’ or Airlines will miss out.

     
  2. gaurav kumar

    I realise that social media is the buzz word today and any company having dismal presence over such platforms may loose out business to its competitors.
    The social angle which you talked about, ie. bringing in social reward system whereby airlines reward its passengers who talk about their positive experience on social media might bring in certain nuances. To redeem such rewards, passengers might spread the experience which may not be the same as actual and many others’ decisions would be biased in such situations. This situation might become quite grave given the way we are connected and visible to each other. Also in the long run, it might hamper the airlines’ social image.
    As already explained, air travel is not a daily affair for a person, esp if we talk about the major chunk of the travellers. A bad experience even once in a passenger’s life might carry its repercussions in the long run. The count of stakeholders increases tremendously and becomes a risky affair.
    The framework has to be modified in a way we place appropriate checks whereby genuine passengers place genuine comments. Creating a band of brand advocates is no big deal wherein you convince certain exclusive group of people to talk about your brand and they have millions of followers. My perspective is that as social media is becoming the buzz word, we should not ignore the risks associated with it. Any framework that has to be established should incorporate such risks and be feasible in the long run with slight modifications. An insight into reward structure should be detailed thus augmenting the true loyalty factor for the airlines.
    There is yet another bunch of guys who are actively engaged in social media but their inputs might not be positive or negative. People belonging to this category might just post about some sort of query on airline facebook, twitter pages, some request for information of SSRs on certain blogs. They might not post their experience but are visible through their presence as explained above. This group of people can be pursued further and can be converted into so called “brand advocates” or their concerns be addressed if they did not had a delightful experience.

     
  3. Keerti Goel

    This article comprises of complete picture of loyalty programs, from their evolution in airline industry, existing ones to the future upcoming trends. Innovative solutions arise from “Innovative thoughts”. Innovative thoughts are seamlessly included in it.

     
 
 

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