Not every travel business needs to have a formal loyalty or rewards program to have loyal customers. But if you're going to go that route, you better know what you're getting into. And for some companies, it might be time to reconsider doing without.
Loyalty — and the multitude of rewards programs that airlines and hotels have created in an eternal effort to capture it among consumers — is a big business.
“We know you have a choice of airlines when you fly, and we want to thank you for choosing [insert airline name],” we’re told at the end of airline safety videos.
The No. 1 reason why Marriott International spent more than $13 billion to buy Starwood Hotels & Resorts? Loyalty, according to CEO Arne Sorenson.
Some points-savvy travelers — ThePointsGuy.com, for example — have even turned their loyalty game know-how into standalone businesses.
And while it may seem like there is a seemingly endless number of travel loyalty or rewards programs, there are, in fact some travel companies that don’t have traditional loyalty programs. Whether this is the right strategy, however, depends on the company, its business, and its customers.
The Difference Between Rewards and Loyalty
First things first: Although a company might not have a traditional loyalty program like most of the major airlines or hotel companies do, that doesn’t necessarily mean the company has a nonexistent loyalty strategy.
“Rewards programs are what you see from hotel and airline chains that are points-based and have tiers to them,” explained Christian Snyder, head of public relations for Smile.io, a Kitchener, Canada-based company that works with businesses to design, develop, and power their rewards programs. “Loyalty programs are slightly different; they don’t have to have rewards.”
Gary Leff, a frequent traveler and points program expert, said that the fundamentals of loyalty are recognition and rewards.
“People respond to these things when they are making purchase decisions,” he said. “There are businesses that don’t need to engage in this. If purchases are truly a one-off decision — not iterative — or if the seller has a monopoly in the market, you don’t need a loyalty program.”
Leff said that the airlines were the first to start rewards programs to get passengers to shift their purchasing behavior, especially those passengers who are business travelers who can earn rebates for travel that’s being paid by their companies.
“If you get a rebate just for your own dollar, you’re more likely to choose the airline on price alone,” he said. “When you have consumers making iterative purchases, recognition is also really important.”
So, if a travel business is one-of-a-kind, or dominates its market, and has a strong point of differentiation, having a rewards program may not be absolutely necessary.
“[A rewards program] is about being a differentiator,” Snyder said. “Depending on what rewards you’re offering, you can set yourself apart from the competition. But now that everyone has rewards programs, you have what’s called feature wars — everyone is upping the ante. That can be one of the difficulties in running a successful rewards program. If everyone has them, what sets you apart?”
How Some Travel Companies Do Without Formal Rewards Programs
Snyder and Leff both gave examples of brands that have famously chosen not to have traditional rewards programs. They include companies like Apple, Amazon, Disney, and newer companies like Uber and Airbnb, for example, as well as more established ones, like Four Seasons Hotels & Resorts and, up until last fall, Allegiant Air.
In the case of Four Seasons, Leff said that the lack of a formal rewards program doesn’t mean there’s no comprehensive customer relationship management strategy in place.
Four Seasons Hotels & Resorts President and CEO J. Allen Smith told Skift last year, when asked about the company’s loyalty strategy: “… Loyalty programs are defined by ‘I accumulate points and then I get something of value for that that I can redeem.’ Truthfully, that’s not what our customers are looking for. Our customer is looking for recognition: ‘Know who I am, and provide personalized services to me.'”
He added: “For our best customers, we know who they are and in many cases, we have, in effect, affiliated them with someone within Four Seasons that will facilitate their reservations in other properties, movement around the world, whatever the case may be. As they go from property to property, people will know who they are.”
The catch, however, is that if a company chooses not to have a formal loyalty program, it can be more challenging to collect customer data needed to personalize that guest or passenger experience. And having a formal loyalty program is not only low-cost but also often more effective in terms of gathering that data.
“Before these programs, marketing was not vey customized at all,” Leff said. “It was very scattershot and broad-based learning about who your customers are.…It’s a lot easier when someone self-identifies with a matching number in a database.”
David Flueck, senior vice president of global loyalty for Marriott International, said data is a coveted asset for any company.
“Your loyalty program allows us to use data to personalize the on-property experience…. we use machine learning to personalize marketing messages so we put out personalized offers to our members,” he said. “For us, being able to have the data on 100 million members allows us to be much more targeted and to deliver the right marketing and right experiences to the right members at the right time.”
To collect data without a rewards program, Snyder said, companies need to be able to collect feedback and understand their customers in other ways.
“You have to ask why you’re different, why would people want to come to you,” he said. “Understand your space and get their feedback all the time. Customers’ tastes change over time as well. Feedback needs to be happening all the time, and companies have to be willing to be agile.”
Why Some Shouldn’t Go Without One
While Snyder thinks it is possible for travel companies to not have formal loyalty programs and still be successful, Leff isn’t necessarily so sure.
“Luxury brands that don’t have loyalty programs — that’s sort of silly,” he said. “There are business travelers who stay at the Four Seasons, business travelers whose companies are paying. Having that rebate on leisure time is a huge needle mover.”
He added: “Ritz-Carlton, during the Great Recession, put out a branded version of Marriott Rewards to drive incremental heads in beds. Especially in an industry where competitors are offering this and you’re not, there’s a competitive disadvantage or risk. It could be that your brand is so strong that you could survive, despite that. But there is an area where you are providing less value and you’re not driving people to make those purchase decisions.”
Leff also said that luxury hotels or travel brands aren’t the only ones in need of some sort of formal loyalty framework. “Years ago, Wyndham didn’t have a points program. There was Wyndham by Request and it was designed to customize your stay by asking you, ‘What’s your favorite beverage? What’s your favorite pillow to have?’ But they eventually realized they were missing out.”
Some smaller independent hotels that don’t have the scale to offer their own loyalty program instead incentivize potential guests by aligning with a soft brand collection such as Marriott’s Autograph Collection or Hilton’s Curio Collection. But Leff said it remains to be seen whether joining forces with a hotel chain in that manner will drive enough incremental business to be valuable.
“Our loyalty program is one of our most valuable assets,” Flueck said. “Members fill up to 50 percent of all the nights in our hotels around the world….It’s also one of the strongest reasons why owners look to join the Marriott portfolio. I think the rise of the soft brand is an interesting way in seeing how this is played out. Those hotels want to retain their unique character and they want access to our distribution and loyalty programs.”
Loyalty and Sharing Economy Business Models
Newer travel businesses like Uber, Airbnb, and Lyft don’t have formal loyalty programs of their own necessarily, but they’ve been testing the waters with partnerships with other more established travel loyalty programs.
Airbnb has loyalty partnerships with Qantas, Virgin America, and Delta Air Lines. Lyft has a partnership with Delta. And Uber long ago formed a partnership with Starwood Preferred Guest (SPG), among others.
Over the holidays in December, Airbnb CEO Brian Chesky tweeted out a call for ideas of new things for Airbnb to launch and, by far, one of the most requested items was a formal loyalty program.
“Until Airbnb gets better penetration in the business travel space, the reward component [of an Airbnb loyalty program] is a little less powerful than it might be,” Leff said. He also said that because each and every Airbnb unit or experience is different and unique, it may also be harder for the company to deliver recognition-style benefits.
Uber, however, does have some form of a recognition program—Uber VIP—whereby American Express Platinum Card Members get access to the highest-rated drivers in certain markets.
“It’s hard and harder to execute loyalty programs under their [sharing economy] models. Uber now is a huge component of the ground transportation space, especially in business travel, and it makes sense to incentivize their consumers, especially if their competitive position vis-a-vis Lyft erodes,” Leff said. He noted that the barriers to entry for launching a service similar to Uber and Lyft are also very low, so although Uber and Lyft both enjoy a lot of name recognition and scale at this point, new competitors will always be emerging.
Snyder said that should any of these companies ever decide to launch loyalty or rewards programs of their own, they’ll need to pay close attention to “ease of use and differentiation” and will most likely adopt very simple, straightforward reward program approaches.
Is Loyalty Necessary?
Loyalty, yes. A formal loyalty program? Not necessarily. Customer loyalty is important for any business, but the means of getting that loyalty will be different for each company.
The advantages of having a loyalty or rewards program aren’t a mystery. Companies who have them, said Leff, “want to know who their customers are and have a permission-based relationship to market to them.… As a general proposition, if you do have customers making repeat customer decisions and you’re in a competitive environment you want to utilize the tools of loyalty marketing to drive customer purchase behavior.”
And for companies that continue to go without formal loyalty or rewards programs? They should try to follow the lead of corporate giants like Apple and Disney, and become brands that people are “loyal to no matter what,” said Snyder.
In an increasingly competitive travel landscape where consumers have an overwhelming number of choices to make about the airlines they fly and the places they stay, let alone which loyalty program to sign up for, it can be a very contrarian and arguably risky move to not have a loyalty program as we know it. But for some companies, it’s simply what works, and as long as customers are loyal, who’s to say you need a formal program to build that?
Photo credit: The lobby of the Four Seasons New York Downtown. Four Seasons Hotels & Resorts uses a comprehensive customer relationship management system in lieu of a formal rewards program to personalize the experience for its most loyal guests. Four Seasons Hotels & Resorts