Want to maximize your travel budget? Loyalty programs may be your best bet.
As the name suggests, loyalty programs look to promote loyalty amongst customers. They aim to do that by offering incentives and rewards for those who make repeat purchases. For you, that means many different benefits which you can get for essentially no additional cost. Best of all, joining these loyalty programs is free.
But is this all too good to be true? How much can you actually save by being a loyal customer?
For our topic today, we wanted to look into how much value there is the gain from loyalty in the travel space and ultimately if it’s worthwhile. But first, we need to know how loyalty programs work.
How do loyalty programs work?
While loyalty programs are surprisingly complex and can take many different forms, they all operate based on the same principles: to attract and retain customers. But how exactly does this work?
This is done by offering incentives – often in the form of rewards, discounts and upgrades. The idea is that as a customer uses a particular service like, let’s say, an airline, they accrue a certain number of points based on the amount they spend. With every qualifying purchase, you get these points at no additional cost.
Eventually, you’ll earn enough points to redeem them against something, like a free night, seat upgrade or flight. The more you use and spend with that particular brand, the more points you get. At certain points, you can earn a status, which is basically the way loyalty programs categorize customers. The higher the status in the hierarchy, the more benefits you can attain.
How popular are they?
Global spending on customer loyalty through loyalty programs stands at around $75 billion and is only expected to grow. Both private and corporate use of these schemes is gaining steam as people look to stretch their budgets as far as possible.
Another factor in this growth is technology. Providers have turned their attention to the growing mobile market. Specifically, they have started to place more attention on building apps that offer more convenience and better usability that other platforms.
When it comes to these travel apps, over half (55%) deemed loyalty programs as an important feature. Likewise, 50% found it useful to receive loyalty points updates via on-trip notifications.
So far, so good. But what exactly do the providers get out of this?
Loyalty programs serve two key functions for the provider:
- Helping to retain customers
It’s a well-known fact that it costs more to gain new customers than to keep the ones you already have. By some estimates, it can be as much as five times more. A loyalty program therefore provides more value to repeat customers at a cost that should be lower than with attracting new ones.
- Providing data into their customer base
What you may not know is that loyalty programs are a goldmine of data. A loyalty program is basically an exchange: The provider gets your personal data, contact information and your shopping habits, while in return you get exclusive offers and incentives.
This data collection serves a few different purposes, including offering you tailored promotions and discounts on products you buy, but also understanding the habits of the wider customer base. Think big data and the like.
So yes, those offers you’ve been enjoying does come at a cost – your data is incredibly valuable, after all. How fair is this exchange then?
Savings potential of loyalty
Unfortunately, there is no universal answer.
There are many different variables at play, including the amount you travel, the class you use and where you are going. In the end, the biggest factor is how much you pay as many loyalty schemes have moved to a revenue-based model for earning points, rather than distance based.
What we can do is look at is some specific cases. One company claims to have saved around £175,000 in 2017 alone using BA’s On Business corporate-orientated program.
In the same article, we can find that another company was able to save £3,000 on its hotel spend in a 12-month period by redeeming points against hotel vouchers on the Star Alliance Partner Plus Benefit program.
At many hotels, as you climb the status ladder, you can start to enjoy discounts or credit towards food and beverages, offering direct savings for what makes up 19% of the average cost of a business trip. And this is only expected to rise in the future.
So yes, there are some serious savings to be had if you play your cards right. But this is only half of the story.
Getting the upper hand
Many businesses take the initiative and strike deals with brands they commonly use to secure cheaper rates. Airlines, hotels and other travel brands place a lot of value on relationships with businesses, as they know just how extensive the corporate travel industry is. This is known as preferred partnerships, or preferred suppliers. It is worth noting that these come with contractual obligations regarding volumes, making them a less flexible option.
This isn’t always possible, however. Smaller businesses are unlikely to have the leverage to get tailored schemes. They will have to stick with the public loyalty programs.
Ok, so while it is difficult to put a hard monetary value on this, there are some other areas to explore. This includes the ‘soft’ perks that loyalty programs offer corporate travelers. These are the more intangible aspects but are just as valid. What benefits do these bring about?
The benefits of corporate loyalty programs
Sure, the rewards you receive are a direct benefit from enrolling in a corporate loyalty program. But there are more, less tangible benefits to be had.
We are now at a time where customers are expecting – or even demanding – a more personalized experience with the brands they use. And that’s just as true for corporate customers.
Customer centricity is one of the key ways travel brands are looking to keep their customers engaged. The use of personalization – or even hyper-personalization – are now being explored. That means the services you experience when booking and traveling are being worked on based on real usage data. If they play their cards right, that could make your life easier moving forward.
The power of familiarity
Beyond the perks you receive, there’s a lot you can get from sticking with brands you are familiar with. One thing that many businesses look for is predictability and consistency. No one wants to experience any surprises when they just want to get their work done when on the road.
Thankfully, travel brands are able to offer this consistency, even while tailoring experiences as mentioned above.
Who wouldn’t enjoy a lounge pass on their long layover? Points don’t necessarily have to be redeemed for corporate scenarios – allowing travelers to earn points towards their own personal loyalty program membership can be a real mood booster when on the road for work.
Knowing that you can enjoy a bit extra on your next holiday can improve performance and in turn improve their loyalty to your company. This is where a bit of a problem starts to appear. If individual travelers are looking to earn points at every opportunity, it could make compliance with your travel policy drop.
The policy problem
In theory, loyalty programs should be a blessing for travel managers, or whoever is in charge of organizing travel at your business. Unfortunately, that is not necessarily the case.
One of the biggest headaches for travel managers the world over is out-of-policy bookings. While there are many reasons this can happen, a big contributor is the desire to earn points through loyalty schemes.
There is certainly some thinking to do here – your travel policy will need to be built around these programs in order to truly benefit from them and extract the most value. And that’s not the only consideration that needs to be made.
Complexity: One thing we haven’t mentioned so far is the difficulty. The truth is that complex rules around earn and using points, limitations on transferability and short expiration dates can make travel loyalty programs frustrating to the point people don’t bother using them. This is not to mention the rather fractured market, meaning you may need to sign up to a few different schemes to satisfy the needs and wants of all travelers.
Workload: There also needs to be some oversight. If there’s no one to monitor and oversee the collection and distribution of these points, it will be very difficult to get the full value out of them. That means more work for the travel manager.
Scale: Otherwise, it is worth noting that the biggest rewards are reserved for the highest value customers. They are the ones who consistently and frequently travel using the same brands – just something to consider. Larger businesses also have the upper hand when it comes to negotiating deals directly with the providers, as mentioned before.
In the end, loyalty programs can be viewed as a glorified marketing channel. The providers are always trying to upsell and increase the spend from people like you, so it is worth being wary.
That all being said, if you can get your head around them, there is a lot of value to be had.
What is there to lose?
Loyalty programs remain a popular staple for travel businesses such as hotels and airlines. They represent a major benefit for travelers – on top on the ability to travel – which they can use in their own personal trips. That’s not to mention the more intangible benefits, like more personalized services and communications.
For the business, it can offer significant savings as well as a boost to morale. It’s just a case of looking at your travel habits and the benefits you are likely to use.
However, there are some roadblocks. The best rates will only be available to larger businesses who have the leverage to negotiate directly with the provider, owing to their scale. A synergy, if you will. For the rest, the regular loyalty programs for travelers will have to do. But there are still savings to be had there.
So, when putting together your travel policy, it may well be worthwhile to incorporate a clause regarding the use of loyalty programs. Just make sure you have someone who can look over and monitor your accounts to ensure the most value is extracted.
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