After over a year and a half of people staying home, U.S. travel is picking up again, thus representing an opportunity for the travel industry to update their loyalty strategy. As travel brands re-engage U.S. consumers, many travelers are asking: Is it worth paying for a loyalty program? My short answer is: Yes, but the benefits and incentives must be compelling and broaden the rewards for consumers interacting with your brand.
According to a survey conducted by ValuePenguin, more than 41 percent of Americans are members of a travel-related loyalty program. Of the 2,000 consumers surveyed, 82 percent of program members say loyalty programs are worth joining and 75 percent said the pandemic did not impact their loyalty to their favorite travel brands.
Emirates recently launched its Skywards+ initiative, a subscription loyalty program enabling customers to benefit from additional baggage allowance, increased points earning rates, and lounge access. While this is not a new concept, it’s a first for an airline frequent flyer program. I expect more to follow.
Make it a win-win
U.S. customers must perceive that what they’re paying for is well worth the fee, while brands must gain material benefits from the program activity.
Two major psychological traits come into play when getting a loyalty program right. First, people like to be rewarded for ‘good’ behavior. Secondly, we are programed to strive for elevated status. People are willing to adjust their behavior and pay for both things.
Subscription loyalty programs cannot simply be fee-based versions of existing ‘earned’ loyalty tiers; that would create a ‘bypass’ to existing incentives and lessen the overall program impact. Customers need clear reasons to buy into the program, such as instant access and improved utility of benefits. An unattractive program with no evident payoff won’t survive past the first membership year for sure.
Good loyalty strategies pay handsome dividends for a brand. What more should companies offer customers to make reward engagement while supporting their own commercial objectives? How does a paid program fit into the strategy?
Going for gold on the consumer side
Building a program that is a win for consumers needs to address both above-mentioned psychological responses, and must respond to the different ways members want to interact with your brand. This means offering aspirational value, and rewarding for ‘good’ commercial behavior of transacting with your brand.
Some will join for the prestige alone, but fundamentally the perceived benefits that people get from the program will need to outweigh the costs demonstrably.
One approach is to give something back for a repeat customer – like a free night at a hotel or an airline upgrade voucher. Research shows that people speed up their repeat customers with a brand if they know there is a ‘reward’ at the end. This is the basis of all loyalty programs.
Even if you can’t provide overt ‘rebates’, you can offer engaged customers more convenience – late check-out, free hotel upgrades, line-skipping, luggage allowance, and premium seating. These things serve two purposes: a highly valued services at a low marginal cost, and they make your members feel prestigious – especially if these features aren’t available otherwise.
Going for gold on the brand side
Subscription loyalty also needs to benefit the brand beyond any direct membership revenue. Program design is obviously critical. Your company must derive wider commercial value from the program while making members feel rewarded and recognised.
The reasons to launch any loyalty program is to increase core revenue, drive brand awareness and, in some cases, create a currency that is attractive to commercial partners. CFOs are starting to recognize what loyalty practitioners have known all along: Loyalty is a profit center. What this means for a subscription loyalty program is that it’s not just about the fee and funding of the direct benefits. It’s an incentive accelerant to the customer to buy frequently, be a brand advocate and generate long-term value.
Amazon Prime is a great example. People join Prime for free next-day delivery. Even though this in isolation is largely loss-making, Amazon is happy because the membership removes a barrier to frequent ordering and creates a bias towards Amazon. Its members are proven to order 4x more than those without the subscription. The subsequent addition of media content obscured the economics for customers, making the whole program stickier and reducing churn.
You might want to consider the fees you charge against such derived benefits, rather than just how much the program benefits will cost. To do this, you need to look at your program within the larger commercial context. The base rule is: 1) attractive joining fee; 2) material benefits when commercially transacting with your brand.
A perfect chemistry
Launching a program of this caliber requires a clear targeting strategy. An organization launching a subscription loyalty program needs to make sure its getting all the incentives right to attract and retain customers, while ensuring business-wide profitability. Program design is critical to success but paid-for strategies are not in most loyalty managers tool kit yet, so engaging with experts to help execute a subscription loyalty strategy is a smart shortcut to success.
Getting subscription loyalty right is a bit like mixing volatile chemical elements, but if you can get the alchemy right, it’ll be long-term gold.
