Loyalty programs are a well-established concept in the travel industry. Beyond the airlines, hotels and rental car companies also have joined the fray in a quest to increase business via customer loyalty, and many have had notable success.
However, loyalty programs are at their most effective when used to capture business that would otherwise be lost to competition.
The travel industry has become expert at using these programs and promotions to entice business from travelers, whether generating new sales or taking sales from competitors. Airlines and hotels in particular have refined customer promotions into an art form, leveraging them against their competition to capture market share.
Up in the air
Competition among airlines on the West Coast has long been intense. Established carriers such as Alaska Airlines and United Airlines recently have seen encroachment by new entrants, notably Delta Air Lines and Virgin America. Delta in particular has gone to great lengths to build a West Coast presence beyond its hub at Salt Lake City, investing heavily in nonstop domestic and international routes from Los Angeles, Portland and Seattle. Most recently, Delta launched service on its own aircraft up and down the West Coast despite its close marketing and loyalty program affiliation with Alaska Airlines.
Alaska correctly sees this as a direct threat to its home turf, and continues to walk a fine line in maintaining its marketing relationship with Delta while the latter pursues a competitive growth strategy against its smaller partner. The result is a slow-burning competition for a finite number of customers, and there are few more powerful tools in an airline’s competitive arsenal than frequent flyer promotions.
To protect its Seattle hub and customer base, Alaska recently launched a double miles promotion up and down the West Coast, including routes to the Bay Area, Las Vegas, Los Angeles and San Diego. Members who register receive double miles on flights between June 1 and the end of the year. As Delta continues to add flights from West Coast cities and now competes directly on some important routes, Alaska’s response is clear: It is ready to leverage its loyalty program and offer significant incentives to customers to stay with the Seattle-based airline.
Down to earth
Airlines are not the only travel providers to make use of bonus promotions to boost market share and capture business that would otherwise be lost. The “big four” hotel marketing programs – Hyatt Gold Passport, Hilton HHonors, Marriott Rewards and Starwood Preferred Guest – have been even more aggressive and creative than the airlines in their strategic use of promotions to influence customer behavior.
While airlines tend to deploy promotions in response to specific circumstances, such as a competitor encroaching on a profitable route, hotels make routine use of bonus point promotions. These offers have become so regular that customers now expect them on roughly a quarterly basis, and even make decisions about where to stay based on the quality of the promotions.
These promotional battles are now an integral part of the competitive landscape among hotel programs. Even more than with airlines, hotels offer nearly undifferentiated products – is there a significant functional difference between a typical Four Points Sheraton and a typical Courtyard Marriott? With such similar product offerings, hotels rely heavily on their loyalty programs and related promotions to gain an advantage in a tightly competitive market.
This summer’s travel season is no exception, with Hilton and Starwood taking the lead competing for business with their bonus earning offers. Hilton’s “Double Your HHonors” promotion allows members to choose between double points or double airline miles between May 1 and July 31. During the same dates, Starwood is offering double Starpoints for most stays at more than 1,000 properties around the world, upping that to triple points for stays that include a Sunday evening.
The methodological contrast between airlines and hotels is instructive. A decade ago, airlines ran bonus promotions much like hotels do now. They were often system wide, relatively frequent and implemented to gain an edge in a competitive marketplace. As competition among airlines loosened as a result of industry mergers, resulting in fewer consumer choices, the use of promotions has shifted to a more limited, tactical approach.
The hotel industry has gone the other direction. Properties and even entire brands have proliferated under the banners of the major players, with loyalty programs one of the most effective tools for distinguishing product offerings and capturing repeat business.
Regardless of industry, there are a few important steps loyalty marketers can take to leverage their programs into a meaningful advantage:
Innovate. Operators can lead the way in their market by capturing attention with creative and even unconventional promotions, such as offering triple points for Sunday stays. Organizations should use social media liberally to promote these.
Pay close attention to third-party promoters. Travel companies should pay close attention to trades and even bloggers, which could serve as allies. In doing so, they reduce the risk of being caught on the back foot by a rival who captures the free media exposure bloggers will offer with the announcement of a great promotion.
Be generous. Return on investment is the most important measure, but erring on the side of generosity will differentiate an offering from all the others, and may win converts from competitors.
Loyalty program promotions are a powerful tool to attract new business and gain market share. Those companies that use them wisely are more likely to position themselves as leaders in the market space.