KOBIE QUARTERLY REVIEWTRAVEL EDITION

NOV 2013

9 SpotlightThree Things Airline Loyalty Programs Should Be Doing Right NowBy David Andreadakis

17Why Personalized Experiences Are Key to Airline LoyaltyBy Bram Hechtkopf

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CONTENTS

4WHAT AIRLINES AND HOTELS CAN LEARN FROM STARBUCKS’, COCA-COLA’S AND SEPHORA’S APPROACH TO SOLOMO SoLoMo, or social, local, mobile, is a term that’s back in the news and once again gaining prominence. Like retailers, travel and hospitality brands are no strangers to attracting and retaining customers in innovative ways. But there are clearly some lessons to be learned from particularly successful brands doing SoLoMo well.

75 TURNING THE TABLES ON AIRLINE LOYALTY TURBULENCE: HOW

BIG DATA AND OMNICHANNEL LOYALTY CAN HELPYou don’t have to be a frequent flyer, a cabin crew member or loyalty provider to know that the airline loyalty industry has faced some serious turbulence of late. But there’s also some good news – especially as it relates to Big Data metrics, analytics and omnichannel loyalty tactics.

9www.kobie.com

THREE THINGS AIRLINE LOYALTY PROGRAMS SHOULD BE DOING RIGHT NOWThere’s no denying airlines have weathered a challenging several months – not for their bottom lines so much as in traveler perceptions. Here are three recommendations to help improve the relationships airlines have worked so hard to build.

A NEW AIRLINE LOYALTY PROGRAM THAT PUTS B2B FRONT AND CENTER Little by little, brands are realizing the importance of business-focused loyalty programs, and now airlines are jumping on board too. The MileagePlus Small Business Network allows businesses to earn reward miles for products they normally buy. 11

WHAT’S UP WITH AIRLINE LOYALTY?For the most part, the airline industry gets a bad rap. Reporters and travelers alike long for the days of attentive and personalized service yet lament the loss of perks that were previously included in the fare. Encouragingly, a “loyalty fix” is within reach, coming down to airlines’ better use and understanding of omnichannel loyalty.

AIRLINES AND HOTELS: TIERED OMNICHANNEL LOYALTY DONE RIGHT What does tiered omnichannel loyalty look like and which airline and hotel brands are doing it well? How can such loyalty-challenged industries learn from their mistakes and drive loyalty and ROI? Is American Airlines AAdvantage Program the model others should emulate?

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WHY PERSONALIZED EXPERIENCES ARE KEY TO AIRLINE LOYALTYIt’s no secret that for airlines, the most valued fliers are those who accumulate the most miles flown per year, spend the most on tickets and make generous use of their ancillary services – on or off the plane. That’s why the notion of “personalization” has become so important. Only by giving passengers incentives that speak to their needs delivered on preferred channels will the loyalty experience be satisfying enough to drive long-term engagement.

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HOW HOTELS CAN IMPROVE GUEST LOYALTY THROUGH SOLOMO MARKETING AND A LOCALS-FIRST FOCUSTo loyalty marketers who thought they knew what SoLoMo stood for: think again. Too often, SoLoMo is thought of as a strictly location-based initiative. But thinking in those narrow terms fails to consider a vital subset of hotel guests: locals.

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HOTEL LOYALTY REBIRTH: FIVE THINGS YOUR LOYALTY PROGRAM SHOULD BE DOING NOWWhat can hotel loyalty program managers do to make their brands more appealing? Here are five recommendations to help hotels get maximum engagement and ROI from their loyalty programs.

Airlines, with the hotel industry close on their heels, pioneered the modern loyalty program, so it’s fitting that both have been the focus of recent news. Airline, travel and hospitality rewards programs, like much of the loyalty industry, find themselves at a critical junction. With two Deloitte reports – one on airline loyalty and the other on hotels – indicating lackluster engagement, brand fickleness and mounting consumer frustration, it’s as if the airline, travel and hospitality industries have been given a challenge. How do they re-invigorate customer engagement and long-term loyalty?

Encouragingly, brands within these sectors – along with third-party loyalty program providers – are meeting these challenges head-on. Rather than feed the perception of themselves as verticals forever dialing back rewards or making higher tiers more difficult to reach, the airline, travel and hospitality industries are re-writing that narrative. Through their efforts, brands are discovering:

• The evolving importance of Big Data and coalition loyalty programs. How can airline and hotel partnerships embrace omnichannel tenets that offer more personalized experiences? Big Data analysis is also being used to help airlines cut costs by finding minute inefficiencies. Once corrected, savings can be used to augment new loyalty initiatives.

• The need for airlines (and hotels) to adopt a tiered, omnichannel loyalty strategy that combines tangible and status-based rewards and allows them to be transferred between programs. American Airlines and its AAdvantage frequent-flyer program is an excellent example of this. The program lets members redeem their miles with most of its partners as well as give miles as gifts or to charity. They also have the ability to bid on exclusive VIP experiences such as plush outings to high-profile sporting events, awards shows and more.

• The re-popularization of SoLoMo (social, local, mobile) – especially as it relates to hotel guest engagement. To loyalty marketers who thought they knew what SoLoMo stood for: think again. Spelled out as Social, Local, Mobile, too often the ‘Lo’ in SoLoMo is thought of as a strictly location-based initiative. But thinking in those narrow terms fails to consider a vital and valuable subset of hotel guests: locals.

These trends – and additional insights – are what the Kobie Quarterly Review: Airline, Travel and Hospitality edition is all about. We hope the Kobie Quarterly Review: Airline, Travel and Hospitality Edition broadens your appreciation for what loyalty programs entail and the genuineness they seek to deliver. Airline and hotel loyalty programs may have encountered some customer engagement difficulties of late. But thanks to its long and robust history, no industry is better equipped to confront and rise above these challenges.

Michael Hemsey, PresidentKobie Marketing

FROM OUR PRESIDENT

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You don’t have to be a frequent flyer, a cabin crew member or loyalty provider to know that the airline loyalty industry has faced some serious turbulence of late.

First there was the American-US Airways merger that’s raised fundamental questions over how the two vastly different corporate cultures will combine, along with their respective philosophies, in terms of customer reward programs. Then there is Delta with a major announcement that its 32-year-old Sky Miles rewards program will be linked to additional passenger spend and pegged to ticket price costs – a new passenger hoop designed to better manage (read: limit) the number of travelers who reach elite status, thus, reducing airline costs.

When Kobie talks about loyalty programs engendering genuine customer relationships that inspire experience-driven outcomes, returning customers and improved ROI, somehow this is not what we envision.

And unfortunately, there’s growing public skepticism that airlines are only loyal to one thing: profits.

Thankfully, in airspace littered with troubling news, there’s also some good news (even

from Delta) – especially as it relates to Big Data metrics, analytics and omnichannel loyalty tactics.

Here’s one example: Alaskan Airlines landed a glowingly positive review in the New York Times. Compared to other carriers, Alaskan Airlines has expanded mostly without mergers and was profitable for 33 out of the last 39 years, achieving a record $316 million in net income last year.

Part of that success came in the form of strict cost savings. Not through tinkering with its Mileage Plan™ loyalty program, mind you two-thirds of Alaska’s 730,000 residents are members of the program – which includes discounted tickets – but by using Big Data to their advantage.

By tracking a wealth of minutiae, such as the time it takes pilots to begin taxiing, the airline discovered that cutting just one minute of taxiing time per aircraft saves $25 to $30 million. Now that’s what I call turning data into action. Revenue like that gives airlines more room to continue supporting their loyalty initiatives. That’s true even when faced, as Delta was, with rising loyalty program popularity that threatened to undermine Sky Miles’ profitability if something wasn’t done.

TURNING THE TABLES ON AIRLINE LOYALTY TURBULENCE: HOW BIG DATA AND OMNICHANNEL LOYALTY CAN HELP By Bram Hechtkopf

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Smoother Skies Ahead?Of course, Sky Miles’ changes aren’t all that’s happening with Delta. The airline recently announced a joint loyalty program, called Crossover Rewards, with Starwood hotels. Sharing rewards between hotels and airlines is a great way to maximize benefits, streamline point accrual and drive loyalty simply by adding transparency to the process. The move follows the popularity of similar coalition programs like Air Miles in the UK and Canada and is also inspired by loyalty program partnerships between grocery stores and gas stations. In the latter example, a topic we’ve written about in a recent blog, Five Things Your Retail Customers Expect This Year, shoppers earn points toward discounted fuel based on the amount they buy. Since food and fuel are necessities, the programs’ symbiotic nature is encouraged.

For many, how people fly and where they stay is equally linked. While I applaud Delta for its actions in this regard, I’m surprised airline-hospitality partnerships aren’t more common. As we discuss omnichannel loyalty, an enterprise-level initiative to drive, track, measure and reward incremental behavior throughout the customer experience, going “omni” might also include omni-partnerships. In this advanced scenario, interdepartmental data will be de-siloed as will customer behaviors shared across verticals, improving loyalty management. While crossover loyalty programs are fraught with security risks, data

deluge and a fear of “loyalty cannibalism” – where one company operates more parasitically than symbiotically – considering its success elsewhere, Delta shouldn’t be the only pioneer.

Sky-High PioneersSpeaking of pioneers from a pioneering state, I really hope Alaska Airlines will be similarly inspired by Delta’s doings. Regardless, both carriers, in separate ways, have advanced the airline/FFP conversation, demonstrating that the tables can be turned on frequent flyer program turbulence.

Whether Alaska Airlines’ revenue success can be emulated by other carriers (augmented by Big Data analysis) remains to be seen. Likewise, it’s anyone’s guess if Delta’s revamped Sky Miles program will ultimately hit its stride. But one thing is certain. Only through the most detailed, granular analysis of their program successes and failures will this information be discerned.

“Sharing rewards between hotels and airlines is a great way to maximize benefits, streamline point accrual and drive loyalty simply by adding transparency to the process.”

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In perhaps one of the greatest realizations of the phrase “everything old is new again,” SoLoMo, or social, local, mobile, is a term that’s back in the news and once again gaining prominence.

Like retailers, travel and hospitality brands are no strangers to attracting and retaining customers in innovative ways. But there are clearly some lessons to be learned from particularly successful brands doing SoLoMo well, like Starbucks, Coca-Cola and Sephora:

StarbucksStarbucks pioneered the SoLoMo movement back in 2011 and today offers two apps for different customer segments. While both apps turn users’

smartphones into mobile wallets, one links to Starbucks’ rewards program, My Starbucks Rewards™, and the other partners with the mobile payment company Square. Using the second app, for instance, customers can find a nearby Starbucks as well as other area retailers that accept Square payments and offer additional deals and discounts. A popular SoLoMo example comes from China. In 2011, Starbucks offered a free drink to everyone who checked in to specific store locations, which culminated in more than 20,000 weekly check-ins. This wasn’t a Groupon-like daily deal; it was a fun, social and collective experience where “team unity” built brand awareness and long term loyalty – and continues to do so.

WHAT AIRLINES AND HOTELS CAN LEARN FROM STARBUCKS’, COCA-COLA’S AND SEPHORA’S APPROACH TO SOLOMO By Bram Hechtkopf

“In perhaps one of the greatest realizations of the phrase ‘everything old is new again,’ SoLoMo, or social, local, mobile, is a term that’s back in the news and once again gaining prominence.”

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Coca-ColaCoca-Cola’s “The Coke Machine Fairy” also stands out as a great SoLoMo example. Launched in Sydney, Australia in September 2012, the two-week campaign distributed prize-winning Coke cans in vending machines throughout the city. Prizes included a $300 voucher, flight tickets, a helicopter ride and others. The goal: to generate brand excitement and gamify the search-for-rewards process. Participants signed in to location-based social network Foursquare, then friended and followed The Coke Machine Fairy to find the nearest vending machine. Additional tips narrowed the search. The Coke Machine Fairy earned more than one thousand friends on Foursquare in 14 days and helped hidden vending machines find new life.

SephoraSephora, the French cosmetics chain, might be doing SoLoMo best. The brand has a Facebook page, a Twitter feed and a YouTube Channel, also engaging shoppers through its Beauty Talk community and helping them share in-store experiences through Instagram. Users share products and ideas on the brand’s Pinterest page while the “Sephora to Go” app provides real-time GPS mapping to store locations and in-store information. With some 2 million downloads and a 300% mobile sales increase in 2011, Sephora knows that engaging users via social media must occur across multiple channels. It also knows that tablets are not oversized smartphones. That means the successful use of its “virtual mirror,” where users can follow how-to makeup tutorials while seeing their own image on screen.

Flying SoLo(Mo?):Travel and Hospitality Lessons LearnedSo, after reviewing the above examples, what’s the common thread? What does SoLoMo do well regardless of vertical? In each instance, the SoLoMo campaigns were fun, engaging, timely and useful. They all generated genuine excitement, conversation and loyalty.

They also:• Sought engagement

across age, gender and socio-economic brackets: The lesson? Smartphones and gamified approaches to collective enjoyment aren’t limited to teens and 20-somethings. Many travelers are older but no less interested by these loyalty-generating tactics.

• Two of the three examples employed SoLoMo strategies in narrow windows: Airlines and hotels should remember to keep their SoLoMo experiments limited in duration, but frequent in updates – especially when campaigns’ gaming aspects figure prominently. Such diversity will help keep consumers engaged and their wallets open.

• Sephora’s efforts downplay gaming but promote the need for an omnichannel approach. SoLoMo may be a three-part abbreviation, but hotels and airlines must continuously be reaching out to their customers on the channels they prefer with an engagement style, email, SMS and/or push notification that speaks to them best.

With the above examples in mind, consider these hypothetical scenarios. In light of the tightening mobile booking window, imagine a Coca-Cola-like scavenger hunt that incentivizes guests’ hotel stays – especially in chains with multiple locations per city. Instead of “lucky” soda cans, guests are awarded “lucky” room numbers. Airlines, too, might employ additional social media. Or envision a campaign wherein smart digital airport signage connects to consumers’ mobile phones, sending timely and relevant travel information as well as offers related to future trips and allowing travelers to share this knowledge instantly with friends and family via Facebook and Twitter integration.

The point is that SoLoMo can be an engagement method easily adapted to many verticals and airline, travel and hospitality brands are re-discovering its marketing and brand loyalty potential. So is everything old new again? You’d better believe it.

“The point is that SoLoMo can be an engagement method easily adapted to many verticals and airline, travel and hospitality brands are re-discovering its marketing and brand loyalty potential.”

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THREE THINGS AIRLINE LOYALTY PROGRAMS SHOULD BE DOING RIGHT NOWBy David Andreadakis

There’s no denying airlines have weathered a challenging several months – not for their bottom lines so much as in traveler perceptions. Earlier this year Delta Air Lines ended its policy of allowing SkyMiles members to pass on unused points to relatives after their death. The merger of American Airlines and US Airways has raised concerns that loyalty program perks won’t be honored in the same way as before (read: more rule changes). And, according to the 2013 Temkin Experience Ratings, the airline industry’s overall score on customer satisfaction landed it right on the border between “OK” and “poor.”

Then there were the furloughs the Federal Aviation Administration implemented as part of government spending cuts known as sequestration. While short-lived, reduced staffing caused longer lines at airports, unnecessary delays and overall traveler frustration – not to mention a lingering fear that such snags represent the “new normal.”

But enough with negativity. Airlines pioneered the frequent flyer program more than 30 years ago and today they net billions in revenue. As a result, these loyalty programs rank very high on an airline’s priority list. So how can airlines leverage this priority to ward off customer angst?

Here are three recommendations to help improve the relationships airlines have worked so hard to build:

• Be Transparent: Airlines must spell out how their loyalty programs work. What are the rules? How, where and when can accrued mileage be used? And if there is a rule change – even one that raises the points-for-miles threshold – don’t use crafty language that calls something a traveler benefit (like narrower seats yielding more leg room) when it’s not. Passengers aren’t stupid and they’ll read right through such efforts.

• Be Engaging But Be Simple: A recent study by Dr Andreas Liebrich of Lucerne University of Applied Sciences and Arts found that an airline’s website layout is critical in driving loyalty. Mobile apps and mobile web pages shouldn’t be ignored either as

smartphones and tablets are the centerpieces of SoLoMo – social, local, mobile – initiatives. The same goes with rewards technology. Virgin Australia recently announced the launch of a new prepaid contactless payment credit card, partnering with American Express. Contactless payments streamline payment processes and continue to test the waters of the still-nascent mobile wallet era. By making this an opt-in experience, the airline leaves loyalty program control in members’ hands.

• Measure, Manage, Mitigate: Don’t wait for the findings on some macro airline study to gauge your airline’s loyalty success. Customer relationship management software and loyalty program data work better when they’re operating under one de-siloed roof.

Quick Tip: Don’t wait for the findings on a macro airline study to gauge your airline’s loyalty success.

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The goal here is to measure how well your airline loyalty program is working. That means asking how many members are actively engaged and discovering what their travel experience is truly like. Raising these questions across an omnichannel loyalty framework is critical if an airline is to best manage the results and mitigate any downstream errors.

So airlines, the time for action is now. Some 9.7 trillion frequent flyer miles go unredeemed every year. While airline loyalty programs remain successful, the 9.7 trillion-mile sieve needs to be plugged and traveler perceptions require some serious improvement.

Earlier this year, I attended the Loyalty Innovation Show and Freddie Awards in Washington, DC with my colleague Bram Hechtkopf, Kobie’s VP of Business Development & Marketing. We met with airline loyalty execs to discuss the latest

developments and trends their programs must stay ahead of. With airlines facing criticism for being loyal to revenues first – and not their customers – it wasn’t surprising that much of the conversations centered on how airlines can go beyond the typical points-for-rewards paradigm and deliver engaging experiences to their passengers. The degree to which airlines have turned these words into actions is top priority in the months ahead.

“The goal is to measure how well your airline loyalty program is working. That means asking how many members are actively engaged and discovering what their travel experience is truly like.”

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A NEW AIRLINE LOYALTY PROGRAM THAT PUTS BUSINESS TO BUSINESS FRONT AND CENTERBy Bram Hechtkopf

Brands are slowly realizing the importance of business-focused loyalty programs, and now airlines are jumping on board too. United’s MileagePlus Small Business Network is the first US B2B travel loyalty program of its kind.

The MileagePlus Small Business Network allows businesses to earn reward miles for products they normally buy. Thanks to partnerships with more than a dozen vendors including Dell, UPS, Staples, Chase Paymentech, Canon, McAfee and the Apple Online Store, everything – from printing, shipping, credit card payment processing, office supplies and computing services – is covered. And, just like consumers, companies can convert their earned miles into travel reward upgrades.

Even in our age of perpetual connectivity and instant communications, traveling to trade conferences and meeting with clients or new prospects is vital to any company. Anything that helps small businesses thrive is great for the American economy.

Small businesses, despite an improving economy, continue to struggle and they’re looking for a leg up. A CNN survey found only 14% of small businesses plan to add more workers and two-thirds aren’t hiring at all. Considering that small businesses employ over half of the US workforce and contribute up to 50% of the nation’s GDP, there’s an opportunity here for big businesses to help smaller ones – and earn their loyalty in the process.

Benefits of a Business Loyalty Program

As some of my colleagues have written about on the Kobie blog, B2B customer rewards programs are often the unsung heroes of the loyalty landscape as they empower genuine professional relationships while reducing overhead. Dell and its efforts to prevent its own death spiral via a B2B loyalty program is a good example. Another great B2B loyalty example comes from Verizon and its “Small Biz Rewards”

program. Small Biz Rewards allows Verizon customer companies with fewer than 20 telephone lines to accumulate one point per dollar spent on a variety of Verizon service upgrades including Long Distance and/or High Speed Internet, FiOS and certain charges on their phone service. They can also earn points by participating in surveys and by shopping on the Small Biz Rewards online mall.

Regardless of the vertical, loyalty programs that are geared towards businesses can help:

• Improve communications and networking potential between brands

• Heighten internal company loyalty, which can in turn influence consumer brand allegiance

• Inspire new and innovative consumer-facing loyalty initiatives

• Reduce business expenses by incentivizing bulk purchase of goods and services

Whether business- or consumer-facing, loyalty in all its forms is about building genuine trust and transparency and, ideally, reciprocal relationships that rise to the level of moral obligation. That’s a tall order. But that’s why loyalty programs require constant real-time employee/customer feedback and adjustment.

So congratulations to United Airlines on its new business-focused loyalty program. Here’s to the introduction of more B2B programs that truly focus on the needs of enterprise and business – a largely underserved segment.

“Whether business- or consumer-facing, loyalty in all its forms is about building genuine trust and transparency and, ideally, reciprocal relationships that rise to the level of moral obligation.”

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AIRLINES AND HOTELS: TIERED OMNICHANNEL LOYALTY DONE RIGHT By Bram Hechtkopf

For the past 23 years, business scholars at Wichita State and Purdue universities have been analyzing the performance of US airlines based on metrics such as percentage of on-time arrivals, mishandled bags and consumer complaints about overselling, reservation issues and service to disabled passengers.

However, even though frequent flyers are airlines’ highest-value customers, issues related to loyalty programs don’t have much of an impact in the Airline Quality Rating Report: they’re relegated to the “other” category on the list of 12 customer complaint types. That’s quite surprising, since airlines (and their travel industry partners, hotels) are among the companies that do loyalty best. And this is particularly true about tiered programs.

Take, for example, the world’s second-oldest frequent-flyer program, American Airlines’ AAdvantage. AAdvantage offers members an omnichannel experience with a mix of tangible and status-based rewards. Members can earn miles by booking on AA and the other members of the OneWorld Alliance as well as over 10 other partner airlines. They can also earn miles by booking hotel stays, rental cars, vacation packages and cruises with a wide variety of partners and access bonus miles through limited-time deals.

All members of AAdvantage, which won Program of the Year in the Americas category at the 2013 Freddie Awards, can also redeem their miles with most of the

program’s partners as well as give miles as gifts or to charity. They also have the ability to bid on exclusive VIP experiences such as plush outings to high-profile sporting events, star-studded awards shows and the like.

The program’s elite members also get plenty of special perks that include:

• Complimentary access to exclusive Preferred Seats and Main Cabin Extra

• Priority Access security screening and boarding

• 100% mile bonuses for Platinum and Platinum Executive members

• Unlimited complimentary upgrades for Platinum Executive members

Other great programs that offer these types of status-linked benefits include Delta’s SkyMiles and United Airlines’ MileagePlus. As I mentioned earlier, hotel chains such as IHG and Marriott International also have excellent tiered multichannel programs that reward members not just with points, but with memorable experiences. And members can access and manage their

memberships through multiple channels including mobile.

It’s important to remember omnichannel loyalty is as much about consumers’ mindset as it is about delivering messages on member’s preferred channel of engagement. American, Delta, United and many others have clearly taken this lesson to heart and put it into practice as a model for other airlines – as well as other verticals – to follow.

“Omnichannel loyalty is as much about consumers’ mindset as it is about delivering messages on member’s preferred channel of engagement.”

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While forecasters predict a rebound in the hospitality economy – albeit a slow one, because the vast majority of Americans still feel their economic situation is too precarious to safely absorb the expense of a vacation – this kind of uncertainty can cause hotel managers to cut back on loyalty programs and eliminate amenities like room service, as the New York Hilton Midtown did in August 2013 (it has since brought back limited room service).

There is plenty of good news in the industry:

• According to the latest American Express Spending and Saving Tracker report, summer travel plans were up 17% from last

year as two-thirds of consumers plan to get away.

• Eighty-one percent of affluent consumers were forecast to travel in 2013 (versus only 73% in 2012) and 38% of those polled said they will be traveling abroad. Nearly one-third, 31%, planned to spend $1,000 or more per person. That’s an increase of 4% from 2012.

• Analysts forecast stable fuel prices, settling to around $3.66 a gallon for regular.

• According to a Harris poll, 43% of Americans planned to travel this past summer no matter what the macroeconomic picture looked like.

HOTEL LOYALTY REBIRTH: FIVE THINGS YOUR LOYALTY PROGRAM SHOULD BE DOING NOWBy Bram Hechtkopf

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• STR forecast that this past summer hotel occupancy rates would rise 1% compared to 2012, to 70%. ADR would increase 4.4% to $112.21 and revPAR would increase 5.4% amounting to $78.50.

What do these mixed economic messages mean? Consumers will likely be more discerning when it comes to the hotel loyalty programs they choose. Increasingly, both business and leisure travelers seek genuine engagement and offerings beyond the points-for-rewards model. Deloitte’s recent study, “A Restoration in Loyalty” – which many in the industry saw as an indictment of their existing loyalty programs – underscores the need for hotel program rebirth.

• Hotel loyalty programs are a low priority for most travelers; nearly half of members’ annual spend is not with their preferred brand.

• Respondents said their grocery stores’ loyalty programs offered more value than their hotels’. Clearly the hospitality industry has some work to do – on many fronts.

Five Tips for Giving Your Loyalty Program a BoostTaking the above statistics and findings into account, what can hotel loyalty program managers do to make the summer season a more successful one? Here are five of my recommendations to help hotels get maximum engagement and ROI from their loyalty programs:

1. Engage Guests on Multiple ChannelsThe vast majority of customers, 86%, will pay more for a better experience. They’ll also be more likely to engage with a particular hotel brand if it’s easy to do so. Thus, today’s channel proliferation and high mobile device adoption rates make it easier than ever to attract, engage and retain guests. Potential guests can be engaged via a number of channels:

smartphones, tablets, SMS, push notifications, digital signage, social media, phone calls, email, radio, TV and print advertisements and even old-fashioned letters and post cards. So, when hotels consider omnichannel loyalty they must include traditional channels. That’s because guests, while increasingly tech-savvy, still crave personal one-on-one connections.

2. Offer Genuine Experiences that Trump RewardsFostering genuine, personalized experiences is critical. Too many travelers already feel that their hotel loyalty program is indistinguishable from competitors’. That’s an important reason why the Deloitte study found such high levels of consumer disengagement in the first place. Hotels must get creative, offering rewards like discounted or free day trip excursions, concert tickets, access to wine tastings, city nightlife, restaurants and retail opportunities.

“Increasingly, both business and leisure travelers seek genuine engagement and offerings beyond the points-for-rewards model.”

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Westin hotels, for example, has begun offering guests 3 p.m. Monday checkouts as part of its “Make Mondays Better” program – a simple but effective way to promote product differentiation. Status, too, plays an important role. Imagine if frequent guests had a vote on hotel program decisions, the way publicly-traded companies’ shareholders do. Such efforts would make frequent guests feel empowered because their voices would literally matter.

3. Consider Multi-Tender Options to Improve FlexibilityMulti-tender loyalty is often neglected and rarely considered. If your hotel loyalty program is operating in an omnichannel fashion, toggling between intrinsic and extrinsic rewards, why shouldn’t it also give guests’ program interactions maximum flexibility? Multi-tender loyalty means expanding points accumulation beyond a branded or co-branded credit card. For instance, hotels could consider upgrading all on-property transactions to a points-accrual model. Beyond paying for rooms, guests spend money in multiple locations and often make smaller transactions with cash. That includes tips for bellmen and valet parking, drinks at the bar and basic travel necessities, like toiletries and sunscreen, that guests sometimes forget to bring.

4. Merge CRM and Loyalty Management Software for More Granular Guest InsightsConvergence of CRM and loyalty program databases is a topic I’ve discussed at length before. Until recently customer relationship management software was excellent for collecting consumer metrics. In a hotel’s case that includes:

• Number of visits per year• Total number of stays• Average duration of stay• Reason for trip• Typical amount spent on-

property at restaurants,

business centers, conference rooms, etc.

But loyalty programs and the information they collect are often more effective at discerning guest psychographic data: how do they wish to be engaged, which channels do they prefer, what specifically makes them loyal and what experiences will help them become ambassadors who promote a hotel brand long after their stay? The more data collected from various sources, the more accurate the picture of individual guests’ preferences.

Guest profiles can be thought of as broader personal interest snapshots, similar to Facebook homepages showing individuals’ likes and dislikes. Learning how to use a customer’s profile to deduce likely preferences is really where the digital and mobile future of hotel guest engagement lies.

5. Combine Existing Loyalty Programs with Others in Related VerticalsAggregation is my final recommendation because it may be challenging to implement. The hospitality industry is known for its aggressive brand pride. And the idea of sharing customers between loyalty programs might cause C-level backlash. After all, the goal of a hotel’s loyalty program is not to fill a competitor’s pockets. But just as guests use their smart mobile devices for a host of functions, they want that same level of seamlessness and one-stop efficiency from their loyalty programs. That’s why MGM resorts and Hyatt Hotels are embracing the risks associated with loyalty aggregation. Their new partnership (announced in June) links the Mlife Tier Credits and Hyatt Gold Passport programs, allowing members to earn and burn points toward stays at both chains. MGM Resorts is also partnering with Southwest

Airlines, the world’s largest low-cost carrier, to link Mlife with the carrier’s Rapid Rewards program. Loyalty aggregation may be challenging but its time has undoubtedly arrived.

Moving to a Sunnier Loyalty OutlookOne final suggestion hospitality brands should consider:

• Evaluate each of the above five loyalty upgrades through what I call the “5 Es,” which are: Enterprise, Economics, Enablement, Execution and Engagement. Enterprise speaks to the business at hand (hotels in this case) and making loyalty an enterprise-level initiative, economics concerns the cost of generating such loyalty, enablement relates to the mechanics and technology running the program, execution refers to its real-time deployment and operational effectiveness and engagement relates to the brand relationship customers seek.

Of course, adopting the above checklist and reviewing it through the “5 Es” filter doesn’t guarantee a rosier hospitality forecast. As I wrote earlier, economic trends continue to put a damper on hospitality industry health and, indirectly, to affect customer engagement as hotel managers remain cautious.

But with Deloitte’s study still fresh in hoteliers’ minds, it’s imperative hotels breathe new life into old loyalty programs. Making genuine engagement and experiences a priority can help hotel brands ensure their guests go home with positive memories that linger for life.

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WHY PERSONALIZED EXPERIENCES ARE KEY TO AIRLINE LOYALTYBy Bram Hechtkopf

It’s no secret that for airlines, the most valued fliers are those who accumulate the most miles flown per year, spend the most on tickets and make generous use of

their ancillary services – on or off the plane. Call them an airline’s cash cows: losing their loyalty could negatively impact profits at a time when other industry variables like fluctuating fuel costs, low cost carrier competition and mergers threaten to create additional turbulence.

 Con$nued  on  page  19

WHAT’S UP WITH AIRLINE LOYALTY?By Bram Hechtkopf

For the most part, the airline industry gets a bad rap. Reporters and travelers alike long for the days of attentive and personalized service and lament the loss of perks previously included in the fare.

Increasingly, airlines are coming under fire for the significant changes being made to their loyalty programs. Though some changes such as earning miles on partner airlines, converting hotel stays into airline miles and access to more lounges are good, others, like higher award ticket fees, minimum annual spending requirements and disappearing bonuses have caused members genuine distress. Other changes are a little of both: last summer Virgin America added “gold” and “silver” tiers to its Elevate frequent flier program.

Of course new tiers mean new status, but as my colleague David Andreadakis has pointed out, such changes can make existing members feel less important. And changes like these, as evidenced

in the dissatisfaction with reward redemptions by frequent flyers have led to an even more fractured airline loyalty landscape.

According to a recent Frequent Business Traveler and FlyerTalk survey, Delta’s SkyMiles and Air Canada’s Aeroplan ranked at the bottom of the satisfaction list. Both loyalty programs face dissatisfaction rates as high as 67% and 68%, respectively. Meanwhile the latest Deloitte study finds airline brand loyalty “dangerously low” with fewer than half of all travelers, 44%, flying at least three quarters of their

earned air miles on a preferred airline.

Delta’s challenges, as I see it, aren’t surprising. Ever since its 2008 merger with Northwest Airlines, the airline has struggled with loyalty program currency devaluation – which is bound to drive customer satisfaction levels down. There are simply too many miles chasing too few seats, a challenge affecting many airlines and their loyalty program members.

“There are simply too many miles chasing too few seats, a challenge affecting many airlines and their loyalty program members.”

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Contrast Delta with American Airlines, though, and a different picture emerges. Loyalty program rewards and traveler perks (like seat upgrades) aren’t as easy to obtain and their perceived value therefore increases.

An Airline Fix: Omnichannel Loyalty

Encouragingly, a ‘loyalty fix’ is within reach, coming down to airlines’ better using and understanding omnichannel loyalty. For airlines, mobile is an increasingly important communications medium due to its ability to link easily with other channels and do so anywhere.

In other words, communication channels are converging and mobile is that conduit.

While airlines still need to do a better job integrating mobile as part of their passengers’ loyalty experience, encouraging changes are beginning to unfold: airlines are moving beyond mobile flight booking and status update capabilities and adding more “mobile 2.0” features.

This is especially true inside the cabin. More airlines are equipping flight attendants with tablets that can access passenger profiles. These actions are helping flight attendants create more accurate pictures of what passengers might want to purchase even before they board the plane. They’re also enabling loyalty program managers to understand the types of incentives or program perks that best speak to their passengers’ personalized needs. Something as simple as an airline communicating seat upgrade lists to passengers via a native app or by SMS is a major improvement.

It also helps if airlines and their affiliated loyalty programs get downright creative. Back in April, American Airlines tweaked its Elite Rewards program, giving members incentives and special rewards as they progressed between tiers – a move that inspired loyalty as it became easier to utilize points. Even more creative incentives have stemmed from BalticMiles. BalticMiles, a multi-partner loyalty program in Northern and Eastern Europe and Russia, owned by Latvia-based Air Baltic Corporation in partnership with

Endomondo, recently launched a new program called “Keep Fit with BalticMiles,” which rewards members with points based on their physical activity. During the month of August 2013, members received virtual lottery tickets for every 1,000 calories they burned where, at the conclusion of the competition, 10 winners would be awarded 10,000 BalticMiles points, good enough for several free flights with airBaltic.

Fuelling For Takeoff

Convergence, however, isn’t just channel-focused or about coalition, multi-partner loyalty programs. It’s a larger phenomenon unfolding across all walks of life. That’s why, in addition to omnichannel loyalty and improved mobile capabilities, coalition or multi-partner programs like Delta and Starwood’s Crossover Rewards program (where a member’s hotel and airline points are shared) are where the future of loyalty lies for many travel, airline and hotel brands alike.

My advice to airlines and their loyalty programs is simple: remember that consumers are smart and when they see a smart message they’ll likely want to engage it. So whether we’re talking about coalition programs, seat upgrades or the emerging trend of personalized pricing, relevant offerings combined with a seamless customer rewards program will remain a vital component to keeping passengers happy and brand-engaged.

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That’s why the notion of “personalization” has become so important. Only by giving passengers timely and relevant incentives that speak to their needs delivered on the channels they prefer, will the loyalty experience be satisfying enough to drive long-term engagement.

And one of the best ways airlines drive loyalty is by wedding elements of personalization into ultra-exclusive tier structures. These are tiers barely publicized on airline’s website and whose membership requirements are purposely kept undisclosed in an effort to build mystery, excitement and a feeling of “I want in”.

Case in point: United Airlines and its ultra-elite Global Services program, an invitation-only service available to travelers who fly hundreds of thousands of miles per year. What does personalization look like at this level? A recent Wall Street Journal article offers a compelling glimpse:

• Travel between connecting flights in luxury cars; bags already stowed

• More than 400 airline employees across 60 airports tracking Global Service member flights watching for delays in order to anticipate arrival snags

• No terminal or security lines and ticket agent first-name greetings with already-printed boarding passes

• Personal assistants, in-airport letter mailing and suit pressing

Beyond United’s latest loyalty initiative, many offers to elite tiers focus on experiences. These can include tickets to sporting events and concerts, wine tastings and gourmet events, arts and cultural festivals – there’s really no limit to

the breadth of experiences out there. But excessive tiering can have drawbacks, too. Many perks are too exclusive and others may feel left out.

That’s why the airline loyalty experience works best if customer rewards program exclusivity is paired with creativity.

Encouragingly, such creativity was displayed in abundance at the recent Future Travel Experience convention in Las Vegas. Allegiant Air, for instance, is experimenting with expanding its in-flight inventory to include cowboy hats on trips to Texas. Qantas, meanwhile, is working hard to learn everything about its passengers’ right down to the names of pets.

Other airlines are going ever further:

• Brazil’s TAM Airlines’ “Commandant Kid” program where children help flight attendants wheel carts down aisles to help keep them occupied.

• Flight attendants on Air New Zealand read bedtime stories, while Emirates has recently launched a squadron of “flying nannies.”

• Japan Air Lines is offering a curtained off “women’s only” area for flights from Tokyo to Honolulu to allow women to breastfeed children or apply makeup, reducing long lavatory lines.

• Canada’s WestJet created Tray Vu – tray tables specifically designed for tablets.

In each of these examples, you can see creativity and exclusivity working well. But when it comes to personalization and relevant rewards practicality speaks volumes, too.

Which brings me to my final point…

Considering how web-enabled and reliant on connectivity passengers and elite travelers have become, it makes sense to broaden creative and exclusive content offerings via reliable, low-cost high speed WiFi. Thus, it will be interesting to see how Virgin America’s partnership with GoGo, an inflight connectivity provider works out.

GoGo is promising to deliver the first high speed in-cabin Internet access at 60Mbps called GTO, to help airlines personalize new offers, whether their passengers are elite fliers or just your average Jane or Joe.

Whether it’s through in-flight WiFi or something entirely different – it’s clear personalized offers are key to continued airline loyalty.

“Only by giving passengers timely and relevant incentives that speak to their needs delivered on the channels they prefer, will the loyalty experience be satisfying enough to drive long-term engagement.”

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Then why task your internal loyalty team with solving your loyalty program and technology needs? Kobie is the secret- delivering end-to-end loyalty solutions to help your team soar. kobie.com

HOW HOTELS CAN IMPROVE GUEST LOYALTY THROUGH SOLOMO MARKETING AND A LOCALS-FIRST FOCUSBy Bram Hechtkopf

To loyalty marketers who thought they knew what SoLoMo stood for: think again. Spelled out as Social, Local, Mobile, too often the ‘Lo’ in SoLoMo is thought of as a strictly location-based initiative. But thinking in those narrow terms fails to consider a vital subset of hotel guests: locals.

Think about it. How often do locals say, "Oh, I wish I could be a tourist in my own city?" Instead of being incentivized to walk through hotel doors via an engaging experience or rich loyalty program, locals fail to consider options that are nearby or right in front of them. Only on special occasions like birthdays, anniversaries or nights out at the theater do some locals buck this trend. Otherwise, a largely untapped market is being unfairly ignored.

A recent infographic released by The Location Based Marketing Association and Venuelabs speaks to this point. In a review of 265 cities, it was found that hotel brands are

missing as much as 85% of local customer feedback. It also found that locals are 12 times more likely to give a brand positive feedback compared to non-locals. Meanwhile, another study by hotel software company Monscierge found that 73% of hotel guests want local recommendations.

So “local” and location-based marketing isn't simply about performing a search for "hotels in Nashville" or researching “Vietnamese restaurants near New York’s Plaza Hotel.”

It's also about people living in proximity to a hotel. And, for hotel loyalty marketers, tapping that lucrative ‘Lo’ segment.

But as hotels are working harder to engage guests and create new experiences (which include 4-star onsite dining, book readings, poetry nights, free in-lobby Wi-Fi, wine tastings and the “Starbuckification” of the lobby itself) they should also consider the truly local aspects of the marketing term SoLoMo. Perhaps we should also be asking how hotels can more effectively wed that local engagement to social and mobile marketing.

Engaging Locals Through the Five ‘Es’Nearly four years since the Great Recession began, one in four travelers still plans vacations close to home to save money. Especially in an uncertain economy where the “staycation” is alive and well, locals can be a hotel’s most valuable asset.

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Localizing Loyalty OutreachFor a variety of reasons, locals are a great test market to measure the success of a hotel’s loyalty program:

• The hotel in question can easily turn mobile outreach for promotions and on-property events into physical action because locals can conveniently reach nearby establishments. For instance, if a mobile app sends push notifications for discount drink specials the following Tuesday, residents can quickly make the trip.

• Likewise, engagement should be easier as hotel brands can better appeal to local pride, improving guest outlook. That means hotels can partner with restaurants, sports teams and retail and entertainment outlets for specific events, attracting local interest.

• There’s also an intrinsic sense that many locals want their area hotels to succeed. The Venuelabs study also found that consumers are 35% more likely to discuss a local brand positively – a fact hotels can use to great advantage. Such neighborhood staples attract out-of-towners, increase foot traffic and have a generally positive influence.

• Speaking of discussing brands positively, if guests are already feeling passionate or optimistic about a stay or visit, hotels can encourage them to share their positive experiences on social media, making the enablement and execution of a loyalty program easier

than it would be if non-residents were the primary focus.

• Locals often travel fewer than 50 miles to a hotel. This means that, as guests, they’re likely to spend on hotel amenities what they saved on flight and other travel expenses. Costs lower not only for locals but for hotels too, as all aspects of loyalty outreach are less expensive, operating (at least initially) on a localized scale.

Locals also serve another important benefit. While their proximity and pride are pluses that can’t be replicated, their smartphone usage patterns can. That means the metrics and analytics gained from engaging locals via mobile and social can be quickly adapted to guests at large.

In this way, local guests are like beneficial test subjects. SoLoMo’s linchpin, the smartphone (uniting social media and location-based marketing together in one device) has become one of the world’s most ubiquitous technologies. According to Expedia at the second annual Cornell Hospitality Research Summit, more Internet traffic is recorded over mobile devices than over desktops or laptops, two-thirds of Americans sleep with their smartphone within arm’s reach and mobile bookings (a vital measure of mobile outreach’s ROI) are expected to double from $16 million to $32 million by 2016.

Examples of Localized EngagementEncouragingly, some hotels are starting to better engage local patrons with positive results. The recently-opened Capella hotel, in Washington D.C.’s Georgetown neighborhood, began the local engagement process from the

ground up. Capella went out of its way to keep area residents informed on the design and aesthetic impact the new hotel would have on the neighborhood. The hotel offers locals access to exclusive Washington Ballet performances, classes and even behind-the-scenes tours. In another example, the still-under-development Hard Rock Hotel & Casino New England, in West Springfield, Massachusetts, is using social media to keep locals abreast of the latest progress and designs plan.

Upon completion, the property will include a 350-room hotel and a 100,000-square foot casino with 100 table games and 2,500 slot machines as well as a Hard Rock Café. Ensuring this large, complex project fits West Springfield’s overall aesthetic will be very important. Also, returning to our 50-mile threshold, West Springfield, although a small city of 28,000, may prove critical. Located at the crossroads of south-central New England (and an immediate bedroom community of Springfield proper), West Springfield is within short driving distance of: the southwestern Boston suburbs, greater Hartford, Albany, New York, southern Vermont and the extreme northeastern suburbs of New York City. If a project like this sours, the impact will be felt across a large region, affecting not only “hyper locals,” who live in West Springfield, but regional locals too.

That said, Hard Rock New England would further benefit by employing tactics used by the Omni Fort Worth Hotel, in Fort Worth, Texas. Rather than just inviting locals to comment on their experience or on the property in general, the Omni offers local residents reduced rates and Texas-themed events.

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It also has relationships with an area museum and a famous Texas luxury boot maker. Even the property’s on-site restaurant, Cast Iron, (one of four) was created with locals in mind and evokes frontier living while emphasizing native foods.

And Boston’s Liberty Hotel goes one step beyond Capella, Omni and Hard Rock New England by offering free events five days a week for downtown Boston residents. While none of these examples explicitly reference mobile, you can be certain they all have Facebook pages, Twitter feeds and that friends and family are texting and tweeting about their experiences. Given time, some of these brands might go the route of Marriott’s Renaissance Hotels, which launched the Navigator Program last year. In conjunction with Twitter and Instagram, the hotel built a database generated by locals listing the best places for eating, shopping and entertainment. After just six months the campaign saw the hotel’s number of Facebook ‘likes’ rise to 303,000 from 40,000 (a 658% increase) while Twitter followers grew to 28,000 from 5,000, a 460% increase.

Here, too, the current program has much potential for further growth. Rather than simply soliciting local reviews, future programs could easily add loyalty and gamification elements to such outreach.

What if locals could earn a free night’s stay provided their reviews were the highest-ranked for a given week?

Homegrown HospitalityConsidering that more than 90% of global smartphone users search for content on their mobile devices and that 61% research local content, it’s clear mobile engagement is a vital way for hoteliers to attract, engage and retain their guests. Yet infographics like the one produced by Venuelabs underscore how a critical component for hotel outreach – locals – is being overlooked. Even as the economy continues to improve and staycations lose their luster, engaging locals through loyalty program perks and unique offerings that only residents can enjoy is a great way to build brand commitment while serving as a launching pad for more expansive out-of-town loyalty outreach.

Now is the time to make sure the ‘Lo’ in your hotel’s SoLoMo efforts is fully maximized and switched into high gear.

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Michael  Hemsey,  PresidentAs  President  of  Kobie  Marke2ng,  Michael  is  responsible  for  leading  all  facets  of  the  loyalty  marke2ng  organiza2on  including  business  development,  IT  ini2a2ves,  client  services,  as  well  as  the  overall  direc2on  of  the  Kobie  brand.  For  20  years,  Michael  has  cul2vated  a  rich  background  in  client  services,  product  development,  marke2ng,  technology  and  opera2ons  through  several  key  posts.  Prior  to  Kobie  Marke2ng,  Michael  was  Execu2ve  Vice  President  of  TSYS  Loyalty  (formerly  ESC  Loyalty)  and  led  the  loyalty  marke2ng  implementa2on  and  rela2onship  management  teams  serving  the  world’s  largest  issuers  and  retailers.  

Bram  Hechtkopf,  Vice  President  of  Business  Development  &  Marke=ng    Bram  leads  the  “marke2ng  of  Kobie  Marke2ng.”  He  consults  with  current  and  prospec2ve  clients  on  new  business  opportuni2es,  helping  to  develop  customer  reten2on  and  loyalty  marke2ng  strategies  and  solu2ons  that  drive  increased  reten2on  and  spend.  Following  in  the  footsteps  of  his  father,  Kobie’s  founder,  Bram  is  eager  to  con2nue  Kobie’s  vision  of  technology  and  data  analy2cs  as  enablers  of  leading-­‐edge  marke2ng  execu2ons  for  world-­‐class  customer  loyalty  ini2a2ves.  Bram  has  consulted  with  a  wide  array  of  leading  brands  including  AMC  Entertainment,  TGI  Friday’s,  BJ’s  Restaurants,  Verizon,  Bank  of  America,  RBC,  Flagstar  Bank,  JPMC,  Sagicor,  Coca  Cola,  Cox  Enterprises,  Ruby  Tuesday,  Hawaiian  Airlines,  and  Royal  Caribbean  Cruise  Lines.

Dave  Andreadakis,  Vice  President  of  Loyalty  StrategyDave  is  focused  on  business  development  with  a  bent  towards  helping  clients  and  prospects  think  through  the  strategic  and  financial  aspects  of  loyalty  and  the  benefits  that  we  can  bring  from  a  strategic,  design,  analy2cal,  behavioral  and  plaYorm  basis.  Prior  to  Kobie,  Dave  led  Business  Development  for  AIMIA  and  played  a  key  role  on  the  Loyalty  Strategy  team.  His  primary  focus  was  to  understand  markets,  ensure  the  op2mal  selec2on  of  strategies  and  tac2cs  that  will  meet  the  needs  of  clients,  and  then  design  programs  that  drive  maximum  value.  

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