Youngsters have traditionally enjoyed special attention on airlines: “pre-boarding for passengers with children,” and all that. As those children become young adults, it’s wise to continue the pre-boarding process, and the special treatment.

A study by my colleagues at COLLOQUY strongly suggests that as young adults 18-25 develop both buying power and purchase habits, the airline industry has not only an opportunity to demonstrate frequent-flyer program value to the next generation of U.S. consumers, but also a deep need to do so.

In many ways, the Millennial customer segment views travel loyalty rewards programs more favorably than the other studied demographic segments. For example, 35% noted that Travel rewards have become more important to them in the recession economy, a figure significantly higher than that reported by the general population at 21.5%.

Here are some other heartening figures reported in the study that led to COLLOQUY’s white paper, After the Meltdown: Consumer Attitudes and Perceptions in the Post-Recession Economy:

• Young adults appreciate their travel-related programs: 58% would be disappointed if the program they participated in were discontinued—up from 48% in 2007. That compares to 48% of the general population, a significant decline from 61% in 2007.
  
  
• Program satisfaction rates among Millennials are strong: 64% report overall satisfaction with rewards in the travel category (up significantly from 47% in 2007), and 54% report satisfaction with overall travel-program value proposition (again up significantly, from 35%).
  
• While active participation in travel industry loyalty programs has declined 31.2% among the general population since 2007, from 2.2 programs on average to 1.5 programs, Millennial active participation has been stable, increasing slightly from 1.3 to 1.4 programs on average.

That’s all pretty good news until you stumble across this jarring insight in the study: A surprising 42% indicated that they were likely to switch programs. Contrast that with the figures reported by the affluent (14%), the general population (16%), and seniors (a locked-in 2%). Millennials’ increased satisfaction levels apparently aren’t stopping them from shopping around.

So, now that we’ve pre-boarded the next generation of frequent-flyer program members, here are some thoughts on how you can prevent them from disembarking:

1. Demonstrate basic value. This is particularly important when as-yet-underdeveloped purchase power converges with downbeat economic times. Millennials are seeking basic value when making redemptions in travel-related programs. The COLLOQUY study showed that in 2009, young adults reported redemptions for free or discounted services and items—including car rentals, hotel rooms, and merchandise—at rates higher than in 2007 (for example, increasing 47% in room redemptions). They reported lower redemption rates for such frills as flight upgrades, hotel upgrades and airport lounge memberships (for example, a drop of 57% in the case of room upgrades). In those areas, redemption patterns of the general population remained relatively stable.

2. Engage young adults on their turf. To no one’s surprise, young adults led all surveyed segments in engagement via new media: more than half reported that they like loyalty program communications via cell phone/text messaging and social-networking sites, versus about 40% of the general population. And just under one-third of young adults said they are active in responding to offers via mobile, and are active in swapping loyalty-program information on social-networking sites, versus 18% of the general population. But don’t assume that new ways are the only ways to reach this audience—46% of young adults reported being engaged in reading special program offers via direct mail, an increase of 12% over 2007.

3. Speak to young adults directly. Only 36% of Millennials find relevance in loyalty program communications in general—a figure not much above the 32% reported by the general population. These figures, contrasted with the relatively high percentage of those obviously seeking value by reading special program offers as I mentioned in my point about communications channels, point to further opportunity for developing the new generation of frequent flyers. Looking to the other end of the age spectrum in the study, we see that seniors seem to have become numbed to program communications—only 25% of them find such communications relevant. Now is the time to connect directly and meaningfully with young adults through such means as channel and redemption relevance as they develop purchase power and job status leading to greater need for air travel. Do so, and you’ll keep this promising segment on board.

John Bartold is Vice President, Loyalty, at Epsilon, and a member of the COLLOQUY faculty. He can be reached at JBartold@epsilon.

Source: 2009 COLLOQUY Loyalty Demographic Study. Total sample size = 2,150 U.S. consumers. All reported percentages refer to Top 3 Box responses on a scale of 1-10. Download COLLOQUY’s white paper After the Meltdown: Consumer Attitudes and Perceptions in the Post-Recession Economy from www.colloquy.com/whitepapers for a full overview of the study.

On the serious side, significant concern about WOM marketing revolves around the nagging inability to track its success in the kinds of metrics so integral to the airline business. Even so, the potential of such marketing is unquestioned. Harnessing and building good word-of-mouth—as well as monitoring and creating positive reaction to poor WOM—builds brand awareness, facilitates customer acquisition, and fuels increased transaction activity among the existing base.

One key to such success is cultivating customer-level broadcast activity not only by brand advocates but also, and more importantly, by those we at COLLOQUY call Champion Customers. Champions are those who are not only willing to recommend your services but also have the connections to do so.

Because of the marketing innovation founded within the airline industry—the frequent-flyer program, of course—finding and inspiring Champion Customers is a bit easier than you might think. COLLOQUY’s recent New Champion Customers consumer survey demonstrated that the preponderance of Champion Customers are already engaging with brands as members of their loyalty programs. In the survey, 55% of members of a brand’s loyalty program displayed the attributes of Champion Customers for that brand, versus 32% of non-members.

With this finding in mind, here are thoughts about leveraging the assets that your frequent-flyer program provides.

1. Identify potential Champion Customers through program activity. When program members engage, they’re self-identifying themselves as possible Champions who warrant additional communication and WOM-friendly incentives. Of program members, 67% of actives display Champion Customer characteristics versus 14% of non-actives; 70% of heavy participators (those who have called program customer service, completed a survey, accessed the program web site, or redeemed eight or more times) are Champions, versus 43% of others; 57% of members who have redeemed are Champions, versus 18% of non-redeemers.

2. Leverage the talking power of the dream. Word-of-mouth is often generated by a wow factor—surprising service, superior products, unexpected wish fulfillment—the latter remaining an important power in brand-customer relationships. Few industries are poised to deliver dreams as efficiently as the travel industry, providing the portal to vacations, exotic experiences or simple getaways. Resource-strapped consumers have not lost their dreams. They may scale them back to exercise increased overall frugality—for instance, a weekend jaunt to an Atlantic coastal spot instead of a week’s resort stay in the Bahamas. And they may recast the nature of their dreams to weave in elements of pragmatism—for example, flying the family to Iowa to see the grandparents instead of, yes, that Bahamas resort stay. Scaled-back dreams are dreams nonetheless.

The evidence of wow-factor power lies both within and outside the industry. For instance, our WOM study shows that the percentage of Customer Champions among travel redeemers at 68% is higher than those among gift card redeemers (62%) and cash rebates (60%).

3. Understand that WOM Champions want to pass word along to you. Our study asked what motivated Customer Champions to engage in WOM. To no one’s surprise, “To share my opinion with others” and “To help others with relevant information” ranked high—but those two responses were only fifth and sixth on the list. The top motivations were “To tell manufacturers what I think” and “To get smart about products/services,” which suggests that WOM Champion Customers seek a deeper relationship with their favorite brands and are searching for ways to provide feedback. Four of the top five responses similarly reflect the importance of confirming self-worth—e.g., Champions feel important when they tell a company what it could do better, when they share information with peers, when they are “in the know,” and when they share their opinions. Of course, most Champions (63%) admit that they engage in WOM activities to earn freebies.

Though you want to encourage the feedback of all the Champions among your customers, your frequent-flyer program provides the means to locate and solicit such engagement. Simply asking for input in itself can serve as a word-of-mouth trigger.

Our study also revealed levels of Champion frequent-flyer program member activity, pointing out positive points—with some room for further leverage:

• Airline frequent-flyer Champions claim to talk about the program to others about 2.5 times a month, versus

  4.3 times for hotel members and 2.3 times for credit card members.

• 43% of frequent-flyer Champions are extremely likely to continue talking about the program to others,

  versus 47.3% overall.

• 30.6% of frequent-flyer Champions say they’ve recruited a non-member to join the program, versus

  38.1% overall.

The marriage of innovations—the airlines’ introduction of frequency/loyalty marketing and the more recent rise of marketing through customer networks—gives airlines a platform to not only harness and profit from the potential of word-of-mouth marketing, but also to quantify its impact, and build even further the legacy of the frequent-flyer program.

Bill Brohaugh is Managing Editor of COLLOQUY magazine. He can be reached at Bill.Brohaugh@colloquy.com

This solution implemented by Comarch is dedicated to frequent S7 passengers and will enable them to accrue miles and than redeem them for special flights and awards. This Program will offer numerous possibilities, such as automatic miles accrual for flights prior to enrollment, online retro-claims, recognition through elite levels and a wide range of interesting promotions based on various parameters including region, segment, distance, elite tiers and audience. The awards for airline and non-airline types will consist of tickets, upgrades to business class, business lounge access, hotel amenities, tours, product vouchers and other services.

Comarch Loyalty Management is an affordable, state-of-the-art and flexible solution designed to support not only the management of Frequent Flyer Programs but also the loyalty programs within various sectors. The CLM product is present in various segments such as: telecommunications, banking& finance, retail & FMCG and healthcare. Comarch has been developing this system for loyalty programs for the last seven years. Throughout this period of time, we managed to develop CLM according to the market needs and prove that our solution is capable of serving even the most demanding customers.

The Comarch FFP solution is a crucial part of S7 Airlines development strategy, enabling dynamic development of passenger databases, personalized communication with travelers, passenger loyalty growth and marketing activity efficiency magnification.

For more information visit Comarch online at:

http://www.comarch.com/en/press/news/trade/loyaltymanagement

Clearly, strategic changes and sound management are paramount right now. But, what specific actions can you take to ensure that this period marks a positive turning point for your loyalty program?

In every way that matters, the select segment of customers that have chosen to engage in your loyalty program can help take the sting out of this economic crunch. The good news is that there is no industry that understands that better than the beleaguered travel sector. In fact, the lessons that airlines and hotels learned during the perfect storm of 2001 – 2003 should serve as a reminder for us now.

Here are three lessons that reinforce why your loyalty program members may be your best asset to create a competitive advantage when financial equilibrium returns:

1. Trading down doesn’t have to mean goodbye. With companies cutting back on discretionary spending and slashing travel budgets, you may not see as much of your elite road warriors as in recent years.

That shouldn’t mean you automatically turn away from treating them as VIPs. Through analyzing the past profitability of your best customers, are there some customers that should receive extended elite status for the next 12 to 18 months?

Continental Airlines did just that during a particularly rocky period for their airline. From 1983 to 1990, Continental OnePass customers rode the ups and downs of a turbulent management period lead by Frank Lorenzo. An extended union strike and a Chapter 11 filing were just part of the rough patch that loyal customers had to endure. By 1990, when Lorenzo resigned as CEO, Continental extended lifetime status to the OnePass Gold and Platinum customers that stuck by them. Today, those “lifers” still sing the praises of that good will gesture.

COLLOQUY’s own research also suggests that approach – when done selectively for your most profitable customers – may pay long-term returns. Our SegmentTalk white paper revealed that 64% of travel program members said they were extremely likely to keep using their airline/hotel as a result of their loyalty program. Among Affluent households that are likely to be road warriors, nearly 70% said they were extremely likely to keep using their travel provider.

2. Help your most educated customers make hard adjustments. The uncertainty of the coming 12 to 18 months may bring additional travel service adjustments. How will you communicate with your elite customers to make future transitions a success?

Past experience shows that bonuses and straight-forward communications about the changes will speed the adoption of new behaviors. Your elite customers will set the example and help less savvy customers learn through word of mouth. In fact, COLLOQUY’s most recent word of mouth white paper reveals that 41% of your members already have conversations about benefits and the way to maximize their program experience. Further, over 60% of your members intend to continue networking with friends and colleagues about program benefits and rewards.

Southwest Airlines adopted this approach shortly after the attacks of Sept. 11, 2001. According to Debra Benton, then director of loyalty marketing for Southwest Airlines, the importance of leveraging her loyalty program during those difficult times was paramount. "After 9/11, Rapid Rewards members were a high percentage of our flying customers. The [loyalty program] database was instrumental in helping us get the word out about security changes at the airports. Members are also the quickest to adopt new technology, to use low-cost channels like our web site, and to patronize our partners."

3. Invest for the upturn. After decades of diligently evolving and improving airline and hotel programs, the last reminder is a simple one. The industry has weathered many challenges in the past. And, your determination to continue to improve the rewards and recognition elements of your strategy will pay off once again at this turning point.

At COLLOQUY’s 2008 Loyalty Marketing Summit, it became clear that tomorrow’s travel leaders intend to do just that. In fact, Delta Vice President of Loyalty Programs Jeff Robertson recently commented on how the Delta SkyMiles program is dealing with the tough economic circumstances. “During such times, the last thing you should do is cut the loyalty program. If you have the best program in your industry, you can be pretty tough to beat. And, in our industry, our goal is to be the best,” Robertson said.

The current economic crisis calls for sound, strategic leadership in the loyalty industry. A calm hand at strategically leveraging your loyalty program will obviously benefit your own company and the health of your program. But, the lessons that the travel industry learned during the perfect storm of 2001 – 2003 can also set the tone & agenda for loyalty programs in all industries.

So, once again, the travel sector is poise to lead by example: Remember, your company’s investment in your loyalty program is a great competitive advantage – even in downtimes.

Kelly Hlavinka is a Partner for COLLOQUY. She can be reached at Kelly.hlavinka@colloquy.com

i Extremely likely includes the Top 3 Box respondents: on a scale of 1 to 10, how likely are you to keep traveling with this [travel provider] as a result of the rewards program you belong to?

Survey Reveals Airlines’ Penchant for Value Added Products and Services
Hip Digital Media Powers the Latest Airline Information Insider Survey

Vancouver, Canada – January 21st, 2009 - Hip Digital Media and Airline Information today released the results of the 2008 Ancillary Revenue survey. The survey focused on identifying current trends and the most effective methods for generating airline ancillary revenues. This unique survey was launched in conjunction with the 2008 Ancillary Revenue Airline Conference, which took place in Budapest Hungary in November of 2008.

Hip Digital and Airline Information distributed a custom branded promotional e-mails to over 12,000 travel industry professionals, including airlines, consultants and industry suppliers, inviting them to partake in the survey. In addition, Hip Digital also designed a custom branded website for the Airline Information survey allowing visitors to participate in the incentive program. As an enticement, each contributor received a sophisticated pin-code to redeem a music download in full MP3 format, instantly after completing the survey.

"The Airline Information survey displayed strategic initiatives that airlines are starting to take in order to attract and retain larger market share via new ancillary revenue initiatives.” said Peter Diemer, Executive VP of Strategy and Development at Hip Digital Media. “By developing unique offerings such as music premiums and incentives, the airline industry can now personalize the total consumer experience”.

Key findings of the Ancillary Revenue survey revealed:

87% of survey participants feel that selling other products and services primarily through online channels, is a trend that will sustain its positioning among airlines 56% of participants feel the best way for airlines to effectively battle rising costs of travel is to charge fees for amenities that were once included in the price of a ticket 76% felt ticket unbundling or a-la-carte pricing is a trend that will sustain among airline carriers.

When asked what is the most financially lucrative product that airlines can sell/market besides airfare, respondents answered as follows:

- 38 % chose Travel Insurance as the most financially lucrative
- 23% chose Hotel Stays as the second choice
- 17% chose Vacation Packages as the third choice
- 12% chose Tourist Activities as the fourth choice
- 6% chose Car Rental as the least financially lucrative choice

When asked to rate specific methods in which airlines sell ancillary products and services online, In-path sales conducted during the ticket booking process was rated as 45% effective; ancillary sales immediately after check out by showcasing products on confirmation pages and emails was rated as 53% effective, and sales channels exploited days after booking embedded in schedule reminder or other types of post-booking emails was rated as the highest conversion in the opinion of all surveyed at 61% effectiveness.

"We can finally put to rest the popular sentiment that airline ancillary revenue is all about fees. There is an overwhelming desire among hundreds of airlines surveyed to offer customers a diverse and relevant shopping experience that goes well beyond selling air transport alone." Says Roger Williams, Co-founder and Managing Partner, of Airline Information.