Actionable Insights From APT's Retail Practice

Wooing the High-Value Customer: Elite Loyalty Programs and Premium Upgrades

March 1st, 2017 | Posted by APT in Hospitality & Travel

Would you pay three hundred thousand dollars for a ski-themed travel package?

Air Canada is hoping to attract customers who will. The airline’s extravagant ski package includes ice skating on the world’s largest outdoor rink, skiing in the mountains, and a dog sled excursion. As part of this deluxe offering, Air Canada is even converting a private jet into a “flying ski chalet.”

While this may be a particularly posh example, it addresses a question many airlines and hotel brands alike are asking themselves: How can we attract and retain high-value customers? Luxurious, one-of-a-kind offerings like Air Canada’s ski package are one strategy in the competition to engage with this group. Many airlines and hotels are also introducing programs like premium services and elite loyalty tiers to capture more high-value customers’ business. In the war to attract the most valuable customers, it’s key for companies to understand whether new offerings actually lead to increased customer spend and new business, or simply generate profits from existing customers who were already loyal to the brand.

Some of these programs can also be costly to implement, making it all the more crucial to quantify ROI. However, such initiatives are often not introduced as deliberately designed tests. In these scenarios, decision-makers can analyze “natural experiments” by comparing the booking behavior of customers who received an offer or opted into a program to the purchases of similar customers that did not. Such backward-looking analysis can provide precise insights on program performance, which organizations can then leverage to refine future programs.

Revamping loyalty programs is one approach hotels are taking to better cater to big spenders. For example, Hyatt is discontinuing its Gold Passport program and replacing it with a new loyalty program, World of Hyatt, which was specifically designed with the goal of creating a loyal community of high-end travelers. Four Seasons also recently launched an exclusive guest program, which is invitation-only and aimed at attracting an elite set of luxury travelers. This program is not a points or rewards program, but aims to increase direct engagement between the Four Seasons and their highest-value guests.

But how can chains optimize rollout of these programs? There are many levers to pull within such initiatives and it is difficult to determine which offers and benefits drive enough incremental spend and engagement to outweigh their often high costs. Consider the example of a hotel chain running a promotion offering higher loyalty status for a reduced number of required stays during a promotional period. In the short term, initiatives like these may drive a revenue increase among the customers eager to rise in the loyalty program ranks; however, in the long-term, diluting the standard path to rewards may lead to financial losses. In order to determine whether the investment required for an initiative like an accelerated loyalty offer is justified, hotels can try offering it to some customers before broader rollout, providing an opportunity to measure how those customers respond relative to highly similar customers who were not given that offer.

Other travel companies are also striving to win over and retain high-value customers. Among airlines, some perks include Delta’s complimentary upgrades on award tickets for Silver members, and Southwest’s free same-day standby flights to “A-List” and “A-List Preferred” members. Others have even introduced entirely new classes, like Celebrity Cruises’ Edge Class, an ultra-luxe class of ships for high-end travelers. Similarly, United Airlines introduced its Polaris business class, which includes upgrades to in-flight business class cabins and business lounges at several airports.

Given the capital investment required for such changes, airlines will typically introduce them over time. Measuring the impact of such initiatives with the customers first impacted as it is deployed across the network can inform which types of flights have the best response, and enable companies to prioritize future investments to those specific flights. This approach to targeting investments helps organizations maximize their profit impact.

As leading travel and hospitality companies continue to innovate aggressively, they must thoroughly vet each new idea to truly understand the impact it will have on overall financial performance over time. By strategically introducing new initiatives, executives can focus on the programs with the highest returns, improve the ones that have marginal returns, and quickly discard the programs that will not succeed.

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