Over at Skift, writer Dennis Schaal explores some of the reasons why a travel brand might choose not to operate a loyalty programme. The case study: online tavel agency Booking.com, which is bucking the trend of rivals such as Orbitz and Expedia by purposefully eshewing launching a programme. The rationale: providing a great customer experience, particularly through mobile, will build all the loyalty Booking.com needs. The question begs, however: can a great customer experience alone build profitable customer relationships?
Schaal reports comments made by Priceline Group CFO Daniel Finnegan at a recent Bank of America Merrill Lynch retail tech conference, in which Finnegan described Priceline's Booking.com unit has having no plans to join its rivals or its partner hotel brands in offering a loyalty programme. Instead, the unit will focus on "delivering a great user experience." Money quote from the article:
"Finnegan said it can be costly to compensate customers through loyalty programmes when perhaps they were going to become repeat customers and be loyal anyway. You have to pay these customers even when they were going to book direct anyway, he said...If Booking.com provides a great user experience...then it would be questionable how many incremental visits a loyalty programme would generate, Finnegan said."
Finnegan also seems to be placing emphasis on enticing customers to use Booking.com's mobile apps to build loyalty. That's a potentially tall order, given the difficulty most brands experience in encouraging downloading, activation, and repeat usage of their mobile apps. There's a reason why the most successful mobile apps - think Starbucks - have loyalty rewards built in.
While loyalty programmes may saturate the travel industry, there's certainly no reason why a travel brand couldn't be successful without one. What's important is not to have a loyalty programme, but rather a loyalty strategy. How will you differentiate service and value for your best customers? How will you recognise and reward high current-value customers for staying with you, and high-potential customers for giving you a chance? Points and miles are useful only in their ability to enable profitable behavior change. The reason why travel brands operate loyalty programmes is that the loyalty model has proven to be the most effective, efficient, and profitable way of building strong, durable customer relationships.
If you can build those relationships without running a points programme, then a points programme indeed becomes superfluous. Points programmes don't build loyalty, after all; customer loyalty is based on the fundamental drivers of Quality, Service, Experience, and Value. If you can deliver on one or more of those drivers significantly better than your competitors, then you'll find yourself with more loyal customers. In this case, Finnegan seems to be placing his bet that Booking.com can deliver better than its rivals on the customer experience.
That's a tall order, however. What if Expedia delivers an equally wonderful experience? What if the hotel brands' proprietary apps are as equally wonderful to use as Booking.com's app? When an industry reaches parity, with all competitors offering roughly the same experience at the same prices, then how do you differentiate?
At the point of parity, you differentiate by knowing your customers better than the competition. That's where Expedia's investment in loyalty will pay dividends that position it well against Booking.com: the insight Expedia will gain from the programme - how its customers participate, earn, and redeem - will allow it to deliver more targeted, relevant, and valuable offers and messages to its customers. The insight may even allow them to deliver more relevant switching offers to Booking.com's customers.
That's the loyalty difference. With the proper customer strategy, you can deliver reward and recognition to build relationships, and then leverage the insight gained from that activity to create long-term customer value. That strategy may or may not involve a points programme. Absent a loyalty strategy, however, you're placing an awful lot of faith that your mobile app will be so wonderful that it alone will build profitable customer relationships.
-Rick Ferguson
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