The Debate ...OR DOES IT? LOYALTY PAYS
Is there still merit in suppliers marketing loyalty schemes to travellers in a marketplace that is now overwhelmingly price-driven? We spoke to a buyer, a supplier and an intermediary
THE BUYER Simon Kidd, Category Specialist, Travel, buyingTeam There are many forms of loyalty scheme, each targeting different organisations or different people within the customer organisation. For example, there are corporate reward schemes like BA On Business or the Star Alliance Company Plus scheme, which aim to drive loyalty from the organisation through points based incentives. Then there are the numerous schemes which the traveller can join to accrue personal points, thus driving individual loyalty. Some other schemes reward both the traveller
and the corporate with points – Virgin Flying co, for example, where travellers earn miles for the corporate and also earn miles for themselves as members of Flying Club. Finally, rebate schemes tend to target and benefit the corporate and potentially just the central team unless the benefit is returned to travellers' departments. With this variety of schemes in the market,
there is the potential for some of them to conflict with the objectives of a company travel programme and this risk needs to be addressed through the travel policy. There is definitely merit in suppliers marketing schemes that add value to the corporate. From a procurement perspective we are interested in maximising what the organisation gets for every pound spent, and driving savings opportunities through the organisation. We are also keen to work with suppliers, to build relationships, look for opportunities to consolidate volume in the most effective way to give value back to the corporate, and to demonstrate loyalty to the supplier through compliance management. Corporates are still keen to use and remain
loyal to their airlines or hotels of choice as outlined in their travel policy, and many of these schemes are in line with this strategy. Price-based savings are easier to calculate and therefore easier to build a business case for and create change within an organisation. However, it is often possible to calculate and put a value on loyalty schemes. You can estimate the number of points that would be gained based on the travel profile and equate that back to a cash value. Suppliers should therefore market strongly the savings potential through loyalty schemes.
Rebates are good in that they are a quantifiable benefit but the corporate may not like waiting 12 months for the money or want to deal with the distribution of the cash within the organisation. However, we work with some organisations which have a managed and visible process to return rewards back to the business which generates interest and compliance to the travel policy. Again, such schemes can add value to the corporate so it's worth suppliers marketing them. For many corporates with smaller or more fragmented spend, loyalty schemes are a good way to drive extra value, providing free flights with minimal time investment to manage the scheme. Their volume on a per route basis is not sufficient for a net deal negotiation and is therefore not an opportunity for procurement. Ultimately, the low-cost suppliers who tend to
offer the lowest net prices may not be the airline of choice for the corporate or have the route coverage, therefore the corporate's decision is not always going to be purely about price, but a mixture of factors including service. There is merit in suppliers marketing schemes
that add value to the corporate, but perhaps there is a need for greater flexibility and reaction to the market. For example, perhaps during recessionary
periods, points incentives could be more weighted to the cheaper tickets to ensure loyalty is maintained, negating shifts to low-cost providers. We advise our clients to closely manage the
cost per trip and to look at travel management strategically. Therefore it’s important to create a strategy that uses loyalty schemes where they are effective and support the best value proposition for the client. I think there is merit in suppliers marketing loyalty schemes to corporates, but the corporate needs to evaluate the scheme or schemes, calculating the overall benefit that they will bring compared to other sourcing options, and evaluate the implications of any change.
THE SUPPLIER Marianne Sammann, General Manager UK & Ireland, Lufthansa Lufthansa has 688,000 frequent flyer members in its Miles & More scheme targeted at individuals in the UK. In addition, the UK was one of the first markets to develop a corporate scheme, through Star Alliance, called Corporate Plus, and in that we have 7,000 members. Lufthansa powers the Star Alliance scheme. In 2001 we launched a loyalty programme
18 I THE BUSINESS TRAVEL MAGAZINE
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