Creating Effective Loyalty Schemes within Travel and Leisure
Your guide to starting a loyalty programme that improves customer retention rates in the travel and leisure industry.
Retaining your existing customers is an important part of any business but it can sometimes be easier said than done due to constant shifts in customer expectations and competitor offerings. These shifts not only affect your ability to keep your customers loyal but can make planning for the future difficult.
M&S for Business has researched the customer loyalty landscape and has compiled some statistics to help you justify your business case for implementing a loyalty scheme within travel and leisure, and show how you could launch your own business’ loyalty scheme and enjoy the effect of loyal customers.
Our statistics are related to the travel and leisure industry, one of the most popular industries for loyalty schemes, however this information can be applied to other sectors and industries too.
For further information about launching your own loyalty scheme visit M&S for Business’ loyalty solutions hub.
Chapter 1: Why is Customer Loyalty Important?
The Financial Times defines customer loyalty to have occurred “if people choose to use a particular shop or buy one particular product, rather than use other shops or buy products made by other companies.
Customers exhibit customer loyalty when they consistently purchase a certain product or brand over an extended period of time. As an example, many customers stick to a certain travel operator due to the positive experiences they have had with their products and services.”
Essentially, if a customer is happy with their experience of your business and would repurchase or recommend you, congratulations! You’ve just acquired a loyal customer.
Why is it Beneficial to Have a Loyal Customer Base?
In a world abundant with choices, retaining customers isn’t easy. In the past, simply offering a strong product or service would suffice, now it’s harder than ever to even gain consideration. You’ve invested much of your time and effort into acquiring customers; why should further time and effort be spent on keeping them?
- 80% of your business’ future revenue comes from just 20% of your existing customers (Gartner)
- It costs 5x more to acquire new customers (Forrest Research)
- The probability of selling to an existing customer is 60% – 70%; a new prospect is 5-20% (Marketing Metrics)
Acquisition Budgets can be Lowered and Reallocated
It costs five times more to get a brand new customer to convert than it does an existing one, yet marketers continue to spend the majority of their advertising budgets on media focused on both audiences.
While the prospect of acquiring a new customer varies from 5% to 20%, repeat customers have a 60% to 70% chance of converting. With an increased chance of conversion and lower cost per conversion, it makes sense to reallocate more of your budget into marketing to your existing customers.
Loyal Customers are Worth Significantly More to your Business
With 80% of your business’ revenue stored in 20% of your existing customers, loyalty schemes are a great way to turn fans into followers and tap into this potential.
Loyal customers that frequently buy your products or services are much more profitable than your average customer. Adobe found that customers who have converted twice in the past are 9 times more likely to buy again than a first time customer.
With each purchase after that, the likelihood of an additional purchase increases. The top 10% of your loyal customers have an average order value worth three times more than the lower 90%, with the top 1% of customers worth 18 times more than the average customer (RJMetrics).
There is also a direct correlation between the amount of time a customer has shopped with you and the amount they spend per visit (Bain & Company), therefore retaining customers for as long as possible is a beneficial business strategy.
The struggle is getting customers to come back for repeat business. Initially, most customers aren’t interested in a relationship; RJMetrics found a 68% drop off rate from one purchase to two. With each purchase after the second, the probability of buying again increases. Anything you can do to help convert a one-off customer into a repeat customer will in turn help your business.
Loyal Customers are a Catalyst for Sales through Recommendations
Loyal customers don’t just bring in the benefit of increased direct sales, as recommendations from friends and family remain the most credible form of advertising (Nielsen). Utilising these positive recommendations allows your loyal customers to help market your brand for you.
Incentives to encourage loyal customers to spread the word about your business can greatly benefit your business. While you provide useful products and services, there will be faithful followers sharing their stories about how you’ve helped them. This effect can snowball; what you’re left with is an engaged customer base who is marketing for you. These customers want to hear from you and are more likely to respond to offers and share your business with others.
How to Transform a Customer into a Loyal Customer
Successful customer loyalty and retention strategies drive revenue and referrals, creating thriving businesses and happy bosses.
With so much business revenue stored in existing customers, it makes sense to keep customers satisfied. Several strategies and tactics are used to improve customer loyalty, but finding one that is effective and delivers the most value can be a challenge. While customer experience and customer engagement tactics are used frequently, the top strategy is a loyalty programme (Loyalty360).
Currently, 87% of customers want a loyalty programme, yet only a quarter of companies reward any form of engagement (Cap Gemini). A customer loyalty scheme could be the edge you need to gain a competitive advantage in your industry.
Chapter 2: Do Loyalty Schemes Work? Loyalty Statistics within the Travel and Leisure Industry
The UK’s travel and tourism industry is growing and forecast to reach a value of over £257 billion by 2025 – just under 10% of UK GDP and supporting around 3.8 million jobs – approximately 11% of UK employment.
The leisure industry too is experiencing growth and is currently worth over £200 billion, supporting 2.6 million jobs – accounting for 9% of UK employment (cabi.org). The sector also supports 66% of SMEs and fosters a strong business start-up rate, 20% higher than the UK average (Oliver Wyman).
These industries are enjoying periods of growth; one way to continue this growth is by keeping customers’ experiences positive.
Part One: Loyalty Scheme Statistics
Loyalty Scheme Statistics
- 96% of the UK population belong to a loyalty scheme
- 64% belong to three or more loyalty schemes
- Applications of rewards in Loyalty Programmes: purchases (97%) [Transaction-based]; activities (16%), participation in gamification campaigns (14%), mobile app downloads (6%), social media engagement (4%), in-store check-ins (2%) [Engagement-based]
- 83% of individuals agree that loyalty programmes make them more likely to remain a customer
- Over 80% of individuals agree that loyalty programmes are worth the effort and actively collect every possible mile/point.
- 34% of customers say they would not be loyal if it weren’t for the brand’s loyalty program.
Loyalty Schemes Change Buying Behaviour
- 69% of consumers said rewards make them more likely to shop with a brand
- 70% of members agree that they’d modify when and where they make purchases in order to maximise the benefits received
- 64% of members agree that they’d modify what brands they purchase in order to maximise the benefits received
- 49% of members agree they spend more with brand now vs. pre-membership
Loyalty Schemes By Gender
- 72% of women said rewards make them spend more vs. only 56% of men
- Rewards entice 75% of women to trial a brand for the first time vs. 62% of men
- 68% of women said that getting rewards from a brand makes them stay longer, and not switch to other brands, versus 53% of men
Business Loyalty Schemes
- 68% of businesses report they are allocating less than 20% of their marketing budgets to loyalty strategies, yet 58% of companies say that more than 20% of total sales or revenue is attributed to their programs.
- Brands that allocate 20% or more of their budgets toward customer loyalty have a better understanding of their customers
Part Two: Travel and Leisure Loyalty Statistics
Loyalty Within The Travel & Leisure Industries:
- 41% of travellers prefer to receive products and services from a travel brand’s own offering
- 82% want more input in shaping with own loyalty scheme experience
Loyalty Within The Travel Industry
- Airlines have 355.9 million loyalty program members
- Hotels have 288.7 million loyalty program members
- Car Rental & Cruise industries have 44.9 million loyalty program members
- 57% of airlines reward customers for at least one form of engagement
- 88% define a redemption goal immediately following activation
- Reward choices is the most important benefit for frequent flyers
- 32% believe flexibility of how to redeem points is the most important factor, followed by the ease of the process (24%).
- 41% of hotel chains reward customers for at least one form of engagement
- On average travellers fly or stay in hotels 2-3 times a year, like to book travel online and are more often than not swayed by reward programs on offer when choosing where to buy travel
- 33% of Travel Managers say they actively inform travellers about hotel loyalty programmes
- 86% of Corporate Travel Managers agree hotel loyalty programmes play an important role in their negotiations with hotels
- 77% of Travel Managers are interested in a corporate loyalty programme that rewards companies through discounts and perks
Reach Affluent Customers
- More than 71% of those making £70,000+ per annum are enrolled in a loyalty scheme.
- 66% of travellers making £140,000+ per annum are likely to spend money when they think they have found a “good deal”, such as those offered to loyalty program members.
Chapter Three: How to Create a Loyalty Scheme
Creating your own loyalty scheme can be a lengthy process, but if you know where to start and segment each part of the process into easily manageable pieces, you will start to understand how a loyalty programme can work for your business.
We have broken down the process into 5 simple stages to get you started.
Stage 1: Research and Development
The first step is to ensure that your strategy is built off the back of in depth research. You need to understand your audience and their needs, trends within your market and the types of loyalty scheme available to you.
Performing primary research will give you an insight into your audience’s current needs. Surveys, questionnaires, interviews and focus groups will give you information directly from the people you want to target. You can also look at your existing customer data to analyse their buyer behaviour and customer journey in order to pinpoint the most appropriate time to target them.
Your secondary research will give you an idea of what has worked for your competitors, what is available within the market currently and will provide you with a benchmark to measure your success against. Use as many resources as possible, web searches, books and even paid market research if you have the budget. This research will provide the justification for your decisions going forward.
Stage 2: Designing the Loyalty Scheme
Armed with the results of your research, you can now start to design your loyalty scheme. This part of the process will involve a lot of planning and should not be rushed. This is your opportunity to get your ideas onto paper and decide a plan of action.
The first step is to make the important decisions:
- What are the key performance indicators of your loyalty programme?
- What are the qualifying factors for your customers?
- What will the rewards be?
- Which channels will the reward scheme be available through?
Once you know the answers to these questions, you can start mapping out the process and deciding on the functionality that you need within your loyalty scheme.
Once you have mapped out the process, you need to start thinking about visual designs too. Your loyalty programme will need to be ‘on brand’ and all related materials will need to be clear and consistent. You’ll need to think about exactly who needs to be involved within your company and come up with a launch schedule to keep everyone on track.
Stage 3: Creating the Loyalty Scheme
With a solid design in place, the next step is to actually create your loyalty scheme. This stage may take the most amount of time as you coordinate your team and tackle any potential difficulties that appear, so make sure you schedule in extra time for any setbacks you may face.
You will need to create a way of communicating your new loyalty scheme to your existing and potential customers. This will involve constructing promotional materials, both on and offline as well as training staff on how to verbally communicate the scheme to customers.
Your website can provide an excellent way for your audience to access the loyalty scheme and will also make the results of the scheme easier to measure.
Finally, you will need to create a database to store customer information and track their involvement in your loyalty scheme. This stage is very important when it comes to the analysis of the scheme later on.
Stage 4: Launching the Loyalty Scheme
Before launching the scheme, you should complete vigorous testing to ensure that the process flows smoothly and to identify any problem areas. This will be especially important with any online areas of the process as the simplest of errors can be detrimental to the campaign.
You should reach out to your customers prior to launching the loyalty scheme, whether that be via post, email or telephone, to let them know what is happening and to gauge their interest in participating in the scheme.
You will then need a plan of action when it comes to promoting your loyalty scheme’s launch. Think about launch events, online advertising and traditional methods of advertising. Awareness is key to the success of your loyalty scheme, and with recent studies indicating that around £6 billion worth of loyalty points remain unclaimed in Britain (Telegraph), promoting your scheme in a clear and concise way will be the key to its success.
Stage 5: Measuring the Results
Once the loyalty scheme has been launched, you need to keep your eye on the ball and constantly measure the results. This will be particularly important during the initial launch as the results will show you whether there are any instant areas of improvement needed.
This part of the process is where your database will be so vital and maintaining that database will allow you to measure the development over time. Think about the key performance indicators you set at the beginning of the process, are they being met? Is there anything you can do to improve this?
Your loyalty program should be constantly adapting to the requirements of your audience. Analysing the results will give you an insight into what works and what doesn’t so that you can make the necessary changes to boost its success.
Chapter Four: Our Loyalty Program Top Tips
Overall, only 25% of businesses reward any form of engagement. With 87% of customers wanting a loyalty programme, these schemes are a great way of keeping customers happy and engaged with your brand. Here are our top tips for producing a successful loyalty scheme.
Be Flexible In Your Offering and Personalise Rewards
While making a purchase is the most popular form of earning rewards, there are still many non-purchase interactions that can be beneficial. Consider online surveys, rating and reviewing products and services, social media engagement or referring friends to the programme.
Reports have found a mix of preferences for redemption. Some customers prefer to redeem rewards in store, whereas others prefer online or via a mobile device. At present, only 9% of businesses support reward redemption across all channels; planning a loyalty scheme that’s easy to use and can be redeemed in different ways will set your scheme apart from competitors and gain your customers’ satisfaction.
82% of consumers said loyalty programmes would be better if they offered more choice and would let them choose the categories of reward they wanted (Collinson Latitude). This indicates that many schemes fail due to companies not listening to their customers.
Test Your Schemes
Non-purchase incentives such as surveys can be beneficial to your scheme as gaining customer feedback will provide an insight into what customers think of it and how to improve it. If this isn’t something that can be done in your scheme, try testing several different channels. This offers you the chance to gain data on what your customers respond to. Salesforce found 86% of marketers ranked mobile loyalty campaigns as an effective channel, so you could start with this one and expand.
It may also be beneficial to test the offer itself. Are your customers more responsive to discounts or a loyalty points scheme? Would loyalty cards or frequent flyer miles be a more attractive offer? Once you know exactly what your customers want from you, you are likely to have a higher success rate when offering the loyalty scheme.
Consider Coalition Programmes
You may find that you can get a wider reach with your loyalty scheme if you join a coalition programme. With over 2 billion people being members of coalition loyalty programmes worldwide (Finaccord) (over a quarter of the world’s population), it is clear to see the popularity of these schemes is massive. Coalition loyalty programmes offer incentives to customers across multiple businesses. The customer earns points or rewards by shopping at each participating business. This type of loyalty programme is ideal for small to medium sized businesses as it enables them to offer benefits to their customers with the support of other businesses, making it more financially viable.
A coalition loyalty scheme also gives businesses the chance to align themselves with brands which have similar values to them and offers the opportunity to attract a whole new customer base. Customer data such as lifestyle, preferences and demographics can be shared between each business within the scheme and the financial risks are split between several businesses, making it a safer investment.
Consider A Fee-Based Programme, But Be Prepared To Give Better Rewards
Fee based loyalty programmes are another surprisingly popular option with consumers looking for special treatment from their favourite brands, and with 62% of consumers stating that they would join a fee-based rewards programme if their favourite brand offered one (Loyalty One), it’s something that should really be considered.
The fee-based loyalty programme is an acknowledgement of your most regular customers and gives them the opportunity to benefit from extra perks in exchange for a small fee. There are several ways in which the customer can benefit from a fee-based programme, with 69% of consumers saying they are attracted by the prospect of free shipping and 67% by special discounts (Loyalty One).
If you are going to offer a fee-based loyalty programme, then you need to be prepared to offer rewards of higher value than you would with a regular loyalty programme. For example, subscribers to Amazon Prime receive free one-day delivery and access to Amazon Prime Instant Video and the Amazon Prime Kindle eBook Library. However, the incentive for businesses is that they will create a partnership with their customer who will be more likely to make repeat purchases in order to benefit from the fee-based programme they have joined.
Your Next Step
A loyalty scheme is not something to be rushed into. You want to be sure that it is going to be appropriate for your audience and that it offers real value to them. The travel and leisure industry is one of many which can offer something extra to their customers in order to keep them loyal, from frequent flyer programmes to third party voucher incentives.
If nothing else, be relevant and flexible, create a multi-channel experience, have a fantastic customer service to match and test and listen to the feedback that you are being given.
No matter what industry your business is in, you’re sure to know the value of a loyal customer and at M&S for Business we understand that better than anyone. If you’re looking for business loyalty scheme ideas, we are happy to help you discover a strategy that works for you. Contact our helpful team or take a look at the loyalty scheme products and services we provide for some inspiration.