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Corporate loyalty: What, why and how to tap this market
Airline loyalty, as we know it today, is a complicated business model to explain to a layman. Most people prefer to see it as an airline company giving away rewards, discounts and other incentives, in return for customers making more and more purchases and pledging their loyalty to the brand - but this is misleadingly simple. A strategically designed loyalty ecosystem, supported by the right tools to facilitate its operation, enables an airline company to gain so much more from their loyalty program than just a list of ardent fans and regular customers.
We must start with looking more closely at the two major kinds of passengers an airline has on its roster – leisure travelers and corporate travelers. While leisure travel makes up 2/3 of the global travel demand, business travel has the benefit of being commercially very attractive to airlines. Leisure travelers tend to be cost conscious, so their behavior can be influenced greatly through price offerings. Corporate travelers would typically attach an ROI to each trip and hence may demand more flexibility for last minute schedule changes, even if it means shelling out more money per seat than a booking planned and made well in advance. With less price but more time sensitivity, mile for mile, corporate travelers contribute over-proportionally to the revenue and profitability of an airline.
A further differentiator between these customer groups lies in the decision authority and decision process. For the leisure segment the decision on airline, routing and services purchased is usually taken by the traveler. In the corporate world, this is often regulated by corporate policies, executed by travel management experts and only influenced by the actual traveler.
Traditional loyalty programs focus on the actual traveler, usually incentivizing his travel behavior with benefits such as miles or points and status recognition. However, their impact to direct the purchase decision may be limited in the corporate segment. This is now leading to an increased focus on developing and designing solutions to address the actual decision makers in corporate travel. For simplicity, many airlines divide the corporate market in two segments – Large Corporations and Small and Medium Enterprises (SMEs). Some also address special interest groups separately, such as sports teams, orchestras or government organizations.
Large corporations with dedicated travel management functions undertake significant efforts to optimize their travel cost, yielding significant savings through agreements with airlines while the airline greatly benefits from higher yields and more predictable demand. However, a large part of the economic value generation is happening in SMEs. This segment is often not getting the attention it deserves. There, decision making structures and travel management optimization may take very different forms. Further, the expected and valued benefits from showing loyalty to a travel provider differ from those of large corporations. So a range of aspects need to be considered when bringing loyalty concepts to these market segments.
- What are the main drivers for booking a flight?
- What are the travel rules applied?
- Who is taking the decision on the specific flight and how much flexibility is given?
- Which distribution channels and travel management services are being utilized?
- How much control, visibility, spending and savings is required?
- Who benefits from incentive schemes?
- Addressing these questions will help define the incentive or loyalty scheme offered to the Corporate world. Understanding the compelling reasons behind a corporate purchase enables customized offerings at different stages of the service delivery. This may include extending a credit line at the time of booking, tiered benefit structures or partnerships that help optimize total travel cost, just to name a few. It may further extend to specialized and extended service offerings, combining various functions of the travel management process onto one platform.
Marcus Puffer is the Vice President of Global Loyalty Strategy at IBS Software and heads the Loyalty Line of Business. Prior to joining IBS, Marcus was General Manager of topbonus, which is airberlin's loyalty program and the second largest frequent flyer program in Germany. He successfully managed the corporatization of the program and its subsequent 70% sale to Etihad Airways. Prior to that, he spent a decade at Star Alliance in roles spanning Network and Membership Development. He started his career with Austrian Airlines with a focus on market research and long term network planning. Marcus holds a Masters degree in Social and Economic Sciences from the University of Vienna. He is based out of Graz, Austria.