How pooling can give loyalty programs an extra edge
Loyalty schemes have taken center stage during the pandemic, even becoming financial lifelines, as airlines seek to boost revenues through program member engagement and retention. In our recent eBook, "Four low or no-cost ways to improve the value of airline loyalty currencies", we looked at different tactics that airlines can apply to increase loyalty program value. In this post, I would like to focus on "the pooling effect".
What is the pooling effect?
Also known as "Family Accounts", "Householding", and "Mileage Pooling", the idea is gaining traction across the industry and is based on human psychology. Owning miles or points encourages people to want to accumulate more of them, so they can get closer to a redemption opportunity. With the allure of "free travel", consumers have often deviated from rational behavior by going out of their way to earn points.
Yet, accumulated rewards in an individual´s account are often not enough for a flight redemption. By allowing rewards to be pooled among a group of people, the ability for one of those members to achieve a redemption opportunity accelerates. One "free ticket" can be the incentive for the rest of the pool participants to share the cost of additional ticket purchases for group travel.
Pooling adds value to the customer as well as the loyalty program
Programs can design multiple objectives for "pooled accounts", resulting in higher value benefits beyond a shared spending balance. Let´s have a look at some of these.
- Shared benefits – an elite status member in the pool can choose one or several other members to share the benefits of his/her elite status, like preferred award pricing and priority check-in statuses.
- Extending earn potential – pooled accounts can be designed to allow rewards for members that would typically fall in the "non-earning" category, like minors for example.
- Redemption and qualifying opportunities – programs can allow the flexibility to pool either redeemable or qualifying miles, allowing more spending opportunities or a quicker climb in status.
For loyalty programs:
- Additional revenue opportunities – such as one-time registration or annual maintenance fees.
- Spending – pooled accounts encourage points spending that would have remained stagnant in a member's account, contributing to the program´s liability.
- Partnership opportunities – stimulation of innovative engagements that encourage families to consolidate their spending on to the program's co-branded cards.
- Data – pooled accounts are a data gold mine that allow airlines to learn more about their customers for better segmentation and targeted marketing, leading to higher conversion.
Designing pooled accounts
When introducing pooled accounts in a loyalty scheme, program designers must be aware of the following four aspects.1.Definition of a group
Members of a pool must trust other members and consent to share their miles balance. While trust in itself is intangible and unmeasurable, programs can place checks and restrictions on who can join a pool. For families, such checks could include a shared postal address or surname.2.Roles and permissions
Defining roles and permissions in a pool is its key to success. A household pool, for example, would have access to a large redeemable balance, whose spending ability should be controlled. A recommended practice is to categorize pool members as "contributors" (eg minors) and "spenders" (eg household head). Assigning a group administrator in charge of housekeeping duties is also important to manage the addition of new members and approve role change requests, for example.3.Managing transactions
Several transaction models can be applied for reward spending, but these can be broadly classified into two approaches:
- Restrictive pooling. With this model, only one member is allowed to spend the pool balance. Individual "contributor" earnings are automatically transferred to the "spender's" account. This type of pooling requires the setting of rules for each member.
- Flexi-pooling. Here, there are little or no restrictions on the number of spenders in the pool, each having unlimited access to the pool balance. Every member earns through their individual account and upon leaving the pool keeps what´s left in their personal balance that has not been consumed by other pool members.
Advanced pooling models also offer the capability to share Mileage Advances (overdrafts or credits, as they are also known). Choosing a pooling model depends mostly on the customer demographics and the level of flexibility you would like to offer to your customers.4.Administration
While the concept behind pooling sounds very attractive and promising, airline loyalty program managers must also be aware of the administrative tasks involved.
- Privacy handling: shared accounts imply the sharing of valuable personal information. Program managers must apply rules to restrict pool membership to a pre-agreed group of people. Needless to say, following privacy best practices is key here.
- Fraud: the risk of fraud exists, so proactive (prevention) and reactive (detection) measures should be established. These include:
- Prevention of "pool jumping" by imposing minimum stay and ability to join a new pool
- Prevention of multiple pool ownerships by imposing rule checks or registration fees
- Impose redemption blackout periods immediately after joining a pool
- Impose restrictions on redeeming for members outside of the pool
- Customer servicing: qualified personnel and clear policies are important for the successful management of exceptions in pooled accounts, such as sensitive family-related issues that may need to be resolved.
Pooling – the fine balance
While the concept of pooling is gaining traction, the demographics research needed before designing one should never be taken lightly. Similarly, a fine balance is critical between designing a complicated user experience versus too much flexibility that may increase the potential for fraud.
With around 10 years of experience as a Senior Consultant for loyalty management solutions at IBS Software, Saumya enjoys solving complex and challenging problems for the world's largest airlines. In her role, she has helped transform and redefine their loyalty programs and processes to meet the demands of a rapidly evolving industry.