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Mark Ross-Smith, CEO of StatusMatch, talks about key metrics to measure the success of your loyalty programs. In the last couple of years, airlines have had to disclose to the market that their loyalty programs are actually worth more than the airlines themselves. Airline loyalty programs are effectively marketing businesses that marketers can learn a lot from in terms of targeting the most valuable customers. Today, Mark discusses golden loyalty metrics.

 

Speaker 1 (00:04):

From advertising to software as a service to data.

Speaker 2 (00:09):

Across all of our programs and clients, we’ve seen a 55 to 65% open rate.

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Getting brands authentically integrated into content performs better than TV advertising.

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Typical life span of an article is about 24 to 36 hours.

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If we’re reaching out to the right person with the right message and a clear call to action, then it’s just a matter of timing.

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Welcome to the MarTech podcast, and I Hear Everything production. In this podcast, you’ll hear the stories of world-class marketers that use technology to drive business results and achieve career success. We’ll unearth the real world experiences of some of the brightest minds in the marketing and technology space so you can learn the tools, tips, and tricks they’ve learned along the way. Now, here’s a host of the MarTech podcast, Benjamin Shapiro.

Benjamin Shapiro (01:02):

Welcome to the MarTech Podcast. I’m your host, Benjamin Shapiro, and today we’re going to discuss key metrics to measure the success of your loyalty programs. Joining us is Mark Ross-Smith, who is the CEO of Travel Data Daily, which is a B2B travel industry blog that reviews big data analytics and how travel companies make money through data monetization. Today, Mark and I are going to discuss golden loyalty metrics. All right, here’s the first part of my conversation with Mark Ross-Smith, the CEO of Travel Data Daily. Mark, welcome to the MarTech podcast.

Mark Ross-Smith (01:36):

Ben, fabulous to be with you.

Benjamin Shapiro (01:37):

Very excited to have you here. Excited to talk a little bit about something that’s coming back. It seems like a lot of what’s happening in the world, we’re losing the ability to get products supplied to us. People have been stuck at home for years, and finally, something nice. Travel. Everybody wants to travel. Here in the United States, the dollar intends to be incredibly powerful right now, so as long as you can afford your airplane flights, you can actually travel and enjoy yourself relatively on the cheap. First off, let’s talk a little bit about… Before we get into the marketing side, tell me a little bit about what’s happening with the travel industry these days.

Mark Ross-Smith (02:13):

Travel obviously got hit pretty hard the last few years, and like you rightly point out, probably earlier this year, it really started to come back with a vengeance. There’s this term called revenge travel that’s been put out there and people… It’s this pent-up demand of being stuck at home, stuck in their city, their country for nearly two years. Borders started opening up. It became a bit easier to travel and some people had a bit of extra cash saved, and are like, “Well, I’m going to show them. I’m going to go out and make up for the last two years.”

(02:41)
The demand for air travel obviously has spiked significantly this year, including right now. That in addition to airlines grounding their planes and some laid off staff, stuff like that, so they had less people, less pilots to service the demand. Demand is up and the ability, the seats, are sort of down from where they were a few years ago. Those two things combined generally means it can be expensive to travel and more people are wanting to get on a plane and do something more than ever before.

Benjamin Shapiro (03:10):

More reason to get that status that you’ve been trying to earn for years and years to get your flight upgrades and make sure that everything is guaranteed, but that’s not necessarily easy seeing that we haven’t been traveling a bunch over the last couple years. Let’s talk a little bit about one thing that I feel like all marketers can take out of what the travel industry has been doing, which is focusing on loyalty. We all think about rewards, whether they’re credit card points being used for travel. Obviously, the airlines have their own rewards program as well. Talk to me a little bit about what makes the travel rewards system and loyalty program so effective that might be able to be applied to other marketing industries as well.

Mark Ross-Smith (03:50):

Airline loyalty is pretty interesting because there’s two sides to it. One side is what we call the business of loyalty. This is when you think of a credit card. You swipe a credit card, you earn some airline miles. Banks effectively are buying miles and putting it in your airline loyalty account. That’s one side of loyalty. Then, there’s the customer side of loyalty. That is making sure you fly with one airline over and over and over and you don’t split your business between airline A and airline B. The business of loyalty I’ll touch on quickly is pretty fascinating because what most people don’t know is the airline loyalty programs generally are run as their own business.

(04:23)
They have their own P&L, they have sometimes their own entity, generally owned by the airline itself. Now, in the last couple of years, what airlines have had to disclose to the market is most airlines globally, the loyalty program is actually worth more than the airline itself. If you were to strip it out as its own asset, it generates high margin revenue because it’s selling miles to banks. Those gross margins can be sort of 60, 70%. If you think typically when you sell airline seats, you’re not getting 60 to 70% margin on that. Airlines on a good day in a coach seat, they’re happy to get sort of 5, 10% on that.

(05:00)
The loyalty programs are generating this high margin revenue, and of course loyalty programs are effectively marketing businesses. They’re not airlines, they’re not flying metal tubes through the sky. They’re digital companies. They’re selling something that technically doesn’t exist, airline miles, and the market values these companies very differently than they do the airline companies. What it means is because they’re marketing companies, they’re valued on the market 20, 30 times profit or earnings ratios, hence they can be worth a lot more than the airline itself.

Benjamin Shapiro (05:29):

Let’s talk a little bit about the marketing machine that you mentioned where we’re selling a digital asset, potentially at higher margins than an actual airline flight. How are the loyalty programs able to establish so much credibility? Talk to me a little bit about what the metrics are for a loyalty program like an airline program.

Mark Ross-Smith (05:48):

I think it was Gary Leff, one of the biggest bloggers in the world. He calls airline loyalty programs the greatest marketing invention of all time because it’s created billions and billions of dollars in profits for airlines globally. The teams that are running these airline loyalty programs are generally pretty small, but you think of an airline. They’ve got tens of thousands employees, a big sort of carrier, whereas the people that are running the loyalty program… I know one US carrier, there’s three people in the loyalty team and yet they’re generating hundreds of millions if not billions of dollars a year in profit from such a small team. Loyalty is effectively riding on the brand of the airline, and it’s all got to do with aspiration. You want that business class or first class seat, the international first class seat. It’s the dream, sitting at first class sipping champagne, caviar on Cafe Pacific.

Benjamin Shapiro (06:34):

Bringing champagne back to your friends in coach. Didn’t we have this conversation offline before we started?

Mark Ross-Smith (06:41):

I think that’s a thing these days, taking champagne back to your buddies. There’s a bit of romance around flying first class and everyone has it on their bucket list at some point. The easiest, cheapest way to do that is obviously airline miles through credit card spend. One of the top things that airline loyalty programs look at, because you’ve got teams of people that analyze. They’ve got data they’re looking at, they’ve got all these metrics, the dashboards, they’ve got a report to management on how they’re doing. There’s a bunch of what I call the golden loyalty metrics. These are the top things that airline teams look at when they’re assessing how their business is going because their business can make a lot of money. The number one metric that airlines use for this is something called share of wallet. Broadly how it works is this. Think about flights for a second. Think about how many flights you take on a good year. Might be just 10 for fun. You’re a big frequent flyer. 10, we’ll go 20.

Benjamin Shapiro (07:34):

Well, no. Honestly, yeah, I was like, “10.” In my head I was like, “That’s ambitious.” It’s probably closer to five. I’ve got two young children. Leaving the house is like enough for me.

Mark Ross-Smith (07:44):

Actually, you bring up a good point. If you are doing more than about four flights a year, you’re already in the top 10% of global travelers because most people don’t fly at all. You do more than one round trip, you’re instantly in the top percentage, and that’s when airlines want to get to know you because you’re flying more. As you fly more, you tend to be less price sensitive. You book direct. You’re more open to paying for seat selection, extra bags, all these kinds of things. That’s where airlines really make a lot of their money. It’s all on these ancillary purchases and the loyalty program.

(08:13)
Anyhow, basically, the top metric that airlines use to measure the effectiveness of the loyalty program is something called share of wallet. What this means is you’re doing, say, five flights a year, your five return round trips, and that’s a pretty normal year. You’ve got one trip, you’re visiting grandma. The other one, you got a couple business trips, all this kind of stuff. Let’s say this is all with one airline. You’re actually very loyal even though you don’t spend or fly that much relatively to some of the big dog frequent flyers out there that are doing 100, 200, 300 sectors a year.

(08:42)
But you’re very loyal. That’s the key here. You’re loyal to one brand, so your share of wallet to one brand is 100%. If airlines are tracking your spend, they go, “Look at Ben, we’ve got 100% of what you could possibly spend on travel he’s spending with us, so therefore that’s a good deal. That’s all we’re going to get out of him. Maybe we’re lucky, we convince him to spend more on his next flight, something like that.”

(09:01)
Now, let’s compare to your cousin John, for example, who’s doing 100 flights a year. Always in first class, he’s got cash coming out of his ears, that kind of thing. Of those 100 flights, he’s actually really valuable to the airline industry, because he would be instantly in the top half a percent.

Benjamin Shapiro (09:17):

Right. He’s worth 10 of me in terms of customer lifetime value.

Mark Ross-Smith (09:20):

100%. Let’s say, though, he’s splitting those 100 flights between two different airlines. Airline A, Airline B, he’s actually less loyal than you even though he is worth more, because airline A is maybe only getting 50% of his spend, even though he is like a top tier status frequent flyer. On the surface, you look at this guy goes, he’s top status, he’s spending a lot, he’s doing all the right actions. He’s got the credit card, all these things, but actually he’s less loyal than you. When airlines know this, what they would do is they would start targeting marketing. Not you, because they’re already getting 100% out of you. They start marketing it to your cousin John, who they’re only getting 50% share of wallet, because they know that there’s this headroom, this extra ability to capture more incremental spend from him that they’re not currently getting.

Benjamin Shapiro (10:05):

There’s your share of wallet. What percentage of the flights are you taking that are dedicated to one airline? Is that the only golden loyalty metric that loyalty programs are looking at?

Mark Ross-Smith (10:16):

That’s the top one. The next one is what you generally see in most loyalty programs, which is customer lifetime value. There’s different ways that airlines calculate that, and then under that, there’s what I call sub-metrics, things like the penetration of the program. How many people on any given flight are members of the loyalty program? That can be anywhere between 10 to 80% depending on the airline. Credit card revenue, co-run revenue, non-air revenue. If you’re owning your miles from your car rentals and hotels and things like that, the number of elite members in your program, redemptions, breakage.

(10:48)
Imagine you’re standing in a cockpit on an aircraft. See all these dials, all these gauges, all these blinking little lights everywhere. That’s what airline loyalty metrics are like. There’s not one metric that says things are okay, but as long as your air speed’s okay, you’re not going down too fast, plane’s stable and safe, that’s what airline loyalty metrics are like. There’s a couple that stand out that you cruise and things are going okay, but sometimes it’s okay for the little metric or the dial on the side to be flashing like crazy saying you’re running out of something or other. That could be okay as long as the aircraft’s okay. Very similar in airline loyalty.

Benjamin Shapiro (11:24):

Interesting. Tell me, what can marketers take away from the golden loyalty metrics that the airlines are using that might be useful for their loyalty programs?

Mark Ross-Smith (11:34):

Share of wallet is totally applicable across different industries because if you’re sending emails and push notifications and all sorts of stuff to people that don’t have the ability to spend any more, it’s effectively wasted marketing. You want to focus that type of marketing on the people that have the ability to spend more with you. If you know that they’re spending a lot more with a competitor than they are with you on an ongoing basis, that’s the kind of marketing you want to target because you know they’ve got the ability to spend more. They are right now. Why not shift some of that wallet from competitor over to you?

Benjamin Shapiro (12:05):

Yeah, that’s the fascinating takeaway for me is when you think about loyalty programs, you would think that most of the effort goes towards the people that are the most loyal, the best customers, the ones that are giving you the most money and frequently returning. But the reality is that the data that you’re collecting with your loyalty program is not only showing you who’s your best customer, who you don’t have to continue to market to, but who you have an opportunity to pick up market share, something for us to all think about as we digest our loyalty programs.

(12:33)
That wraps up this episode of the MarTech podcast. Thanks for listening to my conversation with Mark Ross-Smith, the CEO of Travel Data Daily. Join us again tomorrow when Mark and I continue our conversation talking about how airlines use data to increase revenue. If you can’t wait until our next episode and you’d like to learn more about Mark, you can find a link to his LinkedIn profile in our show notes, or you could visit his company’s website, which is TravelDataDaily.com.

(12:57)
Just one more link in our show notes that I’d like to tell you about. If you didn’t have a chance to take notes while you were listening to this podcast, head over to MarTechPod.com where we have summaries of all of our episodes and contact information for our guests. You can also subscribe to our weekly newsletter and you can even send us your topic suggestions or your marketing questions, which we’ll answer live on our show.

(13:15)
Of course, you can always reach out on social media. Our handle is MarTech Pod, M-A-R-T-E-C-H P-O-D, on LinkedIn, Twitter, Instagram, and Facebook, or you can contact me directly. My handle is BenJShap, B-E-N-J-S-H-A-P. If you haven’t subscribed yet and you want a daily stream of marketing and technology knowledge in your podcast feed, we’re going to publish an episode every day this year. Hit the subscribe button in your podcast app and we’ll be back in your feed tomorrow morning. All right, that’s it for today, but until next time, my advice is to just focus on keeping your customers happy.