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letstalkloyalty

Paula Thomas (00:04):

Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m your host, Paula Thomas, and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.

(00:18):

Hello and welcome to today’s episode, all about airline loyalty programs, their role, positioning and potential for even greater profits. Which still seem to have plenty of room for growth. I’m joined for an interesting discussion by Mark Ross Smith, a well known airline loyalty thought leader now based in Malaysia. Mark is the CEO and co-founder of a company called StatusMatch, as well as the founder and editor of traveldatadaily.com. I hope you enjoy listening to our discussion about some innovative ideas to drive customer loyalty, learning from both the gaming industry as well as other strategies that have been adopted by other leading airlines with great success. So Mark, welcome to Let’s Talk Loyalty.

Mark Ross Smith (01:21):

Hey, Paula, fabulous to be with you.

Paula Thomas (01:23):

Yes, fabulous to have you here, Mark, you are a big name, particularly in the airline loyalty industry. So some wonderfully provocative thinking on your part, which I’m looking forward to discussing with you today. So before we get into all about airline loyalty conversations, first of all of course I want to ask you about your personal favorite loyalty program?

Mark Ross Smith (01:47):

My personal favorite loyalty program is a computer game. It’s called League of Legends. It’s one of the world’s most popular PC video games. It’s on the PC platform, more than 4 billion hours a month people play this game. It’s been around for about 10 years or so. The company that runs it has been posting profits between 1.5 and 2 billion USD annually from the computer game. And if we think about loyalty, gamification is a word that always comes up. And where does that come from? It comes from games. So this computer game, maybe I am addicted is the wrong word here, but highly engaged. And it’s got all the elements of a traditional loyalty program. There’s tiers, you work your way up through the tier based on different skill level, how long you play the game. It’s got virtual currency and points within the game. In fact, This game has multiple virtual currencies that can unlock different characters and ways to enhance the game experience.

(02:48):

And there’s a community aspect as well, so you can play with your friends, you can meet new people as well. So it checks all the boxes in terms of engagement and what a loyalty program could be. So for me, I’m very loyal, maybe addicted. But definitely highly engaged and in fact, I’ve drawn a lot of inspiration from video games to apply into other non-video game loyalty programs.

Paula Thomas (03:17):

Oh wow. Okay. Well, we will definitely explore that. And yeah, definitely I think a very exciting, interesting space Mark, because for me, as a non gamer, I kind of wish I was. For exactly the reasons that you’ve said. So first of all, to find something that is so engaging to literally enjoy spending time with. I’m sure there’s parameters now that the family have to put around making sure it doesn’t become too addictive. But absolutely, I think it’s an extraordinary concept. And I suppose I first respected games when the likes of Candy Crush came out, so I certainly wouldn’t be the traditional gaming profile. I think it’s traditionally assumed that it’s a male demographic, but what Candy Crush, for example, definitely proved is that there are all sorts of people that can engage with games. So what I’m hearing actually, Mark, is perhaps there’s a need for loyalty professionals listening to our show and our conversation today to officially take up gaming as some professional research?

Mark Ross Smith (04:23):

I can hear the cheers already at [inaudible 00:04:26] . I can see everyone downloading games saying, “Oh, we’re doing work today. We’re just playing games.”

Paula Thomas (04:29):

Totally, Totally. But actually that there is another good example, Mark, which just came to mind. So I wrote an article actually inspired by the Cannes Lions Festival of Creativity. I hope I have the name correct, but it literally follows the Cannes Film Festival, and it’s maybe top of my wishlist as a professional destination I want to get to at some point. But KFC, which is not a brand I would typically associate with loyalty or I don’t consume their products, for example. I don’t think I’ve ever been in a KFC restaurant for example. But in China, KFC built their entire loyalty strategy based on gamification and targeting the gaming community. So I’ll make sure to link to it in the show notes, but I think exactly what you are saying, Mark, is there is huge inspiration available within that entire business model. With extraordinary numbers you’ve just quoted from League of Legends, for example, that we can all take learnings from?

Mark Ross Smith (05:30):

Gaming is really big. We hear a lot about Meta and the Metaverse these days, this immersive gaming type experience that is coming into our world. This stuff’s already been around for a long time already. You might remember Second Life 10, 15 years ago. Since then, you got things like World of Warcraft that come in. They are these immersive gaming experiences. And they’re created in a way to keep you engaged, to keep you in the game, right? The product design, people behind this are really, really smart. And to your point on KFC in China, especially in like Korea, South Korea is actually very interesting. There’s dedicated TV channels that just stream gaming on TV. You can just tune into it and watch it. Look at Twitch, the video game streaming platform, I think it was Amazon, Amazon that bought it, a billion dollars or something. Pretty big. People are making careers just streaming video games. People just watching you play a video game.

(06:29):

You can make career out of it these days. Which means the game behind it has to be interesting enough for people A, to want to watch it almost like a sport, and B, interesting enough to play it. And what better way to keep people playing game than have loyalty elements in that, tiers, currency, achievements, these sorts of things. So there’s definitely a lot that the non-gaming world can learn from the gaming world.

Paula Thomas (06:57):

Totally. And the other point that’s coming to mind as well, Mark, is I’m very passionate about the role of content as a tool to drive loyalty. Clearly I’m a content producer in a specific format. But I think I mentioned to you off-air that I did meet a couple, actually a husband and wife team, a couple of years ago at the Web Summit, big technology conference. And they’re working with World of Warcraft. The husband composes music for them, and the wife is the conductor of the orchestra, and I mean 80 man, woman, orchestra, creating and performing. For example, they’ve performed with the philharmonic orchestra here in Qatar. But the role of music to drive loyalty as a form of content, clearly very emotional, perhaps better understood, but that blew my mind. As another thing that again, when we talk about our careers in telco and careers in airline, nobody’s really talking about content and certainly not something as dramatic to me as music, as a way to build emotional loyalty with their members.

Mark Ross Smith (08:02):

Totally. Music is ultra powerful. Thinking about that, to put in my airline hat on for a sec. Think about when you board an aircraft, airlines have got boarding music. And they often go for 10, 15 minutes and they’re beautiful pieces. They’re very uplifting. They make you feel good, which is kind of what you want, what you boarding aircraft, you want to feel good about the journey ahead. Not some kind of rock music and like, oh, what’s that? You want something coming to the ears that right tone. Video games, music, movies, it flows over into these things. Highly underrated. I think music, used in the right way to invoke these emotions when you’re playing a game, because if you’re doing something, whatever task it is, and there’s some emotional, highly charged and emotional element subconsciously or not, this sort of comes in.

(08:49):

What happens is you subconsciously link the thing, the act that you’re doing. Whatever that is. Maybe you’re playing a game already, with that music and it creates a bond in your memory and you start to have, it is the same feelings as love. You start falling in love with it.

Paula Thomas (09:08):

Wow. Okay. Wow. We’re going in a whole other direction there. So good insights, Mark. Thank you for bringing that to our attention. So listen, I was reading lots of your articles. Obviously you’ve been working in airline loyalty now for how many years would you say, Mark? Actually, it’s a long time, huh?

Mark Ross Smith (09:25):

Look, officially, I want to say about seven, unofficially, 20.

Paula Thomas (09:32):

Okay. Consumer first and consultant later, huh?

Mark Ross Smith (09:35):

Correct. Came in from being a legit, real frequent flyer myself with a bunch of airlines, having another business, and then I at some point sold that business and I had no job at that point, just sold a company. What am I going to do next? I thought, I really want to get into this airline loyalty stuff. It’s kind of cool. So that’s the official part of my career when I really started that journey into how do I get into this? Being someone that had already had a career doing something else.

Paula Thomas (10:06):

Yeah, no, it’s a great perspective Mark. And definitely one I think that we need to explore a lot more to, I suppose, put ourselves in the shoes of customers and really understand the pain points that the passengers experience. And there’s loads around that, and lots of reasons actually why that doesn’t currently happen within the airline loyalty industry I guess. Because what all of us who’ve worked in airline loyalty is that as soon as you join the business, you do get immediate access to business class, for example, for free of course to fly around and do whatever you need to do within the airline. So it’s almost like for me, I was what, 25 years of age when I was put into that wonderful position. So yes, I definitely didn’t have the same kind of pain points that I have now. For example, as somebody who aspires to fly in business class, finds it hard to justify the pricing, and yet I do really value that experience.

Mark Ross Smith (11:05):

You’re right. If you speak to someone works in airline, typically the conversation go, there’s something like this, “Oh, I’m going to Spain for the weekend,” or “I’m going to Singapore for the weekend, I’m just jumping on a plane. There’s some seats available.” And there’s a pretty large disconnect between what non-airline employees go through. It’s a think of your typical passenger and an airline staff member. So airline staff are paying between what, 50 and 90% off a ticket? So suddenly they’re not shelling that 20 grand to fly halfway around the world. And so what that means is there’s a different experience that they have with the product versus normal travelers. So firstly, there’s the amount that they’re paying and also the way that they book that. They’re booking it through a staff travel portal. There’s no upsells, there’s no popups, there’s no, “Hey, click here, get the credit card and save $300 on your flight.”

(12:02):

If they don’t take the flight, they can get a refund. If they’ve even been charged for that flight, they get a refund very quickly, which is not the experience of most people. They check in at different counters at the airport, with typically not as long lines, different baggage allowances, different ticket running rules. And a lot of these people are just happy to get on the flight at the end of the day. Whereas versus, you and me and millions of other travelers, we pay some pretty big bucks to get on these tickets to fly at specific times and we expect to fly at certain times.

(12:35):

And if something doesn’t go right and we’ve paid 10, 20,000 bucks for the ticket, our expectation is the airline’s going to do something for us. Whereas a staff member doesn’t have that experience because what they pay and their expectations are totally different. Another good example on this is the credit cards in loyalty programs. So airline loyalty generates huge cash flow from these co-branded credit cards. And if you work in an airline, why would you need to have a co-branded credit card? Because you already get cheap flights. You know, you don’t need to save up these miles for 1, 2, 3 years to fly your family to Disneyland for a couple of weeks. You just look at what flights have availability, you jump on them. Cool. We’re going. So what it means is most people, when I say most, I mean 99.9% of people in the airline don’t have the co-branded credit card because they just don’t need it, right?

(13:36):

And so there’s probably a good argument that what would happen if they were forced to get the card or what would happen if you took away staff travel as a benefit? Would they then get the credit card? And if they did, how would that change your behavior within an airline? And then what would that look like reflected back into the loyalty program? How would they then want to solve their own problems and their own challenges to make the program better for the millions of travelers that go through these pain points every single day?

Paula Thomas (14:05):

Yeah, and I mean obviously there is a lot of money, I guess invested in market research with top customers, and I know for example, you were one of Qantas’s top frequent flyers. And you got to spend a lot of time with management and they wined and dined you by all accounts and really took care of you. And I guess as part of that experiential side of being a frequent flyer, you got to express your views. I’m sure they were very curious as to your experiences. So do you think that is one way, I suppose, to continue investing in getting those insights of exactly those pain points for real-life customers?

Mark Ross Smith (14:47):

Qantas treated me very well over the years, I must say shout out to Qantas if you’re listening. a lot of fantastic experiences. And what it felt like for me is they wanted to have those conversations. A lot of airlines just kind of close those channels off. It’s like, “Oh, these pesky travelers again, how dare these VIP’s, these privileged people complain about not getting a hot meal, they’re only spending a hundred thousand euros? How dare they.” there’s a lot of that. And I didn’t get that sense with Qantas. They genuinely wanted to engage with their top customers, learn more about what drives them, what doesn’t drive them. Because if someone’s spending a bunch of cash with you, often it’s easier to get them to spend even more. And if you can tweak and do a few different things, why not?

(15:35):

At the time, this was nearly 10 years ago, the airline was introducing a new super tier, so above a typical platinum tier, like a super VIP tier. And so there was a lot of noise around this new tier and what it’s going to look like and the benefits. So what better way to figure out what benefits you’ll put into a new tier than to talk to the people that would qualify for it?

Paula Thomas (15:57):

Sure.

Mark Ross Smith (16:00):

And if you engage that audience,

(16:02):

People that might qualify for it, what happens is it’s a giant advertisement basically saying, “Hey, if you do this, you’re going to get there. You’re so close already.” And what happens is, there’s this sort of spending up element where you’ve got a bunch of people that would’ve been close to getting it, they’ve been involved in this new tier and its creation in some very small way. It gets announced and they’re “I need to get there.” And they’re already spending a lot. They can spend more and they do. And so with airlines, when they launch new tiers, new hire tier, there’s a lot of people that will just spend up, totally unnecessarily to get into that tier. And you could almost justify creating the new tier, all the costs and all the staff and all the branding, all everything around. You could justify it purely by the people they’re going to spend up in the first month or two to get into that tier.

Paula Thomas (16:56):

Totally, totally. And I think the key words you mentioned there, Mark, is these are people who can spend more. And particularly I think, again, just from reading some of your articles, there is the whole piece around, for example, well obviously taking more flights and maybe being able to justify that. I do know people who have flown halfway around the world without really needing to, as in it was a business trip that could have been done on Zoom. But actually had that kind of same kind of milestone focus about being determined to get to the next tier and the company was paying, so why not? So that definitely does happen for people who can spend more. But what I also love is this concept of share of wallet. Because I really believe that the loyalty programs I’ve been involved with, we spent an awful lot of time trying to obviously focus on driving profitable behavior change. And looking at, oh, this segment did that, and we were able to drive this upsell or cross-sell, and we really only looked at or had access to behavior within our own business.

(18:06):

And it never even occurred to me, to be honest. Again, it’s probably one of the reasons why I do this show. Is these big ideas about, oh my God, actually they’re of course spending with other airlines in this situation. Probably doesn’t happen so much in telecommunications. But I think there is a massive opportunity, and I’m keen to understand, Mark, whether you think in most cases at the moment, the airlines you are talking to, do they have a good understanding of their share of wallet? And if they don’t, I guess what can they do to get that visibility? Because there is a great article, we’ll make sure to link to it in the show notes as well about just showing two different people, obviously with very different profiles. Maybe one is considered loyal because they’re flying so many times with the airline and increasing the number of flights. But actually then another passenger who is actually only giving you 50% of their travel, so they’re actually not being loyal, even if they’re seen to be and fly more with you if they’re still flying more with your competitors.

Mark Ross Smith (19:09):

That is exactly right. So in your example, the person that’s only giving 50% of business to the airline, they might be a platinum type member, and they’re the highest tier you can get. They’re seen as a great customer, but what you don’t know is they’ve got a hundred fights with one of your competing airlines that they’re doing every year over there, spending twice as much. And so in terms of share of wallet or percentage of real loyalty, it would be less than 50%. Whereas, you’ve got another passenger twice a year they go visit grandma and a hundred percent of their share wallet is on your airline. They’re very loyal. They’re actually a better customer in terms of loyalty to the airline brand. And so there’s this whole thing about, one, how do you track share of wallet, which I consider one of the golden metrics for airline loyalty.

(19:55):

These are one of the top three things you need to be tracking, especially on your most valuable customers. Because if one of your most valuable customers starts flying with a competitor, chances are they going to do more and more and more and more of it, even if you don’t see their activity with your airline go down, that that’s a real risk. And so you need to track in the background. So the next question is how do you measure this stuff? And there’s a bunch of different ways. Nothing is a hundred percent. There’s a bunch of airlines that do a pretty good job of this today, especially in North America, mostly using credit card spend data. So what that is, they know what credit card you have on file and in the USA there’s very unique opportunities to leverage data insights.

Paula Thomas (20:43):

Totally, totally.

Mark Ross Smith (20:45):

And they can get an idea of where else you are spending. So you’re spending on airline A and airline B, C, and et cetera. Actually opportunities for customers to have a bit of fun with that. You could, just for fun, put all your competitor airline spend on one credit card, and all the airline spend another credit card just to play with it, so they think they’re not getting any of your spend.

Paula Thomas (21:07):

Yeah, You get all the access.

Mark Ross Smith (21:09):

Credit card is one. The one I probably find most interesting is telco data. So airlines using telco location data. So there’s a thing called HLR, it’s a home location registrar. And what that does is your mobile phone every second, it’s pinging the cell towers around you saying, “I’m over here, I’m over here, I’m over here.” And that’s how they route phone calls. To say, we’re going to route to this tower. In some countries, as a third party, you can access this data. So I could, maybe not in your case, but I could type in Paula’s phone number and say, Paula is in this city right now. She’s roaming on this network, her home network is blah blah telco. And so if you travel overseas, suddenly if I’m doing a lookup on your number, I can see when you’re traveling, even if I have no insight at all to any of your flight activity and of your credit card data, I can still see, Paula, today she’s in Dubai and I ping her again tomorrow, now she’s in Singapore and then she’s in Australia and then she’s in Japan.

(22:09):

And I correlate that back to the flight history at my airline. Did Paula fly my airline or an alliance or a partner to get there? If no, then well we’re missing out on something, and if yes, then great, we’ve got what we think to might be a hundred percent share of wallet. And so armed with that data, you can then plug that into your CRM system and treat people differently depending on the share of wallet rather than what status tier they are.

Paula Thomas (22:39):

Totally. And are there many countries that data is available Mark, in your experience? Because privacy concerns are so huge right now, I can’t imagine this is possible in Europe, I could be wrong, but is this something that is possible in certain countries around the world?

Mark Ross Smith (22:58):

I want to say about 50% of countries you can. Don’t quote me, but I think it’s about that. Laws definitely have changed in certain markets over the years, but this H =LR data is not a new thing. It’s been around for at least 20 years.

Paula Thomas (23:13):

And I guess there’s a way to perhaps build it in a way that could be GDPR-compliant for example, within Europe with permission, if the telco customer is a member of a telco loyalty program and does give permission for that data to be shared, then I’m guessing that would be certainly a way that could be done with permission and compliance on both sides.

Mark Ross Smith (23:40):

Some telcos make a lot of money selling data as well. So there’s telcos selling data directly to a company, and then on the other side, there’s like aggregators that pick up as much data as they can through other sources.

Paula Thomas (23:53):

Yeah,

Mark Ross Smith (23:57):

I don’t know how much privacy we really have these days.

Paula Thomas (24:00):

That’s true.

Mark Ross Smith (24:02):

My view is, you know, you either get over it or if you don’t. If you don’t get over it, you kind of have to remove yourself from social media and a lot of life. Otherwise, you just get over it, protect what you can, and then just sort of manage yourself like that. But I guess from a company perspective, there’s a lot of opportunities to tap into that.

Paula Thomas (24:24):

Yeah, well it’s definitely one, I really like Mark this idea of the golden metric and understanding the share of wallet from an airline perspective. Because as I said, I think we’re so focused on internally understanding the behavior and focusing on improving that sometimes we don’t look beyond our own four walls and definitely something I think is super interesting to explore. The other big one that I really love, I suppose very topical at the moment is the value of airline loyalty programs compared with the airline themselves. And I know this is one that certainly you posted on just recently, for example. And the example that I saw that you were commenting on, and I was interested actually in some of the comments that came through from the industry.

(25:10):

But the particular example was the El Al frequent flyer program valuation, a program called Matmid, I didn’t know it and you named it for me. But El Al’S frequent flyer program has just basically been essentially valued at 500 million US dollars, but the airline itself is only valued at $180 million. So it seems that the loyalty program is worth, on paper, at least almost triple the valuation of the airline?

Mark Ross Smith (25:39):

Yep. Pretty typical of most airlines I can hear the haters now. Airline loyalty programs have always been, most, especially legacy carriers, pretty profitable for the longest time. And the revenues mostly generated from the co-branded credit cards and transferring points and miles from banks into the program, a lot on that. So that’s where the valuations come from is from the cash flow from that. In North America it’s saved the airline industry. Because the airlines are able to leverage government loans based on the valuation of the loyalty program. Because the airlines had already mortgaged to the hilt on everything else, they had nothing left to mortgage. “Oh, well there’s loyalty program thing we’ve got. Oh, what do you know? It’s worth more than the airline itself.” American Airlines very famously, it hasn’t really operationally posted a profit for many, many years. And yet as a company, as a group, it’s billion dollar profits every year. And that’s underpinned by the Advantage loyalty business. And there’s a lot of other folks commenting on the same thing, that American Airlines, they’re not really an airline, they’re a marketing company that has a flying metal tubes division.

(27:02):

They’re a marketing tech company. Which kind of brings the next question. In a lot of airlines, the loyalty role, the most senior loyalty role, head of loyalty or VP of loyalty, something like that. Why isn’t it a C level role? Why isn’t it a CEO of loyalty? Some airlines do. But why isn’t it at more? And then more importantly, why is loyalty not represented on the board, proportionately to the value it brings to the business? Which arguably is more than the airline. So why isn’t the board made up of more marketing, branding, loyalty, these kind of people? Because that’s where the money is. The money for a lot of airlines is not in selling tickets and flying people around the world. That business, flying people is needed to support their financial services business, aka the loyalty program.

(27:51):

And so why not put more focus into loyalty? Because that’s where all the enterprise value is, that’s where the profitability is, that’s where the interest from investors is. This thing that has had sustainable revenues for the last 20 years. It’s very stable even through 2008, the economic downturns, through nine 11, even through the pandemic, the worst time arguably in commercial aviation history. And airline loyalty programs are still posting profits. What does that tell you?

Paula Thomas (28:23):

Well, I thought you articulated it very well, Mark, and again, in another of your articles, you basically suggested that it’s not the situation anymore, in fact that airlines have loyalty programs, but in fact loyalty programs have airlines. And I do think if there was that dramatic shift in the thinking, again, to your point of the C-suite, if it’s actually first and foremost a loyalty business that obviously requires aircraft to deliver the product, I think there’d be a fundamental shift in the level of respect that the loyalty program gets. Of course, because actually it is then the business rather than the flying metal tubes division that you talk about?

Mark Ross Smith (29:06):

Just on El Al for a second, the loyalty program valued at 500 million. That’s today’s value. And then they’re not the biggest airline in the world. Imagine if they grew some of those, the right metrics? That 500 million, why couldn’t it be 10 times that? For an airline to jump up 10 times in their market cap in the market? That’s unheard of, right? How many aircraft do you need to buy? How many pilots do you need to employ? How many routes do you need to fly? How much does that cost to do all that to drive up 10 times or 10x, versus how much would it cost, an investment into loyalty, to drive it 10x? Which is again, if it’s worth two and a half times, nearly three times the airline’s value. You’re much better putting your resources into loyalty than into pilots, fuel, network, all this other stuff. I mean you need the airline, don’t get me wrong. Or actually that’s the other way around. The airline needs the financial services part, AKA, the loyalty program.

Paula Thomas (30:05):

But I think it’s a good point, Mark, because what I’m hearing is, again, to go back to your favorite example as a frequent flyer with Qantas. What I do think that they have done extraordinarily well of course is this focus on loyalty means that they go out and invest their time and efforts in essentially selling the loyalty currency. And the revenue then that comes through that, as we’ve said, requires the airline to fulfill it. But I think that mindset of we’re in the loyalty business, we have aircraft and routes to fly, of course, to delight our customers. But actually I think your focus, as you said, rather than the investment on the aircraft and that hugely expensive tiny margin airline business, suddenly goes into becoming potentially an explosive community with extraordinary revenues, across much more like coalition style loyalty, I guess.

Mark Ross Smith (31:00):

Exactly. There’s 57 new startup airlines that I’ve seen pop up on the last year in the world. And I haven’t seen many of that actually have a decent loyalty proposition or any loyalty proposition at all. It kind of blows my mind, considering how the world has seen and had proven how valuable loyalty is. And it just doesn’t appear that many are going in that direction in terms of being a loyalty first company, they’re being an airline first company. So we’ll see how that plays out. To your point on coalition, this is really interesting. Because if you’ve got a lot of options to earn points through everyday spend through just normal life, living. You go to the supermarket, you earn some points, your telco bill, you earn some points. If you get points through all these different partners, what happens is, subconsciously, you know you’ll earn your 50 points from the supermarket, you’re collecting them.

(31:52):

When you go to fly, what happens? You go, well, I’ve been collecting all these blah blah airline miles, that’s the first time I’m going to choose, or at least look for a flight for. So it kind of acts like a quasi brand lock-in mechanism. Where you’re making the airline or the loyalty program money through the supermarket buying miles on your behalf and going into your account. Great. And then what happens is when you’re going to fly, you’re “Oh, I’m going to fly that airline because I’ve got some miles there. They might not be the cheapest airline, they might not be the most direct, they might not be the best product, but hey, I’ve got some miles there, I’m loyal to them. I like it, I’ll fly with them.” And so what it does, it funnels people into specific brands versus the alternatives. And so collecting miles at the supermarket or just through everyday spend is yes, there’s the financial element for the loyalty program on them selling points and miles, great. But there’s also the art of the loyalty side where it’s a softer approach. The schmoozing you to please fly us next time.

(32:58):

It’s putting that brand front of mind. So that when you are ready to fly, and that might not be for one or two or three or four, whenever it is, but when you are, the chances of you going to that brand’s website is so much higher because you’ve been collecting the currency versus if you weren’t collecting the currency.

Paula Thomas (33:16):

Yeah, for sure. And I think what I’m hearing as well, Mark, and I know your expertise is very much in the vertical of airline, and I’m going to ask you a question about everyone except airline. But what I hear coming through, and again when I was running loyalty programs, again in the telco sector, which I know you worked in as well, to me there was a lot of this kind of points fatigue. There was a lot of this issue, which is exactly again what coalitions are designed to address. And I think points fatigue exists in probably every single sector except airlines. Because the level of aspiration and the joy of travel, even if it’s to gift travel or whatever. I don’t think there’s points fatigue in my experience, and certainly as a consumer. So I guess my question is we have a huge audience of course, listening, some of them are definitely airline loyalty people, plenty of them are not.

(34:13):

So we have people in quick service restaurants and retail and all these other sectors, utilities for example, where we’re all looking for that unique selling point. So if you were to go into a telco now, let’s say as a loyalty manager and you maybe have an existing program or not. I guess you do have an opportunity to look to the best airline with the best loyalty proposition in that market. And again, I don’t know Malaysia very well for example, where you are based. But what would be your advice or your approach, do you think, would you build your own loyalty program with your own points and that challenge that we’ve talked about in terms of point fatigue. Or would you go to the airline and say, “Hey, can we just buy points from you guys?” And is what’s the decision making criteria would you say?

(35:03):

Because I guess there’s a lot of trade-offs when you go with the just buy them from somebody else. I mean they’re going to be more expensive, for example, the data and insights may be not as good. But yeah, I just think it’s a very interesting idea because it is so difficult to build a compelling loyalty program as a standalone business.

Mark Ross Smith (35:22):

I have a whole another podcast just on this topic, I think Paula.

Paula Thomas (35:24):

Sure. Sorry for the long question.

Mark Ross Smith (35:30):

I think the answer really depends on maybe the size of the company looking to build out their loyalty proposition, whether they partner with an airline or buy that currency or not. If we look at why airline currency is interesting and aspirational, it only comes down to airlines. When you fly, you’re on a plane for an hour, 2, 3, 12, 15, you’re in that travel ecosystem for hours and hours at a time. And so you’re seeing the brand, the seat back and tray the meals come out on, you see the brand everywhere. You’re just immersed in it, totally immersed for long periods of time. Whereas when you walk into Starbucks, it’s two minutes and you’re out. So that’s why also people are more interested in the airline just because they’re more passionate, just because they’re putting more of their attention in it. Because they’re living in that plane for 12 hours on the flight.

(36:21):

And so for an external business that is looking to, do we create our own currency or do we leverage off the airline’s currency? The airline currency has this pre trained audience on the value of their currency, and airlines are not stupid. They will charge you a premium to buy those miles if you own a business. But you know what, it’s probably worth it for the other business, especially if you’re a small company. Because then you’re then tapping into this other customer base. They know the value of these points. It’s a big brand. So presumably you’re kind of trading up in terms of brands, so that’s good for your business. And you don’t have to think about it as much. And then if you’ve got the right economics and partnership agreement in place, maybe the airline’s going to help promote your business. And actually what I’ve found, and this is a really hard thing for some companies to grasp, a lot of the power in these kinds of relationships is yes, there’s power in the airline promoting your product when you’re a partner.

(37:20):

But actually if you are the other brand, you promote the fact that you’re a partner of that airline brand. That is actually hugely powerful, hugely magical because you know your own customers better than the airline knows your customers.

(37:35):

So you promote in the channels that you know best and then suddenly you’re unlocking the loyalty members at the airline to come into your business. So there’s a lot of power in that. So to your question, I think it depends a lot on where you want to go. That doesn’t really help anyone listening, but there’s obviously tremendous value in airline loyalty currency and that’s been a proven model for at least the last two decades.

Paula Thomas (37:59):

But I really like the words you used Mark, which is pre-trained. Because again, to go back to my own example and my own experience. Essentially no matter how much time, effort, money and communications we spent, it always felt like never more than, I’m going to say 35% of the customer base, really understood our telco loyalty program. We never really appreciated the depth of the challenge to educate and train the customer on what our currency was, what the value was, what the benefit was. So I think you’re absolutely right, that idea that to essentially partner and buy from another pre-trained loyalty base, I think there’s a huge benefit there to a partner brand, that, yeah, I hadn’t really thought about before.

Mark Ross Smith (38:46):

And this is another element. Do you want more than 35 or 40% of people engaged in the loyalty product? Because maybe that’s all you need. for example, people have a [inaudible 00:38:58] status in an airline, like a silver, gold, platinum type status. This typically represents two, three, 5%, maybe five percent of the member base in a loyalty program. That small percentage of loyalty members represents about 30% of revenue to the airline, a total ticket spend at an airline. So if you’re looking at which basis within your loyalty program, which customer segments you could influence the most, because the loyalty program’s all about influencing people to do stuff to take certain actions. So you can drive whatever metric you want from that audience. And an example of airlines, if you got a silver or gold status, the chances of you being able to afford and spend more on stuff is pretty high versus someone that doesn’t have that, right?

(39:45):

And it’s easier to get these people to do stuff. So hence there’s tier and points that influence that very small group of people. Because when you influence them, it magnifies the revenue that you can achieve out of it. Versus that it would cost a lot more to get those kinds of gains out of the non status people. So you focus on the people with status because you could just do a lot more, it’s a lot easier. So in telco world, maybe it’s about looking at who has the ability to spend more, again, share of wallet, and then targeting them with specific things or specific currency and seeing how that drives outcomes. Telco and airlines have a pretty good relationship together. Because they both make money out of roaming. and there’s a bit of an audience overlap there. I’ve seen airlines where they export the loyalty members phone numbers, for example, send it to their favorite telco and say, “How many of these people have are in your database? We know they’ve traveled, you know they’ve traveled. Where else have they traveled that we don’t know about?”

(40:54):

It’s an interesting one. And they can sort of see the overlap on the databases. And from there you can make a pretty educated decision on if you should partner with that telco from an airline perspective. This is based on the audience overlap and how many more people could we move the needle on on all sorts of stuff.

Paula Thomas (41:14):

Super interesting. And I know another thing that you’re quite passionate about, Mark, is the fact that loyalty still has so much potential. One that I wanted to ask you about is this idea of frequent flyer programs as media businesses. And I know for example, obviously within financial services, as we’ve said, they promote partners. But increasingly I’m seeing retailers, whether it’s Walgreens for example, in the US, where they’re literally building an entire media business from their loyalty program. So literally kind of leveraging those data insights and permissions. And I’m wondering if that’s something that you hear happening in airlines or whether it’s something you think it is an opportunity for airline loyalty people?

Mark Ross Smith (42:04):

Airlines do a bit of this already, around the points and miles aspect of it. Some of it flows over into flight magazines as well. Is a little bit there. I think fundamentally where this is going is again to the point on airline multi valuation. Yeah, it’s underpinned by miles, but if you take a step back further, the miles represent high margin revenue. And so the more high margin revenue you can generate, whatever that looks like. Sometimes it’s points and miles, sometimes it’s media, sometimes it’s selling an upsell kind of loyalty product. Maybe it’s a subscription based product. Whatever that looks like. It’s all high margin revenue because remember, the airline’s margins on some of those seats is pretty disgusting.

Paula Thomas (42:53):

Totally, shocking. Yeah.

Mark Ross Smith (42:55):

Whereas in loyalty it can be the right customer and the right miles that you sell, it can be a hundred percent dependent. If you work on margins somewhere between 30 and 60%. That’s pretty typical of most airline businesses. And that’s more like a media company or a tech company in terms of the type of cash it’s generating, it’s more aligned with that. And the market values those businesses differently. So creating a media company or a media arm to a loyalty business makes total sense because it’s the same type of revenue.

Paula Thomas (43:29):

I like it. I like it. Wonderful. Well, I mean so much there. I suppose the final big topic that I really liked, which I think we’ve alluded to already, but it’s already to me, I suppose this idea about loyalty being at the C-suite. You mentioned a couple, which I hadn’t I suppose realized the specific examples where loyalty experts, let’s call them, and loyalty management people do sit at the C-suite level. So the examples you quoted as IAG of course with Avios, Qantas and Asia Miles. So I guess, do you think that this is a trend that there is this level of increasing respect for loyalty programs within the airline business? Where they are perhaps bringing them and promoting them up the chain? Or what’s your view? Because I think you mentioned to me off-air that you have had questions from airline loyalty professionals who themselves realize that they’re probably not visible enough, let’s say internally maybe not positioned at a senior enough level. So I’m not sure what they can do, but yeah, just what’s your view on loyalty in the C-suite?

Mark Ross Smith (44:43):

Loyalty is definitely a C level role and should be at the boardroom, probably with a few seats. More than one given the value that it represents to the group and the value that it can bring to the group if it’s-

Paula Thomas (44:57):

Prioritized?

Mark Ross Smith (44:57):

… looked after properly. Yeah, exactly. So there is definitely more and more airlines moving this direction. Generally it’s where the setup is loyalty is a separate entity owned by the airline. So it’s not a division within the airline as such. It’s a loyalty co [inaudible 00:45:17] type deal owned by the airline. What that does is it frees up, there’s a bunch of benefits of doing this. Obviously you’ve got a proper P and L that’s totally separate from the airline that you’re more accountable for, more auditing, that kind of stuff. And so you can leverage loans and all sorts of stuff based on that specifically. Brings proper structure, brings governance and all sorts of stuff that you kind of need to have behind that.

(45:43):

More importantly, from my perspective, having worked in an airline where loyalty was a division, you move away from some of the bureaucracy and the politics within the airline structure. And you know how people talk about the airline’s very siloed divisions. No one talks to each other. my view’s actually the opposite. Why don’t double down on that? Why don’t you just silo even more? And to some degree, that’s kind of what spinning out the loyalty proposition does. Because then loyalty can just go do its own thing. It doesn’t have this burden of we have to run every decision by networking and revenue management and da da da. It just gets away from that. If you kind of free of the shackles of traditional airline nonsense that comes with it and just go do your own thing. And that’s why we see most if not all airline loyalty programs that have sort of split out, have done extremely well.

(46:42):

Because now they can just focus on what really matters. And we’ve seen tons of examples over the years where it sort of spun out one of the programs, got bought back in, actually a couple of them, sort of reigned back in a bit to the airline. But it’s really only good news there. And it’s good news for the airline as well. Because suddenly you’ve got this loyalty program that goes out there, makes a bunch of cash, and then when the airline eventually runs out of money, they put their hand out and say, “Hey, could you help us guys?” And say, “So loyalty wasn’t that important before, but oh, now it’s just saved the company. It’s prioritized.” So it’s definitely a C level type role. I do get people all the time from inside airlines, even simple, “Hey, saw this article you wrote on da da da, we showed the CEO in one of our meetings, your article.”

(47:35):

That’s what we referenced to try and drive this other thing that we were doing. I like hearing these stories, because you don’t write these articles thinking this is ever going to happen. And then when someone tells you, “Hey, this actually was brought up in one of our executive meetings,” it’s like, oh, that’s cool. it’s good that it’s being used to help loyalty professionals with an airline do what is sometimes hard to articulate within an airline. Because you’re in your job every day, you’re just doing your thing, and that’s great. There’s only really a few different loyalty airline conferences in the world, and it’s been hard to get to some of them the last few years. So it’s hard to talk to your peers about this stuff. And as an airline, you don’t really have a half a million bucks to engage one of the big consultant groups to do this kind of stuff for you.

(48:24):

And so where do you go? You’re limited on your options and suddenly you see all these articles and thought leadership stuff online. It’s like, “Well, hang on, this guy seems to know what he’s talking about. I’ll use that.” And so I think that’s helped a bunch of airlines at least strategically position themselves internally, to leverage the asset that they really have. And I think there’s going to be a bit of a turning of the tide within airlines, especially as we come out of this global mess that we’re in right now. Where the big guys have shown the value to the world of their loyalty businesses. And everyone else is looking at it and going, “How do we do that? How do we emulate that?” And part of that, sadly, in some ways I think means sort of deconstructing the airline management’s existing structure and rebuilding it in a way that is more aligned to the value that loyalty brings to the airline. And what that means is there’s just more loyalty marketing, branding type people and minds that have to come to the top.

Paula Thomas (49:37):

Well, I wholeheartedly agree. What can I say, Mark? It’s music to my ears. I think it’s music to the ears of every loyalty professional who’s listening. Because I do love the fact that despite the chaos and the craziness and the devastation the world has gone through, what I do love is the increasing opportunities for us in this business. Because again, it comes back to my core passion, which is it puts integrity and customers at the core of the business. So I do think we have a unique opportunity in loyalty marketing to serve the customers. And I really get great joy from that. I’m hearing that coming through as well from you, Mark. So listen, we’re coming up to the end of our time. I don’t have any more questions for you, but I’m sure you have some parting notes or a favorite example, or what ideas would you like to leave our audience with before we wrap up?

Mark Ross Smith (50:33):

Specifically for airlines, again, my favorite thing, I think is getting to know your customer and walking, or in this case, flying, a mile in your customer’s shoes could go a long way. Really experiencing the pain points and the joys of what customers go through every day. And this is not just one flight a month, no, do it more often. Really walk in their shoes. See what makes them tick. Because what you’ll inevitably find is not just things that can be solved, but there’s new revenue opportunities that will come out of it. People will say, “I wish I could do this. I wish I could not do this. I’d pay more for blah, blah, blah over here.” And so instead of cost-cutting your way to success, which doesn’t work, you can start building new products and building rapport with customers as well. And if customers start seeing more airline, especially management, people get involved on this level, I’ve personally seen it to be very, very successful. So I would like to see more, especially airline people, be customers of their own product.

Paula Thomas (51:46):

Yeah, and to circle back to our opening discussion, Mark, maybe we all need to go and do a stint in a gaming company and come back to our airlines with all of that insight and ideas about engaging our customers. And perhaps that’s another way to fix the situation?

Mark Ross Smith (52:04):

Exactly. So if you play League of Legends, make sure you look me up on the Oceana server.

Paula Thomas (52:10):

Wonderful. Great. Listen, it’s been a fantastic conversation. Mark Ross Smith, airline loyalty consultant with New World Loyalty and CEO co-founder of statusmatch.com. Thank you so much from Lets Talk Loyalty.

(52:26):

This show is brought to you by the Australian Loyalty Association, the leading organization for loyalty, networking, and education in Asia Pacific. Their international virtual Loyalty conference will take place on the 25th of August 2022. Register now to hear global experts discuss current trends in loyalty marketing. There will be fantastic networking opportunities, questions and answers, gamification and great prizes to be won. Visit Australianloyaltyassociation.com to find out more. Thank you so much for listening to this episode of Let’s Talk Loyalty. If you’d like us to send you the latest shows each week, simply sign up for the Let’s Talk Loyalty newsletter on letstalkloyalty.com, and we’ll send our best episodes straight to your inbox. And don’t forget that you can follow let’s Talk Loyalty on any of your favorite podcast platforms. And of course we’d love for you to share your feedback and reviews. Thanks again for supporting the show.