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Loyalty Leaders Podcast: Mastering Status

In Episode 5 of Loyalty Summit’s Loyalty Leaders podcast, two topics near and dear to the hearts of travel loyalty marketers are explored: Status and Liability Management. Are the two topics perhaps intertwined? We’ll see.

Segment One: Loyalty Summit Americas chair David Feldman sits down with Kyros CEO Len Laguno for a deep dive into loyalty program liability.

Segment Two: Loyalty Summit VP Rick Ferguson discusses the present and future of loyalty program status with Porter Airlines’ Brian Schreiber and Loyalty Status Co’s Erin Murray.

Rick Ferguson (00:00):

The Loyalty Leaders Podcast is brought to you by Loyalty Summit CXM, coming up in Copenhagen, Denmark, on April 17th and 18th, 2024. Technical innovation meets customer devotion at Loyalty Summit CXM, your gateway to a new era of intelligent loyalty. A summit in the classic sense, Loyalty Summit CXM offers two days of exciting keynotes, immersive panel discussions, and deep-dive workshops in which our roster of retail loyalty executives explores cutting-edge strategies and visionary insights from across Europe. Reserve your spot today and join the ranks of the Loyalty Intelligencia at loyaltysummitcxm.com.

(00:52)
Hi everyone. I’m Rick Ferguson, your host for the Loyalty Leaders Podcast, your premier source for loyalty goodness around the globe. In preparation for our upcoming Loyalty Summit in Europe and London this summer, we explore two topics near and dear to the hearts of travel loyalty marketers: status and liability management. Are the two topics perhaps intertwined? We’ll see. In our first segment, Loyalty Summit America’s Chair David Feldman sits down with Kyros CEO Len Laguno for a deep dive into loyalty program liability. From understanding redemption costs to calculating customer lifetime value, to the importance of test ad learn, Laguno provides leading-edge insights into loyalty program profitability.

David Feldman (01:38):

Hey, welcome back to the Loyalty Leaders podcast, David Feldman here, and we are at the Loyalty Summit CXM Conference here at the Beverly Hilton in Los Angeles. And joining me is Len Laguno from Kyros Insights. Len, how are you?

Len Laguno (01:49):

I’m good. How are you doing?

David Feldman (01:50):

Fantastic.

Len Laguno (01:51):

Thanks for having me.

David Feldman (01:52):

Yeah, thanks for joining us. Some great panels today and one you were just on as well talking about… The theme of the track was about elevating loyalty up to the C-suite and how do we talk to the C-suite about loyalty and about outcomes? And the question came up about the loyalty liability, which is often such a scary large figure on a lot of balance sheets. But it was interesting, because I think the question was posed to the audience, which was primarily retail loyalty program managers, who has responsibility for the liability on the balance sheet? And it was interesting, there was only a small number of hands that went up and considering the size of the loyalty liability on the balance sheet, it’s still a scary concept for a lot of loyalty managers. And I think the first question that comes to mind for me is, you work with a lot of programs across a lot of industries on their loyalty liability, and the question I have for you is, is typically in your experience, who owns it? Is it the program manager? Is it finance?

Len Laguno (02:58):

Yep. It’s a great question and there’s definitely some variability across companies, but generally it’s going to be somebody in finance, or somebody in finance or accounting, in that silo of the organization that is ultimately responsible for booking the liability every month and then doing the financial reporting on the liability when you close the books every quarter and then working with auditors to get them comfortable. That is very much a finance function and a financial reporting function. So, I’m not at all surprised that basically nobody, very few people raised their hands in the room when I asked how many people actually are responsible for it. I guess that maybe I should have asked, how many people are close enough that they have some hands on it? Maybe would’ve gotten some more hands raised.

(03:44)
But at the end of the day, the loyalty markets don’t necessarily need to be aware or have their hands on the liability per se. It’s very much an accounting concept. You’re just keeping track of IOUs, and that has nothing to do with the daily management of the loyalty program, but embedded in the work to understand the liability and quantify it accurately is an understanding of redemption costs. So basically an understanding of for every point you’re issuing today, how much is it actually going to cost you? And that is something that every single loyalty program manager, anybody responsible for the business of loyalty, should absolutely have their hands completely wrapped around. Redemption cost is going to represent the single largest expense in the loyalty program business model. And you would think that we would want to spend a lot of time, energy, and resources in really understanding that expense and quantifying that, but largely I find that is not the case. Most loyalty programs are not investing time, energy, and resources in the actuarial skills to actually quantify that with a high degree of accuracy. So, ultimately, they’re running their business with some assumptions that they come up with, but who knows if they’re the right assumptions around those costs. And generally speaking, I would argue it’s not a good idea to run your business without a really strong understanding of your single largest expense.

David Feldman (05:02):

Well, I think for a loyalty program manager, generally speaking, most program managers have to answer upstairs when upstairs ask the question in terms of, is the program running at a profit? How profitable is the program? How much margin do you have? What is the cost per point? These are questions that I would expect that most loyalty program managers should be certainly prepared to answer to their superiors in the organization at various times, even if they’re not managing the month-to-month, quarter-to-quarter management of the liability account per se. But I got a bit of the sense that it’s still a very… Even those topics are still very scary for a lot of program managers who perhaps consider themselves more marketers than business department heads. Do you think that that’s a fair comment?

Len Laguno (05:50):

I think that’s probably a fair comment, but I would say it’s less intimidating than it has to be, than perhaps a lot of people think about. If you want to get into the bowels of liability management, then yes, there’s a lot of accounting nuance there that is… Even for an actuary, you’re like, “Wow, there’s a lot of rules here and regulations and whatnot.” But that’s not what a loyalty marketer needs to do. What a loyalty marketer needs to understand is; okay, how many points am I going to issue over the next 12 months? What’s the ultimate redemption rate on those points I’m going to issue over the next 12 months? What’s the cost per point on all those points? And be able to build that P&L, that forward-looking P&L of; okay, here’s the revenue coming in, here’s the redemption cost I should anticipate on the points I’m going to issue, subtract the two, you get to some level of gross margin.

(06:38)
That exercise is actually not that challenging conceptually, and I think that would be a really good practice for every single loyalty manager to have. At the end of the day, it’s just a P&L forecast for the loyalty program business model. But I’ve been doing this for a long time and you go to a lot of loyalty programs and you ask them, “Hey, do you have exactly that?” And they say, “No, I actually don’t.” A lot of them do, and that’s a really good practice, but a lot of them actually don’t. So I would say just building that as a first step is good. The challenge there is really just understanding, again, the estimates around the cost. Of all the points you’re issuing, in every single month, what is the ultimate redemption rate on those points? What is the cost per point? And those require actuarial estimates. Loyalty programs do not have the actuarial expertise to be able to quantify that, nor should they really try to develop that. That’s a core competency that is not in their core strength. And it’s one of those things where it’s just like; well, it’s probably better off outsourcing that. I would argue, and obviously I’m biased here, but it’s one of those things that’s not going to make your product better. It’s really a compliance value proposition, and that’s where we can help a lot of the loyalty programs.

David Feldman (07:48):

Sure. So if you’re, again, trying to empathize here with some program managers, you and I worked together a lot on this over the years and we geek out on this, but for a lot of loyalty program managers, this still remains a very scary topic. They have finance or the CFO breathing down their neck. It is a lot of nuance to try to understand and accounting isn’t everybody’s strong point, which is probably otherwise they’d be in the accounting department, not running the loyalty program, as a general rule. But for those program managers that still find the whole concept a little bit scary, they understand the importance of trying to understand what the redemption rates are going to be, what the cost per point is going to be, they understand that they need to know it to be able to manage the program effectively. What’s the best advice you have for them? Is it just about building better and stronger relationships with finance, and that finance can help them along that journey?

Len Laguno (08:45):

Well, I think finance is an important stakeholder. We like to use the CFO as the archetype, as the persona for finance. I think they are, reality is they’re an important stakeholder, so we got to get them comfortable with what we’re doing with the loyalty program and get them to be advocates for loyalty as opposed to, what is often the case, they’re skeptics. And so building that relationship I think is important. And I think the challenge here, and we talked a little bit about this in the panel, is we have to quantify the liability and we have to basically put that in front of your CFO, your auditors, and all the financial leaders in the organization. You have to do that every quarter when you close the books. And that’s the rules. You got to do it. And that inherently is like a cost concept. So every quarter you’re reminding them, “Hey, this is how much this thing costs. It’s expensive. It’s one of, often, the single largest liability on the balance sheet. So we’re doing that every quarter, but we’re not telling them every quarter what the benefit is they’re getting from the loyalty program.

(09:47)
And so in that situation, what would you’d expect to happen? Of course they’re going to be cost focused. They’re going to be in the mindset of cost minimization and view the loyalty program as a cost center as opposed to a value generator, which I think all the listeners of the podcast here, and everybody here at the conference or at the Summit here, we all know it’s an enterprise value generator. It’s just we struggle to tell that story.

(10:09)
Pete Fader was here at the conference and he talked about customer lifetime value, and I think that’s the missing link. Customer lifetime value is telling us how much profit are we going to generate from our customers in the future. So it’s profit, net of redemption costs, so it’s really a bottom line net economic picture. And that’s ultimately what we should be focusing on is really improving that, regardless of whether or not costs are increasing or decreasing, so long as our customer lifetime value is improving, from an economic standpoint, that is really good. From an enterprise value perspective, that is really good.

(10:41)
So we need to start there, and I think that’s how we can put it in financial terms, but also terms that loyalty marketers inherently understand. Loyalty marketers understand the idea of customer lifetime value, and we know that we’re trying to improve customer lifetime value with loyalty programs. If we can really build that capability within a lot of these loyalty programs and these enterprises, then suddenly you have something that finance and marketing can get behind. It’s a shared language, a shared concept, and we can focus on value creation and maximizing customer lifetime value as opposed to cost minimization and reducing liability. And I think that’s ultimately where we want to get.

David Feldman (11:18):

So, when we think about, again, to come back to this big scary concept for a lot of people of the liability and the accounting side of thing, moving to, like you say, this customer lifetime value discussion, the work that we have to do to manage the liability, can we use that to really drill down to, I guess, micro segments, some of our customer segmentation, our cohorts to then come out with actionable data and insights that program management can then use to deploy targeted offers, or promotions, or private offers to try to lift certain segments directly related to how their behavior and perhaps their past and their future redemption patterns, for example, to directly lift customer lifetime value, but in a very surgical, targeted manner?

Len Laguno (12:23):

Yeah. Yeah, yeah. No, I think that’s exactly where we need to go. And I think the work we do with liability and customer lifetime value can be really helpful for that. What these models allow, the way we do these models is we build the models at the individual member level, so we can make predictions around customer lifetime value for each individual member. So you, David, we’d look at everything we know about you and make a projection for how valuable you are, and we can look at everything about me and make a projection for how valuable we are. And the projections will be completely different. You might be worth a lot, and I might be worth not so much. We should take that into account in terms of how we treat you. High value customers should be treated differently than mediocre customers and even more differently than people that are perhaps worth something negative.

David Feldman (13:09):

But it’s important, if I could interject there, but it’s important to make sure that when we’re thinking about how we’re going to treat customers based on whether we’re perceiving them as low value, medium value, high value, high potential, whatever else, that we’re really talking about the holistic view of the customer, not just, how much did you spend with me today? Or how much did you spend with me last week? But looking at that whole relationship with that customer in totality, because somebody who spends maybe not so much this week, you might be tempted to say they’re a low value customer, but when you look at them holistically, they actually might may be much more high value in terms of the total relationship than somebody who is your highest spender this week alone.

Len Laguno (13:45):

Totally.

David Feldman (13:45):

So I think what you’re saying is, and correct me if I’m wrong, if I read this back to you, is that it really is taking everything we know about that customer at the individual level to give them a score and bucket them into the, in simplistic terms, high, medium, low. So let’s say there’s a customer service problem and you want to figure out how much or how generous should you be in trying to keep this customer happy, repair the relationship. Obviously somebody who holistically is very high value, you want to make sure that you really look after that person in fixing it and making it right. Somebody who’s maybe low value in the total relationship with low future potential revenue as well, well, you don’t want to spend too much on trying to repair the relationship, because otherwise it’s good money after bad.

Len Laguno (14:36):

Yeah. That’s a great use case of these CLV models is being able to put them in front of customer service agents to help prioritize and understand how much you might want to invest in repairing the relationship when things go wrong. You raised a great point here around customer lifetime value models and how they work. We’re not just looking at what people did in the last month or the last week or something like that. That all gets fed into the model and then we’re explicitly making a forecast of what they’re going to do over the next two years. And so to the extent their recent behavior is a predictor of long-term future behavior, then that’s going to be captured into the model. So it does allow you to take a really holistic view of the value of that customer instead of just focusing on what they just did this past month. It’s a much more broader view, and that then allows you to really do a lot of things, like your example there of feeding it to customer service agents, so they have a data point there to help inform how they handle certain cases, that’s a great example. Just being able to segment your population to understand high versus medium versus low and the different tactics you might want to deploy, that’s another really great example.

(15:41)
I think the most important one though is once you do that segmentation exercise, you might have some ideas around how you want to engage the high people to get them to repeat at a higher rate or the medium people to get them to repeat at a higher rate, but you don’t actually know the right tactics that will work. You have hypotheses, but you don’t know. If you want to know what will actually work with precision, you got to go to the third step beyond CLV. It’s test and learn. You got to start running experiments with the proper holdout sample and see what actually works and what doesn’t, do more of what works, do less of what doesn’t, and keep iterating, keep experimenting and keep learning. Every single time you go through this test and learn experimentation cycle, you get smarter and you get smarter and you get smarter. Your ROIs get better and better and better. And I think if you can deploy that at scale, then it becomes… You suddenly have the system that can systematically generate more profit for you.

David Feldman (16:36):

So, quick question, you mentioned an example timeline a moment ago, but you do this work across a lot of industries, not just airline and hotels, but financial services, retail, you name it. Is there a takeaway in terms of when you’re looking at these not specifically CLV, but these holistic views of the customer lifetime in terms of the relationship, do you see different timelines in different industries? For example, in travel, do you see that, well actually the timeline’s more five to seven years, whereas in retail maybe it’s only two years. Is there a difference in that, or do you find that there’s still a consistent way to apply these models?

Len Laguno (17:21):

Yeah, the horizon over what you’re going to look in the future certainly is something you can select. It’s in the theoretical limit here, if you truly want to do customer lifetime value, predict to the infinite horizon into the future, but for all practical measures here, you just need some future horizon that is more than one year probably for most businesses. Two to three feels right and that’s a long enough horizon to really capture the people that are going to be valuable, that are going to come back and be able to differentiate between those people that will come back and those that won’t.

David Feldman (17:58):

Because you’re going to have outliers. You’re going to have outliers that, in an airline scenario for example, you’re going to have outliers that fly once every two years and then you’ll have other outliers that fly 50 times a year and they do it for 16 years running. But those sort of people and examples are clearly extreme outliers. So, I appreciate that averages are the enemy of what we’re trying to do at the individual member level here, but at some point, I guess there’s the law of diminishing returns. If you slice and dice too granularly, it’s not actually going to give you any higher quality in the models.

Len Laguno (18:35):

Yeah. There’s, in the actuarial world, this idea of credibility, if you slice your data too thin, it’s not credible in the sense that you can actually derive any real signal from the data. And that’s where the art of the modeling comes into play. You are building these models which are inherently a very statistical and number-based thing, but there’s certain points where you got to apply your judgment, so that you’re making good models and not overfitting and slicing your data in a too granular of a way. So it’s definitely something you need to consider.

David Feldman (19:08):

Yeah, so I think, Len, a lot of this is, its details, we’re in the weeds. As I said earlier at the beginning, you and I geek out on this, but to a lot of people, it’s foreign language. A lot of program managers, they know they got to incorporate this into their work, but it’s a scary concept in a lot of cases. Hopefully today we’ve taken a few quick minutes to demystify some of it, but also perhaps open up some of the opportunities where it’s actually not just about dealing with the liability, but we can actually use the same data and the same models to actually turn around to perhaps guide us when it comes to deploying promotions and tactical offers and things like that, and work with finance and accounting and the program together to deliver better outcomes. Obviously, if you’re delivering positive outcomes from the program financially, the CFO is going to be much more of an ally than simply somebody pressuring you to reduce costs on the liability, which is the old saying, you can’t cut your way to profitability. Len, if people want to learn more, how can they find you?

Len Laguno (20:10):

Yeah. So, if you want to learn more, the way to think about us is we’re a highly specialized team of actuaries. As far as we’re aware, we’re the only actuarial firm in the world that solely focuses on loyalty programs. So you’re not going to find actuaries that go deeper into this space than us. We help with liability management, we help with customer lifetime value models and customer analytics, and then we help with test and learn. It’s the whole three-step process here to get you a point of, if you can deploy all those things at scale, you can develop a systematic process to just generate more profit out of your loyalty program, not through cost-cutting, but instead through cultivating customer lifetime value and improving retention.

Rick Ferguson (20:49):

In our second segment, last week I recorded a live stream broadcast on program status with Brian Schreiber from Canada’s Porter Airlines, and Loyalty Status Co’s Erin Murray. We discussed the importance of leveraging status to drive engagement, how to right-size your program to cater to your most loyal customers and the future of personalized status and benefits. Let’s listen in.

(21:22)
Hi everybody. I am Rick Ferguson. I am the VP of marketing for Loyalty Summit. I’d like to welcome those watching live right now to our latest Loyalty live stream event, and also welcome those of you who will watch later on, which is perfectly okay. As I did mention, we are live, so as with any live stream, there may be some occasional glitches, somebody’s internet might drop off, there might be a commotion outside. So whatever happens, we’re just going to roll with it and we hope you will too. And I’d like to welcome the two folks you see on screen with me right now. First of all, I’d like to welcome Erin Murray, CMO for Loyalty Status Co. Welcome, Erin.

Erin Murray (22:04):

Thank you.

Rick Ferguson (22:05):

And I’d like to welcome also Brian Schreiber, Director of Loyalty at Porter Airlines. Welcome to the broadcast, Brian.

Brian Schreiber (22:12):

Hi, great to be here.

Rick Ferguson (22:14):

And as you folks watching may have seen from our title card for this live stream, this live stream, we’ve titled, “The Power of Status.” And obviously in the travel industry, the power of status and of tiers and all of the power of those concepts to build and sustain customer loyalty and to use them as acquisition channels, as new customers come in and try your airline or your hotel, obviously that’s been in the news a lot lately and we’re going to spend some time discussing that. Before we get into that discussion, I’d like to give both of you a chance to introduce yourself and what you do. So let’s start with you, Erin.

Erin Murray (22:51):

Great, thanks. As Rick said, I’m Erin Murray, CMO of Loyalty Status Co. We are best known for our signature product StatusMatch, but we work with travel brands globally, different ways to leverage their status programs to acquire customers, generate revenue, drive member engagement, all of those important KPIs. So I’ve been with Loyalty Status Co for less than a year now, so still a bit of a newbie, but I’ve been in the industry for almost 25 years, which is why and how I’m so fortunate to know both of you. So this is a reunion of sorts, I guess, so thanks for having me.

Rick Ferguson (23:31):

Absolutely. Thanks for being here, Erin. And Brian, tell us a little bit about yourself and about Porter Airlines.

Brian Schreiber (23:36):

Yeah. I’m Brian Schreiber, Director of Loyalty at Porter. So I look after the entire frequent flyer program that we have here, going on two years here. We have been historically a small regional airline for the first 16 years based in Toronto, primarily at our city center airport, but as of last February, we launched our first flights with our new Embraer E 195-E2 jets, which have the range across the entire North America. And so we have been rapidly growing over the last year and continue to grow very, very rapidly to points across Canada. West Coast, recently launched LA and San Francisco with Vegas next on the books coming in early March. So, we’re a Toronto-based airline with massive, aggressive growth behind us and in front of us. But yeah, I’ve been in loyalty for probably going on 15 years, airlines and loyalty together, and yeah, Erin and I crossed paths a few years back in a different role. So it’s great to see you again, Erin.

Rick Ferguson (24:30):

And I should mention for those of you who maybe in the U.S. who aren’t as familiar with Porter Airlines as folks in Canada are, the airline does promise no middle seats, and they do promise free wine and beer for all passengers. I think you said that those drinks are actually served in real glassware, Brian. And middle seat and a glass of wine, that’s as good as flying gets for me, or an aisle seat and glass of wine [inaudible 00:24:59]. I personally will be trying Porter Airlines in my first opportunity.

Brian Schreiber (25:03):

You’re welcome. Anytime, Rick.

Rick Ferguson (25:04):

Awesome. So, we’re talk about status. I know you guys at Loyalty Status Co, Erin, you’ve been focused on status and the number of tiers, so it’s core to your business model and that’s how you approach your client engagements. So we’re going to keep the conversation focused mostly on topic. And I’d like to start with you, Brian, and talk a little bit about what you guys have been doing with your status lately at Porter and VIPorter program.

Brian Schreiber (25:34):

Yeah, thanks Rick. And I’ll say quite a lot, we have had a loyalty program since I think 2008 or so, and we’ve had a status program as part of that, and we actually relaunched it about a year ago, which was really exciting. With the growth that I mentioned, knowing that we had that many more passengers coming through, we had that many more destinations coming through, we knew that we needed to make some changes to adapt to the future of the airline. So, we added a couple of levels, membership levels within the program. We adjusted some of those tier thresholds, those spend thresholds in order to get there, so that we were right sizing the program for the type of customers and the type of network that we were building.

(26:20)
We didn’t want to have… There were customers who, if someone was flying to Montreal once a month for work, we were a great airline, great fit for them, but they may have also flown once a month to Vancouver, and we didn’t fly to Vancouver before. And so now that we are able to have more people spend more of their travel spend with Porter and have more opportunities to fly with us, we knew that they would end up spending more, which means we needed to spread out those tiers a little bit. So, those changes went live about a year ago.

(26:48)
And then we also recently, I’ll say, reset our program, our membership that is. Porter shut down for about 18 months during COVID. Rather than keeping 2 to 5% of our schedule going, we completely shut down for about 18 months to hunker down and refocus and hope that thing was going to pass, which luckily it did. And during that time is when the growth plans emerged. So our so-called status cliff actually happened at the end of 2023. I think most larger airlines that were keeping up did that in 2022, so we were a bit delayed in that respect. And so 2024 has really been a fresh start for us with really understanding who our current members are, who our current status members are, what is their behavior, how are they flying, what does their spending look like, and are they taking advantage of the new network and the new benefits?

Rick Ferguson (27:38):

Right. And there’s been, as I mentioned in the intro, there’s been a lot of renewed focus on the most effective ways to use status to maintain those customer relationships. And obviously we’ve seen some other airlines make some changes to their status and the way they approach tiers. Erin, has the way that Brian has described Porter’s changes and the use of their tiers and their status programs, is that consistent with what you’ve been doing with other partners that you’ve worked with?

Erin Murray (28:06):

I would say Porter’s unique in the fact that you’ve been innovating so quickly, really restructured the program, constantly listening to member feedback on what the needs are. But what we have seen that’s consistent is this response to another status cliff and the real desire to do everything possible to retain those best customers. So, assessing who is your best customer and then going above and beyond to provide those customers opportunities to requalify. And sometimes that’s not necessarily just by them meeting the published standards, sometimes it means that you want to retain them, so provide them the opportunity to accelerate their miles, multiply the number of miles that they’re earning, so that they can requalify, even if their business habits, travel habits have changed for a year. So that regular trip to Asia all of a sudden moved to a Zoom meeting, it means you’re not going to requalify for status, well, let them multiply their current miles, so that they can requalify and generate ancillary revenue, keep that member. But we’re seeing that consistent across every different partner. It could be in the form of multiplying miles. It can be in the form of selling status outright. It could be in the form of strategically selling status to members that have just narrowly missed qualification. But what is really important is providing those members with the ability to requalify outside of the standard, rigid, uniform requalification criteria.

Rick Ferguson (29:43):

Right. It’s the ability to recognize that these are elite flyers and even though there might be a temporary change in their situation, that they’re members that are worth maintaining that relationship with. I noticed one thing that you guys do, Brian, in VIPorter is, and I think this is unique to Canada and we’re jealous of it in the U.S., is that there’s a very long parental leave time for Canadians when you have that life change and you guys recognize that and then make sure that you’re able to maintain your status even though you’re not going to be doing the flying that you did for that period of time while you’re on parental leave. That seems like a great way to recognize and reward those loyal customers.

Brian Schreiber (30:27):

Yeah, exactly. It’s somewhat mirrored to the, I’ll say, the typical and generous policy that exists in Canada where new parents can take anywhere up to 18 months of leave from their job. So their job is protected. But for people who are traveling really frequently, before that new little one comes home, we didn’t want them to then, all those hours sitting in aircraft, didn’t want that to go to waste. So we allow them to push pause on that and spend the time that they need or that they want to with their new little ones at home and come back to exactly where they left off and not be penalized for doing what they need to do in their personal life.

Erin Murray (31:07):

Yeah. And I think that’s really, it’s important, because not just the parental leave, but again, just making an effort to ensure that you’re retaining those members, because you know that when those members who previously had all the benefits of status are downgraded, they become free agents and there are enough competitors out there that are willing to offer status and benefits to acquire your high frequency travelers. So, these travelers, as much as we want to believe they’re solely loyal to the brand, they’re loyal to the enhanced travel experience, they’re loyal to lounge access and seamless airport experience. So, if you want to retain them, then you have to continue to find a way to offer those benefits.

Brian Schreiber (31:53):

That’s it. And it’s, I’ll say, low or no cost way to keep somebody happy and maintain that relationship with them and continue to drive value in a reciprocal way, and so they can pick up exactly where they left off.

Rick Ferguson (32:08):

Absolutely. And I know that there have been, for those of us who’ve been following the travel space, there’s been some really interesting trends around status, particularly perhaps use of credit cards, things like that. Brian, can you talk a little bit more about some of the trends that you guys are paying attention to as you continue to evolve your program?

Brian Schreiber (32:26):

Yeah, I think, as we’re talking about status, I think credit cards are really coming into the spotlight a little bit. There’s a whole world of people who may not ever achieve status with their existing travel patterns, with the thresholds that all the programs are setting. And so you see co-brand cards or independent cards, like American Express, adding benefits to those cards to help people enhance their travel experience, whether that’s through accelerated miles, whether that’s through a free checked bag, or priority boarding, or even lounge access in some cases. It’s an interesting use case that really brings credit cards more into the fold than perhaps they have been beforehand, where it used to be the airline and the loyalty program, and that’s how you did it. Allowing financial partners to have a stake in that is super interesting. I think people are willing to spend for those higher fee cards to get those additional perks that they really want, even if they aren’t a frequent traveler.

Rick Ferguson (33:22):

100%. And Erin, are you seeing… I’m sure you guys are seeing that trend as well, and any other trends that you guys are paying attention to coming [inaudible 00:33:32]?

Erin Murray (33:32):

Yeah. No, on that theme, I think it’s a worrying trend that we’re moving towards this spend-based status. So, stripping away the behaviors that really indicate or historically used to indicate somebody as a high value customer, somebody who flies a lot or number of miles flown or frequency of flights, and really then strips it all away and says; no, no, no, it’s just about the amount of money you spend on flights or on your co-brand, I think that… We look at Delta and their move towards a spend-based status program, and the backlash was pretty quick and swift and loud, but beyond just the backlash and the negative PR and customer dissatisfaction, there’s a real issue with loyalty programs moving in this direction, because if you’re issuing fewer miles to members, because you’re only issuing miles based on spend instead of based on number of flights, so somebody that’s buying less expensive fare cannot earn as many miles, means that it takes them longer to engage.

(34:42)
We know that engagement is directly correlated to your ability to redeem, so you redeem, you become more engaged in the program. So I think moving towards spend-based loyalty, you’re going to see a decrease in engagement over time. And then there’s the issue with co-brand and the fact that if we look at what’s happening in the U.S. or in Australia with interchange fee caps, and if we become too heavily reliant on co-brand being the means to drive loyalty, and then all of a sudden the dynamics of that loyalty program in the bank or the value of that relationship changes, which it is bound to, then you’re really going to have to take a step back and revisit your overall loyalty program structure and means of driving engagement overall.

Rick Ferguson (35:32):

Right. And I think, particularly for the largest carriers, I think I had read one of the senators that was sponsoring the bill in the U.S., the Credit Card Competition Act that’s supposed to try to introduce a little bit more competition in the world, his quote was that airlines have essentially become financial institutions who tend to fly planes as a side hustle.

Erin Murray (35:59):

Exactly.

Rick Ferguson (35:59):

So, it’s almost like they’re moving so far away from the idea of building relationships with your most loyal customers that there may be some opportunity for some airlines, maybe like you, Brian, to get back to that core mission, right?

Brian Schreiber (36:14):

Yeah, and I think it’s a balance overall. I think perhaps in some cases, airlines, they realize the value of the co-brand partnership, and so they’re putting more eggs in that basket. I think from my perspective, it’s really a balance. I think credit card is an amazing way to keep up that engagement and it does get people a faster path to redemption, because of the earn that they’re getting on their card. And maybe because if they have those perks that are coming with the card, then they are more likely to spend with the home airline, the co-brand airline, as opposed to going elsewhere. So I think there’s an ecosystem that can be built there, but I think, again, it’s a balance and needing to be careful with letting that get too carried away.

Erin Murray (36:55):

Yeah. No, and I agree with that, because I really believe that the future means that you need to provide members with different avenues to achieve status. A lot of business travel behavior has changed so much and that, so creating these just uniform policies and making there only one way to qualify is not the right path. So providing credit card, I actually qualified on… Nearly for the first time in probably almost a decade, I missed qualifying naturally last year, and I qualified based on credit card spend and thank goodness. So, I believe that those options are important to have. I just think it has to be carefully controlled, that it’s not the only means to qualify.

Rick Ferguson (37:40):

And speaking, obviously, a co-brand relationship may be arguably the most important partnership that an air airline can have, but certainly there are other partnerships that you can develop as well. And maybe you can talk a little bit about that, Brian, about how you can effectively use partnerships to broaden the suite of benefit for your program.

Brian Schreiber (38:00):

Yeah, we don’t do that today currently, but I think, I’ll say more generically speaking, I think it’s any opportunity that a loyalty program has to amplify what they’re able to give to their members is a good thing. We know that people don’t just spend their entire lives on airplanes. They also go grocery shopping, or they go to certain retailers, or go to certain coffee shops, or whatever the case might be. So creating, again, a larger ecosystem for people to be engaged in a single program is a good thing. It’s going to help to consolidate that value. And in a perfect world, it’s win-win-win, where the home program wins, because they’re forging that relationship with their customer and saying, “We want to be where you are and remember us every time you’re interacting with other brands,” the partnership wins because they’re getting incremental flow of traffic or volume or transactions, whatever the case might be. And the customer wins, because again, they continue to engage in the program and they see that faster path to redemption which, as Erin said, is the best and number one indicator of engagement and that dopamine hit for people to, in our case, get a free flight, whether that’s a weekend away in New York with friends, to go see your aunt in Halifax, whatever the case might be, enabling those experiences is really what it’s all about.

Rick Ferguson (39:19):

Absolutely. And I think there’s a whole data question too, because the three of us, we all come from the same background in coalition loyalty. So, we spent portions of our career working for companies that operated those big, massive coalition programs, whether they’re around airlines or around grocers. And those were necessary at the time, because of the power of the data collection, working with your partners. And of course we had the move away from that with all the privacy regulations and the abilities to use other ways to profile customers. And now because of the privacy regulations, we’re getting back to that again, where we need that zero party data and that first party data, and certainly partnerships are going to be a more effective way, particularly within the loyalty, are going to be a more effective way to collect that and act on that information. We’re almost out of time. We like to keep these around 20 minutes or so, so I wanted to finish up with a look at the crystal ball. Maybe have you guys talk a little bit about what you’re going to be paying attention to in the world of status and tiers over the coming year, and what our listeners should be paying attention to as well? So maybe we’ll start with you, Erin.

Erin Murray (40:28):

Sure. Crystal ball, I would say that if we thought about… I don’t think we’ve talked about a trend in loyalty for very long time without talking about personalization and customization, and yet the status programs have been slow to follow that. They’re not generally customized, they’re rigid and uniform in how they’re structured. The qualification is standard, the benefits are standard. So I think what we’ll start to see is much more of flexible arrangements in how customers can qualify for status, abilities to purchase status, so ways that they’ll leverage their status programs to drive ancillary revenue while also giving that benefit to the customer. And then that will also apply to benefits as well. So, instead of having standard benefits for every customer, a high-value customer, customers can choose their benefits. And we’re seeing programs start to do this now and it’s highly effective, like spend on the rewards that matter to that customer and save on ones that they’re not going to utilize. So I think that the trend for 2024 and moving forward will be choice and transparency around the status program.

Rick Ferguson (41:48):

It sounds like that’ll be [inaudible 00:41:50] for members to be able to personalize their own experience. And Brian, do you have similar thoughts, or are there other things you’ll be paying attention to as well?

Brian Schreiber (41:58):

Yeah, I think, Erin, that’s a great point. People want to feel that relationship and move away from the transactional nature of loyalty, and especially at those higher levels for your best customers, the ones that are having the highest touch and have the most frequent interaction with you. I think for us, that’s going to start to look like giving that choice and really trying to offer something that is different from what’s out there in the market, that aligns to our brand and how we treat people on board. As you mentioned, we have no middle seats in the fleet. We give people free wine and beer in real glassware. We have snacks. Our CSAT scores are through the roof. People love our brand. And so, we’re looking at a number of ways to modify, enhance our benefits suite for our members and especially those of our travelers at the top of the chain, to really help them to have that personalized experience that is different from our competitors and really double down on the true meaning of loyalty.

Rick Ferguson (42:57):

I think that’s what, at the end of the day, what we’re all trying to do is build loyal relationships with our best customers. And it sounds like you guys are doing a great job with that at Porter. If you guys up in Canada have not tried Porter Airlines, now’s your chance. Reach out to Brian. And Erin, obviously we’ll be hearing more from you guys in terms of the work that you’ve done and are continuing to do with your partners around the world of status and tiers. We’ll look forward to hearing from you guys as well. So I wanted to thank you both for being here and for taking some time out of your day to do this live stream with us. It seemed to go off mostly without a hitch, so that’s good. And again, this is all in service of our upcoming Loyalty Summit in London on June 5th and 6th of 2024. Registration will be opening for that event soon, so please continue to follow on here. Check us out at loyaltysummit.com. We’ll see you in London in June, and maybe both of you there as well. So thanks again guys, and we look forward to talking to you again soon.

(44:04)
And that’s it for today’s episode of the Loyalty Leaders Podcast. I’m Rick Ferguson and I’ll see you here next time. Until then, do good work and stay in touch.