Travel rewards vs. loyalty – what’s the difference?

A preview of Phocuswright's research report Travel Rewards vs. Loyalty - What's the Difference?

By Robert Cole and Norm Rose

Loyalty represents a holy grail to travel sellers. Merchants tirelessly track engagement, evangelism and profitability, attempting to grow share of mind and share of wallet. According to Phocuswright's research report Travel Rewards vs. Loyalty - What's the Difference, key performance indicators like customer acquisition and conversion stats, order frequency and average basket values, satisfaction and Net Promoter Scores (NPS) all serve as signposts on the road to retaining customers and instilling loyalty.

Most travel brands have deployed frequent traveler programs designed to build relationships with their customers by providing incentives to recognize repeat patronage. They serve as classic examples of operant (stimulus-response-reward) conditioning by issuing points to reward offer response, booking channel, reservation timing or payment-related actions. Beyond the travel product itself, credit card issuers pay travel brands handily for purchasing points as rewards for co-branded credit card transactions across all spend categories.

In the simplest terms, frequent traveler programs strive to accomplish three goals:

Brand Preference: Adding the brand into a “top of mind” consideration set
Distribution Cost Reduction: Directing bookings through low-cost owned channels
Customer Lifetime Value: Nurturing long-term, profit-optimized relationships

This article is a preview of the full report, which can be found here.

How We Got Here

A strong indicator of true loyalty is the financial premium a loyal customer is willing to pay for a brand’s product versus a competitor’s comparable product. Customer experience-driven technologies that enhance product quality and service delivery enhance the brand’s core promise.

Trust is the secret sauce in a brand’s recipe for loyalty. Discounts and reward programs can create transactional consumer value, but they fail to create the intrinsic loyalty born from trust. Reward programs work best when they augment a foundation of loyalty.

Three Beacons of Success

Trusting Brand Promise
Apple has no rewards program, yet possesses cult-like consumer loyalty and high customer retention.

Frictionless Customer Experience
Amazon currently has approximately 168 million U.S. Prime members, each paying a $139 annual membership fee, up from $79 in 2017 (12% CAGR).

Technology Enablement
Starbucks’ 31 million reward program members are responsible for 57% of in-store spend, using the app to order ahead, customize and pay.

Where Loyalty Is Headed

As loyalty evolves with generational shifts, greater emphasis is placed on the travel experience and the company behind the service rather than simply point accumulation. According to an April 2023 OAG survey, 37% of North American airline passengers changed their airline loyalty after experiencing significant delays or cancellations in the past year. Millennials are most impacted by disruptions, with 42% switching their airline loyalty because of a significant delay or cancellation, followed by 38% of Gen Z, 32% of Baby Boomers and 31% of Gen X passengers.

In fact, the ability to offer personalized services that enhance the travel experience is emerging as a true driver of loyalty. Travelers are unwilling to be loyal to brands that are not aligned with their values. Hotels need to encourage emotional loyalty and treat guests as valued members of their community rather than as transient customers.

The Future of Loyalty Programs

With greater emphasis on the travel experience and with clear evidence that poor service delivery impacts loyalty, operational technology that reduces friction and resolves issues at each touchpoint is essential to drive true loyalty. For a recent analysis of operational technology in the hotel space, see Real-Time Revolution in Hotel Operations.

The loyalty landscape will be progressively more crowded with travel suppliers, intermediaries, payment processors and technology platforms – all eagerly vying for the attention of a tech-savvy traveling public. Amid this environment, artificial intelligence (AI) raises the stakes. SSI-informed, AI-powered agents will seamlessly identify eligibility for discounts, offers and rewards across a full spectrum of travel sellers. A basic tenet of current loyalty programs is consumer choice. But these AI-agents will likely curate options and surface recommendations based on both explicit and inferred customer preferences.

There will inevitably be a tension between AI-bots deployed by travel sellers and those representing the interests of travelers themselves. The former will use traveler profile data, dynamic pricing and value-add offers to increase conversion and margins, while the latter will seek the best experiences at the lowest available price that create the greatest personal value.

FOR MORE INSIGHTS

See all of Phocuswright's free research insights here.

Open Access Research Subscription

Research is our priority. Our Open Access research subscription puts the world’s most comprehensive library of travel research and data visualization at your fingertips.

Clients have relied on Phocuswright's deep industry knowledge for over 25 years to power great decisions, help justify a pitch, build a strategic plan and elevate any presentation through trusted research and data. When companies and executives reference Phocuswright, they gain the trust of an industry keen on data, trends and analytics.

See the full benefits of an Open Access subscription here.

WEEKLY RESEARCH INSIGHTS

We dig deep to give you the data and trends that drive the travel, tourism and hospitality industry.

Get the latest in travel industry highlights with our free weekly research articles and more. Sign up to get the latest delivered directly to your inbox.