{"id":5238,"date":"2021-02-02T16:17:15","date_gmt":"2021-02-02T15:17:15","guid":{"rendered":"http:\/\/www.globalflight.net\/german\/?p=5238"},"modified":"2021-02-02T16:17:38","modified_gmt":"2021-02-02T15:17:38","slug":"resisting-the-temptation-of-devaluation","status":"publish","type":"post","link":"https:\/\/www.globalflight.net\/german\/resisting-the-temptation-of-devaluation\/","title":{"rendered":"Resisting the temptation of devaluation"},"content":{"rendered":"\n
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02 February 2021<\/span><\/em><\/p>\n\n\n\n

Norwegian’s announcement to suspend temporarily its Frequent Flyer Program comes as a shock to its members, but points to a dilemma many travel loyalty programs are facing these days. What is the best solution?<\/p>\n\n\n\n\n\n\n\n

With the crisis\nlasting longer than expected in many parts of the world, all airlines and\nhotels find themselves in desperate need to generate cash. Either to fill any\ngap between real expenses and subsidies received or to make subsidies last a\nbit longer. Loyal customers are to play an important role in that context.<\/p>\n\n\n\n

As if difficulties\nto find clients amid travel restrictions at all were not big enough, companies\nface the issue that the remaining few customers often sit on travel credits\nfrom previously cancelled bookings and\/or piles of loyalty points they wish to\nredeem. While using such alternative means of payments reduces liabilities and\nhas the same impact on the financial result than a cash sale, it generates\nnevertheless no cashflow, which is though vital in the current situation. While\nthe quasi natural balance between reducing liabilities and generating cash\nworks fine in normal times, there is a strong imbalance now.<\/p>\n\n\n\n

Looking at\nNorwegian, operating only at a 1-digit figure of its previous capacity, the\nissue might be even more serious. First, its loyalty currency can be used as\ncash, with each loyalty point having a direct cash value. Secondly, the\ndownsizing means that all members combined have probably enough points to pay for\nall Norwegian flights for a few months, potentially not generating any cash.\nThat’s why they’ve decided to pull the brake and maintain only accrual with\nnon-air partners. And they’ve already warned about the likelihood that they are\nlikely to introduce limits on the number of points that can be used per reservation\nonce the program resumes normally<\/p>\n\n\n\n

One could argue\nthat all factors were converging against Norwegian and that they had no other\nchoice. But the situation might deserve a closer look as many other travel\nloyalty programs face exactly the same issues, albeit at smaller scale.<\/p>\n\n\n\n

The first\nquestion is how much you can count on the understanding of your members.<\/p>\n\n\n\n

The short\nanswer is probably not too much anymore in most cases. The industry has stretched\nthe patience of the public too much with its refund policies, the practice to\nsell tickets on flights, which were almost sure never to operate etc. As a\nresult, any drastic measure to limit the utility of the loyalty program or to\ndevaluate it would only contribute to making customers lose the remaining\nconfidence in the program. Which Norwegian Reward member would be willing to\nchannel any partner activity to the program going forward (if an alternative exists),\nwithout any clear vision how and when he\/she will be able to use these points?<\/p>\n\n\n\n

But the\nmain question is obviously why such 1-fits-all approach? Of course, it hurts more\nthan ever when clients redeem today a premium cabin long-haul flight rather\nthan paying a few thousands of dollars in cash. But the fact in most programs\nis that the average account balance across all members is a 4-digit figure – far\nfrom being able to redeem anything substantial. Likewise, most Norwegian Reward\nmembers are unlikely to have sufficient points to pay even a cheap 100 USD short-haul\nroundtrip flight entirely by points.<\/p>\n\n\n\n

Norwegian\nhas obviously pondered the pros and cons of that difficult decision, a decision\nbetween two bad scenarios. I personally don’t doubt that they took the right\ndecision, taking also into account the negative impact on loyalty of their\nmembers beyond the program suspension as it will take some efforts to win their\nconfidence back.<\/p>\n\n\n\n

But such measures\n– as the common increase of award prices for premium cabin long-haul travel\nacross many programs – concern as a matter of fact only a small fraction of\nmembers. While the financial „objective“ might be achieved with them,\nat least in the short term, 98% of members are not concerned, but view the program\nin a more negative light as a result.<\/p>\n\n\n\n

Resisting the\ntemptation to devalue the program proposition is difficult and yes, not everybody\ncan afford to do the opposite and to actually enrich the loyalty proposition (there\nare though numerous examples of programs having opted for that road over the\nlast few months, creating a competitive advantage like that). But if\ndevaluation is really unavoidable, remember that we live in times of 1-to-1\nmarketing. Even if there is a devaluation after all, the outcome will certainly\nbe different if you engage customers in such a relationship and work towards\ntailored and smart solutions, like guaranteeing to a top tier member the\nredemption of two Business Class tickets at a small surcharge in combination\nwith one purchased ticket.<\/p>\n\n\n\n

And on that\njourney, you may even discover how many of your „top“ customers are\nactually no customers at all, but rather fraudsters. And that’s where the true\ncost savings can set in while maintaining the bulk of your members, but also your\nmanagers happy – and protecting your reputation.<\/p>\n\n\n\n

Destroying\nyour reputation can be done very quickly. Re-establishing it is a lengthy and\ncostly process you can probably not afford. Replace „your reputation“\nby „the loyalty of your customers“ in that sentence and you get the\npicture. Being short-sighted has never been a good advice when talking about\nloyalty strategies.<\/p>\n","protected":false},"excerpt":{"rendered":"

02 February 2021 Norwegian’s announcement to suspend temporarily its Frequent Flyer Program comes as a shock to its members, but points to a dilemma many travel loyalty programs are facing these days. What is the best solution?<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_links_to":"","_links_to_target":""},"categories":[37],"tags":[],"_links":{"self":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5238"}],"collection":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/comments?post=5238"}],"version-history":[{"count":1,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5238\/revisions"}],"predecessor-version":[{"id":5239,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/posts\/5238\/revisions\/5239"}],"wp:attachment":[{"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/media?parent=5238"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/categories?post=5238"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.globalflight.net\/german\/wp-json\/wp\/v2\/tags?post=5238"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}