Cashing in on the good times

For her summer getaway, Natasha Hind is travelling for free to Istanbul. It is not the first time she has cashed in her Skywards loyalty points with Emirates airline, but it is the first time she has done it to consciously save costs.

"This is probably the only holiday I'm taking this year and I realised I have accumulated enough points. After all, we're all looking for the best saving options," said the marketing executive. "So, instead of the Dh1,900 return airfare, I've used my accumulated points and paid just the service charge of about Dh135."

An increasing number of recession-wary and newly price-conscious consumers are engaging more with their favourite brands through loyalty programmes as they look to save. Redemption numbers therefore are rising faster than ever before, experts say.

"Worldwide, the average increase in redemptions across different industries is between 12 and 25 per cent in the first two quarters of 2009," said Mamoun Masarweh, General Manager of global rewards provider Loylogic Middle East.

"One good example is the Best Western hotels, which has recorded a 36 per cent year-over-year increase in free night reward redemption during December 2008 and January 2009.

"Similarly, an even stronger trend has been recorded with the Etihad Guest programme, where the number of redemptions jumped more than 55 per cent year-over-year during the first two quarters of 2009."

A sudden rush to spend and redeem points by customers will, however, not affect companies' bottom lines, said Masarweh.

"Airlines, for instance, always keep a certain percentage of seats as 'rewards seats', which can be booked with [loyalty] miles, and the rest will be 'revenue seats' where passengers need to pay cash. Therefore, the increase of redemptions doesn't erode the revenues of the company.

"For non-air redemptions, companies have different sales channels to sell their products and they are looking for new or non-traditional sales channels," he said. "Redemptions have become a more important sale channel for them."

Generally, brand loyalty, it seems, has also been put to the test as customers defect to presumably cheaper and more affordable options.

In the United States, where the recession is being particularly hard on consumers, only four out of 10 brands held on to at least half of their highly loyal customers from 2007 to 2008, according to a study from Catalina Marketing's Pointer Media Network, which gathers purchasing data at 23,000 stores across North America.

While numbers for the UAE or Gulf have not been compiled, Masarweh said loyalty initiatives have become a necessity rather than a luxury tool in the marketing mix in this climate.

"Companies with loyalty programmes that are run successfully will come out of the current economic downturn stronger than their competitors," he said.

"Loyalty in the Middle East is still in its infancy. However, the potential is great and it will continue to grow along with the market and the economic recovery. Unfortunately, there aren't a lot of well implemented loyalty initiatives in the region as yet."

Emirates, whose Skywards programme started in 2000, said it hoped its increased redemption numbers will result in increased loyalty to the airline in better times.

"[The current economic phase] isn't necessarily an issue when it comes to keeping loyal members, due to brand switching," said Kashmira Motiwalla, product development manager at Skywards.

"Instead, brands are likely to see reduced spend from the same loyal customers as circumstances have affected either their disposal income or their ability to travel for business.

"They may still remain loyal to the brand even through their reduced travel.

"Facilitating travel through the availability of reward seats is one way programmes can help members retain loyalty to the brand during a difficult time."

Skywards currently has more than 4.3 million members, said Motiwalla.

While many loyalty programmes offer a multitude of redemption options, Etihad Airways' head of CRM and loyalty, Barry Green, said flight reservations remain the top redemption choice, at 80 per cent, followed by electronics, jewellery and watches. "More than two million miles have been redeemed so far this week for F1 raffle tickets and the auction has already had more than 150 bids so far, with the current highest bid standing at 100,000 miles," he said.

"The more active members of a loyalty programme are in the scheme, the higher their loyalty to the brand."

Green said the increase in redemptions at Etihad Guest – with almost 640,000 members – was also due more members reaching the point at which they can redeem a free flight.

In the hospitality sector, Jumeirah Group's Vice-President of Brand Strategy and Management, Thatcher Brown, said an "exceptionally high active rate of guests opting for Sirius memberships are engaging with the programme and brand on a regular basis".

He said: "Customers are becoming more savvy, understanding they have a choice and are aware of their value."

The secret to retaining customers remains the same – offering exceptional service, he added.

In the current scenario, customers' loyalty to a brand is mainly affected by price and quality, followed by relevancy, word of mouth, trust, time and first entrants, said Loylogic's Masarweh, whose company recently released data claiming that GCC companies have seen a 29 per cent increase in customer retention in the first half of this year.

"Brand custodians and/or marketing departments have to increase the number of satisfied customers by delivering the brand promise, because most of those satisfied loyal customers will be retained during an economic downturn," he said.

Dave Battiston, CEO of loyalty programme Air Miles in the Middle East, said a "dramatic" increase in the number of redemptions was due to consumers becoming more savvy and seeking great value.

"Consumers are becoming more demanding in terms of the value they expect from retailers and competition is still growing fast – it's essential for retailers to maintain a competitive edge and continue to invest in a great value proposition at times like these to ensure they retain their loyal customers," he said.

"It is therefore essential that all brands continue to invest in all these areas to ensure they retain their loyal customers during these challenging times."

Air Miles, launched in 2002, now has more than 1.8 million members in the UAE, Qatar and Bahrain.

But the trick to keeping an edge in this new environment is to be close to customers and go beyond their expectation to earn their loyalty, said Haneen Said, the marketing and communications director at high fashion retailer Boutique 1, whose Circle programme entitles members to store privileges, such as limousine pick-up, and discounts.

"It is important to understand the current economic situation, and be ready to revise strategy if need be," she said.

Marketers also have to be very careful in addressing their target market needs, said Masarweh.

"Loyalty programmes give brands insights to their customers' spend behaviour and allow them to provide tailor-made offers to the right customer base at the right time. Only then will a company be able to score high devotion with their customers in such economic satiations," he said.

"Brands have to reach customers and keep their promises, otherwise, customers will disappear."

 

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