Pitching your product to an airline loyalty program?
Here are 5 tips from someone who has run a global airline loyalty program into the most profitable and successful years for the airline.
These tips are brutally honest. No sugar coating today.
Put your seat in the upright position, fasten your seatbelt by putting the buckle into the clasp, and brace yourself for a bumpy ride.
1. “How great would it be if members of your airline program could convert their airline miles into <our product>”
NO!
Seriously if this ever comes up in your pitch at any point – you’ll be met with resistance and over and over again. No airline in their right mind will ever consider this pitch, and especially so early in the process.
In fact, there are not many circumstances where the airline would consider shifting their internal, massively profitable currency into your product.
The ‘perceived increase in utility’ of the miles almost always never outweighs the cash benefit to the airline of retaining the currency within its own ecosystem.
Any outflow of funds via miles going to <your product> must have a sizeable, and clearly defined positive measurable impact on the bottom line for the airline program. I’m not talking about more revenue recognised under IFRS 15, but real, cash-generating positive benefits.
“But, what about all those expiring miles of members! Don’t you want more engagement, and increase ‘loyalty’ from those members who have miles expiring? And..and…”
Look it’s true that there is a correlation between the redemption of miles and future purchase intent, an uplift in lifetime customer value, and generally, an all-round cleaner message around members utilizing every last mile in their account.
However, the truth is – that miles need to expire for certain segments of members. They need to expire for many reasons – and while this article isn’t a University for Airline Loyalty (although it could be… good idea… I’ll make a note) – it’s an area of airline economics where for some members it makes sense to expire the miles (not necessarily in-active or non-profitable members), but rather the behavioral concepts which govern that members spend and engagement (I’ll write another article on this in the future).
“But, what about getting that liability off the books….”
The loyalty program will gladly hold the cash and keep the liability listed. Cash provides working capital. Cash funds investment, cash funds all sorts of new opportunities. ‘Getting it off the books’ for many programs is of such low importance in the big scheme that even suggesting this as a benefit of doing business with you will only hinder your chances of landing a deal.
Still think you have a chance of tapping into that miles pool? Here are some tips to help:
- Buy something from the airline. Buy miles or points. Get into a licencing agreement. Pay them money. This is the first step in the relationship. Think of it as a date – buy the first meal, buy the first drink.
- Introduce the airline to other new partners. Assist them with their business.
Airline miles currency are some of the most valuable virtual currency in the world, and you don’t get to tap into that without giving up something first.
2. Airline loyalty programs have different economics and drivers than the core airline
Think of airline loyalty and the airline as separate entities. Many are separate entitles like Cathay Pacific (Asia Miles), British Airways/Iberia (Avios), Qantas (Qantas Loyalty), United Airlines (MileagePlus Holdings).
Rule of thumb is this – the more separated the loyalty program is from the airline – the more the loyalty program cares about selling miles/points, and less it cares about anything else which can’t directly assist it on its almighty mission to drive up the miles and points billables. Obviously that is a sweeping generalisation and won’t apply to every airline; however, it will help you understand more of the dynamic between airline and airline loyalty program.
Scour the annual reports online, and you’ll see that the drivers for airline loyalty are nothing like that of the airline.
3. Be prepared for hardball questions
Airline loyalty programs are slick businesses. They’re big data platforms, they’re marketing intelligence programs, they’re cash machines, they’re licencing businesses, they’re branding businesses.
They measure loyalty based on how much a passenger is able to afford through the share of wallet, and often, the loyalty program is worth more than the host airline itself.
Questions you should be prepared to answer include:
- How will your product increase the value of airline loyalty data? Provide examples.
- Why should we do a deal with your company instead of making it ourselves?
- What revenue guarantee can you provide us within the first 12 months? Provide a 12,24,36,72 month forecast on financials in the potential partnership.
- What budget do you have to secure an airline partner exclusively?
- How will your product increase value for our existing partners?
- How many new customers will you bring to the loyalty program?
- Your deal will make us $2M a year. We have 10x other leads which are worth a minimum of $5M a year each – why should we prioritize your product with our limited bandwidth?
You need a strong response to these questions. Your business should already be aligned with these goals of the loyalty program.
4. “I’m a Platinum member and this one time I……….”
You may as well shoot yourself in the foot at this point.
Game over.
Unless your product directly relates to a specific experience that elite members encounter – don’t go there.
These comments, while seemingly innocent and you may even believe it shows your loyalty knowledge. In reality – loyalty program owners hear these stories every day. Yours will come across more as wining, than from a position of powerful product knowledge.
5. “Tell us about your pain points and challenges you are facing as an airline loyalty program in the digital economy with the likes of Google and Facebook and Blockchain and Crypto and Millenials engaging in new technology like TikTok and …and….and….”
If you need to ask the airline loyalty management what their pain points are – you clearly don’t understand their business. It will show.
Airline staff have zero interest in walking you through the A-B-C’s of the airline loyalty business.
Instead, try “If blockchain could increase platinum member yield by 4%, would you.…..”, or “Would you pay $X if our product could increase bank co-brand conversions by 10%?”
Leave the buzzwords at the door.
Key Takeaways
- If your product won’t generate a profit for the airline within 3-6 months, strap in for a long and expensive sales cycle. Oh, and join the line with the other 100+ vendors in the same position.
- Understand their business. Be overly prepared. Know their economic drivers. Buzzwords will weaken your position.
- The few exceptions aside, the airline loyalty program won’t pay you a cent for anything upfront, unless you can provide it will drive incremental revenue, quickly.
- Display strong product knowledge about the airline, without going into a tangent about this one time that you didn’t receive warm peanuts and ..and… (unless it’s relevant to your product).
- Get to the point and show the airline program the path to revenue/cost/reduction/whatever benefit you bring. The less resistance to that path the better.
Finally, be mindful that while not all airlines are profitable – generally, the loyalty programs operate under their own P&L, independent budgets, are more flexible in their planning, and can jump on new opportunities quickly.
Airline loyalty is more agile than the airline commercial operations. Mainly because loyalty programs are more of a digital marketing agency, and, as a profit centre, their business is more agile, can adapt and spin out new partnerships, new concepts, ideas more quickly than the airline side of the business are able to execute on.
So long as your product dovetails positively into loyalty economics, you’ll get your chance.
Where is airline loyalty heading in 2020? Read my thoughts on where the airline loyalty industry is moving into over the coming year.
