Financial services must learn from the airline industry to retain mass affluent customers

Twenty years ago low cost airlines such as easyJet totally revolutionised the airline industry with a business model that fundamentally changed the way that people could fly. Comparisons can be drawn between airline carriers who battled against the low cost airlines and the large retail banks who continue to face pressure from the fintech industry. Traditional airline carriers had to overhaul their service and loyalty programmes, to remain relevant.

Today, large retail banks need to make sure that they are offering relevant loyalty initiatives to their customers and increasingly with a seamless digital experience. Recently, we polled 6,125 of the top 10-15% of earners in 10 countries, that showed over half (53%) of customers expect to be able to bank online or via a mobile app, and nearly a third want access to digital vouchers and wallet services. In this article I will explore how the airline industry refined their loyalty programmes to create new revenue streams, and what the financial sector could do in the future.

The evolution of the airline’s service model

Major national airlines once held a near monopoly, offering premium services and products within the price of a ticket. New competitors led to seat prices dropping dramatically and the unbundling of products that previously were included within the cost of the flight itself.  Customers were subsequently given the choice whether to add benefits such as fast-track, upgrades, preferential seating and lounge access. This increased the attraction of  frequent flyer programmes as customers sought out the benefits associated with membership, especially at elite tier levels.

Many airline carriers are now seeking to offer points accrual to their customers based on ticket price  rather than distance flown. This means that the costs of rewards and benefits can be better aligned commensurate to customer value. The airline industry has revamped the way it provides services and rewards to its customers in order to generate new revenue streams, and it is here that executives in the banking industry could pay attention. Banks are facing the erosion of the lifetime loyalty of customers. Nimble competitors are offering a seamless digital experience and personalised rewards and the race is now on for the most transparent, accessible service, which empowers customers to choose their benefits. Retail banks could look to charge for services that customers value and consider benefit packages as a type of paid for loyalty.

Reward programmes could extend their loyalty rewards beyond spend, to frequency and other metrics such as social share to provide value to customers at more points of interaction, and thereby deepening customer engagement.

What’s new in financial services?

There have been significant changes to the way that the global affluent middle class are banking. For example, 81 percent will use banking and finance applications, up from 69 percent in 2014 – a huge increase. Furthermore, 63 percent will make digital payments whenever they can, proving just how incredibly important mobile banking has become to banking customers.

While customers are increasing their digital interactions with financial services brands, loyalty programmes are lagging behind. The retail banks who aren’t innovating will be simply left behind by new entrants in the market. However, the traditional financial services firms have a clear opportunity to leverage the vast pools of customer data that they have by learning what their customers truly value and acting on behavioural insight.

Customer data is key to creating personalised and exciting initiatives to drive engagement and facilitate long term relationships. It can also create additional sales opportunities, just as the airline industry created new revenue streams by offering premium seating, fast track security, hotel accommodation and rental cars. Airlines also expanded their inventory to offer lifestyle benefits such as access to sporting and cultural events or spa services.

Learning from the airline industry

Your loyalty programme should take on board what customers have asked for:

• Providing convenience – we have seen how loyalty can be engendered by simply making people’s lives a little easier. From mobile payments and queue-jumping to partnering with ‘convenience’ brands offering anything from transportation to free deliveries, there are many ways brands can offer convenience without significantly eroding their margins
• Consumer led – customers want brands to crowdsource ideas for rewards programmes – or be seen to act on real customer input in other ways, and a customer led approach will generate traction, drive greater engagement and longer term loyalty. As recognition is such a critical aspect of loyalty, status tiers remain as relevant as structured reward offerings and ‘surprise and delight’ benefits. Data remains the key to a truly customer centric approach
• Real-time and instant – Brands need to address impulses by offering more rewards in real-time and that exist only for a limited period; along with leveraging social to amplify promotions and access communities of like minded individuals
• Based on emotional connections – digital and social channels enable brands to gain deeper insight about their customers– and trends in their behaviour like never before.  Brands need to be ready to respond to opportunities that emerge from one moment to the next to engage consumers; recognising that experiences rather than objects, tend to resonate more deeply with people
• The best customers rate status and benefits more highly than rewards – this is true in every industry,  but especially with airlines where frequent flyers are far more attracted to benefits that make their journey easier than to the lure of yet another flight even if it is free.

Final thoughts

By using data and delivering highly personalised loyalty rewards at the appropriate time, financial services brands can form emotional connections with customers and create additional sales opportunities across their organisation. The opportunity for banks to serve the lifestyle needs of their customers, beyond the offer of financial products only, could be the real differentiator for the brands who get this right.  Embracing more digital tools will help brands communicate and engage their customers in more meaningful ways and will meet the demands of the customer today.