#149: Creative Airline Loyalty Concepts from Comarch - Prepaid, Subscription or Unlimited Travel?

PAULA: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals.

PAULA: I’m your host, Paula Thomas, and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.

PAULA: You This show is sponsored by Comarch, a global provider of innovative software products and business services.

PAULA: Comarch’s platform is used by leading brands across all industries to drive their customer loyalty.

PAULA: Powered by AI and machine learning, Comarch technologies allow you to build, run and manage personalized loyalty programs and product offers with ease.

PAULA: For more information, please visit comarch.com.

PAULA: Hello and welcome to episode 149 of Let’s Talk Loyalty, where I’m joined by Piotr Kozlowski, Vice President of Consulting for the airline and travel sector at Comarch and a CLMP or customer loyalty marketing professional.

PAULA: So in today’s conversation, Piotr and I talked about particularly this pivotal moment for loyalty in the travel sector.

PAULA: We discussed some of the great airline examples of projects and really innovative concepts, both for airlines and also for loyalty for airports.

PAULA: Piotr shared some of the newer models of loyalty that he’s seeing, for example, talking through the opportunity and important principles for driving a successful subscription based loyalty program.

PAULA: He also shared a concept around prepaid loyalty.

PAULA: And finally, we talked through the power of artificial intelligence, which is really starting to truly personalize our frequent flyer programs in ways that have probably never been done before.

PAULA: So I hope you enjoy this conversation with me and Piotr Kozlowski from Comarch.

PAULA: So, Piotr Kozlowski, welcome to Let’s Talk Loyalty.

PAULA: How are you today?

PIOTR: Thank you very much, Paula.

PIOTR: Thank you for having me.

PIOTR: I’m very well.

PIOTR: How are yourself?

PAULA: I’m good, I’m good.

PAULA: You’re in Krakow with us today, are you?

PIOTR: Correct.

PIOTR: I’m sitting right now in the beautiful city of Krakow.

PIOTR: That’s where I’m headquartered on a daily basis.

PAULA: Wonderful.

PAULA: Okay, I must try and visit you guys some days, Piotr.

PIOTR: You definitely need to come.

PIOTR: Great.

PAULA: Yes, I definitely will.

PAULA: So, as you know, we’re going to start our conversation today.

PAULA: Piotr, talking about our favorite loyalty statistic from a Comarch perspective.

PAULA: So, please do tell me, what is your favorite loyalty statistic?

PIOTR: Yeah, thanks for that question.

PIOTR: It’s a really interesting one.

PIOTR: Not that I didn’t expect one.

PIOTR: So, I think it’s not probably the most important statistics if you look at the measurement of the loyalty programs, but I believe it’s a statistic that tells us much more about how customers engage with our brand more from the emotional perspective.

PIOTR: So, typically when we measure loyalty programs, we look at the share of wallet, we look at the comparison of the basket value member versus non-member.

PIOTR: These are more of a financially driven statistics.

PIOTR: Something that I became a fan of was to measure actually how much customers are spending time in our digital channels, in reviewing our content that is not necessarily transactional.

PIOTR: So, time spent on the website really indicates to us to what extent the customer gets engaged with our brand, to what extent he or she is having fun with us.

PIOTR: While being on our website, we are being on our app, not necessarily transacting.

PIOTR: So typically we are operating in a universe where loyalty program is highly transactional and we want to get this another incremental purchase.

PIOTR: Whereas if we have a customer who spends more time with us because he or she is having fun with our content, I think that that is a great proof of a higher level of engagement with the brand that probably is difficult to get quantified in the financial measures, but tells us a lot about the engagement itself.

PIOTR: So I think it’s very different to what we typically talk about, but I think it’s one of those statistics which shows us much more and is much softer in terms of how people engage with us.

PAULA: Yes, you’re absolutely right.

PAULA: So softer is a very good word, Peter.

PAULA: First of all, I think it’s extremely important that we start to talk more about the softer side of measurement.

PAULA: And I know it’s an unexpected one.

PAULA: So thank you for bringing something very new to the table.

PIOTR: If I may add to that something, Paula, I think it’s interesting to see how programs really evolve.

PIOTR: And I’m coming from a travel space.

PIOTR: That’s where I grew up pretty much.

PIOTR: Yes, yeah.

PIOTR: And if you look at the loyalty programs, and if you look at the website, if you’re entering, being a member or a mobile app, they have a lot in common with the banking websites.

PIOTR: So if I’m opening my statement of my flights, it doesn’t differ too much to my bank account in Santander or Deutsche Bank, whatever that really is.

PIOTR: Whereas if we are able to provide to the customer the content that visualizes, that expresses their activity, which are quite attractive, right?

PIOTR: And if they are being visualized in a nicely manner, I think that increases the engagement of the customer and motivates them to spend more time on our website.

PIOTR: And that leads us somehow, somehow leads us to the, to achievement of a so-called emotional factor in the loyalty, not just transactional factor.

PAULA: Yeah, yeah, you’re absolutely right.

PAULA: And I grew up in the same area as you did.

PAULA: So, you know, I share your passion, particularly for the airline work you’re doing.

PAULA: You have some other sectors I didn’t know about until actually today.

PAULA: So I’ll definitely want to talk to you about those as well.

PAULA: But I even said recently, myself, Piotr, to a couple of just colleagues.

PAULA: We were talking generally about our industry.

PAULA: And I really want to, I suppose, really strongly agree with you on the content piece, because it is the destination very often that is what the customer is buying.

PAULA: So I know it’s different, whether it’s a leisure or business traveler.

PAULA: And we can talk all about that.

PAULA: But I think certainly for the sector that has been decimated, particularly on people traveling for fun and for personal travel.

PAULA: Like, why can we not give them more inspiration about getting to Dubai, for example, which I know you’re coming to quite soon.

PAULA: But I really agree that because I think our colleagues on the brand teams, Peter, and I’m sure all of your clients will know this.

PAULA: To get the attention of a customer, for example, by creating and investing in TV to market your airline, it’s extraordinarily expensive.

PAULA: And it doesn’t mean it’s wrong because it has the power of inspiration.

PAULA: But I think as loyalty professionals, maybe there’s a way we can start to compare, you know, how much attention am I getting in my, whether it’s the app or the website, but as you said, in the digital channel, and compare that to the attention and what it costs to get it in broadcast media.

PAULA: I really think that would change the conversations.

PIOTR: Yeah, absolutely.

PIOTR: I fully agree.

PIOTR: And I think it can be further expanded, of course, to the social media channels, which provide us a much more cost effective and much more measurable means of engaging with the customers.

PIOTR: In comparison to the traditional broadcasting, where the typical rule applies that 50% of the budget spent on the broadcasting and advertising is spent correctly.

PIOTR: But you really never know which part is correct.

PIOTR: Yeah, exactly.

PAULA: Exactly.

PAULA: Yeah.

PAULA: And I guess because we’re loyalty professionals, what we should say is, yes, as much as we enjoy social media, it’s not our own customers, for example, that we own their data or their attention.

PAULA: So again, I’m always of the fact, you know, the advice would be, you know, if we can get them from social media into our own obviously communications environment, I think that community piece then we can build much more strongly.

PAULA: So, yeah, wonderful.

PAULA: Okay, well, we definitely agree on everything to start off with, Piotr.

PIOTR: So true, so true.

PAULA: Great, great.

PAULA: So I think one of the main reasons that we said, you know, that there was a really important conversation that we needed to have is because I think we’re all beginning to feel hopeful that the world is recovering.

PAULA: You know, vaccination rates are extraordinary.

PAULA: Your sector, you know, has been obviously, you know, probably the worst affected, dare I say it, from a commercial perspective in terms of travel.

PAULA: So as we come out of COVID, I think frequent flyer programs are going to have to evolve.

PAULA: So I wanted to get your perspective, Peter, and what you think is going to have to change as we move into the, I suppose, the new normal.

PIOTR: Yeah, that’s a very good question.

PIOTR: I think it requires a little bit broader perspective.

PIOTR: I think that the frequent flyer programs as the entire airline industry is in a pivotal moment.

PIOTR: I mean, for the last one and a half year, the airlines were trying to survive.

PIOTR: And I think the loyalty programs were pretty much, yeah, adopting the strategy.

PIOTR: Let’s wait and see what happens.

PIOTR: And I think it was a very right strategy, especially it was reflected in the way the airlines were treating their top tier members.

PIOTR: Simply they were applying a tactic of extending the validity of your tier status without really disrupting and putting additional complexity into the whole spectrum.

PIOTR: Because it was complex enough.

PIOTR: I think what’s going to happen in the next 12 months really, because we are just embarking on that pace of a resume to travel.

PIOTR: I think we will very soon learn the new patterns in that business.

PIOTR: We don’t know them yet.

PIOTR: So I think the only thing we know is that we don’t know yet how the market will look like, what will be the patterns of the customers.

PIOTR: And it will be a very natural step that the loyalty programs in our industry will have to follow.

PIOTR: We’ll have to follow that new patterns that will change.

PIOTR: So certainly, if we are looking at the tier recognition, they will have to evolve.

PIOTR: They would have to adopt a completely new structure, new qualification criteria that will reflect the real activity of the members in their programs.

PIOTR: Same thing is going to happen with the parolee accrual and the redemption rates.

PIOTR: They will have to reflect also these new levels of activities of the members in the airline networks.

PIOTR: So I think we’re in a pivotal moment.

PIOTR: We don’t know much yet.

PIOTR: I think we’re getting really first reasonable reports how the structure of the traffic will change, how the motivations for travel will change, but they are not representative yet.

PIOTR: I think once we will be in October next year, after the 12 months of a more or less normal operation, everyone will be much more knowledgeable how the market will look like.

PIOTR: And I think frequent flyer programs will be getting adopted to that.

PIOTR: I think something that will really drive that, that the change in the frequent flyer programs in airline ecosystem, there will be changes that will be coming out of a new revenue management approach.

PIOTR: Clearly, the former revenue management practices, which we have known for two or three decades, they become not irrelevant, but they will not be that much applicable.

PIOTR: We will be having a completely new patterns that will have to be followed with a completely new revenue management practices, measures, and ultimately that will get translated into the mechanics and the operations of the loyalty programs.

PIOTR: So I think we are in a very exciting times ahead of us, because we are approaching a really big material change in our loyalty ecosystem.

PIOTR: I think none of other industries will experience such a big change in the patterns of their customers.

PIOTR: Maybe except, but it’s more of managing the growth, except the e-commerce space.

PIOTR: But airlines really are turning around.

PAULA: Yeah, you’re absolutely right.

PAULA: And when I think about other sectors like perhaps hotels or retail, for example, sometimes only, now very much in inverted commas, the only concern that they really have to focus on is the hygiene factors.

PAULA: So that’s the obvious piece that once you address that, and then people go back to their routine, going back to their local stores, for example, hopefully they’ll recover very quickly.

PAULA: But I do think you’re right.

PAULA: And I’d love to get your sense, Peter, on do you sense more interest from the business market in terms of travel or leisure?

PAULA: Like, do you have just your own personal opinion on that one?

PIOTR: Yeah, so I think I could only just share the opinion because it’s today not really proven by any form of analysis and statistics.

PIOTR: But I think that the biggest structure change we will have in the business travel, it’s not that the business travel will disappear.

PIOTR: That’s what we know for sure, but it will change.

PIOTR: So I think we are getting first interesting reports.

PIOTR: I’m referring here to Jay Sorensen’s report on the changes of the motivation in travel.

PIOTR: And it seems like that it is estimated on a long term basis, the corporate travel, typical corporate travel on which the frequent fire programs have been living, it will shift, but in total, we will lose approximately 20% of the traffic.

PIOTR: And that will be primarily driven by the change of the behaviors of the internal corporate meetings.

PIOTR: So in the past, we’ve had quite a bunch of the air travel, corporate travel related to the internal meetings.

PIOTR: It seems like that today’s collaboration tools, such as Zoom, such as Meets and Skype, they became a really valid alternative.

PIOTR: On the other hand, of course, we have a face-to-face meetings with the customers.

PIOTR: And it seems like that this part of the corporate travel motivation will recover and will come back to a certain extent to the similar numbers.

PIOTR: So I think in that corporate and business travel sector, we’re going to have the majority of the shifts.

PIOTR: And it will be really interesting to see what is the propensity of the corporate travelers to select the class of travel.

PIOTR: What’s going to happen with the business class?

PIOTR: I mean, we’ve seen the revolution two or three decades ago of introducing a middle class between first and economy.

PIOTR: And it was a business class.

PIOTR: Are we going to see the similar shift that is happening right now with the business, premium economy and economy?

PIOTR: Will business class be getting smaller on board the aircrafts based on the propensity to select the premium travel seats?

PIOTR: I think that’s so interesting and we just have to watch it.

PIOTR: And we just have to react to that.

PIOTR: But I think we are starting a little bit.

PIOTR: We have knowledge from the past.

PIOTR: We are starting in terms of the corporate travel with a little bit of the blank sheet.

PIOTR: And we will simply write a new story about that business.

PAULA: You’re absolutely right.

PAULA: Yes.

PAULA: And I definitely feel from my side, Peter, again, my own opinion that business travel will absolutely recover to the same level.

PAULA: But I think it will take longer because I think if you ask anybody whether it’s more powerful to have a Zoom meeting with your client or whether it’s more powerful.

PAULA: I mean, it’s just that the reality is there.

PIOTR: Without question.

PAULA: Exactly.

PAULA: And I think it’s part of the, I suppose, the corporate responsibility to not require people to travel if they are nervous.

PAULA: So that’s why the recovery might just take a little bit longer because they want to be very careful.

PAULA: But I think when they see, oh, my goodness, you know, our competitors are going to see our clients.

PAULA: And, you know, I think that it will all sort of happen very quickly.

PIOTR: Absolutely.

PIOTR: Absolutely.

PIOTR: And I think we are getting the first signs of that.

PIOTR: Of course, these are the very early signs.

PIOTR: And we just have to watch what’s going to happen.

PIOTR: But I think we have to be, as an industry, as a professional in that industry, we have to be really open to accept this new patterns, which will be reflected by the data, really, and adjust our offerings, our products, and ultimately our loyalty programs to reflect the new reality.

PAULA: Yeah, absolutely.

PAULA: Yeah.

PAULA: And the report you mentioned, Piotr, sounds fascinating.

PAULA: I think you mentioned Jay Sorensen.

PAULA: Correct.

PAULA: Yeah.

PAULA: So I’ll ask you maybe just to send me a link.

PAULA: So anyone listening to the show can go on to the show notes and make sure that they can look at that.

PAULA: That sounds super interesting.

PIOTR: Certainly.

PAULA: Great, great, great.

PAULA: And I suppose beyond airlines, I was really impressed.

PAULA: I didn’t realize that you also look after the Heathrow Rewards Program.

PAULA: And I’m always wishing, hoping and waiting that both Dubai Airport and Dublin Airport, my two most traveled airports, might start.

PAULA: So do you also see that there might be growth coming into new sectors?

PAULA: And I’m also even thinking, for example, Piotr, about destinations, because I think the whole travel industry needs to come together, again, to my point earlier, even about content, to inspire and, you know, maybe use these loyalty mechanics in other areas of the business, even beyond airlines, to encourage people to get back on airplanes.

PIOTR: I think, speaking about the destinations, I think it’s a much bigger challenge to apply, let’s say, a typical methodology of a loyalty program, simply because we don’t have that repersicity, right?

PIOTR: We don’t have really frequency of visiting the same destination multiple times.

PIOTR: So that would definitely call for some models of building networks and partnerships, which of course is possible.

PIOTR: But the complexity of such a constellation is quite large.

PIOTR: You mentioned about the Heathrow Rewards and the airport loyalty programs.

PIOTR: I think, I mean, this is absolutely not a new concept.

PIOTR: The British Airports Authority has had their program for multiple years.

PIOTR: But when the British Airports Authority was being split into a number of the separate private entities, Heathrow Rewards went with their own program, which I think is really a benchmark in that airport industry.

PIOTR: And I think that the key aspect of the value that the loyalty program for an airport operator brings is that this is one of the greatest tools for them to actually know who is passing through their terminals and what are their shopping patterns.

PIOTR: So I’ve been hearing many times from a lot of the industry experts.

PIOTR: I mean, why would a traveler earn the points in the airport program if they’ve got a frequent flyer program and simply the merchant can reward a customer with a frequent flyer miles?

PIOTR: Yes, that’s correct.

PIOTR: But there is one important aspect missing here.

PIOTR: The airport operator of today’s world do not want to be really blind in terms of who their end customer is.

PIOTR: If the airline holds the data, if the airline owns the data, that means that the operator of the airport just provides the infrastructure, provides the retail space, but has completely no control over marketing of the retail space and understanding of the end consumer.

PIOTR: Because the end consumer would belong to the airline.

PIOTR: So I think the airport loyalty program, which is put in the middle of that, is a great response to that.

PIOTR: And it doesn’t really mean that at the end of the day, a frequent traveler who is a member of the EXEC Club or Virgin Atlantic Flying Club is not able to earn those points.

PIOTR: Because in the Heathrow Rewards program, you can convert your earned points to your favorite frequent flyer program.

PIOTR: But in between that, Heathrow as an operator, the program collects a lot of the information about customers, their spending patterns, the products they prefer to buy, their frequency of visits.

PIOTR: Otherwise, they wouldn’t be able actually to capture the data and they wouldn’t be able to really identify who their most profitable end consumer is in the retail space.

PIOTR: And loyalty program is a beautiful element that fits into that value chain.

PAULA: Yeah, and it’s a great example, Peter, as well.

PAULA: And I think you know I used to judge the Loyalty Magazine Awards based out of the UK and Heathrow Rewards always came up.

PAULA: And particularly, I believe, won awards for best long term loyalty strategy.

PAULA: So I think a lot of recognition should go to Heathrow for having this in place for such a long time and obviously making it profitable for themselves because we all know it’s a big decision to invest in a loyalty program.

PAULA: And as you said, there’s already the airline programs that the same people are members of, but this incredible value in the data.

PAULA: And I do remember noticing, and I’m guessing this came through not just from looking at the airlines coming in, but probably from the loyalty data.

PAULA: But I don’t know if it was Heathrow specifically, but certainly another airport in the UK was doing a lot of its advertising in Chinese, in a Chinese language, Chinese script.

PAULA: And I thought that was fascinating, you know, that they had a much better awareness and understanding of what their customers needed than I had ever appreciated.

PAULA: So it’s absolutely incredible.

PIOTR: Definitely.

PIOTR: And if you look at today’s airports, they are having, depending on the exposure to the particular direction of the travel they’re offering, be it the Far East Asia, be it the Middle East, they are tailoring their retail offering, they are tailoring their marketing for that specific markets.

PIOTR: I think the two majorly focused destinations of their retail in European airports are the customers coming from the Far East Asia and the Middle Eastern customers because they are spending patterns at the airports while departing is tremendous in comparison to what the Europeans are spending.

PIOTR: So that’s really interesting to see how they tailor the product in terms of the gates or the terminals from which particular destinations are departing versus the retail offering they are having in a particular terminal.

PAULA: Wow, clever stuff, huh?

PAULA: Yes, and I know also something that really interests me, and I know you do some great work, Peter, is in the whole area of the B2B side almost.

PAULA: So I think it’s British Airways and also Latin American Airlines and even Iberia.

PAULA: I think you mentioned you do loyalty programs.

PAULA: Is that for travel professionals or what’s the kind of SME corporate style of loyalty programs that you’re doing?

PIOTR: Yeah, I think that’s a very exciting area, because if you look at the typical business customer of an airline, at the typical company, they are being typically engaged with an airline for the corporate managed deal.

PIOTR: So if you’re a large corporation of the size of Coca-Cola, Barclays Bank, I mean, you sign with your home carrier or the carrier which has a dominant position in your markets, you simply sign a corporate managed deal, which gives you certain discounts.

PIOTR: That’s translated to the discounts.

PIOTR: It’s quite labor intensive, because you need to have the account managers running after those corporations signing these hundred pages deals on getting X percent discount on specific routes.

PIOTR: So that’s a working model.

PIOTR: Yeah, that’s a very well adopted model.

PIOTR: But this is the model in which you cannot operate with the small companies.

PIOTR: And what we see in the market for the last more than a decade is that the smaller and smaller companies are doing business on distance.

PIOTR: If we are talking about markets like the US, they are doing business on distance.

PIOTR: If we are talking about the European or other regions, they are doing international business.

PIOTR: So with today’s growth of the technology globalization, a small company out of let’s say Krakow, where I’m sitting here, with 10 employees, I mean, they can do international business with the Silicon Valley.

PIOTR: And at some point of time, they generate a propensity to travel.

PIOTR: But simply they cannot qualify and they cannot really get engaged with an airline for the corporate managed deal simply because their turnover in terms of a travel is too low.

PIOTR: So that means that some of the small companies are simply being left unaddressed by the airlines simply because they don’t have a proposition for them.

PIOTR: So we believe that the loyalty mechanics as a form of rewarding, incentivizing small companies can be a great alternative to the corporate managed deals to address small and medium enterprises and simply get them engaged.

PIOTR: What we see in Europe, such as small companies that have been doing international business, have been very well addressed by the local airlines.

PIOTR: I think it was some years ago, and I cannot really recall the source of that, but EasyJet was reporting that 35% of their travelers on board are actually people who are traveling on business.

PIOTR: And these were not the typical corporate travelers.

PIOTR: These were the people who were working for more independent companies, small companies.

PIOTR: So traditional carriers have started to realize that actually this is a pretty nice pretty nice portion of business.

PIOTR: And this SME corporate loyalty programs became a really valid alternative.

PIOTR: On the other hand, okay, just maybe to add one more thing.

PIOTR: On the other hand, for the such as SME loyalty program can be also a relevant tool to engage large corporations in the markets where they don’t have a dominant position.

PIOTR: So let’s take IKEA.

PIOTR: IKEA is a dominant player in the Scandinavian market.

PIOTR: For sure, they’ve got a corporate managed deal with SAS or Norwegian.

PIOTR: But in the United States, it’s a small company.

PIOTR: IKEA is a small company.

PIOTR: They’ve got a small setup.

PIOTR: So probably they hardly can qualify to get a managed deal with a United Airlines or American Airlines.

PIOTR: But if there is a reward program they can enter, they can be incentivized and it can deliver them a tangible value and build a stickiness of IKEA USA to the particular airline brand.

PIOTR: So I think it’s a really smart way of engaging small and medium enterprises and in some cases, large corporations in their non-core markets.

PAULA: Love it.

PAULA: Yeah.

PAULA: And there’s a lot of people in airline loyalty listening to the show, Piotr, as you know.

PAULA: So I’ll be fascinated to hear, you know, who’s thinking about that particular segment, maybe in the past or certainly in the future.

PAULA: As you said, we’re at this pivotal moment, and it’s almost like you can’t let any market segment be left unaddressed.

PAULA: So I think it’s a very clever strategy.

PIOTR: Thank you.

PAULA: Yes.

PIOTR: I think the airlines are seeing that for the last seven, eight years, thinking about it, and they are changing those programs if they have them, or they are simply adopting the completely new programs.

PAULA: And another thing which I’m fascinated by is the whole concept of paid loyalty programs, Peter.

PAULA: So the subscription model and building those kind of propositions, what’s your view on them from an airline or travel perspective?

PIOTR: Yeah, I think it’s a very exciting new area.

PIOTR: Overall, subscriptions is an exciting topic.

PIOTR: We are, I think it’s been proven in a number of the industries, especially after the Amazon Prime effect.

PIOTR: The subscription can be a really valid business model for selling services.

PIOTR: And I can see that in the travel space more and more, I mean, primarily airlines are looking at subscription based programs.

PIOTR: I think it can be a really interesting model to be adopted, but it needs to be really fought through.

PIOTR: So I think the worst effect that we can achieve is that, I mean, if subscriptions are popular, let’s just do something on the subscription and let’s convert, for instance, our frequent flyer benefits into subscription format.

PIOTR: Well, that might not be enough.

PIOTR: Subscription preconditions, if it’s going to work, the precondition is that you really are able to deliver a value that surfaces the customer kind of expectation if they buy something off the shelf.

PIOTR: And you have to have the right economics in place underneath in terms of your cost structure, that you are actually able to offer those products, providing that superior value.

PIOTR: So simple packaging of existing, let’s say, benefits into the subscription model might not work.

PIOTR: And it might be just kind of following the print of a subscription.

PIOTR: But I think you need to combine maybe your tier benefits with a completely new set of the services that really add value to consumer to be able to succeed in that space.

PIOTR: I think we will be seeing a lot of the new models emerging, the subscription model.

PIOTR: We will see a lot of the successes like Amazon Prime, like Spotify.

PIOTR: We will see probably all of the failures.

PIOTR: And that’s the nature of the economy.

PIOTR: And we just have to learn from that.

PIOTR: But I think it’s a really exciting area.

PIOTR: And with that technology advancement that we have and being able to actually achieve that economics underneath, this is really an exciting, exciting area.

PAULA: Yeah, yeah, I think you’re right.

PAULA: I think it’s about getting the compelling proposition.

PAULA: And for example, I wrote an article probably about a year ago, Peter, in a different sector.

PAULA: But it was in some ways disappointing, but in some ways a reality check because I was writing about subscription in almost like quick service restaurants or convenience retail.

PAULA: And Burger King has a coffee proposition.

PAULA: And the BK Cafe concept had they had launched one, which was $5 for unlimited coffee.

PAULA: And you can imagine now that everybody thought this might be a really good idea to maybe just drive footfall into Burger King maybe in that morning kind of part of the day where they wouldn’t have had it.

PAULA: But they discontinued it very quickly, Peter.

PAULA: So I think in that case, perhaps, and I don’t know because I haven’t drunk Burger King coffee, but maybe the product wasn’t on a par with people’s coffee consumption behavior.

PIOTR: Yeah, I agree.

PIOTR: I agree.

PIOTR: And I think subscription should be considered as a really thorough business model of selling services.

PIOTR: It cannot be treated as a shortcut to get a recurring revenue.

PIOTR: Because very quickly, and that’s one of also the preconditions, if you want to be successful in subscription model, you have to give customers a very easy way to exit.

PIOTR: Otherwise, the barrier to subscribe to any product would be too high and it will be tailored for a failure as well.

PIOTR: So it requires a completely new way of thinking of how we package our products and services and what kind of end value it delivers to the consumer.

PIOTR: And only that can lead to the success.

PAULA: You’re absolutely right.

PAULA: Again, I totally agree, Piotr.

PAULA: I remember when I was writing that article, I was looking up the website for the Dollar Shave Club, which was, again, I’m sure many listeners are familiar with it.

PAULA: It was the very first time that a model was created where you could subscribe for razors to be shipped to your home on a monthly basis.

PAULA: And I know it was acquired for about a billion dollars, I think, by Unilever at the time.

PAULA: But when I went on to their website, exactly to your point, Piotr, it literally had, do you want to leave our program?

PAULA: A very obvious, very reassuring way to go, if this isn’t working, we’re not going to hold you in, hold you hostage.

PAULA: So I think that’s something that people are afraid of actually in business.

PAULA: And I totally get that, you know, you don’t want to lose people too easily, but I think they need that trust element if they are going to invest in something that’s recurring from their side.

PIOTR: Absolutely.

PIOTR: I fully agree.

PIOTR: So I think we will see this new emerging models of subscription.

PIOTR: I think the airline industry has an appetite for that.

PIOTR: And we are clearly seeing it.

PIOTR: Yeah, but I think we’ve had some cases, very good cases, how a kind of a quasi subscription model have been working.

PIOTR: I mean, I recall my customer Jet Blue, who has been offering a subscription for a month, all you can jet for, where essentially you were purchasing for, kind of remember the fare right now, for $600, the ticket which allowed you to unlimitedly use your Jet Blue flights across the US.

PIOTR: Yeah.

PIOTR: And that was only valid for a month, and they were offering that in a low season, which was a great opportunity for the people who wanted to discover the US and some Caribbean.

PIOTR: And really, it proved that it provides a real value to the end customer.

PIOTR: Whereas on the other hand, it was making a great job for Jet Blue, for whom that was a particular month with a low season.

PIOTR: So I think this kind of creativity is being required to build subscription products, not just packaging, simply the benefits and trying to charge for them, because you can accrue them, for instance, for the traditional tiering qualification.

PAULA: Yeah, well, I really, really love that idea.

PAULA: I think that’s extraordinary now.

PAULA: And I was thinking about Aer Lingus, which is my home carrier, as you know.

PAULA: And I think there are a few domestic locations, for example.

PAULA: So it wouldn’t be as exciting if they tried to do it just within Ireland.

PAULA: But if they were able to build a proposition like that, for example, where you could travel.

PIOTR: Ireland is a beautiful island, so why not?

PAULA: You’re totally right.

PAULA: You’re totally right.

PAULA: But for example, I think if you were able to do it, let’s say for the continent of Europe, you know, if you can do it on a continent level and again in a low season, I just think people would just really re-remember how much they loved traveling and maybe get over, you know, those current things.

PAULA: So I love that creativity.

PAULA: So well done to Jet Blue.

PAULA: And I hope Aer Lingus is listening.

PAULA: You never know.

PIOTR: They are my customer as well.

PAULA: Brilliant.

PIOTR: We’ve got to get connection there.

PAULA: Oh, fabulous.

PAULA: Well, listen, we’re hoping to get them on the show as well.

PAULA: It’s on stage, Peter.

PAULA: So if you can mention that to them, that would be awesome.

PAULA: Great.

PAULA: Are there other business models as well then, Peter?

PAULA: And, you know, as we said, subscription is a hot topic.

PAULA: You already mentioned emotional loyalty.

PAULA: So again, I think not as a business model, but as a strategy and as an intention.

PAULA: But what other models do you think that particularly airlines and travel loyalty operators should be thinking about as we come into this kind of new normal?

PIOTR: Absolutely.

PIOTR: Something that I’m watching very closely and I think that can get some momentum are the form of the prepaid loyalty programs where you are being rewarded only under the condition that you initially prepaid a budget that you are then using for spending on the products and services.

PIOTR: I think this model, of course, has its complexities, has quite a high barrier to enter.

PIOTR: Only very specific, high frequency businesses can really afford to go in our direction or convince customers that it’s worth to prepay a balance of the cash that is being then used.

PIOTR: But I think we might see in the coming future more and more of such prepaid programs.

PIOTR: It’s similar to subscription, it requires really strong business modeling behind it.

PIOTR: But this fulfills a few conditions.

PIOTR: I mean, on the one hand, you are improving your cash flow position.

PIOTR: That’s more of a financial matter.

PIOTR: On the other hand, you are tightening and you’re building a stronger affinity to generate that additional incremental purchase if you already prepaid the balance.

PIOTR: Together with that, if you are able to incentivize at the higher level customers for that, I think it could be really interesting.

PIOTR: For sure, it’s not for all the brands.

PIOTR: I’m not sure today to what extent it can respond to the airline needs such a prepaid programs.

PIOTR: But I’m more than sure that if you are able to collect some cash from customers upfront before delivering a service, it’s really attractive for especially CFOs.

PIOTR: But if you are able to balance it with a great experience for customers and value for them, I mean, such a prepaid programs could be actually an interesting alternative to what we have in the market right now.

PIOTR: Certainly, it’s not for everyone.

PAULA: No, I know.

PAULA: But definitely, and again, the purpose of this show, Piotr, is to bring new ideas exactly like that, that maybe we haven’t thought about before and I haven’t seen it done, you know, certainly in my own experience.

PAULA: But when I think about other verticals, I know certainly Irish consumers, I probably know the Irish consumer market better.

PAULA: You know, there is a real appetite for prepaying.

PAULA: And there always has been particularly around, you know, maybe Christmastime, for example, is something people know they’ll have a big level of expenditure.

PAULA: And this is probably just in the grocery market.

PAULA: But I think the same proposition would appeal to leisure customers.

PAULA: And again, certainly in Ireland and I’m sure around the world.

PAULA: And as you said, for the company, I think the proposition is super powerful.

PIOTR: Absolutely.

PIOTR: Absolutely.

PIOTR: It has a number of strengths.

PIOTR: And if you are able to build also a trust to the brand, that actually customers are willing to prepay the services they’re going to buy in the future.

PIOTR: I mean, it’s a big vote of a trust as well.

PIOTR: So to a certain extent, it’s also an expression of a loyalty.

PIOTR: If you trust the brand to an extent that you can prepay something, and you are hoping that the promise that you’re going to get a superior product or value is going to be fulfilled, that’s a big thing to achieve.

PAULA: Sure.

PAULA: And it definitely builds the anticipation as well, Peter.

PAULA: I don’t know about you, but for me, half the fun about traveling is when I make the booking, I immediately start looking forward.

PAULA: It’s not like I’ve already booked, for example, to go for Christmas.

PAULA: So I’m already looking forward to that because it makes it real for me.

PIOTR: Absolutely.

PIOTR: And you extend the entire experience from the moment when you think about travel up to the moment when you really do that.

PAULA: Yeah, love it.

PAULA: OK, definitely one to follow.

PAULA: And already I’m thinking like this time next year, we’ll have to repeat the conversation because I want to see.

PAULA: Yeah, for sure.

PAULA: I want to see which ones have already happened.

PAULA: Which ones, as you said, the post-COVID stuff, we don’t know what to expect completely, but it’s definitely going to be interesting.

PAULA: So the final area then I wanted to ask you around is, you know, the big buzzwords about artificial intelligence, which I think people are equally excited by and sometimes terrified by depending on who you are.

PAULA: But it definitely has an incredible value that it can, you know, bring to businesses, you know, if you can start to apply intelligence to it.

PAULA: So I’d love to know, you know, what are you doing, I suppose, for the loyalty market?

PAULA: What is Comarch doing either from a personalization perspective or how else are you leveraging this amazing technology?

PIOTR: Absolutely.

PIOTR: So artificial intelligence is a kind of a term that is with us for like two or three years and it got really a lot of buzz in the market.

PAULA: Totally.

PIOTR: Where companies like Comarch, where they get engaged with the artificial intelligence is a subset of AI, which is machine learning.

PIOTR: And it’s nothing really scary.

PIOTR: These are simply the algorithms which are around us, which are providing to us a number of the different recommendations based on the analytics of a large subset of data.

PIOTR: So if these algorithms are around us, I mean, they’re being used by the major web browsers that we’re using, Google, of course.

PIOTR: They are being used by Amazon, so the entire recommendation engine is something that is actually machine learning based.

PIOTR: What we are doing and how we leverage that, we leverage the machine learning into verticals.

PIOTR: One thing in delivering the personalization, and I’m talking here about the personalized communication, personalized offers, and the other angle that is in detecting of the frauds.

PIOTR: So loyalty programs are very nicely exposed to the fraud activity because more and more value is being carried within the balances of the loyalty programs.

PIOTR: And naturally it’s an area for which the hackers and let’s say crime world has an appetite for.

PIOTR: So we are deploying our AI machine learning algorithms in order to actually detect the anomalies in the behavior of the accounts, balances, transaction patterns, in order to determine, not to define whether these are really fraudulent transactions or customers, but in order to identify whether they are within the standard pattern or whether there is anomaly.

PIOTR: If there is an anomaly that indicates to us, it could be a potentially a fraud transaction.

PIOTR: It’s a much more proactive way of detecting the fraud.

PIOTR: This is a fairly new model.

PIOTR: It has been adopted.

PIOTR: We have adopted that from the banking industry, actually.

PAULA: Oh, very good.

PIOTR: Initially, this type of solutions by Comarch have been deployed in order to detect the money laundering activities.

PIOTR: To measure the particular transactions or accounts, how they are exposed and what kind of a level of risk is with them in terms of the money laundering.

PIOTR: Then we have adopted that solution for loyalty programs.

PIOTR: It really works and brings in interesting results.

PIOTR: So personalization and fraud, this is for the moment what we are doing with machine learning.

PIOTR: I’m more than sure there will be other areas soon addressed with that technology.

PAULA: I have one, and it’s purely an idea as a consumer, but it’s been in my mind actually just from a conversation I had a few weeks ago, Peter.

PAULA: So I’ll put you on the spot now and see if I’m just hoping for too much.

PAULA: But it sounds like the capabilities of AI could really support this kind of concept.

PAULA: So my idea was literally around, I love getting communications from any frequent flyer program, or in fact, any loyalty program that I’m engaged with.

PAULA: And I know there’s a level of personalization within it, but what I sometimes think there might be another opportunity to really look at maybe my points balance.

PAULA: So if I happen to have enough points to go maybe business class back home to Ireland, but alternatively, I could get to economy tickets to the United States, like to create or package the options for redemptions to inspire me to travel.

PAULA: Is that something that you think is feasible or is it being done or am I totally crazy?

PAULA: But I keep kind of going, I bet you there’s more I could do with this.

PAULA: And I just, you know, I don’t see airlines yet proactively sending out that kind of like personal, like not just personalized, but personal to Paula, a suggestion that this is what I could do when I do get the balance up.

PIOTR: Yeah, I fully agree.

PIOTR: I think the industry is starting to doing it.

PIOTR: So we are seeing such initiatives, but they are not that, let’s say, popular.

PAULA: Okay.

PIOTR: I think the major difference, if you look at the frequent flyer programs and let’s say the e-commerce platform is, I mean, you are in the airline world, you are operating with modern, newest technologies.

PAULA: Yeah.

PIOTR: Supported with the AI, but you are also operating with a very, let’s say, legacy systems.

PAULA: That’s true.

PIOTR: Which are not yet adopted to operate in such a manner.

PIOTR: Whereas if you are in the e-commerce space where pretty much technology is completely modern.

PAULA: Yeah.

PIOTR: It’s not older than two or three years, which follows the newest technologies from the AI, from the cloud, native architectures.

PIOTR: I mean, they are much more prepared for adopting this model.

PIOTR: But I think the airline world is on that path of digitalization, of digital transformations, of adopting the newest technologies.

PIOTR: And I think you will not have to wait long to see the brands offering you such a proposition.

PAULA: Thank you.

PIOTR: Such a level of personalization.

PAULA: I love it.

PAULA: I love it.

PAULA: Well, watch this space, as they say.

PAULA: So my final question for you then, Piotr, is what is your favorite loyalty program?

PIOTR: That’s a good question.

PIOTR: I’m not going to mention the program that I’m a member of, because it would be too easy.

PIOTR: I’m not going to mention our customers, although I would love to, because it would be too easy as well.

PIOTR: But I think the program that I really appreciate, that really, I mean, for me, is a kind of a mastermind of loyalty world, is a program of Starbucks rewards.

PIOTR: I’m not a big fan of the coffee itself.

PIOTR: I mean, if you travel to Italy, you know you can get a better coffee in small Italian cafes than at Starbucks.

PIOTR: But if you look at how the program was architectured, it’s just an amazing thing.

PIOTR: How it balances the value for the customer with financial performance.

PIOTR: I mean, Starbucks rewards was one of those first large global programs which adopted the prepaid model, right?

PIOTR: Where you are being extra rewarded if you prepay your balance.

PIOTR: Actually, that’s how they started.

PIOTR: But now it’s just an option.

PIOTR: And it balances this customer experience with the financial goals of Starbucks.

PIOTR: So if you look at the prepaid model, I mean, I’ve read the article, it was something a year ago that in total, Starbucks rewards was sitting last year on $1.6 billion of cash that was prepaid by the customers.

PIOTR: And if you look at the breakage that comes together with that of approximately over $100 million a year, that raises the question is Starbucks rewards a kind of a quasi banking business.

PIOTR: And if they were able to do it this way, that’s just a great thing.

PIOTR: Ultimately, they are borrowing cash from their consumers at a negative interest rate.

PIOTR: And that’s the beauty of that.

PIOTR: Whereas the customers stay happy and they feel they’re being treated very well by the brand.

PIOTR: So for me, simplicity of the program, fulfillment of the financial goals of Starbucks, together with the great experience the customers are getting, it’s been just a masterpiece from Starbucks rewards.

PAULA: Well, I agree.

PAULA: And it’s a great word, Peter, a masterpiece.

PAULA: I totally agree.

PAULA: And I think I might have read the same article that you did, which I think we all did.

PAULA: Yeah, we must have, you know, is Starbucks actually a bank, you know?

PIOTR: I was the one that was the one.

PIOTR: Brilliant.

PAULA: Brilliant.

PAULA: Well, I’ll make sure again to root that one out and link it in the show notes here, Peter.

PAULA: So listen, it’s been a fabulous conversation.

PAULA: I’m very excited about all of your ideas and to see what you do now, as we said in the next 12, 24 and who knows in the future.

PAULA: So is there anything else that you wanted to mention before we wrap up?

PIOTR: No, I think we had a good conversation.

PIOTR: We covered a lot on a high level, but quite a lot of topics.

PIOTR: So probably we could go on for hours like that, but the listeners probably wouldn’t stand it.

PIOTR: I’m not sure they would stand it.

PIOTR: So no, I appreciate very much the time and that interesting discussion we had and nothing to add.

PAULA: Okay, wonderful.

PAULA: And we’re releasing this show, I know just a few days ahead of when you arrive over here in Dubai for the Loyalty and Travel Awards.

PAULA: So very excited to finally meet you in person.

PAULA: Yeah, so super exciting and great to see that you’re really supporting the industry because I think that’s what the conference is doing overall is saying, well, look, we want our customers to travel.

PAULA: We also have to travel.

PAULA: So I just wanted to acknowledge that.

PAULA: So listen, it’s been a fabulous conversation, as you said, Peter.

PAULA: So from my side, Peter Kozlowski, Vice President of Consulting for Airline and Travel Loyalty from Comarch and the CLMP.

PAULA: Thank you so much for Let’s Talk Loyalty.

PAULA: This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights and research.

PAULA: The Wise Marketeer also offers loyalty marketing training through its Loyalty Academy, which has already certified over 170 executives in 20 countries as certified loyalty marketing professionals.

PAULA: For more information, check out thewisemarketeer.com and loyaltyacademy.org.

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