RETAILERS WITH WINGS: CAN RETAIL AND TRAVEL PROGRAMMES CO-EXIST? 29.02.12

Sandra Diem

PROPRIETARY STATEMENT The information contained in this document is confidential and proprietary to Aimia. Aimia has shared this document with the understanding that it will be held in strict confidence, and will not be disclosed, duplicated or used in whole or part, without the prior knowledge and approval of Aimia.

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QUESTIONS TO PONDER • Are broad-based frequent flyer programmes attractive to retailers? • Can retail programmes help deliver incremental value to travel companies? • Are retail programmes a threat to travel programmes? • Can travel programmes learn anything from retail programmes in terms of data mining and CRM?

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AIMIA UPDATE AND CREDENTIALS

A WORLD LEADER IN LOYALTY MANAGEMENT We design, build and operate some of the world’s best loyalty management solutions. We do this for ourselves and for some of the world’s top brands.

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A FULL SUITE OF LOYALTY MANAGEMENT SERVICES We are the only company offering a full suite of loyalty management services on a worldwide scale.

PROPRIETARY LOYALTY

LOYALTY ANALYTICS

COALITION LOYALTY

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MANY OF THE WORLD’S LEADING BRANDS CHOOSE TO WORK WITH US

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COALITION LOYALTY

LEVERAGES FULL SUITE OF LOYALTY SERVICES FOR COALITION PARTNERS

WORD-CLASS, MULTI-PARTNER LOYALTY PROGRAMMES WITH PROVEN ROI

LAUNCHES GREENFIELD COALITIONS

BUILDS VALUE FOR EXISTING PARTNERS

GUIDES LEGACY PROGRAMMES INTO STAND-ALONE BUSINESS UNITS AND COALITIONS

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ARE BROAD-BASED FFPS ATTRACTIVE TO RETAILERS?

BRAND ASSOCIATION AND HIGH-INCOME MEMBERS BENEFIT BOTH PARTIES • Retailers benefit from halo effect of the FFP brand • Top-tier members generally fall in HH income bracket and therefore are attractive to retailers in terms of average transaction frequency (ATF) and average transaction value (ATV) • Travel remains a strong carrot as a reward offering • Allows retailers to have direct communication access to a premium segment of customers

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PROGRAMME POSITIONING DEPENDS ON THE TARGET AUDIENCE Best served by:

Frequent travellers &/or high spenders

Less frequent travellers and/or spenders

Infrequent (leisure) travellers

Travel-based coalition programme • airlines • hotel/car • financial partners Travel or Retail based coalition programme • airlines/hotel/car • financial partners • non-travel partners

Retail coalition programme • grocery & other retail • petrol •Telco

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THE FREQUENT FLYER CORE VS. COALITION OPPORTUNITY TRADITIONAL FFPS

COALITION OPPORTUNITY

• Product and marketing focused on high-value frequent flyer segment

• Increased engagement of infrequent flyer base from:

• Majority of members are infrequent travellers or earning points through non-air partners

• Increased earning opportunities to more member spend categories

• Lack of earning and redemption for the majority leads to disengagement and high inactivity rates • Missing the opportunity to leverage purchasing power of large infrequent flyer base

− Increased reward opportunities in travel and non travel rewards − Increased attainability and flexibility of rewards both air and non-air − Greater engagement better leverages purchasing power • Attracts members from other sources than airline

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TWO MODELS TO LEVERAGE BENEFITS OF A COALITION 1. FFP EXPANSION MODEL – AIR CANADA, QANTAS,TAM, AEROMEXICO • Evolve FFP to a coalition programme attracting & engaging more members: − A better reward value proposition − More places to earn beyond travel • Attract retail partners − Access to high value demographic segments − Superiour data analytics, campaign management

2. CO-EXISTENCE MODEL – BA/AIR MILES UK, IBERIA & TRAVEL CLUB, LUFTHANSA & PAYBACK • FFP maintains focus on attracting and maintaining loyalty of frequent travellers • Retail coalition program access broadbased consumer spending categories with required marketing & analytics capabilities required in high frequency, low-value transaction environment • FFP attracts infrequent travellers through partnership in a major coalition programme

− More communication channels

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IN A CO-EXISTENCE MODEL HAVING AN EARN & BURN PARTNERSHIP MAXIMIZES THE VALUE TO AN AIRLINE • Access to a very large base of engaged customers – Often representing 50%+ of households

1 3 5 6 6 8 8 8

Airline

– Direct communication channels

FFP Program CURRENCY

PARTNERS

convert

– Superiour data insights

at customer request

• Incremental marketshare • Increased pax revenue from sale of rewards to mass program

OAL Alliance

MASS Program

PARTNERS

0 0 0 5 6 8 8 8

Earn Burn

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QANTAS FREQUENT FLYER – COALITION EXPANSION THROUGH AUTO CONVERSION PROVIDES CUSTOMER CHOICE

Earn miles on spend in Woolworths and other brands Over 3M cardholders have linked their Woolworths and Qantas Frequent Flyer accounts

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AEROPLAN MODEL – COALITION EXPANSION TO PROVIDE MORE EARNING OPPORTUNITIES FOR TRAVELLERS & CC SPENDERS

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AVIOS MODEL: RETAIL & FFP CO-EXISTENCE WITH A SINGLE CURRENCY Avios Retail Program

‘Combine my Avios’

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MULTIPLUS MODEL – EXPANSION BY LEVERAGING APPEAL OF AIR TRAVEL REWARDS TO A BROAD RANGE OF CONVERSION PARTNERS • Multiplus allows its members to accrue and redeem points in several different market segments • Today it consists of more than 160 commercial partners connecting approximately 9 million members • Members can earn Multiplus points directly or indirectly in more than 12,500 merchant locations and redeem those points for more than 30,000 products and services • Strategic non-travel partnerships include Ipiranga and Texaco (gas stations), Livraria Cultura (bookstore), Oi (telecom), Editora Globo (publisher), SKY (payTV), Luigi Bertolli (apparel), Microlins and Wizard (education), Drogaria Rosário, Extrafarma and Droga Raia (drugstores), BM&FBOVESPA (stock exchange), PontoFrio.com (e-commerce), Unicasa (furniture), Icatu Seguros (insurance), Ofertas.com.br, Groupon (collective buying)

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EXAMPLE OF A RETAILER BENEFITING FROM A PARTNERHSHIP WITH A TRAVEL BASED COALITION Gas Market Share of Aeroplan Members

Market research indicates an increase in Esso share of Aeroplan customer petrol spend, at the expense of other retailers

Esso revenue (millions of C$). 3 year CAGR: 28% Members accumulating at Esso. 3 year CAGR: 33%

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AIRLINES ALSO BENEFIT FROM BEING ABLE TO TAP INTO A NEW MARKET SEGMENT Higher leisure market share from FFP infrequent flyers

INCREASED AIRLINE MARKET SHARE

IMPORTANT DISTRIBUTION CHANNEL

• • •

Reward availability locks in leisure share

AC

Westjet

Non-members

23%

50%

New members

39%

15.5%

Infrequent flyer members

71%

12%

Airline’s biggest customer Guaranteed distribution channel No marketing or distribution costs

• •

Share gain from 25% who would book on another airline if reward seat not available

No competitive pressure on 10% -15% of airline RPMs Opaque pricing channel

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HOWEVER, A FEW CONSIDERATIONS IN DEVELOPING RETAIL PARTNERSHIPS • Cost/Value of FFP currency – With smaller margins retailers are often looking to provide .7% - 1.2% back to customers vs. typical 2% + of an FFP currency • Frequency of communications – Frequent (weekly) shopping behaviour requires the ability for an FFP to provide frequent communication channels with short lead times • Data insights – FFP must be able to provide deep insights on a retailer’s customer including data from outside travel

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ARE RETAIL PROGRAMMES A THREAT TO TRAVEL PROGRAMMES? DO THEY HELP TRAVEL COMPANIES?

ARE RETAIL PROGRAMMES A THREAT TO TRAVEL PROGRAMMES AND TRAVEL COMPANIES? • Serve a purpose and can be complimentary in nature • Provide access to a large database for acquisition and trial • Revenue generator for travel companies through redemption and conversion partnerships • Enable airlines and other travel partners to target infrequent travellers and leisure market • Increases brand presence and can be a USP versus competitors • Can provide sole loyalty solution for a travel company or airline

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RETAIL PROGRAMMES PROVIDE A REVENUE OPPORTUNITY FOR AIRLINES: EASYJET EXAMPLE

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AS WELL AS INCREMENTAL VISIBILITY THROUGH PROGRAMME COMMUNICATIONS: EASYJET LAUNCH

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ANOTHER EXAMPLE OF A RETAIL PROGRAMME PROVIDING A REVENUE OPPORTUNITY FOR AIRLINES

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SOME AIRLINES PREFER A CONVERSION RELATIONSHIP WITH RETAIL COALITION PROGRAM

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CONVERSION GIVES RETAIL PROGRAMS AN EASY MECHANISM TO OFFER ASPIRATIONAL REWARDS

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HOWEVER CONVERSION ALONE DOES NOT MAXIMIZE THE BENEFITS OF A RETAIL PROGRAM PARTNERSHIP: EXPEDIA RELATIONSHIP WITH NECTAR ILLUSTRATES POTENTIAL

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BOOKINGS FROM ALMOST A QUARTER OF RESPONDENTS WOULD NOT HAVE BEEN MADE THROUGH EXPEDIA IF NECTAR POINTS WERE NOT AVAILABLE Q14 Had you not been able to collect Nectar points, would you have still chosen to book through Expedia anyway, or would you have booked through another company? Had you not been able to collect Nectar points…

Almost a quarter of respondents were incremental acquisition – i.e. would have chosen another travel company had Nectar points not been on offer (slightly higher among the male respondents)

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NECTAR SHIFTS CUSTOMER TO HIGHER MARGIN PRODUCTS AT EXPEDIA • Acquired Nectar collectors are more likely to book highermargin products for first and repeat purchases • 50% of acquired Nectar customers have booked hotels versus 48% of Non-Nectar customers and 24% have booked packages versus 18%

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NECTAR TRAVEL IS NOW BECOMING ONE OF THE MOST SUCCESSFUL NECTAR CHANNELS FOR EXPEDIA Nectar Travel informs collectors of all the places they can collect and spend points on travel It is supported by 6 eNewsletters per year with open rates between 3 and 5 times greater than Expedia’s standard emails Up to 50% open rates

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IN SUMMARY • Ability for retail and travel programmes to happily co-exist • Retailers gain perceived value from association with programmes targeting frequent flyers which can translate into higher margin sales, larger basket size and increased frequency • Travel companies can use retail programmes to tap into leisure market and infrequent flyers to generate trial, acquisition and an ongoing revenue stream through the sales of miles or product

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WHAT CAN TRAVEL PROGRAMMES LEARN FROM RETAIL PROGRAMMES WHEN IT COMES TO DATA AND CRM? WHAT WILL THE FUTURE BRING?

DATA IS THE NEW OIL

“Personal data is the new oil of the Internet and the new currency of the digital world.” Meglena Kuneva, European Consumer Commissioner

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SOME PERSPECTIVE…

50 47 30 10 95

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CONNECTING THE DOTS • Foursquare: Knows where you are, but not what you like • Google: Knows what you want to do, but not what you’ve done • Facebook: Knows what you like, but not what you buy • Television: Knows what ads you see, but not what you buy

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LOYALTY MANAGEMENT – TODAY

IDENTIFY

UNDERSTAND

INFLUENCE

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LOYALTY MANAGEMENT – TOMORROW

EXTEND THE LOYALTY CYCLE

CONNECT THE DOTS

DELIVER VALUE AND RELEVANCE

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RETAILERS INCREASINGLY UNDERSTAND & USE INTERACTIONS AS DATA POINTS

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THE LOYALTY CYCLE – YESTERDAY

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THE LOYALTY CYCLE – TODAY

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THE NEW DATA VALUES

TRANSPARENCY ADDED VALUE CONTROL TRUST

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CONCLUSIONS • Customer data is a renewable resource • Interactions are becoming as important as transactions • Connect the dots to keep building relationships • Deliver relevance, value and trust • Airlines can have a head start by capturing multiple customer interactions during the travel journey

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THANK YOU [email protected] [email protected]