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Analytical Models of Travel Loyalty Programs

Loyalty programs traditionally use tiers to segment customers. Each tier is intended to represent a group of customers with similar behavior and value. Tiers, though effective as a recognition and marketing tool, are however created based on only a few aspects such as points earned or amount spent during a finite period like the last one year.

This makes them short term and reflective only of the transactional characteristics of customer behavior. The value of a customer to the loyalty program needs to be looked at from multiple perspectives and short term transactional behavior is just one of these views. There are existing frameworks like the RFM model which attempts to attach a value score to customers based on various aspects of their behavior. But these models are generic and hence there is a need to define models that take into consideration the specific characteristics of the travel loyalty domain. This paper discusses two such models that are attuned to the travel loyalty business – Customer Engagement Index model and Customer Value model.

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