For some frequent flyers, the pull of airline loyalty
programs is stronger than gravity. Airlines understand this. So does The
Advisory Board Co. vice president of information systems and travel buyer
Steven Mandelbaum. Taking a page from the airline playbook—and injecting some
fresh thinking about traveler behavior—he built an internal loyalty program
that tracks and rewards traveler compliance.
While airlines reward travelers based on how much they
consume, Mandelbaum developed a program—and the technology to support it—to
reward how smartly they consume and how closely they adhere to policy.
The program launched this year is rolling out along with a
new credit card program. It's based around Mandelbaum's ongoing work to broaden
a system that converts in-policy behavior into company-sanctioned points
redeemable for goods, charitable contributions or even authorization to file
otherwise unsanctioned corporate travel expenses.
The global research, consulting and tech firm built a system
to track compliance by using feeds from its travel agency, expense system and
corporate card, and has established something of an e-commerce site on its
intranet so travelers can tally and redeem points.
"When I talk to colleagues and say that we're doing
this, they generally say, 'What a great idea. We'd love to do it, but ... ' "
Mandelbaum said. The Advisory Board Co., he continued, has "always been
interested in this. I think everyone has been interested in this. The question
is, how do you get from here to there?"
Rewards Reboot
For companies that opt to provide travelers with a rewards
program, the choice pretty much comes down to selecting a scheme from corporate
card providers—American Express Membership Rewards or Diners Club Club Rewards,
for example. If those companies opt to provide employees with such a perk, they
often defer some card rebate revenue. Advisory Board previously was in that
camp.
"For a long time we've had rewards as part of our card
program," said Mandelbaum. "We concluded that there was an
opportunity to bring it in-house. The two benefits of doing that: One, you can
continue your rewards and use best-of-breed technology and providers, but, two,
you can change the model for how rewards are accumulated."
In Mandelbaum's model, most in-policy travel transactions
come with a point-accrual opportunity. He declined to share specific point
values for compliant transactions, but said, "Our plan is to accrue it
when they do compliant travel: They book through our program, according to our
rules, and they get points."
For flights, it's a "mileage-based" point system, "assuming
it's on the card and booked through the travel program," he said. That
means in-policy purchases of longer-haul international itineraries (usually
more costly) would earn travelers more points. For hotels, accrual is based on "a
flat amount per night—assuming it's compliant within the rate limits,"
Mandelbaum explained.
But that's not all that's rewarded. Before travelers can
accrue any points, they must file their expense reports. "This is
expense-based, so people don't earn points until they actually expense the
travel," he said. "It also requires expensing within a certain amount
of time."
As for explaining to travelers their point-accrual
opportunities and values, "We'll be very clear and eventually we hope to
bake that into the online booking tool and things like that," said
Mandelbaum. "We've decided instead of having all these metrics as to how
you get them, to just say, 'You have to be compliant and then you get them.
Otherwise, you don't.' It makes it easier for travelers to understand that and
easier for us to administer the program. The message is: Be compliant, travel
well and the points will come."
[PROFILE_1]Building Loyalty
Build or buy? It's a question often addressed by corporate
IT departments exploring how to allocate resources, but that choice almost
never exists for travel buyers looking to build a soup-to-nuts rewards program.
An idea is one thing. Execution is another. It certainly
helped that Mandelbaum is that rare corporate travel buyer with an IT
background, especially since there were multiple IT aspects of the project.
Mandelbaum pulled multiple data feeds to track compliance, built software to
tally points and structured an internal e-commerce site where travelers can see
their point balances and redeem rewards.
As for tracking, "We do a lot of data feeds," said
Mandelbaum. "We use a little bit of the card program, we use a little bit
of the agency and we use the expense program."
Then there's the task of translating behavior into points. "The
currency conversion was very challenging," Mandelbaum said. "We
basically used off-the-shelf, open-source software to develop this internally."
To provide an employee-facing site where travelers could
keep an eye on how many points they've accrued and redeem rewards, Mandelbaum
established an online store housed on the company's intranet. "If you've
been to any online store, you've been to any online store," he said.
"The shopping cart functionality was there," he
continued. "We just built out the look and feel. We integrated a lot of
components," including an application programming interface with
Amazon.com, whose catalogue of products can be purchased with points. "We
had to do the data feeds on points and convert it so that people were actually
checking out with points or credits, because these systems are oriented to
buying something with a credit card, which we aren't doing."
So Redeeming
In addition to Amazon purchases, travelers can do other
things with their points, including making charitable donations. "We have
a pretty significant community impact program, and for a long time our folks
have asked if there's a way to give to those programs and we developed that,"
said Mandelbaum. "We featured a number of organizations that we support
and people can take their points and dedicate it to these programs."
Another option hits closer to the travel program: The
company allows travelers to redeem points for what Mandelbaum called "travel
enhancers." That option is particularly appealing to "those who are
heavy travelers, who always travel in policy or predominately travel within
policy," he said. "So, maybe on that long trip, they want to upgrade
to first class." Other enhancers could be an airport lounge membership, an
upgrade to a hotel suite or even the purchase of technologies like a new
smartphone—"so long as it is reasonably related to business travel."
It's an interesting way to reward compliance: If travelers
are complaint enough, they can eventually—and within reason—break policy.
Generally, how they do that is up to each traveler. "We
want to put control in the traveler's hands, for sure," Mandelbaum said. "They
know where it makes sense, and they're the ones accumulating the points."
He said that travelers redeem "travel enhancers"
much like "a certificate, then it gets moved as a dollar-based allowance
into our expense system."
'Something That Works
For Travelers'
Why go through the effort and expense of building a loyalty
program from scratch? Mandelbaum ticked off a few reasons. Sure, he expects the
program to improve compliance, and therefore deliver some savings, but, "number
one," he said, "is traveler happiness. We want to do something that
works for travelers."
He acknowledged "there are pros and cons of every
program," as well as associated costs.
He explained that companies using traditional card-based
rewards programs inevitably pay for it. However, if a company "shaves off"
the rewards program from a traditional card supplier program, for example, it
will get a higher rebate, which can help fund a company's own rewards program.
"We believe there's a big enough upside, and we believe
that we can run a richer, more interesting rewards program," said
Mandelbaum.
In structuring the program, he gave a nod to the
airlines—saying "they've done a great job at loyalty programs"—and
also some of his peers in corporate travel management, noting in particular
Google, which has worked open-booking strategies into its managed travel
program. "It's not dissimilar to what Google has done in the past,"
he said of Advisory Board's travel enhancers component. "They've got a
bank to some degree where people can save money and apply it to things like
that. There is precedent for it."
Mandelbaum said Advisory Board will conduct some pilot
tests. "We're going to slowly add people to the program and we'll
calibrate as we go along," he said. "I can guarantee that what we
launch with will not be what it will be in a year."
The Balance
In conjunction with the rewards program, Advisory Board is
rolling out a new declining balance credit card provided by payment company
Comdata.
The new option will replace Advisory Board's Bank of
Montreal-administered card program, configured as company bill/company pay, but
still will be backed by MasterCard. Implementation is underway, with
cardholders being "phased in over time," according to Mandelbaum.
"It's like a gift card," he said of the new card
program. "We've written code that does the math and we're replenishing it.
It operates [similarly] like a prepaid card—except it's not; it's a credit
card. And as people submit expenses, we will add [funds] back in."
One benefit to the company is more promptly filed expenses,
as the corporate card balance won't "refresh on a schedule," but
rather only "upon expense report submission."
Additionally, Mandelbaum said the program "provides a
greater level of predictability to travelers. Frankly, it let's them control
how much credit limit they have, which isn't different to how they control
their personal credit cards." While the declining balance card may be an
adjustment for some in their business lives, he said that many individuals in
their personal lives have had credit limits, so the concept certainly isn't
new.
Asked why the company decided to change the existing card
program, Mandelbaum said: "We wanted a tighter integration with the credit
card, real-time web services, to be able to provision cards and change balances
on the fly, and for the card to work on an outstanding balance basis, which for
us [means] any charges that have not been submitted through our expense system.
So it's just a slightly different way of looking at things."
The most challenging aspect of choosing a new card program
was finding the right bank provider with "a rich-enough technology stack"
that would allow the company to provision cards from its own management and
human resources systems and integrate with the bank's system, according to
Mandelbaum.
Comdata does "a tremendous number of insurance and
fleet cards," Mandelbaum said. "We found those organizations that
dealt in insurance and fleets had richer stacks than the large traditional
banks."
— JoAnn DeLuna
contributed to this report.
This report
originally appeared in the November 2013 edition of Travel Procurement.