The Business of Loyalty: SimpliExclusive Interview with Gabi Kool, CEO of Baltic Miles, reveals a changing loyalty landscape

We recently recorded a podcast with Gabi in which he shares some exclusive tidbits about BalticMiles and the future of loyalty: you can buy it at a special price of $19 here.

Here’s a question for all you airline marketing experts out there: how do you get travelers to stay loyal to your loyalty program in such a crowded market? The answer, if the success of Aeroplan and Multiplus is any indication, points to the coalition program model. For BalticMiles, the Latvia-based loyalty marketing company owned by Air Baltic, evolving from a “pure” frequent flyer program to a pan-Baltic coalition partner has certainly helped it increase its market share significantly. To date, it has 130 partners, 11,000 points of sales worldwide and half a million members, a number which the company is hoping to grow to a million by the end of this year.

Leading the charge at BalticMiles is Gabi Kool, who assumed the chief executive position last May. Kool is no stranger to loyalty marketing programs, having previously led Hospitality Marketing Concepts’ VOILÀ Hotel Rewards and loyalty management firm Carlson Marketing (which has since been rebranded as Aimia.) There are a few things airlines could learn from the hotel industry, says the Dutchman, citing Starwood Preferred Guest Program, which lets members upgrade to a junior suite for 25 euros, as an example: “In the case of airlines, how do you up-sell travelers to business class one or two days before their departure if you still have spare capacity?”

Kool has big plans for BalticMiles and while he declines to go into details about the company’s “big” strategic plan, he tells us that that members can look forward to the launch of a new initiative built around a co-creation platform in the second quarter of the year. “There will,” he tells us, “definitely be a few industry firsts.”

He also adds that unlike Estonian Air’s popular AirScore Rewards program, it will be integrated into the company’s regular program. “I’m not fully convinced yet that a social loyalty program has to exist next to a regular loyalty program. I think they can very well be integrated. Though in the case of Estonian Air, it was a very smart move because their marketing options within the participation of the SAS EuroBonus program were probably limiting their direct control over certain activities.”

Creating a Hybrid Model that Works

On a separate note, what kind of a business model does a standalone company, which aims to be “the most successful loyalty company in Northern and Eastern Europe, supporting leading airlines, retailers and financial institutions”, adopt when its owner is an airline?

“We like to think of ourselves as unique so we’re shamelessly stealing good ideas and models and morphing it into our own structure,” says Kool with a laugh. “We’re a bit of a hybrid right now so we are combining our own innovation and introducing a couple of best practices from other programs.” To this end, it has collaborated with Arena Riga and the Dinamo Riga ice hockey team to allow BalticMiles members to use a fast track entrance as well as taken a leaf out of Qantas’s approach to personalized newsletters.

However he is quick to add that launching an effective loyalty program is not just about having attractive rewards or good ideas. It also requires a good deal of sensitivity. “To the outside world, the Baltic market sounds like one market but in reality it’s actually three – Lithuania, Latvia and Estonia,” says Kool, adding that the differences within these three countries, however slight they may seem, play an important role when it comes to deciding, for example, which partners get more emphasis. “Localization is extremely important. The art in running these kinds of programs is to find the right balance between localizing without creating a monster of an operation to manage.”

To Compete or to Collaborate?

There is also the question of how it intends to play the airline partnership game. With most travelers being members of different loyalty programs, how does Kool intend to convince them to stay loyal to BalticMiles?

“Airline partnership is an interesting one for us because Air Baltic is not part of a global alliance such as Star Alliance or One World. How do we make sure we also offer a global earning network of airline partners where by definition we have to look outside the airlines already participating in other alliances? That’s one of the projects we’re working on right now – to look at destinations where our members fly to a lot and build that network over time.”

Coalition Loyalty Programs: What Lies Ahead?

Given the buzz generated by coalition loyalty programs such as Montreal-based Aeroplan and Brazil’s Multiplus, Kool believes that it is only a matter of time before the market sees one or two more airline programs spinning off over the next two years.

“What you’re going to see in the future of loyalty is that the coalition programs are going to grow rapidly around the world. You’ll probably see a consolidation because eventually there will only be enough space for three or four leading global loyalty players,” he says, predicting that markets such as Spain will probably see the entrance of new programs in the near future. “You do have Iberia Plus together with British Airways’s program but that hasn’t become a standalone loyalty company. It’s not driven very aggressively as a coalition program [so] either they’re going to step into that space or there will be somebody else who will. There’s a huge market there.”

And what about BalticMiles – is an IPO on the cards for the company? It’s definitely something the company has its sights on, says Kool but for now, it is focusing on growing its business and building “a great loyalty company where we are seen as the hotbed of marketing talent in our part of the world.”

“I want to make sure we maintain our record of 100% retention of our existing partners and that our members are raving about being in the program.”

Whatever the outcome of BalticMiles’ new initiatives, it looks to be one to watch in 2012. Watch this space.