Brandstand: When Loyalty has no Reward – Disintermediation 2.0

While at the Grand Hyatt in Goa last October, we discovered, much to our indignant disappointment, that our fairly-expensive stay would not earn the usual loyalty points. The booking was done through a travel agent and as per recent industry policy, intermediary-driven customers would not be eligible to earn benefits in spite of paying exactly the same as the hotel site. Which I then realised was truly an excellent Disintermediation 2.0 strategy, based on denial rather than reward, which was the hallmark of the first phase.

The primary motivation for eliminating the middleman in the first place was surely the lure of rewards; in terms of extra choice, greater convenience and most importantly cheaper price. We shopped online because the merchandise would reach our doorstep, the digital showroom enjoyed unlimited SKUs and by all available evidence it was cheaper than the brick-and-mortar cash. For Government utilities and railway tickets, the time saved was staggering, eliminating equally the red-tape culture that usually marked such interactions. Bookmyshow.com and other such aggregators ensured availability of precious tickets, allowing us to enjoy the movie of the day without stress while hotels were ever keen to slip in the additional 10% discount for a direct transaction. In many ways, the early wave of the Disintermediation Economy was driven plainly by the sharing of saved commissions with the end user, what the owner did not pay the dealer or agent transferred in wholesome part or full. A function clearly of the appetite to enrage the middleman; subject to the contribution both current and potential of direct channels to the revenue chain. This automatically ensured why certain consumer durables and certainly FMCG could not offer disproportionate price discounts, relying instead on pure convenience, as they needed the retail network to be in god humour.

In the second wave, however, the eliminators are smartly playing the game of denial now that there is certainly a limitation to additional rewards. Every hotel chain is clear that even the senior-most strata of loyalty membership will not be acknowledged for solo intermediary bookings, booking.com or otherwise, premium MICE reservations occasionally an exception. Quite quickly, the customer will realise that it is damaging to continue with the trusted travel agent and will muster sufficient digital-savviness and credit-worthiness to approach the chain directly. The point culture is rapidly evolving and the moment it is unambiguously established that even the beloved upgrade is denied to the traditional indirect transaction, the last connections with the agent will snap. Over time, hotels will find other ways to connect privileges with direct transactions, including exclusive packages and notable value-additions that this trade is revered for. One does suspect, without the validation of numbers though, that the majority revenue contribution of direct-to-site channels gives this industry the strength to implement what many willing others cannot yet.

For a moment, do imagine the consequences of the airline industry implementing this loyalty practice, frequent flyer points denied to all who do not book directly. There would be rapid discontent followed by dramatic shifts in HR policy to facilitate corporate-card aided reservations, in-house travel units ensuring that executives retain their precious points. Travel agents, marginalised by both air and stay, will have to dramatically revise their revenue projections and concentrate solely on large group assignments, till a fresh set of dynamics render even that unsustainable. Then the entire travel and tourism trade co-opting the credit card issuers to follow similar practices, AMEX offering special privileges only for direct merchant transactions as opposed to purchasing say on makemytrip.com. In terms of choice, brands offering attractive special editions or special warranties only on their home site, as opposed to the popular aggregator, thus ensuring a steady migration. Home delivery and servicing opportunities available for only those customers who avail of the direct access service as opposed to the hopper via the aggregator. The term insurance industry, incidentally, has already implemented the price variation, in terms of online purchases available for much cheaper than the physical agent.

Disintermediation 2.0 will thus be based on strategic denial as opposed to exceptional access; eventually the two operating in tandem to smoothen the expressway between customer and brand. The intermediaries most affected must clearly comprehend the direness of the future and re-calibrate undoubtedly formidable competencies to newer lines of business, perhaps becoming primary providers on their own steam. In the imminent end there will be no middle and this we must realise sooner than later.

(Shivaji Dasgupta is the Founder of INEXGRO Brand Advisory and can be reached at: shivajidasgupta@inexgro.com)

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