Orbitz Worldwide, the Chicago-based online travel agency, is to announce a new customer-rewards program Monday that executives contend will give it a notable advantage over rivals.
The loyalty program featuring new Orbucks reward currency represents a "pivot" for 12-year-old Orbitz, which was born of an airline alliance but has lost ground to competitors such as Expedia and Priceline as hotel bookings have become far more profitable than selling airfares.
With the new program, consumers earn rewards for booking hotel nights, airline tickets and vacation packages. It's intensely focused on being easy to use and on quick "earn and burn" — being able to accumulate and use rewards quickly.
Consumers can book a flight and immediately use earned rewards to book a hotel for the same trip. "If you earn $3 because you just booked a $300 flight, you can burn that the next minute, and that's fine with us," said Chris Orton, president of Orbitz flagship website Orbitz.com.
"I think we have a killer differentiator now," said Orton. Executives say Orbitz.com will no longer think of itself as an online travel agency but as a travel rewards site. "It's a big, transformational date in our company's history that's coming up," Orton said. "It's not a small, little feature change that we're making. This is so core to who we are."
Analysts agree the program is unlike other rewards offerings in the travel industry. They note that it's easy for consumers to use, and it's likely to accomplish the company's goals of increasing hotel bookings and use of its mobile-device app, which can also be more profitable for Orbitz than computer Web browser bookings.
"Orbitz is taking a leap compared to what other people are doing," said Erin Raese, chief operating officer of Loyalty 360 and editor-in-chief of Loyalty Management Magazine.
"They've broken it wide open, and I think you're going to see a lot of customers really excited about it. And I think a lot of the other travel companies will be really frustrated by it."
Orbitz, which caters more to leisure travelers than business, will use the advertising tagline, "Instant vacation gratification."
Unlike other travel sites, rewards will be integrated into the search process highlighted in purple, showing prices with and without using accumulated Orbucks currency. An Orbuck equals a dollar.
Still, there are drawbacks with the new program. Perhaps the most glaring is that while Orbucks can be earned in a variety of ways, they can be spent only for hotel bookings, not airfares and car rentals.
Maggie Rauch, a research analyst with travel market research company PhoCusWright, said she was pleasantly surprised with the program when briefed by Orbitz executives. She thinks consumers will like how quickly they can use the rewards and how they can combine rewards with other promotions, an unusual offering.
Overall, she was struck by how it makes sense for consumers and the company, which has been struggling to both differentiate itself from competition and shift its airline-heavy bookings toward more profitable hotel bookings.
"It is aimed at the competitive issues that they face right now," Rauch said.
Orbitz will be playing catch-up when it rolls out its loyalty program Monday. Several competitors had rewards programs a couple of years ago.
Back then, Orbitz was at a crossroads: It could slap together a copycat loyalty program or it could take time to build one from the ground up and "get it right," Orton said.
It chose the latter.
"We could have gotten a me-too out there two years ago, but we wanted to get a killer consumer proposition that we could put in front of folks and be really proud of," Orton said. "It took a while for us to make sure we really understood what consumers were looking for."
At first, Orbitz hired loyalty consultants who recommended a points-based rewards program structured like many of its competitors because it was better for the company financially.
"It's this shell game: 'We have these points, and you get what we tell you you'll get, and you should be happy that you're getting an award at all,'" Raese said.
Orton said consumers "almost need an abacus to know how many points you're getting. And if you knew, you still wouldn't know what they're worth.
"If I only travel a couple times a year, I don't have time to think about all the ins and outs of these points. I just want you to show it to me."
Ultimately, Orton's team rejected the usual points-based system. Orton said he decided to develop a consumer-friendly program that would benefit Orbitz by retaining customers and attracting new ones.
[Orbitz bookings and revenue] Orbitz bookings and revenue
Orbitz executives concentrated on the main areas consumers said were important — making the program simple and transparent, and allowing consumers, even infrequent travelers, to quickly accumulate rewards and easily spend them.
"A lot of what we learned from consumers was, 'Just bottom-line it for me,'" Orton said.
Some rewards were so lucrative, the Orbitz finance and marketing departments butted heads because the company will be giving back to consumers money it otherwise could have pocketed as profit.
Indeed, with some launch promotions, savvy consumers can stack together multiple offers in addition to using Orbucks. "We know with some customers we're going to lose money on their transaction," Orton said. "That's OK. We're investing in the program for the long term."
Orbitz executives made the decision to integrate the rewards program into the core business, making it a part of every page of the website, for example, rather than the more common approach of separating it into an almost stand-alone feature. Executives say the site will be "draped in grape," a reference to the purple cue that will pervade Orbitz pages and the mobile app and will signify a savings opportunity.
"A lot of times loyalty programs are siloed within an organization like a distant cousin, and they get brought in whenever there's a need, and they don't work real well," Raese said. "For any company to integrate a loyalty program to this extent is certainly an enormous business decision — that's why you see it siloed so often, because people are afraid to fully embrace it."
For consumers, the integration means Orbitz will "do the math," plainly displaying on hotel search pages what a room night would cost with and without using the Orbucks in their account.
"The seamless integration is wonderful, and there are not a lot of (companies) that do that," Raese said.
Still, it's an open question as to whether a loyalty program is enough to stem the Orbitz slide in market share over recent years.
Orbitz, which employs 800 in Chicago, was the No. 2 online travel agency last year in the U.S., with 20 percent market share, compared with 25 percent share just four years before, based on gross bookings reported by PhoCusWright. Orbitz is a distant No. 2 to leader Expedia, which, with 45 percent share, recently joined forces with No. 3 Travelocity.
To date, loyalty programs have not been among the chief reasons that notoriously promiscuous leisure travelers choose an online travel booker. Ease of use and best prices are far more important, according to PhoCusWright research. "We have not seen a frequent traveler program be an especially strong driver of booking at one site versus another," Rauch said.
But Orbitz officials are confident the program will actually change consumers' behavior, encouraging them not only to use Orbitz as their travel agency of choice, but also to choose pricier hotels, stay longer and book further in advance.
Indeed, those were real results from a six-month pilot program Orbitz started in March with hundreds of thousands of its customers. "Once we get folks to try it, we think they're very sticky. This gets them over that hurdle," Orton said.
Another finding was that consumers were redeeming Orbucks in an average of just 29 days.
"We were amazed, honestly, by the results of the pilot," said Lillian Murphy, vice president of loyalty at Orbitz. "We think this is a game-changer, not only for us but for the industry."
Besides concentrating on hotel bookings, the new rewards program encourages use of the Orbitz mobile app, whether on a smartphone or tablet computer. An app update is due to be released this week, when the new loyalty program launches.
Mobile app bookings are important for several reasons. First, mobile is fast-growing. About 30 percent of Orbitz hotel bookings are already made on a mobile device. And industrywide, that number is expected to reach 50 percent over the next several years, Rauch said.
Because consumers are only going to download, store and use a limited number of travel apps on their smartphones, Orbitz wants to be among them. If it is, competition is reduced.
More practically, it's cheaper for Orbitz when consumers use the app. That's because if a consumer ends up at Orbitz.com from a referral site, such as Google, Orbitz might have to pay a commission to that site for sending a customer. That's common when consumers are shopping with a computer browser. But with mobile-app bookings, customers from the start interact directly with Orbitz, which then avoids paying a referral fee.
"You can get a lot more consumers going directly to your brand once they have the mobile app," Orton said. "So you won't have to continue to pay traffic-acquisition costs after they have the app installed."
Orbitz will share that savings with consumers by giving them 5 percent back in Orbucks for mobile hotel bookings, as opposed to 3 percent back when booking with a computer Web browser.
In the end, the Orbitz "pivot" might be hyperbole. After Monday's launch, the company will still sell airfares, hotel nights, car rentals and vacation packages. And loyalty programs are hardly a new concept.
But for years, Orbitz has been looking for a competitive advantage, something that regularly draws fickle, price-sensitive leisure customers to its travel site as opposed to competitors such as Expedia, Travelocity and Priceline, as well as a host of hotel-only booking sites.
Orbucks just might be the ticket.
How to earn and use Orbucks
•Airfares and vacation packages, 1 percent. A $400 flight gets you 4 Orbucks, or $4 off a hotel stay.
•Hotel nights booked on computer, 3 percent. Two nights at $150 per night earns 9 Orbucks, or $9 off a future hotel booking.
•Hotel nights booked on the mobile app, 5 percent. Two nights at $150 per night earns 15 Orbucks, or $15 off a future hotel booking.
•An Orbuck equals $1 that can be spent at any time on hotel bookings only.
Star: Book four room nights in a year. Benefits depend on bookings, but examples include waived resort fees, room upgrades, free room Wi-Fi, late checkout, a bottle of wine.
Superstar: Book 12 room nights in a year. Star benefits plus VIP concierge services.
Examples of limited-time promotions for the rewards program launch. You don't have to seek out these deals; they will appear on search and booking pages.
•Bag fee zapper. With the mobile app, take a picture of your baggage fee receipt and Orbitz will credit you $25 in Orbucks.
•Hotel deals. 15 percent off hotel bookings.
•Double Orbucks. Get double rewards for booking flights with Orbitz mobile apps.
•Flight discounts. Earn an extra $10 worth of rewards.