Ask Us Anything: Is This the End of Country Road? + Flight Centre's New Loyalty Program

0:28I'm Adam Schwab. on Flight Centre's new World 360 program? What did they get right? What did they miss? And is it just me or does Member Plus at$249 per year feel a tiny bit familiar? Finally, I'd love to get your thoughts on booking fees on OTAs as flighters have introduced the Webjet model into their booking flow. Cheers. Our listeners are everywhere out here, not just across Australia, but across the world, the home of Flight Centre. So great question from Josh. So what he's asking about is Flight Centre last week released what they call World 360 Rewards, a loyalty program for flight center where you get points across buying airlines, hotels, cruise lines, tours, and retail and lifestyle partners.

1:12They've also got a second program, which is called, they've called it World 360 Plus, I think, which essentially feels like it's been very closely borrowed from our Lux Plus program, which is very flattering, which basically gets you, it's a bit different in terms of what you You basically get, I think, lounge access, a couple of lounge access, and you get delay protection and a couple of other things, which is a little bit different to ours, which gets you discounts. So, Adir, you obviously love loyalty programs. Have we reached peak loyalty now with this Flight Centre program? I'm just looking at this thing.

1:46Pay$249 and get more stuff or pay nothing and get some stuff? I'm trying to see what this stuff is. Basically, rewards. What can I redeem them for? Member only offers. What's the rate? Although it's not such a simple dollar for dollar rate. Yeah. I'm assuming it's a pretty low rate simply because most of – so, Flight Center is a bit different to Booking.com and Expedia and Electric Escapes in that Flight Center predominantly sells flights, obviously the name. So, I think they sell something like – I think something like 70 % of their revenue is flights, which means, as you know, flights have a really low margin.

2:20Even flights at scale is probably only making eight or max 9 % margin on flights, including all their overrides, which is a lot less than like a 23 % margin the bookings making on land. So it makes it a lot harder to run a loyalty because loyalty of course is a way of giving a discount and you get your discount in your next purchase. So this is tricky. Let me ask you this question before I tell you my view on this. I'm going to ask you some places and you tell me if you're familiar with any of them. Double Six Resort Bali. I am very familiar with Double Six, great partner of ours. So how much approximately do you think two nights, five nights for two people might cost as a base price?

2:59At Luxury Escapes or everywhere else? Yeah, well, at Luxury Escapes. Well, we would sell with a bunch of inclusions like dinner, lunch, all these other stuff. So it's probably not a perfect comparison. Yeah, but the reason I'm asking, maybe you can – I'll tell you the question rather than trying to lead you to – so basically it costs 100 ,000 points, that thing, from Flight Centre. So I'm kind of trying to figure out what 100 ,000 points is worth, which is five nights for two at the Double Six Resort Bali in Deluxe Ocean View. I'm guessing about two and a half grand or something like that. Okay.

3:31And so we can back calculate that and we can say$2 ,500 is 100 ,000 points. I'm just rounding 200 ,000. That's 99 something. So it's about two and a half cents a point is what you're going to get as value for that. And so I don't know what their earning is, but like when people are trying to calculate whether this is worthwhile and what they're earning. I think a rule of thumb might be two and a half cents a point is the value that's accruing if you book a holiday or something through them. Two and a half cents a point is a lot. Well, it depends how many points they get. Like it all depends what the points earning ratio is.

4:04So what it comes down to is how many points do you get per dollar earned? Because assuming that a flight and a point is worth the same as a Qantas point, I think the best reference point for points value is called Qantas Classic Rewards. And a business reward flight, there's a bit of taxes here and there, but it's about$0.05 a point if you can get it. Almost impossible to get, but if you can get it. A premium economy is about$0.25 and an economy is about just over$0.01 a point. And so I know, look, we're not clear because we're not saying this is how many points you get, right? But however many you get, I think you should think of the redemption of$0.25 a point.

4:44But the thing is, if you get one point for$10, that's very different to getting one point for$1, obviously. Exactly. Yeah. So you need to know the earn and the burn. Otherwise, it's a bit meaningless. Exactly. Which I don't. I've tried to quickly look at it, but frankly, there's no easy way to see the points earned. I'm even in one of their flights. So I can't really help people about whether it's a good program or not. I suspect, let's just say it's probably not going to be as good as Luxury Escapes. I'm sure it's not as good as Luxury Escapes. Based on me having no data whatsoever, except I really like the person opposite me.

5:15But I will say this. So this is how I want to say this about loyalty programs in general. So you are absolutely correct, obviously, that a loyalty program is just a discount in another form. It's a repeat purchase discount. The most interesting structure, in my view, of these repeat purchasing discounts actually is not these loyalty points. It's shop back where if you go into with the cash back where if you go and buy online, you get cash back on your purchase. But if you go and buy in-store and pay with Shopback, which is a cumbersome process, by the way, but if you do that, then the cash back you get comes off your next purchase within a fixed period of time from the same merchant.

5:58And the reason I use that as an example, it is the most obvious version of what is trying to be achieved with loyalty programs, which is very cheap customer acquisition costs. What loyalty programs are trying to do, and we'll use Flight Center as an example here, is they're saying, we know that we sell a highly commoditized product competing against Webjet and everyone else, especially if you're doing point-to-point flights. It's completely commoditized. Like what I buy from Webjet, which I never would do, and what I buy from American Express Travel, and what I buy from Flight Center, the product is the same when I buy a flight.

6:36And so all they've got to compete on his price. Oh, and customer service and service potentially as well. Especially for changing flights, which American Express is a bit hopeless for changing flights. You can't change them online within 48 hours or something of departure or something of 72 hours. So you're right. You're absolutely right. And so what they want is instead of me going to a search engine and clicking on all these different things and like 3 % of people choosing to buy from flight center after they've gone to a search engine or 10 % or whatever it might be, and then having this huge customer acquisition cost of all the clicks they paid for.

7:09The theory behind it is if I give you points, then next time you think about booking a flight, you'll think, oh, I want to earn flight center points and I'm just going to go straight to flight center. And that acquisition cost should be limited to the cost of the points to me, not to the fully loaded acquisition cost that I would usually have to pay. That's the theory. I don't think that theory works is my personal view. ever or in this case? In the case of commoditized products like this, because fundamentally, as you said, everyone is running loyalty programs of one sort or another. These loyalty programs are probably not large enough to be material, to make a material difference.

7:49I suspect it's more likely they're just giving away a bit more of their margin from people who are going to buy otherwise. Maybe if it's head to head the same price and I've got this flight center thing and I've accumulated some points and I want to get to a reward, maybe that will swing my purchase, but it's much more interesting when you do it because when you do it, you're not selling a commoditized product. We do both. We sell commoditized products and non-commoditized products. Isn't there an argument that if you are selling commoditized products like a flight center or like a Telstra or like a Meijer, isn't the loyalty more useful there?

8:24Because there is less switching costs. It is a commodity, but it's no quarter resource. So how do you get someone back if you're selling the same thing? Well, you give them something extra, in this case, a discount. I agree with everything until you got to the discount part. So I think I totally agree that when you're selling a commoditized product, you need to try to differentiate on something other than price because price is the differentiator when there are no other differentiators. And so I would much rather try to differentiate on something that has a high perceived value and a low actual cost.

8:58And the perceived value is material. And so like the way that American Express does it, and frankly, you do it as well when I go online to book a hotel in Sydney, for example, is you throw in all these other benefits that presumably the hotel has provided you because you do volume that doesn't eat your margin, but that differentiates for me as a customer. That to me is a much better way of differentiating a commoditized offering. You're kind of, I don't know if there's a word, but decommoditizing the offering a bit. I think taking a commoditized offering, it's dollar for dollar, same as everyone else.

9:32And just to discount in another way, that's just more of a discount. I think it only works if you get direct purchases subsequent to giving away that extra margin. I think that's the point. So the beauty of what Flytees is doing and what we do and what any earn burn points scheme does is you actually get a double hit from it as a vendor. So you get the benefit when somebody is purchasing because you're earning points and that's the perception of I'm getting a reward for my loyalty. So I'm getting effectively a discount by earning points. And you get a second crack when they spend again. So they burn the points.

10:08Let's say you're giving a 2 % discount in the case of Flight Tenter. You talked at 2.5 cents a point, a 2.5 % discount. That discount is amortized over two purchases in many ways because you buy once and you buy again to actually use the points or the points break. So if you come directly to the website next time, because like if not, then they're still going to pay like the full CAC. Unless you're saying, because my issue is not the redemption. The redemption is no problem. There's no keck for the redemption. People just come and they redeem points. My issue is, let's say there are five bookings that they're going to make until they make the redemption.

10:45You need the next four bookings not to have the acquisition costs that the first booking had. That's the aim of these programs, to try to get you addicted. Maybe by booking four, that might be compelling. You're getting close to the end. But I don't think booking two and three are going to have lower acquisition costs. than booking one? The data we see on our loyalty program, which is not that different to Flight Centres One, is there's significant behavioral improvement. That's interesting. Once somebody joins the program. Bizarrely, the people with less status, so we've got bronze, silver, gold, platinum, no one's platinum yet.

11:19We gifted people gold and silver based on historical spin because we only launched this program six months ago. So if you look at the best improvement was the bronze members and then the gold members had significant improvement. Silver had a bit less than gold, interestingly, but we've seen upwards of sort of 50%, 60 % improvement in sort of sessions and even higher improvement in – and this is obviously quite hard. And CAC reduction. Well, this is in terms of a customer's engagement with the site. So once they join loyalty, they engage significantly at a significantly higher rate. I see what you mean.

11:54Well, that's another way of looking at it. Yeah, I think that's interesting. I'll finish by saying this. I've said for a long time, like the most interesting loyalty program to me outside the airlines is Adair's loyalty program. Something like 85 or 90 % of all of their purchases come from loyalty members. It costs money. I think it's$20 every two years or something like that. So they do have this emotional commitment. Sunk cost fallacy, I think you're talking about. Yeah. And so what they can do, though, is that I think there's a straight 10 % discount off everything when you're a member. And so if you're going to buy anything, it virtually covers itself almost instantly, but it creates – That's like our Lux Plus, yeah.

12:32But the beauty is because they're an own brand retailer, they sell their own stuff, they've got mega margins. And so like a 10 % discount, like they can absorb a 10 % discount and it's material to the customer. And if they get that discount because I say I need to buy sheets, I'm a linen lovers member or whatever they're called, and I don't go to search engines. I just go straight to the website. They save all that acquisition cost. That 10 % is a bargain as a CAC, right? So I think - Oh, for sure. I mean, I'm basically just saying a dumb thing, to be honest with you, which is it's better to have high margins than low margins because you can give more away.

13:12But I don't think, in summary, I don't think there's anything novel about Flight Center's program. I'll see your adairs and I'll raise you a mecca, which I think is the smartest loyalty program. So they've got what's called Mecca Loop. And there's a few different things you get. But essentially what the genius of Mecca Loop is obviously the more you spend, the bigger the box you get each month. So I can't remember the different tiers. I think it's two, three, four, five or whatever. I see. They give you a box? Yeah. So I think, let's say, and these numbers are wrong. I'm sure our Mecca lovers will correct me.

13:44But let's say you're a sort of level two. You get a$50 sample box. And Mecca's definitely not paying for these boxes. because these samples have been given by the suppliers, so it's free for Mecca. That's very – yeah, that is the best. You're right. No, we haven't heard the kicker. So, obviously, as you spend more – I think if you spend five grand, you get the top box, you get bigger samples, you get some in-store stuff. But they don't send you the box. You have to pay if you want the box sent. You've got to pick up the box for Mecca. And what do you do when you go to Mecca? Well, you buy stuff.

14:14Everything about that is amazing. It's basically – Unbelievable. We're going to reward you more for spending more. we're not going to pay for the reward. And if you want it, you have to come and get it in the store where the chances are you're going to spend money. And best of all, the people that get the best boxes are the ones most likely to spend the most money because they did to get the better boxes. I mean, that is very good, isn't it? Well, even better is you come in and say you're on level two and you get your box and you go, well, I want to get to level three. This box is good. I want a better box.

14:42Well, I'm here anyway. I'm going to buy something. So it's the ultimate in nutshell. That's how you know. We can say this. The time you know that you've got a good loyalty program is when people burn money just to make sure that they can go up a tier or hold on to a tier, which is the status credits of Qantas and Virgin and all airlines. We've said this a million times before. The frequent flyer programs might be a cash cow, but the status credits rule the day in terms of shaping behavior of high spenders. Well, the two go hand in hand. Without the status credits, you have no frequent flyer really.

15:15It's the sort of the intellect. Great question. Thank you, Josh. Amazing question. We'll go on to question two, Michael. Question two comes in from Nicholas Robinson into my LinkedIn DMs. Hi, Mike. Question for the Q &A episode. Do Adam and Adir actively seek out viewpoints that counter their own? And if so, how? Who else have they met or seen that does this as well? Thanks from Nick in Berlin. Good to have an international listener. Oh, look at this. Slipping into Mike's DMs, no less. I watch and listen to the ABC. I do that and read The Guardian. I do that because I find most of the viewpoints objectionable, but I'm very interested to hear the total opposite perspective to most of my views.

16:01And like, I wouldn't say it flips my views. It's definitely food for thought. Some of it's trash, right? But like, the good journalists, like they have interesting viewpoints that are on the opposite side of issues frequently to me. I think it's really important to seek out those kind of views. Also, I would say many of my friends, especially because they're quite a bit younger than I am, many of them, their viewpoints are not perfectly aligned with mine at all. And those are the more interesting conversations for me to have. So I definitely will actively seek out the opposite opinion or at least a different opinion on issues than I've had or different perspective.

16:45It doesn't have to be political issues. It can be really anything. One of the differences with Gen Z, for example, is the way that they feel about human feelings and emotions is quite different to Gen X. And so having these conversations with Gen Zs about self-awareness and I don't know, how you feel, et cetera, and how they feel about things, it's very eye-opening because it's certainly not the way I grew up thinking about things. So, yeah, I think it's really important in an era where algorithms are just endlessly trying to feed you the most extreme version of the view that you already have.

17:23Yeah, I agree. I try and read probably a bit less than The Guardian and ABC, but I certainly read the nine papers, which I think, in fairness now, are pretty centrist, but I'll read them most days and I'll read Crikey still. You read Crikey? You just read that. if you have low blood pressure and you're worried about fainting, you just read Crikey, it's problem solved, instant hypertension. That should be the subheading of Crikey, instant hypertension. Well, Crikey's now a delightful combination of economic illiteracy because the people who write the economic stuff just have no understanding of basic economics.

17:56That's almost the comedy section. Then you've got the sort of obviously anti-Semitic stuff, which is actually toned down a little bit lately, but that was sort of obviously about half the publication for a year. and then you've got just the general far left stuff. And then you've got probably one in 10 articles that's exceptional. So you have sort of a real cross-section of far left views and the odd sprinkling of incredible writing in there, which is unfortunately used to be a lot more common in Crikey, but now is unfortunately a bit rare. It's impressive that you read that, to be honest. Well, I've written 1 ,500 articles plus for that thing.

18:32So there's still - Oh, I don't doubt you read your own articles. I don't think there was any hesitation about that. No, I'm not talking about my own stuff. I haven't written for years for Crikey, but I'll now sort of scroll through it in a couple of minutes. I used to spend – when Stephen Mayne wrote it back in the early 2000s, I'd spend 45 minutes looking at every word because it was so good back then. And it's unfortunate. God, progress would be worse. But I still like to see what other people are saying. And I say to look at – you look at Twitter. My Twitter feed is basically the extreme right and extreme left.

19:01I get both of it. It's bizarre I get both, but it's a great cross-section of plurality of views. Engagement, that's why, because it drives engagement. Extreme views drive maximum engagement. Oh, I get why they do extreme views, but I'm surprised. I thought they'd give me just extreme right or left, but to give me extreme right and left is a bit unusual. But I tell you the other thing that I look at that's different to my view. If I have a very bearish view on a stock, I will read the analyst reports that have it as a buy at a high price. and try to work out what they might know that I'm not seeing.

19:35I think that's very interesting. I think the answer would be nothing. Well, sometimes. No, no. Sometimes they've got interesting – Look, I might disagree with their viewpoint on something, but it wouldn't be unusual that they have a view on something where I think, oh, that's an interesting thing to consider. I'm not sure I agree with your conclusion about that. But, yeah, that is an interesting point. What do you say that – I think analyst reports are excellent in terms of the information they give. It's just they're always a buy. Yeah, it's hard. Well, they're not always, but yes, they skew.

20:04They skew to buy. Yeah, you're right. There's a few very honourable exceptions, and I won't call them out because I'm calling out the non-h honourable exceptions, but there's a few really good ones. But whilst I generally enjoy the content, I hate seeing a buyer on everything. Mike, what's your answer to this question? I do try to read from a wide variety of sources, but I've probably been turning more to reading more individual writers rather than publications. So I'm using Substack a lot more and following a lot of different people with different perspectives. And I find that a better way of getting maybe a more broad array of opinions than maybe just reading one publication.

20:46So have you come across the journalist or the writer somewhere and you've liked their writing and then you move across to Substack or have you been fed recommendations by Substack? I think it's more the algorithm on Substack will recommend me writers. And there's often lots of really different writers from really different political spectrums and perspectives. But what I like about it is it just gives me a broad range. And I do like reading stuff and watching stuff that I disagree with. I do watch a fair few kind of commentators on YouTube as well that I don't necessarily agree with. But I just think, I think one of the biggest problems in in society now is people just consume the echo chamber given to them.

21:28And I think if you don't use your own brain to counteract that, then you'll just live in your own echo chamber for the rest of your life. You know, I'd never considered Substack as a source of news, but it's interesting that for you, essentially, like it's like a publication, right? Like what's the difference between, I mean, we could have this conversation about all of social media, but what's the difference between human curated newspapers and an algorithm curated Substack. I mean, there is a difference because there's a person accountable for curating the newspaper, but I'd never really thought about Substack as a source for discovery before.

22:08That's very interesting. I think it is. And I think it's growing a lot. And I'm really curious to see how Substack might disrupt mainstream media over the next five years or so as well. So, yeah. You heard it here first, not from us, from Mike. So if he's right, it's the podcast that nailed it. And if it's wrong, you heard it from Mike. Yeah. Exactly. On that note, we'll go to a super quick break. We'll be back with our last question in no time at all.

22:48And we're back. Question number three, Mike. All right, guys. This is maybe a mini deep dive, but let's have a look at this question from Aaron Phillips. Is this the end of Country Road selling Jalik? I'd love to hear about your views. Oh, I love this question. So, just to bring people up to speed, Country Road was like a premium brand in, what do you say, the 80s, 90s? Yeah, even the 2000s. Before international brands flooded the market really. It was one of the Aussie premium brands. Yeah, probably till Woolworths, South Africa bought it. It was pretty well. Yeah, mate, you're right about that.

23:32And so it was pretty expensive. The clothing was pretty expensive and they had homewares and I think it was a really high quality business and it sort of lost its way along the way and now I go past a store in Brighton periodically and there actually are people inside it, but I'm never really kind of sure why they're paying those prices. And so what they've done, I mean, they've had massive leadership turnover and what they've done now is effectively, they call it a marketplace because that's a cool word, but what they've actually done is move from being an own brand retailer to including third-party products like Jolique, for example.

24:14And so what do I think about that? it's not such a deep dive. I've got a pretty straightforward view of it. I understand why they're doing it. There'll be all sorts of strategy, but probably my summary would be it's because they're thinking, well, we haven't tried this before. We've got to try everything else. I think own brand retail is a holy grail for reasons I've said a million times. I'm not going to go into except to say you can have high quality product, better relationship with your customers and better margins. I think everyone is trying to move from being a third-party retailer to having their own brands.