What Is Customer Loyalty in the Commercial Airline Industry?
There have been countless articles, white papers and blogs written on the topic of Loyalty within the commercial airline industry. However, most of these deal with the use of Loyalty programs in order to drive revenue, retain customers and reduce churn. The purpose of these programs is to incentivize the customer to continue to use one airline’s service. Note that the key word here is ‘continue.’ Many studies have shown that a customer becomes loyal only after being a repeat customer for a certain period of time, sometimes this time frame stretches into years. Loyalty programs are mechanisms to reward the existing customer but rarely help to acquire new customers, and take a certain amount of time to actually take effect and develop a profitable relationship with long standing customers.
Driving market share is the main challenge for businesses in competitive industries. The aviation industry is no exception. The cost of acquiring a new customer is usually very high and airlines pump millions of dollars into marketing in order to accomplish that. Once that customer is acquired there is very little an airline can do to actually turn that customer into a repeat customer and have them sign up for and actively use the Loyalty programs, which are then used to drive that sought after ‘stickiness.’ It would be far more cost effective to utilize the Loyalty program in order to drive market share, and have that customer ‘stick’ right from the initial onset of that relationship. Loyalty programs are very much ‘one-size-fits-all’ concepts. No matter what the offer or reward, there is a simple process, you fly or buy and you get points, you buy more, you get more points. Points can be redeemed and if you buy enough you become extra special and are segmented according to your actual and perceived value. If you combine it with data mining and segmentation, and thereafter view buying patterns, you can position your loyalty program as: right reward to the right person at the right time. Though particularly useful, this still does not drive market share, the person is already a customer well before the Loyalty program can be activated for this purpose.
There have been attempts by Loyalty programs to drive market share and get the customer to be loyal and ‘stick.’ One way is through the referral of new customers, providing loyalty points and incentives to existing customers to refer new customers and then incentivizing the new customers to join or sign up, hoping that once the new customer signs up, they will feel compelled to use the service again. This is a potentially good way to drive market share but most often there are barriers to referrals. Prospects view with suspicion any perceived ‘coercion’- however well-intentioned – and often there is a reluctance to make a financial decision based solely on others’ experience. Another approach to drive market share through a loyalty program is to make potential customers want to sign up to a service or a product because of the Loyalty program itself, basically, the Loyalty program acts as a catalyst or a motivator.
A possible way to accomplish this is to turn the Loyalty program into a product that is very attractive to first time buyers or consumers. Several other industries engage in these type of loyalty initiatives. Through the use of micro – or highly specific segmentation – and running models of previous customer behaviors and patterns then analyzing the existing data, one can develop a model that allows for creation of multiple loyalty programs which may be marketed as separate products, (or even coupled or bundled with the original product purchased).
Currently, Low Cost Carriers utilize an “A la Carte” method of providing value added services or extras in fine-tuning their product offerings. Food or drinks are extra, entertainment, checked luggage, leg-room would all add to the cost of the airline travel experience. The customer selects the amenities they require from a “Menu” and proceed to make his/her payment. Even though the A la Carte method of amenity selection has its benefits, ancillary revenue to the airline is limited and erratic leaving too much to chance. At the same time, this approach allows for minimal differentiation among competitors and most importantly does not create or enhance a customer experience, which is crucial in driving repeat business and loyalty.
In our next segment, I will dive into the concept of micro-segmentation and share an example that can illustrate this concept for commercial aviation using a page from the telecommunications business loyalty playbook!
Stay tuned for Part II.