Will the airlines finally erase the misunderstanding that exists with their customers and finally reward their loyalty?
We wrote about it some time ago butthe paradox of loyalty programs is that they promote everything but loyalty. And the symptoms of this disease are easy to observe.
A loyalty program rewards everything but loyalty
On the one hand you have customers who make an effort to fly on their favorite airline in proportion to their often modest means and on the other hand, airlines that make it more and more difficult to achieve status and continually reduce the value of what you can afford with miles earned.
On the one hand you have a customer who says “I am loyal, I never fly with competitors even if they are cheaper or better and this is how you reward me” and on the other hand there are airlines that say “sorry but you are not trying hard enough and you are not significant”. It’s not said that way, but that’s how it’s thought out and the customer understands it.
And both are right but not talking about the same thing.
The customer has a quasi-marital vision of loyalty. For him it’s less about the number of times he travels and more about the fact that he always favors a given airline when he does.
The airline has a financial vision of the thing: it doesn’t matter how many times the customer travels, what counts is how much money it makes. And it doesn’t matter if he goes to competitors from time to time.
From there to say that we have on one side a passionate lover and on the other a professional of paid relationships.…but we are not far from it.
An exclusively financial view of the program can be counterproductive.
In short, a loyalty program only values spending and not loyalty. As I wrote at the time, it is totally logical. But we must also look beyond and realize that an exclusively financial vision of the program can be counterproductive.
I am not being overly sentimental in asking the airlines to value effort, intention and love more than money spent, but I am saying that by looking only at the latter criterion they are losing money or, rather, losing the ability to earn more.
Consider Mr. X., a member of a particular airline’s loyalty program. He flies two or three times a year and always with the same airline. He is 100% loyal and engaged and will have no form of recognition.
Now Mr. Y. 50 flights per year with the airline in question. He will be recognized and rewarded. But it also flies 25 times a year with the competition. Understand: he is opportunistic and sees the best opportunity on a case-by-case basis.
From a purely commercial point of view, the airline captures 100% of Mr X’s market and 66% of Mr Y’s market. Technically speaking, it could earn more with an unloyal passenger that it rewards.
Let’s say X and Y start traveling a lot more.
X now flies 10 times a year. And he’s still loyal. The airline captures 100% of its market.
Loyalty programs don’t know what the customer is doing with the competition
Y flies 10 times but all with the competition (so 50+50). The airline now has only 50% of Mr. Y’s market but will continue to value him even more when in fact the commercial relationship with him can be considered at risk.
One could even say that X is an investment to be worked on as soon as he has the opportunity to travel more and more, whereas Y is an opportunist who will end up costing more and more without giving anything in return, who can fly away overnight and whose “lifetime value” should be questionable.
It is a passenger who goes elsewhere once his status is validated and renewed. This is a passenger who has not developed any form of preference for the airline. He is a passenger who will never do more than he does with the airline. It may be a passenger who by the way has status with the competition and flies with each airline only the number of flights necessary for their renewal.
So you’re going to tell me that this only concerns a few people. In proportion, yes, it’s very small. But Mr. Y represents the segment of customers that the airlines are after, they are the ones who populate the “top tiers” of the loyalty programs, the so-called “high contribution passengers”. On the other hand,Mr. X is part of the mass of passengers and nobody is interested in him.
Loyalty programs help you bet on the wrong horse
The objective, let’s repeat it, is to capture 100% of the market that is each customer. The risk in this context is twofold:
1°) Disappointing X who, the day when he will have by his work or whatever the opportunity to travel even more will throw himself in the arms of the competition like a disappointed lover saying “well done for you”.
2°) Overinvesting in Y, which will never give a single euro more and whose increased number of flights will only benefit the competition.
A very nice reasoning but as long as we don’t know what the customers do when they are not on the airline’s lines, we can understand that the system is biased and can lead to not always betting on the good customer, it is the least worst possible solution.
That’s what I thought until I came across this interview with American Airlines’ customer loyalty manager.
Data to track down cheating and fickle passengers
“There are a host of reasons why customers choose to do it[voler sur différentes compagnie] What we’re trying to do is use some pretty smart data and analytics, looking for customers where we have a pretty good hypothesis, these are high-value customers in another airline’s program. we have been very successful in this area for some time.
I don’t know which program they are part of. I have just enough on them to predict that they are high income clients in another competing program.”
“Question: what data are you using to make this decision?”
“Answer: Well, that’s something we don’t share.”
So here we are in a slightly opposite case to the one I mentioned: an airline identifies which of its passengers are big customers of a competitor (in order to try to attract them) thanks to the use of data which we don’t know what they are or how they are used. In a way they put themselves in the shoes of the airline with which Mr. Y flies a minority of flights to understand that despite the fact that he does not give them much there is a lot to get from him.
Towards a new approach to customer lifetime value.
But the goal is the same: to go beyond what a customer spends at one airline to look at their overall spending potential regardless of the airline. It’s trying to capture 100% of everyone’s airline spending rather than a limited piece of the pie. It’s about making the customer truly loyal, it’s about aiming for an almost exclusive relationship.
On the one hand, American Airlines’ modus operandi remains vague and it is understandable that they do not want to share the recipe of a system capable of generating a lot of value. But on the other hand I am indeed hopeful that in the future predictive systems will give a less biased view of the “lifetime value” of a customer.
To one day be able to tap into potential customers in the future before competitors attract them?
A model that, it should be noted, can be applied to hotel programs as well.
Photo : loyalty programs by MMXeon via Shutterstock
