Insight: How airlines measure customer value

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By: RickFerguson |

Posted on July 14, 2016

Over at Smart Data Collective, contributor Mark Ross-Smith provides an in-depth look at how airlines leverage data analytics to determine customer value at the individual level. The methods have become so sophisticated and the variables so complex that your self-perceived value to the airline may be dramatically different than the airline's assessment of your value- which makes airline loyalty more opaque to the consumer than ever.

There's no doubt that data analytics have enabled airlines - as well as other industries - to build stronger and more profitable customer relationships. In the article, Ross-Smith illustrates how the airlines' weighting of multiple customer spend and behavioral variables can result in dramatically different perceptions of customer value - not only between airlines, but also between airlines and their customers. For example:

"Each time you, your friends or anyone in your sphere of influence interacts with the FFP, your internal score on how important to the airline can go up and down based on thousands and thousands of factors beyond what you think may be normal. In fact, just because you’'e a top status frequent flyer with the airline does not mean you're the most important customer in their database... Your value to the airline, for a short time, can be higher than your best friend who is Platinum status and regularly does 50 flights a year. If you were both on the same flight, it's very possible that you would receive an upgrade over them - despite your friend appearing to have higher status."

There is no doubt that airlines have become among the most sophisticated businesses anywhere in using data to market to customers based on their current and potential value. We should all strive to do the same.

There does, however, seem to be a note of caution warranted here. Customer relationships work best when both sides have a clear and transparent understanding of the value of the relationships. In simpler times, the frequent-flyer programme mileage balance was a convenient way for both airlines and their customers to track relationship value - the more miles in your account, the more valuable you were to the airline.

Today, that's no longer true. With most airlines moving to revenue-based status, and with the sophistication of the data analytics being deployed, in many cases customers may have a different perception of their status and value than the airline. That reality makes it imperative for the airlines to clearly communicate, as simply and directly as possible, the reason why your friend gets the upgrade even when you have more miles and status than he. To avoid disconnects that potentially damage loyalty, the airlines will need to ensure that their use of data to communicate to their customers catches up to their ability to segment them.

The entire article is worth you time; find it here.

- Rick Ferguson



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