Seven ways airlines can profit from FFP loyalty data

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By: Wise Marketer Staff |

Posted on March 5, 2007

In the current airline environment, typified by strong competition across the globe and low growth expectations, business opportunities are to be found mostly in the development of the existing customer base, according to a white paper from ICLP's airline marketing group, which recommends seven specific ways that airlines can make best use of their loyalty programme data.

Knowledge about customers, in terms of their behaviour patterns and the value they represent to a company, is the starting point for this development. Such knowledge is a precondition for applying successful loyalty policies and customer development strategies such as frequent flyer programmes (FFPs).

Mature market
However, the airline loyalty market has reached a state of maturity. Today, few loyalty programmes can claim true competitive differentiation. Matching the customer proposition of main competitors is not the solution because, when everything follows along in the same direction (e.g. toward online enrolment, award chart, welcome bonus, double miles promotions, etc.), customers tend to react with indifference.

Benefits of FFP data
Nonetheless, a well-designed FFP still offers an airline enormous benefits, not least from the member data it generates. The FFP data, however, represents only a potential asset.

To provide an airline with a competitive advantage, those responsible for the programme must analyse the information collected in order to generate true customer insight, which in turn must be intelligently and promptly acted upon. Only by using such customer knowledge can a differentiated and sustainable proposition be built, enhancing the customer's experience and loyalty.

Seven ways to use FFP data
ICLP has therefore identified and outlined a seven-step process to ensure that member data is efficiently exploited. The process, called 'The Seven Golden Rules for Increasing Customer Loyalty and Satisfaction', allows airlines to make full use of their loyalty programmes and make them into profit centres rather than cost centres. In very brief summary, the seven steps are:

  1. Identify your best customers
    One of the major problems with current FFPs is that they fail to produce genuine customer understanding and insight, due to such flaws as missing data integration, rudimentary segmentation or inadequate use of data. To improve insight about customers and develop more successful strategies, it is imperative to optimize the analysis of FFP data.
  2. Build customer profiles
    To date, many airlines have based their customer-segmentation schemes solely on demographic characteristics or FFP attributes. However, neither segmentation provides a full picture of the customer. Effective segmentation requires using FFP data to cluster clients. For instance, in the case of business travel, air spending is primarily driven by profession. When it comes to leisure travel, air spending originates in preference and family patterns.

    A great advantage of value-based customer segmentation is that it allows airlines to manage customers as an asset. Current value - in historical revenue terms - is, of course, vital information. Moreover, it is also useful in gaining an understanding of potential value, such as untapped wallet share and likely future spending. These insights can be used to determine the ideal level of investment in each segment.

  3. Measure future cash-flow
    Whereas traditional customer value calculations are based on previous spending, true customer lifetime value (CLV) incorporates future spending. As "a forward-looking measure that represents the present value of all future cash flows associated with a customer", CLV allows a clearer glimpse into the crystal ball.

    By measuring the change in a customer's CLV over time, FFPs can predict which accounts, not high value now, are likely to move into profit in the future. Once these "rising stars" and "threshold aspirers" have been identified, it can then be ascertained why they have a high CLV by grouping them together according to their behaviour, value and characteristics.

  4. Listen hard and talk straight
    Building stronger relationships is what skilfully exploiting FFP data is all about. And stronger relationships are based on effective communication. Not necessarily more communication. But Better communication. Better communication is facilitated by an open dialog between a company and its customers. It stems from the information a company receives from them and depends on its effective use. It benefits both parties and allows a company to understand the bigger picture as well as to coordinate its day-to-day actions. The ideal result, of course, is to return as closely as possible to those golden days when merchants learned the names and preferences of their regular customers and treated each one a little differently, as a specific individual.
  5. Measure the right things
    Success in loyalty programmes depends on customizing the right dashboard to help you steer your company ever forward up the high road. ICLP experience shows that only 50% of airline loyalty leaders systematically monitor customer retention. This failure represents a golden opportunity. As a champion of the principles of loyalty, you can quickly outdistance the other 50% by constructing a dashboard composed of a small number of performance gauges and then painstakingly monitoring how well your organisation is delivering customer value.

    What's imperative is to focus on the variables of customer performance that truly matter, and to filter out the less crucial factors. By identifying the proper metrics of customer value and keeping score of them, FFP management can better prioritize loyalty initiatives and improve customer performance.

  6. Win back lapsed customers
    Lapsed customers - those individuals who have significantly reduced their flights on an airline or stopped using that airline altogether - and defectors - those who have taken a significant part or all of their business to a competitor - present an enormous challenge to a company. But they can also be viewed as a hidden asset if re-approached in a strategic and creative way. According to ICLP, approaching lost customers can be three to four times as effective in terms of loyalty value as prospecting for new ones.
  7. Avoid the mid-life loyalty crisis
    Loyalty programmes have undergone shifts over the years. The initial early '80s FFPs were focused on customer satisfaction, rewarding those who flew frequently. Later in the decade they shifted somewhat and concentrated on customer behaviour. In the '90s the focus was on customer retention and economic value (one-to-one). And, since the beginning of the new millennium, the FFPs have experienced a mid-life crisis with no clear direction discernible.8 programmes, in essence, have become a victim of their own success.

    Relationships change and customers can become bored with offerings that don't adapt. Life stage marketing is one way FFPs can remain relevant, for instance by making perks more important than points. Staying ahead of the curve and keeping customers interested is the most important task facing FFPs in the future.

Download the full white paper
The complete and unabridged white paper has been made available for free from ICLP on request. ICLP is a specialist loyalty marketing agency with offices in London, Dallas, Dubai, Hong Kong, Kuala Lumpur, Mumbai, San Francisco, Shanghai, Singapore, Sydney, Tokyo and Zurich.

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