Any retailer that’s been in business for five minutes knows that a loyal customer is far more valuable than a churner. Yet, an unfortunate fact of entrepreneurial life is that most businesses see half their customers change in five years, according to Fred Reichheld ‘s “The Loyalty Effect
.” Engaging a new customer is more expensive, costing a whopping seven times more than retaining an existing one.
When customers leave at such an alarming rate, companies lose value on an asset that’s expensive to acquire. The good news is this trend isn’t inevitable. Companies can increase retention rates by using marketing data to expand meaningful offers to best customers and by delivering relevant communications via customers’ preferred channels. By these same means, companies can raise their chances of holding onto customers even after a product or service mishap, a sign of true loyalty.
The recent merger between American Airlines and US Airways shapes up as a classic customer retention case study that transcends the aviation industry. Among other challenges, the airlines must manage merging their frequent flyer programs to satisfy 100 million members — the world’s largest customer loyalty program.
History shows that airlines suffer growing pains during mergers, so flight delays, untracked miles and lost luggage may be inevitable, testing the patience of even the most loyal customers. Meanwhile, rival air carriers will be circling the territory, waiting to pick up any discontented travelers.
Savvy retailers have an opportunity to learn valuable customer retention lessons by observing the American and US Airways marriage. The airlines’ early decisions in the merger process will set the tone for how the customer experience will be post-merger. Those decisions have the potential to distinguish the merged company from its competitors.
In what would be a positive first step, American and US Airways should make frequent flyer miles go further. They should transform American’s AAdvantage and US Airway’s Dividend Miles to include additional forms of reward currency that expand redemption options for members.
The airlines already have the needed insights in the data collected through their loyalty programs to identify which services or products are most relevant to their best customers. By expanding the rewards selection, they could capitalize on these insights to enrich the customer experience while not putting added pressure on their route structure.
Some examples of how the points could be used include the following:
-airport parking;
-baggage delivery from the airport to the traveler’s final destination;
-food and drinks in the airport or on the flight;
-access to airline VIP lounges; and
-transportation from the airport.
In addition to expanding reward offerings, it’s critical for the airlines to preserve or enhance membership status. They should assign a team to bolster consumer confidence in their access to frequent flyer offerings. Synchronized messaging across the organization should serve to regularly assure passengers that their status in a new program will be maintained — and potentially enhanced if they were members of both programs and had been splitting their activity.
American and US Airways need to stay on their passengers’ radars. They shouldn’t leave loyalty members guessing, ever. They must provide timely, relevant information about frequent flyer program changes via communication channels preferred by individual flyers, including email, online, direct mail, mobile.
The combined airline should use the data gleaned from travel patterns to tell the Seattle-to-Toronto flyer specifically how program changes will affect her travel plans in good ways. It should create a dedicated website and hotline, and monitor social media and call-center activity to gain insights from customer comments.
Finally, American and US Airways should be ready to buckle up in case of rough patches. The two carriers should prepare themselves for potential issues involving lost bags, delayed or canceled flights, or untracked miles. While it’s essential to take care of all customers, the new airline should be especially fortified to manage the experiences of its best customers. They use the airline the most, and therefore are most likely to encounter any rough patches in the merger. The airlines must be ready with relevant makeup offers (e.g., bonus miles) and personalized notes apologizing for any inconveniences. With well-timed, relevant messages, the likelihood that brand advocates become “madvocates” can be quickly diminished.
Time will tell if the American and US Airways merger is a smooth flight or a bumpy ride for their loyal customers. One thing is certain, however: How the airlines manage their customer retention challenges will be closely watched, in and out of the aviation field.
The airline industry enjoys no special exemption from customer retention best practices. If companies aren’t completely dedicated to understanding and responding to customer needs and values, they shouldn’t expect customers to be with them going forward, whether it’s rolling down the runway or rolling down the retail aisle.
Great reminder that the headline isn’t two airlines merging. The headline should be airlines find creative ways to improve value proposition using resources of combined airline. Your comments remind me of a recent PwC study on bank innovation. It talked about what banks need to do when the going gets tough. The message of the study though was less about the barriers created by regulation and consumer shifts to mobile (as one example), but in how the banks can use this to be the leading innovator in how each customer touchpoint (branch, digital etc.) can be optimized based on the complexity of the transaction and the preference of the customer. Maybe every bank should prepare to merge as an exercise in driving consumer value.