I came across an interesting analysis of the airline loyalty market this week, interesting because it is looking at the market from a company perspective and it segments the customers in a rather blunt and direct way. Even more interesting is that the analysis suggests there are segments of the market that the airlines should disincent rather than incent towards repeat business. Are you one of the customers the airlines should be shunning?
The analysis splits customers on two axes, based on average yield (how profitable they are) and NPS (how much they actually enjoy the product). Among other things, this is notable because it recognizes many airlines carry FFers on their books who actually would rather be flying elsewhere, a nod to the drive of corporate contracts, schedule and pricing in booking patterns. Obviously the article suggests that the high yield passengers be taken care of as best as possible. But it also suggests that points have nearly nothing to do with that experience. Giving them a discount (points) isn’t what drives their business so it is better to invest in rewarding them in other ways.
At the same time, the article identifies two ways to deal with the bottom of the yield curve. For the complainers it suggests ignoring them. Certainly a bold move to shun customers but taking the view that some customers simply aren’t worth the costs to provide the service they demand is a step every company must take as it matures and grows. Growth comes with the higher yields, not just by carrying more passengers. For the lower yield passengers who aren’t a complete pain in the ass, the suggestion is that rewarding them via bonus promotions and such is the best approach. In fact, the article suggests that offering bonus points rather than discounting fares is the better way to drive loyalty and revenue for the airline. Hard to argue that point, especially considering how few folks pay attention to all the promos and bonus opportunities out there.
I certainly know where I stand in the matrix when it comes to pretty much all the carriers I fly on: somewhere on the bottom half, veering to the left or right, depending on the program. Where are you with your program of choice? Do you think the designations make sense?
Read the whole report here: http://ourpax.com/uncategorized/ffps-stop-rewarding-the-wrong-customer-get-the-experience-right/.
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Interesting article. As a self-paying professional, I very much recognise what it says about my preferences and my behaviours. I have recognised that I’m fairly low yield, but I am a consistent customer and have (until a month ago) never complained.
I had a choice of FFPs to join when I started travelling regularly (c120,000 miles per year), considered, UA, AA, BA and VS, and went with UA whose programme seemed to fit the criteria mentioned. It was generous in terms of miles (discounts) – but I didn’t realise until some way into it how generous it was. My motivators were much more the experiential benefits – lounge access and Economy Plus. Miles were the icing on the cake – and then I discovered better handling in disaster scenarios, which I have grown to love.
Certainly BA and VS had / have the superior product, but their programmes are aimed at the very high yield customer and, despite all my flying, would have given me little. AA was the only other contender and remains as such. I wait with trepidation to see which way United’s new management takes its FFP programme. I suspect that it’s towards the BA / VS model. If so, I’m gone. However, United will then struggle badly because it’s product is not good enough to get enough of the high yield traffic.
I’d like to think I’m a rising star/self-paying professional. I pay for all my travel, and I’m reasonably positive about United toward friends and family. Even when United may be $20-60 more than a competitor I’ll still choose them (there has to be a significant price differential with no chance to benefit from my elite status to make it worth considering another airline). Unfortunately I don’t think United, or most airlines, do a very good job of rewarding those who pay their own way.
I am below the bottom of the chart.
I’m an interesting case. Business requires me to choose the most logical lowest fare, and I typically book 14+ days in advance. I try to stay loyal to my main airline, primarily because the perks, as noted by other commenters, save me time (irrops, rebooking) and money (bag fees, free standby, etc.). Occasionally, though, I do have to fly a secondary carrier, which has influenced my participation in their FF program. In fact, my secondary allows me to maintain status without ever flying their airline… and I wonder how long that can last. I’d love to be more high value, but with mid-con domestic travel on low fare tickets, I don’t see how I can.
I love the part that read
“2b) Do not under-reward self-paying frequent flyers”
I wish airlines would actually follow suit. in the last 3 years I’ve flown ~220,000 miles on Delta and their partners. All of this has been out of my pocket! Yet, I’m not rewarded or thanked any more than the corporate flyer or flys weekly for work. Makes me not want to be loyal
Do you think that you’re being disproportionately unrecognized, Rocky? Flying 220K in 3 years is a lot and doing it out of your own pocket is impressive, but what types of fares are you buying? If your yield numbers are still towards the bottom of the range then the discounts given to you in the form of the points is about all you’re likely to get.
I do agree that the airlines aren’t doing quite as good a job of differentiating in offering benefits to the customer who gets to dictate their spend versus corporate contracts. Then again, many of the bonus miles promos these days are excluding government fares, so there is a bit of differentiation there.
I do wonder how much many of the self-proclaimed valuable self-funded customers really are valuable to the companies.
I’d say I’m generally (2a) “rising star”, though also in work travel hemmed in by GSA City Pair contracts that often change carriers every year depending on how the bidding went. (Which in some programs makes me towards the bottom left)
But for personal travel I’m less price sensitive as time goes on, and after the kid’s out of college and some things paid off, will pay even more of a differential for better product. This applies for hotels, rental cars, and the like as well. And yeah I think the airlines don’t think enough about, or know how to identify, those of us who are more price sensitive now but in the future will become a higher and higher yield customer.
I do agree with the need to “fire” bad customers. My father certainly did that with his business – some people you just can’t please so stop wasting resources trying.
I think the main issue here is even if you’re a loyal low-yield guy, you’re still of little value to the airline. Just because you always buy UA’s cheap fares, doesn’t mean UA would have any problem replacing you with someone flying UA for the first time — the airlines never have any trouble selling cheap seats, so what’s the point of rewarding low-yield passengers, whether they are loyal or not? Either way, you’re just filling a seat.
It looks like the airlines still engage the management consulting firms. I used to do this kind of thing and can still recognize a Boston Consulting Group Strategic Positioning matrix done by a 20-something Associate at $350/hour. However, I guess now I’m an angry cash cow.
angry cash cows unite!