Not only are the airlines missing a significant opportunity to engage their best customers based on data they already possess, they are eroding their value proposition by adding fees to multiple aspects of the in-flight experience as well as their frequent flyer programs.

In a WSJ “Middle Seat” column dated 2/3/09, I was reminded of the airline’s proclivity to invoke the Loyalty Asterisk™. Did you know that the standard “Contract of Carriage” used by United Airlines is the equivalent of 49 pages and that Delta’s “General Rules Tariff” is a bloated 58 pages?  These are the documents which govern fares, refunds, baggage handling, and virtually all other rules which travelers must live by. One can only imagine that the airline’s lawyers must view their customers as such an evil lot that they devised these heavy tomes to protect the business.

In reality, these documents do not include all the rules governing flight as employee manuals and directives go further to dictate how specific complaints and situations should be handled.

In effect, the airlines hold all the cards in resolving any customer dispute and, like any benevolent dictator, it is incumbent on the airlines to exercise delicate judgment in rules enforcement.

The airlines which hope to emerge from this current economic cycle with their image and brand in tact should carefully reevaluate their approach to nit-picking fees related to checked baggage and potato chips. They might also take caution while they deflate the value of their loyalty marketing (frequent flyer) programs.

Airline industry profitability will be found in more meaningful budgetary line items ranging from union contracts to equipment cost and fuel management. Most flyers would rather keep the relationship simple. If fares have to rise a bit, so be it. But let there be one charge for the flight, provide high quality service, and reward flyers for their patronage.

Anything less will compel flyers to think only of price, price, price and loyalty to the livery will be a thing of the past.

Deregulation of the US airline industry in 1978 was intended to create a competitive environment that would benefit the flying public and bring profitability to the airlines. With a number of bull and bear cycles under the belt, 2009 finds the airlines continuing to struggle for profits, and consumers once again being punished just for showing up at the gate.

The airlines pioneered the loyalty marketing business, linking customer data, profitability measures, and the reservation system to change the way all consumer facing companies viewed their customer policies. Since American’s AAdvantage program launched in 1981, the airlines have awarded zillions of miles to loyal frequent flyers and have collected untold terabytes of customer data.

It is astounding to see that the data collected remains largely under-utilized. My latest mailing from American congratulated me on my status with them and included some offers marked “specially for you”. I was disappointed to see that the offers had no connection to my preferences and looked like this:

• Offer to purchase additional frequent flyer miles
• Bose QuietComfort 2 headphones offer
• Directv – switch and receive 10,000 miles
• A credit card offer (actually two different ones)
• A sweepstakes offer in connection with MyCokeRewards.com

Not only are the airlines missing a significant opportunity to engage their best customers based on data they already possess, they are eroding their value proposition by adding fees to multiple aspects of the in-flight experience as well as their frequent flyer programs.

A struggling industry should leverage the lowest cost assets they own and use this low-hanging fruit to generate profitability as well as engender brand loyalty. Why not take steps to use the valuable data they have gathered over time.

The favorite subject for most humans to talk about is “me”. Flyers are waiting to spill the beans on their preferences and all the airlines have to do is ask.

An introduction to the Loyalty Truth blog

The launch of the American Airlines AAdvantage program in 1981 is thought by most marketing historians to signal the birth of the loyalty marketing business. Like prehistoric man rising from a knuckle dragging existence to moving about on two feet, AAdvantage was a huge step forward from the first generation of rewards programs most often exemplified by Green Stamps.

The key improvement by AAdvantage over its lick ‘em and stick ‘em predecessors was that detailed customer information and a measure of profitability were linked to the actual purchase data. American set the tone for the industry, and many others quickly followed the example moving from granting rewards to anonymous customers to a more intelligent model.

Over the next 10 years or so, loyalty programs moved from a curiosity to novel technique to a trend that was engaged by most major airlines, hotels, retailers, and credit card issuers. Today, Loyalty programs have to be considered a cost of doing business in several of these industries.

Demand for Innovation

With popularity and acceptance has come criticism and challenge. Anyone who has followed the business knows of several examples of success and failure. And the increasingly competitive nature of business today mandates that we take extra care to manage the marketing dollars invested in loyalty and rewards programs.

Over the past 26 years since AAdvantage was introduced, consumers have changed too. They have adopted a strong sense of entitlement towards rewards programs. In addition to product quality, competitive prices, longer store hours and online shopping, many consumers take for granted that they should be “compensated” for their patronage. If their compensation is in the form of points or miles, they are vocal in expressing their boredom with unchanging selection or frustration with difficulty in cashing in for their freebie.

There are additional concerns. With identity theft and electronic pilferage on the rise, consumers are nervous about the safety of the data being collected through their credit card and store charge purchases as well as their participation in rewards programs.

Combine increasing concern for data security with a sense of entitlement towards rewards, and you can see that business has a big challenge before it – to make better use of the data it has collected, and to inject their marketing strategies with a heavy dose of innovation in order to capture and retain the attention of today’s consumers.

This challenge is acute in markets where loyalty and rewards are considered mature, i.e. the US, Canada, Australia, and UK. But it cannot be overlooked in developing markets such as Mexico, Brazil, several EU countries, and parts of Asia. Smart marketers in those locales are demanding strategies that will compete in the global market, and wish to skip over generations of developmental mistakes made by their more experienced colleagues.

Crafting the Future

It’s time for Truth in Loyalty Marketing. “Truth” in this case is defined as the elements of Customer Strategy that will lead companies to successful engagement of their customer audiences and the ability to manage these relationships to profitability.

“Truth” is also synonymous with Innovation. Both our corporate clients and consumers are demanding it, and supply is scarce in today’s market.

In my opinion, there is no better use of marketing dollars than to invest in a well planned Customer Strategy that has its foundation in data and has its highest objective to deliver a sustainable purchase experience that consumers wish to repeat. The most successful Customer Strategies are endorsed at the top of the organization, are reflected in every touchpoint of the business, and are constantly measured and evaluated for continual improvement.

This blog will share all of the “Loyalty Truth” that I can capture. I will look at programs in the market from the perspective of both the consumer and the sponsor. I will let you know what’s working, what new trends should be watched, and help you to avoid stumbling into familiar traps.

In doing so, I plan to explode myths, offer new thought, and lay the foundation for a more profitable and effective method of engaging and maintaining customers. That should be a worthwhile read no matter what business you are in!