Frequent flyer data vs. value based segmentation: does the data of frequent flyer passengers provide a clear view of a loyal customer?

 

Treacy and Wiersema researched market leaders in a variety of industries and came up with three value disciplines which helps businesses to find the right position on their market. The customer intimacy strategy is characterised by the fact that a company builds up a strong relationship based on the knowledge of the individual customer (Beltman & Peelen, 2013). Airlines try to create this bond by frequent flyer programmes which provide different benefits to their loyal customers. Scandinavian Airlines for example just opened a city lounge for its frequent flyers in downtown Stockholm with open plan work areas and private meeting rooms where passengers can work and network (Kollau, 2016).

“Customer service causes loyalty that can’t be explained by low prices alone,” said Donna Conover, vice president of customer service at Southwest Airlines. If a company decides to adapt to a customer intimacy strategy, a great deal of attention is focused on the development of the desired customer base (Beltman & Peelen, 2013). FFP’s allow airlines to have access to valuable data about the customers travel patterns and behaviour and can therefore be considered as a CRM initiative (Tnooz, 2013). For this reason, one could assume that airlines can take strategic decisions based on this data. However, Killisly (2009) claims that many have found that it limits the ability to have a clear view of loyal customers as frequent flyer members may not be the most valuable customer. Several behaviour studies confirm that the choice of airline travellers is not only based on FFP’s but also on schedule, price, product attributes, service and individualisation. Segmenting customers on the basis of their values to the company instead of flown miles (current method of FFPs) could be therefore a more effective instrument for an airline (Tnooz, 2013).

According to Beltman and Peelen (2013), a company which employs a customer intimacy strategy looks at the life-time value of a customer. A value based segmentation model in the airline industry has been developed with which the total value of a customer to the company can be assessed on the basis of various parameters (Tnooz, 2013); the period since last purchase, number of purchases made within a certain period and the cumulative profit that the airline acquired from the customer over a given period. Through these parameters, an airline is able to calculate a so called Customer Lifetime Value (CLV) score which helps to predict future purchases of a customer.

Finally it can be said that FFP’s databases will remain important for airlines especially in the business travel sector and cannot be undermined. However, these programmes are commonly used by business travellers who are travelling on a regular basis. When it comes to leisure travel, which counts for most of the airlines as the larger segment, it should be realised that a value based approach is more applicable. The outcome of a value based segmentation provides indicators about the life-time value and thereupon the behaviour of a potential loyal customer can be determined.

Bibliography

Beltman, R. & Peelen, E. (2013). Customer Relationship Management (2nd ed.). Edinburgh, United Kingdom: Pearson Education Limited.

Killisly, N. (2009). CRM: Going Beyond a Frequent Flyer Program. Retrieved September 18, 2016, from: http://www.sabreairlinesolutions.com/pdfs/CRM-GoingBeyondAFrequentFlyerProgram_APR_2004.pdf

Kollau, R. (2016). SAS offers frequent flyers a space to meet and work in downtown Stockholm. Retrieved September 18, 2016, from: http://www.airlinetrends.com/category/crm-loyalty/

Tnooz (2013). The ultimate guide to airline customer relationship management and loyalty. Retrieved September 18, 2016, from: https://www.tnooz.com/article/the-ultimate-guide-to-airline-customer-relationship-management-and-loyalty/

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2 thoughts on “Frequent flyer data vs. value based segmentation: does the data of frequent flyer passengers provide a clear view of a loyal customer?”

  1. Dear Timo,

    Thank you for your blogpost. I am curious what your advice is towards the Airline industry and the exploitation of FFP programs? What would be the ideal situation to gain loyal customers?

    Regards,
    Wesley

    Like

    1. Dear Wesley,

      Thank you for your respond. I still think that FFP’s remain important for airlines and the data could be valuable for the business segment. However, when it comes to leisure travel, value based segmentation is more applicable. It helps to understand the customers wants and needs on a personal level. Although it is very difficult to gain loyal customers generally in the airline industry, certain innitatives where airlines interact with the customer showed that it is possible such as the Quality Hunters programme which I will discuss in my next blog.

      Regards,
      Timo

      Like

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