The airline industry has offered, and struggled with, loyalty programs for years. The concept is pretty straight forward, reward your best customers for being the best by giving them more privileges and free stuff. The execution though has not always engendered loyalty. I can't help but believe that some of that struggling is company culture and attitude but I'm sure some of it is also the back end systems used to manage the programs. There are all sorts of horror stories about poor program decisions that have had the reverse effect on customers, at least in the US (those stories I know, but I doubt they're unique to the US). Here's a good post from my friend and fellow analyst Paul Greenberg that demonstrates the point. I have a few stories of my own, especially with United Airlines, where I have an ongoing "relationship" (if you fly out of SFO you pretty much have to deal with United). Anyway, that's another story and someday I'll be motivated to share my experiences at the hands of what is in my opinion the worst customer service in the airline industry (have to leave out wireless companies at least, they certainly are in the running for worst customer experience ever).
Enough of the airlines though, I'm happy to say that I'm starting to see customer loyalty programs done "right". First let's talk about what I think "right" for loyalty means. I think there are a few traits of loyalty programs that combine best practices with some new tools to provide an excellent customer experience and drive mutually beneficial behavior. First, loyalty needs to be based on detailed understanding and analysis of customer behavior. CRM analytics provides the basis for an effective loyalty program and with the added potential to apply social analytics to the existing CRM data provides an opportunity to take loyalty programs to an even higher level of performance. A few thoughts on good loyalty programs:
- Reward the behavior that you desire but don't design program guidelines that dis-incent that same behavior.
- Real-time rewards that go beyond the normal program fundamentals have an incrementally higher impact on loyalty. Made in a public way they can even influence non-program members.
- Offering additional incentives to customers for additional behavior that benefits the company, if balanced, is a win - win.
- Ask the question: "How would a reasonable person react to this program change" BEFORE making the change. It's what the legal profession calls the "reasonable man" test.
- Incentives that have virtually no cost to the company can actually be some of the most valuable to the customers (that on the spot upgrade for example)
- Mobile
- Green (e Rewards, e Tickets, e Statements, e Cards...please stop sending those over stuffed envelopes of useless information...OK, personal bias showing here)
At Oracle OpenWorld this year I had the opportunity to interview Claes Lindholt, Director of Customer Programs and Customer Analysis with Swedish Rail. Swedish Rail is an Oracle Siebel CRM customer and implemented a loyalty program as a part of the Siebel implementation. A government owned rail system, Swedish Rail is completely self sufficient and serves approximately 2.5 million passengers a year or 115,000 / day to 220 destinations. Facing deregulation next year, they realized in 2005 that they didn't know their customers and that they would be a serious risk if they didn't take some drastic actions. Their business consisted of large % of rev from small % of people, but they didn't know who they were so as competition arrived it could copy their products and prices. They realized that the relationship could be the differentiator. Through an extensive selection process they decided to implement Siebel CRM. Swedish Rail started with marketing, analytics and loyalty, then lately added call center / service modules. They launched sales in june with a BtoB loyalty program. Swedish Rail also acknowledged the importance of the initiative, seen as company transformation because of the deregulation and organizationally committed to the project by placing Claes' position at the same level as the CIO. The project had 65 integrations and was targeted with the foundation focus of developing actionable customer data. Data analysis and loyalty program management are under the same leadership.
The results? According to the survey that is conducted every day aboard the trains, of all the customers surveyed, 47% of customers say they travel more by train because of the loyalty program. The program is very active and even pushes offers to the employee handhelds on the train so that employees can use data to act directly with the customers (on the spot upgrades, for example). The analytics capabilities are advanced and Swedish Rail uses the intersection of customer data with financial data to load balance trains by incenting loyal customers to shift into less busy trains when practical. They take the fixed cost of operating a schedule and overlay customer behavior to increase profitability while giving loyal customers discounts and preferential treatment. They use the data for strategic, tactical, and operational decisions including real time data use aboard the trains in a tactical way. Claes has several enhancements on the radar including upgrading customer experience through more effective cross channel use, mobile with an iPhone app which has full account functionality including reservations and even replaces the loyalty card with an e Card, and getting involved in social networks. From a data perspective Swedish Rail plans better segmentation, more actionable data and developing greater insight depth for product development, marketing, communication and expanding to new target groups like youth and seniors.
My conversation was very enlightening and it is a pleasure to see what a well run program can accomplish. I had a few other customer conversations around the successful use of loyalty programs, which is a very hot topic especially among retailers. I'll save those for another post.
