Our thoughts on the devluation of frequent flyer miles is echoed in an article from The New York Times.

Unpublished loyalty programs and exclusive customer benefits are examples of effective customer marketing strategies that allow brands to more meaningfully connect with customers.

Frontier Airlines provides a good and timely example of an airline communicating with its customers.

American Airlines announced some changes to AAdvantage following a review similar to Delta's. Frequent flyer programs are changing, some more and better than others.

Delta's recent SkyMiles changes, announced to the press and not to SkyMiles members, illustrates how far companies still need to go in thinking about customers first.

The changes being made to frequent flyer programs such as Delta SkyMiles are devaluing frequent flyer miles.

Saying thank you to customers is one thing. Getting customers to thank you is something entirely different, and a much more noble endeavor in terms of loyalty marketing.

Loyalty is not expensive if you consider that you can directly measure its impact on revenue and profitability.

As readers of this blogue know, last year I qualified for Platinum Medallion (elite) status in Delta Air Lines SkyMiles for the first time.  Being a bit of a loyalty "geek" (as you might expect), I knew the exact flight on which&n

Introducing Comp Customers, a better metric for tracking retailer performance.

Customer Loyalty Marketing Resultions for 2008 from rDialogue, a loyalty and relationship marketing boutique.

In case you missed it this past weekend, check out Ron Lieber's piece in The New York Times titled "Gauging the Worth of A Frequent Flyer Credit Card."  It echoes the sentiments and perspective we posted a few weeks ago and makes the case that if you're carrying around (and using) a credit card from a frequent flyer program, you might want to re-evaluate its value proposition.

While we do not espouse the virtues of coalition loyalty programs, the more that bedrock frequent flyer programs devalue their miles, the more they open the door for coalitions and other "synthetic" currencies.  More importantly, the devaluation of frequent flyer miles makes it even more important that companies figure out the best loyalty proposition for their brand, their customers and their business.  Not for the airlines.

 

 

 

"I DON'T WANT TO BELONG TO ANY CLUB THAT WILL ACCEPT ME AS A MEMBER."   -- Groucho Marx

Given our obsession with how companies market to customers, it's pretty easy to write about examples of companies doing things poorly.  So we're going to try and point to some companies doing just the opposite - doing smart things to connect their brand with their customers.

One strategy that we steadfastly support is exclusivity.  In terms of a loyalty program, this can mean members-only offers and it can also mean an entirely unpublished program.  Given the preponderance of programs, especially ones with flimsy value propositions (or other weaknesses...wait - we committed to staying positive), we expect to see more and more unpublished programs.  It's sort of the loyalty marketing equivalent to "double secret probation."

Unpublished programs and other marketing strategies based on exclusivity allow customers to feel genuinely different and more special than non-customers, or even "other" customers who might not be quite so intimate with the brand or company.

Two brands worth noting here are Jack Daniels and Gilt.

Not long ago, I was invited to be a Tennessee Squire, an unpublished program called the Tennessee Squires Association that was started in 1956 to "honor special friends of Jack Daniels Distillery" according to Wikipedia.

While there are many spirits brands spending large sums of money doing things not so well, Jack Daniels does a positively brilliant job of using this program to build its brand and its brand ambassadors.  If you're interested send me an email and who knows, you could end up a fellow Squire. 

Another great example is Gilt Groupe, which per the public portion of its website, explains that it "is a private online community, which is dedicated to providing its members with access to coveted fashion and luxury lifestyle brands at sample sale prices."  Again, you need to be invited to join and only members can do the inviting. (yes, send an email and I'm glad to refer you!).

There are many other reasons for exclusivity and unpublished programs, not the least of which are the ability to better control costs and program size.  Even better, however, is the ability to test, innovate and ultimately create more meaningful, productive and sustainable relationships between your customers and your brand.

With all the new fees and frequent flyer program changes going on, it's refreshing to see an airline doing the right thing and communicating directly with its customers rather than relying on the media.  Today Frontier Airlines sent an email to its Early Returns members from their President and CEO, Sean Menke.  It is a good but all too uncommon example of an airline thinking about and communicating with its customers.

The timing is pretty good, as in USA Today there was a big story on the increasing financial pain being shared with (inflicted on) passengers by the airlines.

Today American Airlines announced some changes to AAdvantage following a review similar to Delta's.  While AA's are more extensive, it's worth noting (and The New York Times reported) that they also sent an email to AAdvantage members about the change.  And they did this simultaneous to the public release!  Good for them.

The bulk of changes at AAdvantage are added fees and mileage requirements for upgrades.  This will serve to make upgrades both more available (ok - this might be relative but it shouldn't hurt) and help the airline from a yield management standpoint, assuming it gets more business travelers to actually pay more for front cabin seats. 

One thing AA did not change were reward levels for domestic coach.  This is both smart and not surprising, as American has been way ahead of Delta in terms of mileage sale revenue to partners and they would be devaluing their miles by increasing reward levels. 

Finally, on a related note, SkyMiles today sent out an email offer of half-price tickets for Atlanta Braves games.  This follows similar moves related to their sponsorship of the Atlanta Symphony Orchestra and serves as a nice value-added "surprise and delight".

Last week we wrote about the reward redemption changes at SkyMiles, based on articles in major newspapers and coverage on Randy Petersen's WebFlyer.  Here we are days later and there has been nothing communicated directly to SkyMiles members, or even anything posted on Delta's website.  Maybe this is a trial baloon and Delta is hedging in case the other majors don't match?

It is not uncommon that companies think of prospects and the media before their existing customers.  For various reasons, including public dissemination to financial markets, companies often need to communicate to the public first. Yet there is a tremendous opportunity to better integrate PR and direct customer communications.

Next time you're working on a major announcement, think about how you can include customers in your messaging, both in terms of how the announcement is crafted for the public and how you can communicate the news directly to your customers.

Another important consideration is with crisis communications plans, which are clearly "owned" by PR.  Make sure your crisis plan includes a customer element as, like the case above, once the news is out it is often incredibly difficult to stop time and synch up with your customers.

 

The frequent flyer programs are changing again.  This past week we saw Delta make "flying with SkyMiles easier" according to the Atlanta Journal Constitution.  The New York Times was slightly more circumspect, quoting Tim Winship of SmarterTravel.com who suggested that "The real question is, what miles will people pay on a round-trip basis to take the trip they want to take??"

 

For a long time the irony of the airline industry has been that the only way they have consistently made money was through the frequent flyer programs.  Airlines have set up subsidiaries to house the programs and in some cases (Aeroplan) even spun them off into separate, publicly traded units.

 

As we have discussed here, the airlines make money selling miles to partners and consumers at rates that are typically around $0.02, though lower for large partners and higher for consumers.  Their "cost" on the miles when redeemed is typically well under $0.01.

 

So when the number of miles needed for a free ticket goes up, it effectively decreases their cost of redemption for the airline and it also lowers the value for the frequent flyers.  For example, if you can purchase a ticket for $250 and it takes 50,000 miles, as a frequent flyer you are only getting $0.005 in value (half a penny) for your miles.  At 25,000 miles you are netting $0.01 per mile.

 

With the new three tier system, you can expect that most seats will be priced at 40,000 though on more attractive flights the seats will be 60,000 miles.  These compare with 25,000 and 50,000 miles today.  When seats are only 20,000 miles, they will be a pretty good deal.

Of course the value is largely a function of what the ticket would cost if you were paying for it.  This is where it is imperative to do the math.  If you are pricing a ticket and it's more than $600, even at 60,000 miles it is a reasonable value ($0.01 per mile).  At 40,000 miles it's $0.015 per mile.

 

The other significant implication of these changes devaluing the miles is the impact they will have on the frequent flyer partnerships.  The partners are now buying miles from the airlines and those miles are, at least in our opinion, worth less with these program changes.  If you're a partner you'll want to renegotiate your deal with the airlines so that you're either paying less per mile or getting more miles per dollar you spend.

 

If you're a frequent flyer collecting miles from partners, especially credit cards, pay close attention and do the math as suggested above.  The market value of miles and points earned from credit cards these days is around $0.01 so you want to make sure that you are earning points and miles that are at least that valuable.

 

No one should be surprised about the frequent flyer program changes.  Delta has actually done a very good job in effectively "raising prices" but providing more value (i.e., last seat availability) as well as other recently announced program changes such as Pay With Miles. 

 

Still, frequent flyer miles are continuing their decline in value and that is not going to help an already challenged industry. 

 

A few weeks ago I met the VP of Marketing from my bank at a local business event and she asked if I would be willing to answer a series of focus group type questions as part of some research she was doing with a number of the bank's other clients.

 

They were standard-issue qualitative research questions but one was quite striking, not just as it relates to banks, but to so many other industries as well.

 

During the same week in The Wise Marketer, there was a short piece from a research report indicating that a majority of bank customers, 63%, plan to switch primary banks, with a similar percentage intending to switch insurance providers.  These numbers echo an IBM study that boldly concluded that a significant majority of customers have little or no emotional connection to their bank.

 

With only a small handful of exceptions, namely "ThankYou" from Citibank and the new Chase Exclusives, banks have been noteworthy in their failure to embrace what we call "whole-bank" loyalty.  Yes, there are thousands of credit cards out in the market with loyalty "features" but these are often the extent of a bank's loyalty marketing efforts.

 

There are a number of reasons for this, including a bank's product- rather than customer-centricity, largely reflecting being organized around products, in silos, rather than by customers.  Of course like all industries there are exceptions, including the smaller and more nimble banks (particularly those catering to high net worth individuals and businesses).

 

The lack of loyalty in banking is one of great irony.  While loyalty is often (and largely) a function of habit, real loyalty is driven by an emotional connection and certainly people are, for the most part, quite emotional about their money.

 

So the question that struck me from the bank VP Marketing?  It was simply about how I thought they should thank the bank's customers.  My answer:  the bank should figure out how to get the customers to want to say thank you to the bank! 

 

In order for this to happen, the bank will need to shift its focus from being product-centric and take a customer-based approach to growth.  Having a customer thank them for being their bank should be the bank's ultimate objective. 

 

Customers expect to be thanked and appreciated.  But it's time to turn the tables and make customers thankful for their alignment with a particular brand.  Brands of course, do not typically include this as a key goal.  It's time that they should.