Customer Relationship Management in

Airlines

Submitted by: KIMBERLEY C. PINTO, Roll No: 31SHAMIKA SAWANT, Roll No: 39SIDDHESH PITALE, Roll No: 33

ROHIT KAMBLE, Roll No: 13

STD:FY BBI

Year:2010 - 2011

Subject:CUSTOMER RELATIONSHIP MANAGEMENT

Submitted to:PROF. PRATIKSHA

Contents

CRM for airlines: Three ingredients in a recipe for success

1. Customers: Who are your most valuable customers and what are their key needs?

2. Touch points: How do you build a relationship with your customers through touch point interaction?

3. Processes: How do you establish structures and systems to manage the CRM process across your organization?

Summary: Creating value through a well-executed CRM initiative

Three ingredients in a recipe for success

CRM means giving the right customers the right treatment at the right customer contact points. Therefore, the approach focuses onthree key ingredients: customers, touch points, and processes.

CRM is about three essential issues:

1. Who are your most valuable customers and what are their key needs?

2. How do you build a relationship with your customers through touch point interaction?

3. How do you establish structures and systems to manage the CRM process across your organization?

The creation of a customer-centric CRM strategy follows a three-step approach

Customers

Who are your most valuable customers and what are their key needs?

Customer analysis Customer value Customer needs

Touch points

How do you build a relationship with your customers? Touch point mapping Treatment definition "Touch point logic"— Customer identification— Treatment delivery— Response measurement

Processes

How do you manage CRM? Selection and deployment of treatments CRM infrastructure— Touch point enabling— Back office infrastructure

Consequently, CRM for airlines starts with a detailed understanding of customer value and customer needs.

Second, based on the notion that building a customer relationship takes place at the touch points (customer contact points), a comprehensive concept to intelligently manage interaction across multiple touch points is created.

Third, processes and systems are developed to translate the idea of CRM into actions. As a result, you will have a clear understanding of how to offer what treatment to which customers at which touch point – in other words, you will have defined a comprehensive CRM concept!

CRM is a strategic initiative to create a customer-centric organization, not a technology exercise

CRM for AIRLINES IS…CRM for airlines... A strategic business priority

... Focusing on winning, growing, and retaining high-value customers

... Maximizing customer knowledge in terms of customer value and customer needs

... Developing personalized services and improving customer service efficiency for high-value customers (e.g. reducing processing times)

... An opportunity to increase marketing efficiency and measure the effects of individual marketing activities

CRM for AIRLINES IS NOT…

... A technology-driven issue

... Focusing on winning and retaining any customer

... Aimed at collecting, storing, and analyzing any type of customer information

... Creating new, costly customer service measures available to any customer

... A driver of increased marketing spending("spend, spend, spend"-mentality)

Note that IT is conspicuously absent from this list of key ingredients, as we firmly believe that CRM should not be regarded as a technology exercise.However, the fact that a comprehensive CRM initiative requires substantial investment in IT cannot be ignored. Still, IT is just an enabler, and technical capabilities should never be the driver of CRM.Therefore, the appropriate use of technology will not be discussed until the third step (process design) after the major pieces of the CRM strategy – namely determining which customers should get what kind of treatment at which touch point – are completed.

The priorities are clear:Strategy comes first, IT comes second

Customers: Who are your most valuable customers and what are their key needs?

CRM is aimed at achieving a higher level of personalization in customer service and improving the targeting of marketing offers. In order to achieve this, however, a thorough understanding of the value and key drivers of a customer's purchasing decision is required. Understanding customer value enables an airline to determine how much it should invest in a particular customer. Capturing key customer needs will help an airline predict what kind of offers a customer will respond to and how to improve the retention of high-value customers.

Customer value: How can you establish a measurement for customer value as a basis for service differentiation?

Understanding the value of an individual customer is essential to effectively differentiate services. In addition, a meaningful value concept is the foundation of a performance measurement system that should be linked to any CRM initiative.

Loyalty program

Loyalty program status represents an initial approach to modeling customer value – this assumes that mileage levels correlate with value. However, there are four key disadvantages to using loyalty program tier level as a proxy for value:

Such a value concept is solely based on historical data, since loyalty program tier levels are awarded based on past activity

There is a focus on buying intensity (transactions per period, i.e. number of flights) rather than the value (profitability) of transactions – mileage bonuses for the premium cabins are just a crude proxy for the value of an itinerary

Using tier levels results in only a few (usually three or four) distinct categories – this is insufficient to

rank particular customers in order to prioritize premium treatments

The spread of values of individual members in each category, especially the top category, is very high, which limits the opportunities for true service differentiation

Customer needs: How do you understand key customer needs and the drivers of purchasing decisions?

Understanding your customers also means understanding their needs.There are two categories of needs that should be covered with separate strategies: explicit needs and the drivers of purchasing decisions.

Needs data is derived directly from the customer or by learning from customer behaviour

NEED CATEGORIES

Explicit needs

Method of collection: direct ("ask", e.g. customer profile on the website)

Examples: Seating preference, hobbies and interests (e.g. golf, personal finance)

Drivers of purchasing decisions

Method of collection: indirect ("learn", e.g. response behaviour)

Examples: Price, flexibility, comfort, brand image, loyalty program mileage, and benefits

Customer needs data

CRM ACTION

"Sell"

Improve response rates through needs-based targeting of offers

Pamper

Select relevant treatments for high value customers

First, explicit needs are basically customer preferences, e.g. the "need" for a window seat, a special meal, or wheelchair assistance. Such needs can be derived from direct interaction with customers, e.g. by having them fill out a customer profile on the airline's website. Additional explicit needs include customer interests and hobbies

which can serve as a basis for targeting marketing offers and cross-selling.

However, in working with customer profiles, the guiding principle should always be that recording a particular type of need can add value for the airline. Our experience has shown that focusing on a fairly short list of needs is more practical than aiming for an elaborate needs profile that will never be used in its entirety.

Second, the drivers of purchasing decisions can best be derived from recorded customer behaviour such as response to offers or website click stream data. While price is usually the dominant decision driver, other important drivers include flexibility, comfort, mileage program benefits, and an airline's brand image. A sophisticated needs database, for example, will maintain a score for a customer's level of price sensitivity (e.g. based on responses to offers) and likelihood to defect (e.g. based on service failures).A thorough understanding of customer needs not only enables you to customize services, but also to enhance your marketing efficiency.

For example, you can reduce target groups for promotional mailings and achieve a higher response rate at the same time. As a result, you can significantly reduce the cost per response. By systematically targeting customer groups with certain needs, a European bank increased the response rate to its promotional mailings from an average of 2% to over 20%.

An effective customer profile focuses on recording a few explicit needs rather than maintaining a long list ofhobbies, preferences etc.

Touch points: How do you build a relationship with?Your customers through touch point interaction?

Customer contact points (touch points) are where the relationship between an airline and a customer is built. Creating a strategy to deliver targeted offers and treatments to customers through touch point interaction is at the heart of any effective CRM initiative. This second chapter has three components: touch point mapping, treatment definition, and logic for delivering treatments to touch points.

Touch point mapping: How do you structure customer contact points along the travel chain?

The objective of touch point mapping is to create an exhaustive list of customer contact points to be used as an outlet for CRM treatments. For an airline, touch points can be mapped fairly easily along the typical travel process.

Note that a customer's (e-mail) inbox is also an important touch point, albeit one that is not truly interactive. A key challenge is to create a reasonably complete list of touch

points and visualize the different organizational units that define the role of each touch point.

For example, an airline's website is an important touch point for CRM, as it creates a low-cost opportunity to offer personalized services. However, many airlines have not established clear management responsibility for this touch point, as it is often shared by sales, loyalty program management, and corporate communications.

In addition to mapping all relevant touch points, an airline should also develop an understanding of which touch points are most efficient for rolling out CRM treatments. Key criteria in such a touch point prioritization are the value added by a particular touch point(E.g. driven by the number of customer interactions and the variable costs per treatment) and the fixed costs to install treatments at this touch point (E.g. driven by IT development and employee training). In our experience, the two touch points call center and website are highly efficient for (CRM) treatments.

Treatment definition: How do you create an effective portfolio of CRM treatments?

After mapping all relevant touch points, an airline has to define the treatments it envisions as part of its CRM strategy. The basic idea of CRM is to deliver targeted offers and personalized services to selected customers. While an airline already offers a broad range of such "treatments" (e.g. making advance seat reservations, selling award tickets, and issuing compensation for lost or delayed baggage), many treatments can be enhanced and/or personalized. In addition, many new dedicated CRM treatments can be developed. For example, by proactively selling upgrades for cash, airlines can offer a

premium service to selected customers while enhancing revenues at the same time.

One of the key challenges here is to manage complexity while first looking at treatments independently of the touch point. For example, proactively reminding selected customers of a promotional offer previously sent to them could be done through e-mail or a traditional mailing, but also duringa telephone conversation with the call center or while checking in at the lounge."Touch point logic": How do you decide which treatments to offer at which touch points to which customers?

Having created a mapping of touch points and a list of treatments, one question remains: How do we create a rationale that links customer information with treatments and touch points?

There are two key components in developing such a "Touch point Logic":

First, selecting the touch points at which to offer certain treatments.

Second, defining the target groups that will receive a particular treatment. This is the link to the customer value methodology explained above, where you create a logic for selecting customers for treatments.

"Touch point logic":Which customer gets what treatment at which touch point?

Customer Information

Customer value

Customer needs indicators Disservice indicators Recent transactions Method of payment data

Treatments

Mileage promotions Price offers Upgrades Lounge vouchers Loyalty program top-tier level

Touchpoints

Call center Website Airport In flight Mailbox

A state-of-the-art way of accomplishing these tasks involves three steps:customer identification, treatment delivery, and response measurement.

Customer identification:

A customer is identified at a particular touch point.

Example: Mrs. Jones arrives at the airport check-in desk and is dentified by swiping her loyalty program card.

Treatment delivery:

The touch Point system queries the centralized customer Database for customer-specific information and prompts treatments that have been queued.

Example: Mrs. Jones' current flight information is displayed to the check-in agent. Simultaneously, the check-in agent receives a "pop-up" message to offer an upgrade to Mrs. Jones for a reduced mileage of 15,000. This is based on the booking situation of theflight (availability of upgrade seats), the most recent customer valuation for Mrs. Jones and any information the airline has on Mrs. Jones' preference for using miles instead of a cash payment, and possibly Mrs. Jones' price sensitivity or her likelihood to defect.

Response measurement:

After acceptance of the treatment, the check-in agent performs the transaction associated with the treatment. The response is noted in the system, thus ensuring that the same treatment is not offered a second time. In addition, this response provides further clues to customer preferences, price sensitivity, and purchasing behaviour.

Example: Mrs. Jones' acceptance of the upgrade offer is transported back to the centralized customer database, thus deleting the queued upgrade offer. The propensity score for Mrs. Jones to accept upgrade offers for miles is also adjusted.This example of”touch point logic" shows how you can intelligently manage treatments across all touch points and create a "learning loop", i.e. a systematic way to record and analyze the customer's response.

For example, if a customer repeatedly declines different offers for an upgrade for cash or miles, this particular customer could be rated with a low affinity for the purchasing decision factor "comfort" and could be excluded from further comfort-oriented offers. Such”touchpoint logic" accomplishes two things:

First, it ensures that the appropriate treatments are delivered to the "right" customers at the first possible contact. Second, it also guarantees that the same treatment (e.g. a particular promotional offer) is triggered only once for a particular customer.In summary,”touch point logic" clearly defines the kind of customer relationship you wish to build through touch point interaction. As a next step, we will demonstrate how to "make CRM happen" – including translating the "touch point logic" into a work plan for the CRM project team and the line organization.

Processes: How do you establish structures and systems to manage the CRM process across your organization?

In order to "make CRM happen", there are two key work flows to consider: Treatment selection/deployment and the setup of the CRM infrastructure.

Treatment selection: How do you identify treatments that add value to your organization through revenue enhancement or cost savings?

First, you need to look at how to select and deploy treatments. It is important to realize that not all CRM activities are equally lucrative. Thus, understanding the value added of each treatment and then prioritizing which CRM treatments to go after first is a key task in view of limited resources.

The valuation of a treatment should include such components as the expected bottom line impact, the infrastructure (notably IT) investment required, and the time to implement.

Summary: Creating value through a well-executed

CRM Initiative

As explained above, focusing on three key ingredients – customers, touch points, and processes – will help an airline transform its vision of creating a customer-centric company into a concrete strategy. By adhering to these ingredients, airlines can introduce CRM to initiate lasting change through redefining the customer relationship while improving the bottom line at the same time.

In summary, there are three key imperatives for CRM success:

Customers: Understand your customers' value and their needs

Touch points: Create your "touch point logic", including a comprehensive list of (CRM) treatments

Processes: Make CRM happen by prioritizing and deploying treatments while creating the CRM infrastructure at the same time

The message is clear: Create a CRM strategy based on a comprehensive customer valuation, an appropriate design of treatments and a logic for delivering treatments to touch pointsThen, contemplate the appropriate IT infrastructure to support this strategy.