Executive Summary
This report seeks to determine the key issues for consideration in the establishment of a Customer Loyalty and Relationship Management Program for Glide Air. The airline, based in Australia, wants to include the program as part of its marketing strategy.
The goal of the report is to present the research findings on the issues surrounding loyalty programs and an analysis of the Southwest Airline rewards program. It includes the theoretical development of the loyalty program and presents the factors influencing the application of these programs
The key findings reveal that by implementing a customer loyalty program, Glide Air will have a stronger financial base because of reduces operational costs and stronger revenue streams. in addition, there is need to implement the strategy from a broad angle since the rewards scheme alone does not create loyalty.
Other business elements such as quality products and services still count. The third finding is that it is important to retain the client as the center of the marketing effort.
In conclusion, rewards schemes are a common part of the airline industry. Glide Air needs to join the pack quickly because it is missing business.
In addition, the implementation process must take into account the business objectives of the company. This will ensure that the scheme actually achieves certain marketing objectives. Finally, the rewards scheme requires having transferability to increase its desirability among clients.
Introduction
Background
The marketing world is very dynamic. Marketing thinkers and practitioners continue to develop many theories and methods for application in the development of marketing strategies. This includes customer loyalty programs. The need for customer retention underscores the basis for all Customer Loyalty and Relationship Management Programs.
This realization has led Glide Air to a point where it wants to implement a Customer Loyalty and Relationship Management Program. The airline operates domestic flights in Australia. The airline realized that most of its business came from repeat customers.
As Howard (2004), states, to become profitable, “you must first wake up to the internal rules you are currently playing by and expand you field of possibilities” (p.xvii). The company therefore decided that it was in its best interest to introduce a customer loyalty program that recognizes the importance of repeat business to the future success of the company.
Aims
The overall objective for writing this report lies in the fact that careful research ought to be the basis of the comparison of the desired customer loyalty program that Glide Air intends to develop, with what other airlines have implemented. This report has three aims.
- To explore the concept of customer loyalty in the airline industry.
- To determine the range of options available for the development of a customer loyalty program for Glide Air.
- To analyze in-depth the Customer Loyalty and Relationship Management Program of at least on US airline.
- To recommend the most suitable strategy for Glide Air in the process of developing a Customer Loyalty and Relationship Management Program.
After fulfilling these aims, Glide Air will understand its “critical success and limiting factors” (2007, Morden, p.6), which will give it a competitive edge.
Scope
The scope of the project covers all elements associated with Customer Loyalty and Relationship Management Programs. The report will cover the theoretical elements and practical applications of customer loyalty.
It will deal with both the planning and the implementation of the program in the context of the airline industry. It will also discuss the place of customer loyalty within the Glide Air business environment. The result should be greater harmony in “intended, realized, and emergent strategies” of the company (Robert, 2005, p.14).
Customer Loyalty and Relationship Marketing
Literature- based Evidence
Managing Value through Loyalty Programs
The concept of value management deals with cost management to realize the best returns for the company. It involves examination of an institutions value chain to determine the key cost elements in order to find out what needs doing to maintain the value levels derived from it at satisfactory levels.
On the other hand, loyalty programs refer to various initiatives that commercial enterprises, and not-for-profit organizations engage in to shore up the degree of commitment clients have to them.
Therefore, the management of value through customer loyalty programs describes the use of certain marketing methods that aid the customers desire to remain loyal to the products offered by a particular company.
These programs do not create loyalty. They support it. This means that a company cannot use them in isolation from the rest of the marketing programs.
It still must work to meet the basic issues that guarantee customer satisfaction such as good customer service, and the offering of high quality products at prices that the customers feel are fair. These programs must form part of the overall business strategy.
They cannot be stand-alone initiatives. As Mark, (2004) states, “One of the greatest benefits of a comprehensive approach to strategy is the surfacing and exploitation of multiple sources of attractive growth”(p.11).
The basis of reward programs is to encourage the customer to use up a certain quantity of the company’s products or services and in the process, earn a reward that is based on the volumes they consume. The basis for the calculation of how much reward the customer earns must depend on their use of the company’s products.
From the profit they bring to the company, it makes sense to give some of it back to the client to insure future business. The reward program “ties” the customer to the company. While it does not take away their freedom of choice, it makes the use of another company’s service unattractive if there is nothing else to look forward to.
Suzue (2002) states, “companies that achieve superior business results are those that continually implement various programs to lower cost, improve quality and/or shorten lead time – all in an ongoing effort to improve competitiveness” (p.1). A Customer Loyalty and Relationship Management Program offer Glide Air with the opportunity to innovate and increase its profit margin.
Customer benefits and sacrifices in the value equation
There are certain advantages that accrue to customers when a company implements a customer loyalty and relationship management. The first key benefit is that the company pays stronger attention to the needs of the customer. Since the company seeks to earn “long range benefits” from the customers, it looks at the long-range issues affecting those customers usually ending up with better service offerings (Maromonte, 1998, p.7).
The second benefit that a customer gets out of a loyalty program is more value for his money. The company uses part of the profits they would have made on each transaction to finance a loyalty program.
This benefit passes on to the consumer. This situation, coupled with a longer-term view of the relationship between the client and the company assures the client of better services as a loyal member of the company’s reward program.
To the client the benefit will manifest as a cost saving on an item they spend money on, or an additional service or product, they would have been required to spend, money on in order to enjoy. The final benefit identified that a customer enjoys because of a Customer Loyalty and Relationship Management Program is getting a stronger voice in the way they receive services from the company.
A customer who enrolls in a customer loyalty program makes a decision to stick with a particular company for a while. This makes them very important stakeholders within the company’s portfolio of customers. The company will take their view seriously since they represent the future of the business. Pleasing the loyal customers is crucial to the long-term success of the business.
Two key costs that a customer incurs when they enroll in loyalty reward scheme include the risk of loss of the points earned in case one stops to use the services of a company, and the risk of poorer services if the company gets comfortable with the services it offers, and fails to innovate further.
In the first case, many loyalty programs work based on the threshold achieved in sales from a particular client. If the customer ceases to use the services of the particular company for whatever reason, they lose the whole portion of reward earned regardless of how close they were to attaining the reward threshold.
In the second case, a company may become comfortable because it believes that it has roped in the clients and they cannot go away. This attitude may kill product innovation and results in poor quality services and products from the company. In this case, the client incurs a loss.
Benefits of Retaining Customers
Glide Air will experience a number of benefits by developing a Customer Loyalty and Relationship Management Program. The key benefit that the company will have is assured-revenue.
To any business, revenue is such an important part of operation because it is the basis of extraction of profits, it is the basis for evaluation for credit worthiness, and it is a popular indicator of the financial health of a company. By instituting a customer loyalty scheme, Glide Air will build a strong revenue base that will make it possible for the company to pursue aggressive growth strategies.
Secondly, the company will spend less on looking for new business if it is already keeping the old customers. It takes a very careful effort to attract a client to use up a company’s product. However, to retain the same client, the company simply needs to live up to its promise to the client.
This is sound business strategy The Harvard Business School (2005) states, “Strategy is about doing the right things” (p. xi). By working to retain clients, the company will require lesser resources than it will need to attract fresh business. This cost saving can finance the loyalty reward scheme that the company manages to assure its profits.
The third key benefit of customer retention is brand strength. A company that has a horde of loyal customers also has very strong brand strength in the market. Everyone knows about it, talks about it, and seeks to get involved with it.
The Mercedes Benz range of vehicles enjoys a lot of good exposure because of the consistent positive review by its long time customers. While not everyone will own or drive a Mercedes Benz, the brand is so strong that somehow almost everyone looks at the brand positively.
A strong customer loyalty program is also a source of growth for the company. Word of mouth is a time tested advertising model that works for a company either positively or negatively depending on customer experience.
If the clients are satisfied with the benefits they receive from the company, they will brag about it to their friends and acquaintances.
These ones will want a first-hand experience with the company, which will translate to new business for the company. In addition, with lower expenses on advertising, a company has the option of reinvesting the savings to expand their operations to grow the size of their business.
Findings
Glide Air will have a stronger financial standing with a Customer Loyalty and Relationship Management Program than without one.
Glide Air will move towards stronger financial standing by implementing a Customer Loyalty and Relationship Management Program through various ways.
The basis of this situation includes assured revenue from return customers, lower expenses towards advertising campaigns, and fresh growth from new business attracted to the airline by the positive reviews of satisfied clients.
Relationship management will require a broad customer satisfaction strategy.
The next finding from the survey is that the company will require the development of a broad strategy to cater for Relationship Management. A strategy that limits itself to the loyalty reward scheme will fall flat on its face because the scheme does not create loyalty.
It harnesses existing interests and turns them into long-term relationships. Loyalty is the byproduct of this process.
This means that Glide Air must work to improve customer service and make the customer experience worthwhile. That is why Butje (2005) remarks, “Nothing is more killing for a product than a flashy introduction and a failure to deliver” (p.16). The loyalty program must incorporate customer satisfaction elements.
The customer must remain the center of attention in the Customer Loyalty and Relationship Management Program.
In all the undertakings towards the development of a Customer loyalty and Reward program, there is need to ensure that, the customer remains the focus of the program.
While it is essentially a marketing effort, it will not be justifiable at any point to ignore customer satisfaction in order to develop a loyalty program. The customer will need to find satisfaction in the products offered by Glide Air before they commit to the program.
The Southwest Airlines Loyalty Scheme
The Southwest Airlines represents one of the airlines whose business model compares closely to that of Glide Air. It is therefore prudent to examine its customer reward scheme to learn from its practices. Southwest Airlines operate one type of aircraft and does not offer certain services that other airlines consider standard practice.
By doing this, they find it possible to offer lower ticket costs, making them have the reputation of the “low-cost carrier” of America. Currently, the Southwest Airlines operates over three thousand flights in a day across the America. It targets high-density routes with high passenger volumes.
The best-known loyalty program from airlines is the “frequent flyer” range of loyalty programs that almost all airlines operate. The Southwest Airlines call their program “Rapid Rewards”. When a client enrolls to the program, they get a Rapid Rewards card, which stores their reward data.
Until recently, its key highlight was a free flight for every sixteen flights completed. They have recently updated their rewards model in response to changing economic times. This was a response to forces, “outside the control of anyone in the organization” (Robinson & Robinson, 2005, p.14).
The new system adopted, rewards a client based on the ticket tier they use. Southwest Airlines has a three-tier ticket system. When one buys the most expensive ticket, they earn more points than when the buy the most affordable tickets.
In this new system, it is not just the number of flights that one uses that count, but also the cost of the ticket. Customers who prefer the lower cost tickets have complained about the new system, but the general view is that it is fairer than the older one.
In the new system, Southwest Airlines customers will get a ticket on request after accumulating the necessary points. In the older system, Southwest Airlines issued the free ticket, valid for one year, at the end of the sixteenth flight. Secondly, in the new system, flyers get to keep all their points so long as they do not take more than two years between two flights.
In the older system, points expired after two years. This is consistent with Daughtry and Casselman (2009) view, who warn that a business strategy is “virtually useless without consistent execution” (p.5). The third benefit that the new system promises users is that they can use their points to buy flights on other specified carriers to local and international destinations.
This is important because Southwest Airlines does not operate on international routes. This loyalty program by Southwest is the source of much competition from other airlines that compete for business with Southwest Airlines.
The key lessons that Glide Air can learn from the rewards model that Southwest Airline has adopted include the following. The model emphasizes the need for a broad strategy to satisfy customer needs. Southwest has a deal allowing their customers to use points they earn within their airline to use other carriers.
This transferability increases the desirability of the Southwest Rapid Rewards program. The second key lesson is the pricing model that the new Rapid Rewards program embraces. Retske (2002) observes that, “Pricing products and services is one of the most important things” (p.172).
Instead of simply counting flights, it attempts to determine the value of each of those flights. It rewards a client according to the value of business it brings to the company. This will encourage higher expenses on air travel but it will also ensure the company’s profit margin grows. It increases the potential value per flight without increasing operational costs.
Conclusion
In view of the above discussion, there are a number of conclusions to draw.
Reward schemes are rife in the airline industry
Almost all airlines have some kind of rewards scheme for its clients. The frequent flyer programs seek to take advantage of people who fly often. It locks them in to particular airlines so that they use the airline in which they have a reward scheme for all their flights.
This means that the idea to consider having a reward scheme by Glide Air is nothing new, but an industry standard. In fact, it is important for Glide Air to get into a loyalty reward scheme to take advantage of frequent flyers in its routes.
The reward schemes take into account the business objectives of the airline in question
One of the key lessons from the examination of the Southwest Airlines model is that they have designed their loyalty rewards scheme in line with their business objectives. By offering points based on the amount of money spent, the airline is saying that it wants to improve its revenue and to increase the value it generates per flight.
Transferability and durability are desirable elements of a rewards program
The other conclusions we draw from the Southwest Airline experience is the value of allowing for transferability of points earned to other airlines.
This makes the users feel free to use the Southwest Airlines because they know that they are free to move in and out of the airline. This sense of freedom actually makes clients more loyal to a company than if they find themselves locked in by force
Rewards schemes require a broad based strategy
The inclusion of other providers in Southwest’s rewards systems shows that the company has a broad based strategy to satisfy its customers. It went beyond duty to find out what their needs for international travel are and made a deal on their behalf to have points transferred to their international flights.
It shows that the company has a ““coherent sense of direction” (Wall, 2004, p.4). This strongly supports the need to have an integrated service, as opposed to a limited rewards system that does not take into account other realities in the business environment.
However, the application of these effort must take into account that, “marketing has to work with those resources that are available” (Mercer, 2001, p.19).
Recommendations
Based on the analysis presented above, the following recommendations present the possible ways in which Glide Air can institute a Loyalty rewards scheme. The recommendations are as follows.
Adoption of a Customer Loyalty and Relationship Management Program
Without further delay, the management should adopt a Customer Loyalty and Relationship Management Program. This is a standard practice in the industry worldwide.
This will fend off competition from new entrants and international operators. Montgomery and Porter (1991) declare, “Increasingly, both business units and corporations must compete globally” (p. xv).
This will bring many benefits to the airline including better revenue, improved brand image, and consistent customer feedback. It will also force the company to innovate in order to improve customer satisfaction, making it highly competitive in the process.
Include features that will increase and assure revenue
The design of the program should be such that it increases the company’s revenue. The proposed model needs to have features like rewards for amounts spent per flight or bulk ticket purchases. In addition, initiatives to assure revenue modeled after season and event tickets will increase the desirability of the program.
Develop a broad based business strategy around the loyalty program
A broad based strategy underlies the success of a loyalty program. Glide Air must work to improve its service quality in order to attract and retain customers. Satisfied clients enroll in reward schemes. By developing a broad based customer satisfaction plan, the most important element of a successful reward scheme will be in place.
Ensure that the program funds itself
A strong element of a good loyalty reward scheme is that it funds itself. In poor business systems, “cost discipline is an incidental reaction to events” (Institute of Management and Administration, 2006, p. 3).
However for well run ones, it is a full time endeavor that the management takes careful interest in. Therefore, Glide Air must ensure that the reward system implemented does not require external funds to take care of it.
Reference List
Butje, M., 2005. Product Marketing for Technology Companies. Oxford: Elsevier Butterworth-Heinemann.
Daughtry, T.C. & Casselman, G.L., 2009. Executing Strategy: From Boardroom to Frontline. Herndon, VI: Capital Books.
Harvard Business School, 2005. Strategy: Create and Implement the Best Strategy for Your Business. Boston, MA: Harvard Business Press.
Howard, C., 2004. Turning Passions into Profits: Three Steps to Wealth and Power. New Jersey: John Wiley and Sons.
Institute of Management and Administration, 2006.Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to save Money. New Jersey: John Wiley and Sons.
Mark, D., 2004. Strategy: A Step by Step Approach to the Developement and Presentation of World Class Business Strategy. New York, NY: Palgrave Macmillan.
Maromonte, K.R., 1998. Corporate Strategiv Business Sourcing. Westport, CT. Greenwood publishing Group, Inc. Mercer, D., Marketing. Oxford: Blackwell Publishers Inc.
Montgomery, C.A. & Porter, M.E., eds., 1991. Strategy: Seeking and Securing Competitive Advantage. Boston, MA: Harvard Business School Publishing Division.
Morden, T., 2007. Principles of Strategic Management. Hampshire: Ashgate Publishing Company.
Retske, G., 2002. A Guide to Competitive International Telecommunications. New York, NY: CMP Books.
Robert, M.G., 2005. Contemporary Strategy Analysis. Malden, MA: Wiley-Blackwell.
Robinson, D.G. & Robinson, J.C., 2005. Strategic Business Partner: A Critical Role for Human Resource Professionals. San Fransisco, CA: Berret-Koehler publishers Inc.
Suzue, T., 2002. Cost Half: The method for Radical Cost Reduction. New York, NY: Productivity Press.
Wall, S.J., 2004. On the Fly: Executing Strategy in a Changing World. Hoboken, NJ: John Wiley and Sons.