The Secret Battle Between Customers and Profits
5 comments | 3047 reads 
Email
Print"Customers versus profits". Now there's a headline to grab your attention. But this isn't anything new. The balance between giving customers what they want at a low price and giving them what you have at a high price is as old as commerce itself. It is the backbone of open and free markets in which the vast majority of us do our business.
But look underneath the surface and a secret battle between customers and profits is taking place. A battle they most probably don't even know is going on. A battle which customers are currently loosing. It is going in the reservation and booking systems of the world's airlines, train operators and hotels. It is the battle between Customer Loyalty Programmes and Yield Management Systems.
You are all members of your airline's Frequent Flyer Programme. The more you fly, the more benefits you get. You know the long list of benefits as well as I do. And these benefits do influence customers loyalty much more than you think. But don't think that your loyalty means much to the airline when you book your next flight. There you are at the mercy of the Yield Management System , whose only goal is to get the maximum revenue from each seat available on a flight as possible. It doesn't know that you are a Lufthansa Senator nor does it care. Don't think for a minute that being a Senator entitles you to any preferential pricing. Not a chance. You, like all those other customers booking at the same time are entitled to the highest price that the Yield Management System can charge you at that moment in time. Sure you get priority of a non-Senator customer if there is only one seat left, but you probably ended up paying more for the privilege precisely because there was only one seat left.
Yield Management Systems have been around much longer than Frequent Flyer Programmes. And despite all the public attention lavished on customers and their loyalty, it is the Yield Management Systems that really calls the shots. And what goes for airlines now goes for train operators. And for hotels too.
So next time that you go online to book a flight with your favourite airline, don't forget that to the booking system you are just a wallet to be emptied as fast as possible. Loyalty to the customer be damned. It is profits that keep airline flying, and trains running and hotels open too. Or so they think.
What do you think? Do you get short changed by your airline loyalty? Or did you really think your loyalty really mattered?
Post a response and get the conversation going.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Graham Hill
If you have a question, feel free to tweet me @grahamhill
[Blog: Customer Insider]
- About Graham Hill |
Connect:
5 comments »
Bob Thompson
Eroding consumer trust
Graham, I spent many years at IBM working with airlines, and learned a lot about Yield Management systems. I'm sure it seemed like a good idea at the time. Maybe it still is, but there's a downside.
As time wears on, yield management techniques destroys trust in the price/value equation and, I think, hastens the commoditization process. Eventually us wallets, er, valued passengers, learn that the person in the seat next to us paid hundreds more, or less, than we did, for exactly the same service.
Southwest, by contrast, has a fare structure that's easy to understand. You get discounts for booking early, but not huge ones. If you book at the last minute, you don't get reemed on the price, either. JetBlue has a similar pricing philosophy.
With other airlines, the trust factor is missing. So I use Expedia to shop price, which is probably not helping the "yield" much.
If yield management is such a great idea, why not implement in softdrink vending machines? All you need is a temperature sensor and, when it's gets really hot, jack up the prices because people will pay. Possibly a short-term gain, but at the cost of consumer trust.
Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom
Graham Hill
Squaring the Circle
Bob
Thanks for commenting.
As you point out there are several ways to tackle the airline 'bums on seats' probem. Southwest clearly does use a yield management system if seat prices rise closer to the flight date, even if they are not so strident in its use as other airlines. And other airlines have tried out different pricing strategies in the past. None of them seem to have been anything like successful enough to go into general use though.
I think the answer to the problem is the integration of both loyalty management and yield management systems. After all, the value of a customer is the product of their business with a company and the duration over which they do that business. Airlines and other companies could thus balance extracting the maximum price for the next transaction against the risk of the customer never returning again due to the exorbitant price extracted.
A case in point: I was a Senator customer with Lufthansa until a client assignment near home mercifully stopped me from having to travel. Nearly all my travel in the interim was on low-cost airlines whose service was more conveniently located at my local airport, didn't involve going through Lufthansa's inefficient Frankfurt hub, and whose service was every bit as good as Lufthansa's if not better, all for much less that one third of the price. Now a new client assignment means I am travelling again, I am irritated by not being able to fly on a low-cost airline and at having to fly with Lufthansa. And at being ripped-off royally for the privilege. Lufthansa showed absolutely no loyalty to me the second I stopped flying, today, I haven't the slightest shred of loyalty towards Lufthansa in return.
It would be good if airlines took the long as well as the short-view by integrating loyalty management and yield management systems. But I am not holding my breath.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Bob Thompson
A bird in the hand vs. two in the bush
Graham, good observation about loyalty and yield management.
We've all heard the saying "A bird in the hand is worth two in the bush." It means simply that it's better to have a benefit now than running the risk of possibly getting more later...or nothing.
Those who buy into customer-centric thinking are betting on the long term--getting the "two birds in the bush" eventually. There's plenty of evidence that companies who build loyalty with the right customers tend to win out over the longer term.
But we live in a quick fix world that wants instant solutions to even complex problems. Want to lose weight? Take a pill! Increase your sales? Buy SFA software!
That said, betting on the long term doesn't always work either. Didn't the famous economist Keynes say, "In the long term, we're all dead."?
My point is that companies that manipulate their prices wildly, whether with so-called yield management, special deals or whatever, should factor in the relationship cost--the eroding of consumer trust in the company. Consumers want a fair deal, and to feel that the company is not taking advantage of them.
Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom
Francis Buttle
A license to gouge the customer.......
Oh, how I agree.
Yield management systems are designed to generate the highest revenue from a fixed inventory of assets, be they rooms, berths, seats or whatever. They work, too. Research evidence from the hospitality sector shows that companies that use YMS well do better in terms of profitability than companies that do not have YMS.
I recall flying from the UK to Boston one time and talking to the passenger next to me. We turned to the price of our tickets. I'd paid 40% more than him. The swine! However, he'd bought 6 months prior to the trip and had therefore lost access to his money for that period. Furthermore, his was a different class of ticket, with more punitive terms and conditions. That said, we experienced the same service and arrived at the same time.
I've long thought that YMS is an excuse to gouge the best possible current price out of a customer without regard to the customer's history or future. I expressed this view at a tourism industry conference, and was told in no uncertain terms that today's YMS allow Customer Service Representatives to override YMS price points in order to reward valued customers with a strong history of doing business with the service provider. But do they take that option I wonder, particularly if they are rewarded for revenues generated?
Francis Buttle
Graham Hill
Expediting is No Alternative to YMS/CRM System Integration
Francis
I can see we are both singing from the same songsheet. As you say, there is plenty of evidence that YMS, or Revenue Management Systems as they are more frequently known, do deliver significant additional value to the companies that use them. Us customers are paying for this of course.
I spoke at a Unisys Air Passenger Travel conference last year about customer value management. I made the same point as you did about YMS and CRM (FFP) systems needing to be integrated. There was pretty much unanimous support from the senior airline execs present. Having said that, many YMS' are legacy systems and their internals are hard to integrated with new-fangled CRM systems. And in an industry plagued by chronic value destruction, only a risk-friendly senior airline exec would risk killing the YMS goose. They don't have many other golden eggs!
To pick up on your point about CSRs being empowered to override YMS pricing recommendations. Expediting relationship-pricing in this way is simply not a replacement for an integrated YMS and CRM system. It leads to irregular pricing for customers, uneconomic decisions by CSRs and an increase in revenue variability. Not good in the airline industry. The integration of the two systems is a "hard problem" for the industry to solve. But there is plenty of potential additional value to be gained by doing so. Particularly as we are starting to recognise the impact that frequent flyers have on the behaviour of other flyers. If research by Kumar et al is anything to go by, the value of a customer has just increased, perhaps two, three or even four-fold as a result. But it can only be harvested once the two systems are integrated properly. Time to engineer the next golden egg laying Goose.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Post new comment
MarketPlace
Drive customer loyalty, empower support teams, and reduce costs. Get social.
[Feb 22] Guest speakers from Forrester Research, Allscripts, and CustomerThink will discuss market trends and research on social customer service strategies, as well as proven tactics from the trenches. Join the live webcast on Feb 22 at 10am Pacific (1pm EST).
Global Customer Experience Management (CEM) Certification Program
[March 13-14, Paris] An internationally recognized program with proven track record of success - being run for 33 times in 13 cities with attendees from 50 countries, the program is developed based on the U.S. patent-pending Branded CEM Method which aims to drive customer loyalty and brand differentiation with quantifiable business results. Limited offer: USD300 early bird discount.
10 Steps to a Single Customer View
Linking customer data across department databases and business units improves business intelligence, customer profiling, and customer management. This paper outlines 10 steps to improve the quality of customer contact data, including physical mail, email, and telephone information.
Featured Links
|
The leader in customer relationship management and cloud computing. |
Strategic Roadmap for Digital Marketing Free e-book (no reg required). 15 articles by digital marketing thought leaders. |
CEM Training and Certification Patent-pending methodologies combine the art and science of Customer Experience Management. |
Get your event or resource listed in the MarketPlace, reaching 200,000 business leaders monthly.
For more information, contact
CustomerThink advertising sales.
Follow CustomerThink
Featured Resources
New Syndicated Blogs
Top 10 Authors of 2011
- Stan Phelps, Synergy Events
- Dave Brock, Partners In EXCELLENCE
- Nick Stamoulis, Brick Marketing
- Cheryl Hanna, Service Untitled
- Matt Heinz, Heinz Marketing Inc
- Bob Thompson, CustomerThink Corp.
- Maz Iqbal, Dynamica Consulting Group
- Bob Apollo, Inflexion-Point
- Jacob Morgan, Chess Media Group
- Jesse Noyes, Eloqua
