Frequent Flyers, Forgotten Value: A Pricing Wake-Up Call
Frequent Flyers, Forgotten Value: A Pricing Wake-Up Call
By Desiree Grace and Frank Hurtte
value of capturing a customer early in their buying journey and keeping that customer for life. Statistics show that it takes 5-7 times MORE money to acquire a new customer than to keep an existing customer. Treating your best customers better is key to customer retention and reducing customer churn. This should be a company-wide effort. Pricing strategy and execution should align with that strategy, and while typically part of Finance, they should not be excluded from company-wide coordination.
Let’s review a real-world example from the airline industry.
Recently, I had the experience of booking a three-legged journey with United.
Due to a colleague changing schedules, I had to cancel one of the legs. As a
Premier 1k and Global Services customer, I expected some sort of refund for the
cancelled journey, since I was essentially buying two flights now instead of three.
Seems logical, right? No. United Airlines stated that a refund would not be
issued. Over the course of two weeks, I spoke with five customer service
representatives, none of whom could explain the reason behind this policy. The
first representative informed me that I would receive a refund within 5-10
business days. However, by day 14, I had spoken with four other representatives
who were unable to provide a clear answer or resolve my issue. They all claimed
they did not have the authority to issue a refund. The bundled pricing for all
three legs of my journey added confusion to the discussion. Since the
individual fares were not itemized, I have no clear understanding of the value
of the canceled trip.
This is a failure in two significant ways. First, the lack
of a consistent or logical response indicates that internal communication and
training need substantial improvement. Second, the pricing strategy I
encountered suggests that even loyal customers do not receive any preferential
pricing or transparency. To be honest, I would have been satisfied with a $500
flight credit for future use. As it stands, I am quite frustrated and
reconsidering my previously unwavering loyalty to United.
The main lesson here is that your pricing strategy should
mirror your overall customer strategy. If you offer better terms and conditions
or perks to your best customers, then you should consider offering reasonable
pricing concessions as well. This is another tool in your CLV toolbox. In a
macroenvironment where people are travelling less and cutting back on
non-essentials, the airline industry, for example, is impacted. It’s important
to focus on retaining your existing customers and, if possible, expanding their
business with you.
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If electrical distributors and manufacturers assess their customer retention strategies, their Finance team should review the following items to ensure alignment with Sales and Marketing:
1.
Payment terms
a.
Consider the added value of offering dating for
larger purchases or initial stock orders.
b.
Consider enhanced treatment by extending cash
discounts for better-paying customers and removing them for slower-paying
customers.
2.
Return policies
a.
Offering larger, more loyal customers 2-3 stock
rotations annually makes sense to ensure the best inventory is available for
the market and the time of year.
b.
On the other hand, you might consider limiting
return allowances for less loyal customers or those whose purchases remain
stagnant year over year.
c.
Instead of a lengthy RMA process, a return
policy with reasonable guidelines can be a differentiator—ease of doing
business does enhance customer retention.
3.
Customer Growth Incentives
a.
This could be a true differentiator—higher
growth could earn higher incentives.
b.
The incentives could also drive support for new
product launches or other critical initiatives.
c.
This is yet another customer retention tool, and
a potential switching cost—the loss of an incentive for those who change
brands.
4.
Marketing Allowances
a.
Marketing Allowances can drive support, also,
for new product launches, category conversions, training, or partner events,
just to name a few examples.
b.
This can cement the company-wide effort to
retain customers.
Training is also an area where you commit to CLV. If your
Human Resources department aligns, they can train employees and, hopefully,
empower employees to resolve customer frustration and issues. They have the
answers, instead of some vague platitude, and get the customer off the phone as
quickly as possible.
The lessons from my example?
·
Have an answer for questions like mine. When a
clear justification for pricing is lacking, customers may become frustrated,
then angry, and ultimately consider switching vendors.
·
Don’t force clients to make multiple calls
seeking an answer. Their time is valuable, too.
·
Be willing to offer a token concession to let
customers know you care. In my case, offering me 5,000 Frequent Flier miles for
my trouble would have at least sent a message that United cared about my
business.
These examples highlight the importance of collaboration
among Finance, Pricing, Sales, and Marketing to effectively retain your best
customers. Human Resources also plays a role in this process. As demonstrated
by the United Airlines case, neglecting a key component of your Customer
Lifetime Value and Customer Retention strategy can lead even your most loyal
customers to consider leaving.
Frank is also a sought-after copywriter of marketing
materials for technology companies. His charismatic, yet laid-back,
easy-to-follow manner makes him a favorite among public speakers.
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