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June 13, 2008
Fees and customer loyalty, Pt. 2
American is no longer alone with its $15 fee to check your first bag on a flight. United and US Air just announced they, too, will charge a similar fee.
Furthermore, US Air will soon charge $2 for soft drinks and $7 for alcoholic drinks, about what you'd pay at a swanky nightclub.
The demise of the standard, all-inclusive airfare and the gathering momentum of a fee-driven model (pioneered by European carrier Ryanair) continues toward something approaching commoditization. Commodities are a terrible business for customer loyalty.
Airlines, of course, are in a horrible spot. The rising price of oil, driven by futures traders that make Wall Street bankers look like Mother Teresa, is flushing revenue models down the toilet. Fees for bags and drinks are short-term sandbags against a flood of red ink. The sudden appearance of fees could threaten airline loyalty, which is big business.
Which raises this question: Is the future of airline loyalty programs in paid membership? Will airlines follow the Costco model?
Research in the 1990s by Alan S. Dick in the Journal of Product and Brand Management might indicate yes. In conducting computerized shopping experiments focused on video store rentals, Dick found that a membership fee can become "psychologically amortized" in the minds of customers, making them "hesitant to switch as the would feel uncomfortable 'wasting' the investment" of the membership fee.
In other words, membership fees increase repeat purchases.
A membership fee is a sunk cost, like that gym membership even though you only go twice a year. It's free money for the gym, and free money is something airlines need desperately.
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I hear your point, Ben.
Membership fees, to me, don't correlate to more purchases. I have a similar view with the fees that ticketing agencies charge (i.e., selling MONTHS in advance and layering on excessive 'admin' charges on top of the original cost).
Sunk costs are lost in the customer service, ether I think. I understand that they are operating in a 'tough spot' and are flowing costs through. Not pretty, I agree.
That said, airlines should actually spend the time, then, focusing on the delivery of the service they are 'selling'. Let US determine the value of it!
thanks for bringing up Costco- my favorite retailer. They are more than just membership club, they are a religion (I'm a big evangelist for them). Costco puts employees first to deliver amazing customer service (like Southwest). I'd love to see that catch on airlines, then maybe I'd be willing to pay a bit more.
Yes it is a tough time in the airline biz. But the answer lies not in fees or memberships, it lies in service. I just flew SW last weekend and again today. Same moment of truth, two different outcomes.
First moment of truth -- I asked for a coffee while holding my sleeping 6mo old in my lap. The flight attendant asked me how I took my coffee and then proceeded to make it in the galley and put a spill proof top on it. Nice touch.
Today, I asked for a coffee as I attempted to work on my laptop with seat in front of me reclined -- flight attendant simply gives me the coffee and creamer which I then tried to pour into my coffee, stir and drink (on a very bumpy flight I might add) without spilling on my precious laptop.
The first attendant made me love SW -- the second reminded me I'm just another passenger. Give me service and I'll pay your rates. Give me a commodity and I'll price shop you. That is the future of consumerism.
Tom Martin
www.tommartin.typepad.com
Nice thought piece, Ben. I firmly believe that nickel-and-diming customers is going to push them away - far away. Treating customers as a way to get money also pushes customers away. A membership fee program might work if and only if there were some added benefits to it. The current "loyalty" programs run by airlines already hold some of those benefits, so would they do away with them, or make them "members only"?
To other commenters, yes, customer service is very important. My recent post on "5-Star Service" gives some great examples and ideas. However, the experience needs to be consistent across all touch points, and the best case would be to create some way to customize the experience based on my needs...not based on how many bags I am checking in!
I find membership fees to be offensive. I do not shop the big box stores because of those fees. I have in the past belonged to several that required a fee and found that with the type of shopping my family did, it was not worth it. When discussing these "clubs" with friends, it is clear that they walk out with more product than they intended or desired, thus all economic benifit is lost. In most cases, it is possible to get an excellent deal elsewhere.
