Description
Customer Relationship management adopted in Aviation industry.The main objective of this report is to identify the challenges within the airline industry and suggest solutions which will frame the offerings for the industry.
KeyWords: Customer Acquisition, Customer Retention, Customer Development,e-CRM, Architecture of Airline
Contents
Contents..................................................................................................................... 1 Introduction:............................................................................................................... 1 Objective:................................................................................................................... 3 Methodology:.............................................................................................................. 3 Expectations from Airline CRM...................................................................................4 Physical Architecture of Airline CRM...........................................................................7 Process analysis – typical airline service operation....................................................9 The benefit of CRM application to the airline industry..............................................17 Operationalizing the Customer Focused Enterprise..................................................19 Tools and techniques used in Airline CRM................................................................21 Analysis and Conclusion...........................................................................................22
Introduction:
In the competitive travel industry, customer satisfaction no longer
guarantees customer loyalty. Deregulation, increased parity of products, the availability of new and diverse direct distribution channels, industry
1
alliances, and many other factors have combined to force operators in the Airline industry to focus on new differentiators in order to maintain current and develop greater market share. In response to this new environment, travel providers are undertaking initiatives centered on identifying, developing and retaining high-value customers, under the overall banner of customer relationship management or CRM.
One of the most important developments in the tourist industry is the growing attention for service quality from the customer’s perspective. This is the consequence of the increase of the degree of dominance of the customer in the service process. This degree of dominance is high if the customer can dictate his/her demands to the service provider and is low if the service organisation can dictate its demands. In the competitive travel industry, customer satisfaction no longer
guarantees customer loyalty. Deregulation, increased parity of products, the availability of new and diverse direct distribution channels, industry alliances, and many other factors have combined to force operators in the travel industry to focus on new differentiators in order to maintain current and develop greater marketshare. In response to this new environment, travel providers are undertaking initiatives centered on identifying, developing and retaining high-value customers, under the overall banner of customer relationship management or CRM. The overall strategic business objective of CRM is to build loyal customer relationships, where companies can anticipate their customers’ needs and use information to personalize relationships, providing customers with confidence and trust in their dealings with the organization. Under this overall strategy, CRM translates into a multitude of specific projects or tactics, ranging from introducing new, diverse distribution channels aligned
2
with people’s changing lifestyles, to understanding customer value and using this to prioritize marketing and service resources. CRM focuses on three imperatives of customer relationships: • Customer acquisition –Who are the profitable customers and how do we attract them? • Customer development – How do we deliver what the customer wants, how they want it, when they want it to optimize profits and revenue? • Customer retention – How do we build and sustain customer loyalty?
Objective:
The main objective of this study is to see the new challenges with in the travel industry and suggest the solutions blueprint which frames the offerings for air/travel industry. The blueprint would consist of a functional architecture, solution components, a technical framework, and methodology. Also to provide a managerially useful, end-to-end view of the CRM process for airline Industry. The basic perspective is taken is from customer needs and what do managers need to know about their customers and how that information is used to develop a complete Airline CRM perspective.
Methodology:
The study would be a secondary research by analyzing various practices carried out currently in the industry through various articles and papers and
3
then suggesting a service blueprint for implementing effective CRM practices for the same.
Expectations from Airline CRM
We all know that airline's success depends heavily on its ability to intelligently manage sales, marketing, and service processes and to draw mutual advantages from understanding of airline's customers. To help airline maximize the strategic value of customer centric initiatives, Airline e-CRM model provides a comprehensive analytical solution, it can contribute toward improving the way that measure and optimize airline's relationships with customers. Airline e-CRM model can be conceptualized as a system that is made up of components, linkages amongst the components, and dynamics that takes advantage of the properties of the Internet and relationship to make money. It takes advantage of the properties of the Internet in the way it builds each of the components-value, scope, revenue sources, pricing, connected activities, implementation, capabilities, sustainability and crafts the linkages among these components. It is what, preferably, enables an airline to have a sustainable competitive advantage. It includes three components (subsystem): Web Base Airline-Passenger Interaction subsystem; Airline Data Warehouse subsystem; and Airline e-CRM operation subsystem. Airline e-CRM model is an asset-based solution that includes best-of-breed components to build an e-CRM infrastructure and enable anychannel, any-time communication with customers. At the heart of this offering is the CRM Foundation, which includes the CRM data model, starter set of CRM queries, reports and analysis, sample data, a demonstration prototype, data utilities and scripts, and comprehensive documentation that covers implementation guidelines, business perspective and analysis guidelines, system components, data model descriptions, and use and customization guidelines.
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Since managing customer interactions is a vital piece of the e-CRM puzzle, planning and implementing a Multi-Channel Interaction Management solution with the other subsystems and enterprise solutions is crucial. Without Interaction Management, the puzzle remains incomplete. Interaction Management is the foundation for evolving customer service into customer satisfaction by tying together all customer data - no matter where it is located within the enterprise. Making this information easily and quickly accessible to the customer management process, and ensuring each customer is handled in the most efficient and effective way possible is the ultimate result of a well-defined and deployed strategy and solution.
Airline e-CRM model: • Provides an understanding of customer behavior and enables airlines to measure results of marketing and merchandising changes. • Supports more effective promotions through integration of data between marketing and merchandising users. • Provides a single view of customers across the enterprise and across contact points. • Gives airlines the ability to respond more dynamically and quickly to market demands.
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Figure 1: CRM Architecture for a major scheduled Airline
Significance derived from airline e-CRM implementation will allow for new ebusiness model, based on the wide availability of information and its direct distribution to end-customers. • Directly connect airlines and passengers. • Support fully digital information exchange between airlines and customers, reduced cost of a customer contact. • Suppress time and place limits. • Support interactivity and therefore can dynamically adapt to customer behaviors.
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• To be able to satisfy customers' need, build customer confidence and retention. • Can be updated in real-time, therefore always up-to-date. • Enhance airlines competitive advantages over its rivals. • Profitable and sustainable revenue growth.
Physical Architecture of Airline CRM
An airline passenger may check in through one of three contact media– telephone, kiosk, or face-to-face at a check-in desk. Whichever channel is selected, the process will be identical. The passenger will present the necessary information to the agent, kiosk interface or Interactive Voice Response (IVR) system for the booking to be retrieved from the departure control system. Information from the customer service system and the frequent flyer application has been consolidated into the data warehouse. Business intelligence and data mining tools have categorized the passenger as a “valuable customer” with a predicted high lifetime value. In addition, the customer service system contains a report that the passenger recently traveled on a long-haul sector in a seat with a broken in-flight entertainment system. Extracts from the data warehouse are replicated in an online customer database designed specifically to support the decision systems in real-time. At the time of check-in the passenger’s identity is passed to the decision systems to identify any “special” action which needs to be taken. Due to the status of the passenger and in recognition of the customer services incident, it is decided that the passenger should be upgraded to first class. The decision system will automatically implement the upgrade via the departure control system and generate a prompt to explain why. At the time of check-in the passenger is automatically upgraded to first class and is given the reason, either verbally by the check-in agent, as a
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prompt on the kiosk interface, or as a synthesized message generated by the IVR. To complete the customer service loop, a letter is automatically generated afterwards to apologize for the incident and reinforce the action taken. n a similar way, should the passenger use Italian as their first language, the automatic check-in processes can be personalized to communicate in Italian. A customer-centric approach can be built up around all customer contacts and transactions, not just those in service recovery. Now we want to see how the physical architecture of this system would be: A total CRM architecture of this type need not be implemented as a whole. CRM is a customer-centric approach to business rather than fixed solutions architecture. In any situation, operators will possess many of the components shown implemented in a variety of forms. Figure 2 depicts the generic architecture which will deliver the benefits of CRM through existing operational transactions. The generic architecture can be broken down into two discrete threads; the processing required to capture data from operational systems, building the data warehouse and adding value to that data through business intelligence; and the transaction system processing appropriate to the business function. An extract of key attributes from the data warehouse will be replicated into an online customer database to provide real-time access to customer information for rapid decision making. The operational transaction processing and the systems and channels which are involved will depend upon the process being supported. However, irruptive of the transactions being addressed, all channels should be coordinated by a common framework to establish consistency of experience, conduct and results. Implementation of the decision layer will also depend upon the nature of the business process being handled. Direct marketing processes may use a campaign management tool to provide this function, whereas other service recovery processes may use a series of triggers and stored procedures in the customer database.
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Figure 2: Physical Architecture
Process analysis – typical airline service operation
In this section, service blueprints of current pre-flight, in flight, and post flight processes for a typical airline operation are reviewed. Service blueprints of improved processes are proposed. Finally, a number of suggestions for improvements in an airline operation are also provided. The process blueprints (Figures 3-5) show the current processes at a high level from the customer booking a ticket, to picking up their luggage and exiting the terminal at their destination. Figure 3 shows service blueprint of the current pre-flight process where customers book their flights and at check-in, any luggage is tagged and a receipt provided to the customer. The luggage is loaded as passengers board the plane. Figure 4 is a service blueprint of current in flight process showing activities involved as part of take off, the flight itself and landing. We kept this at a fairly high level, as our
9
intention was to focus on the baggage handling process itself rather than other service processes. Figure 5 shows service blueprint of the current postflight process. Customers de-plane and make their way to the baggage claim area and wait for their luggage to be loaded onto carousels to be retrieved. By moving towards a more dynamic, efficient system, the use of luggage handling personnel could be optimized (Figure 6). The process improvement starts at customer booking where they are asked if they intend to check luggage. This is not to force the customer into a decision but, to obtain forecasting information. This forecasting information should be weighed against historic patterns of luggage handling needs based on flight routes, seasonal changes plus any trending noted by the airline. Use of customer profiles will allow the airline to determine likely baggage handling needs (business customers are less likely to check luggage than a parent traveling with a child). As luggage is checked, it is tagged with a RFID or at minimum a bar coded tag (used today). As the luggage is loaded, the bar codes or RFIDs are scanned. This luggage inventory should be reconciled with the passenger list and this should be achievable as passengers boarding passes are also scanned as they board and should prevent most lost luggage. The final luggage load information is sent ahead to the destination airport to confirm any changes in expected luggage load (Figure 6). As luggage is unloaded and processed through the handling system, the RFID (or barcode) is used to update an electronic record of the location of the luggage. Passengers at the destination baggage area are able to scan their tags and see the current status of their luggage and expected wait times (reducing frustration and improving service). This process could be taken a step further to ensure that no passenger leaves the terminal unless they also have the luggage claim ticket but, unless RFID are in use, this would add time into the process during a stage when passengers just really want to get on with their travel. Again, through the use of coupons for future fares for those who are able to travel without the need for checked luggage, the airlines may have
10
excess cargo capacity which can be used for transporting freight or postal packages and may also allow additional services to be offered.
Figure 3 Current process (pre-flight) Figure 4 Current process (in-flight) Figure 5. Current process (post-flight) Figure 6 Proposed process (pre-flight) Figure 7. Proposed process (post-flight)
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The benefit of CRM application to the airline industry
A vexing question for a number of airlines is how much value does customer relationship management, or CRM, really deliver to the bottom line and how does an airline go about getting it? While this question remains unanswered, many skeptical senior managers will continue to pay lip service the strategic importance of a customer-centric perspective and will continue with business as usual. Applied Technologies Group's investigation of 17 world-class airlines has clear indicated that significant revenue improvements of 0.9 and 2.4% are achievable This revenue increase comes from three areas: • Re-attracting defected customers, which accounts for between 0.1 and 0.3% of revenues; • Increasing the share of a customer's travel wallet, which accounts for 0.3 and 1.2% of revenues; • Acquiring new customers, this accounts for approximately 0.05% of revenues. Naturally, associated with these revenues are costs, but this only amount between 0.3 and 0.6% of the existing cost base: • The marginal additional flights needed as incentives estimated to be between 0.2 and
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0.4% of costs; • Additional CRM initiatives amounting to between 0.2 and 0.5% of costs. Savings in costs due to more efficient and targeted running of the existing CRM program, providing a reduction of 0.1 to 0.3% of costs; As stated above, the bottom line impact of CRM is significant, but varies according to the airline implementing the initiatives. The range estimates are: • For a large airline: $100-$250 million per year; • For a midsize airline: $25-$60 million per year; • For a smaller airline: $15-$50 million per year. There are many benefits to be gained for airlines and airline passengers, firstly, passengers could book and check in through internet 24 hours, 7 days a week, at anytime, anywhere. Secondly, airlines could reduce sales cost. American Southwest Airlines CEO, Gary Kelly said the Web site is playing a major role in mitigating the rise in unit costs affected by high fuel prices. It's 10 times cheaper to deliver to customers through the online service than through a travel agent, Kelly said, and costs 5 times less than using Southwest's own reservation staff. The booking cost per passenger online is "well under $1," said Kelly, and is scaling down even further. He said Internet use by passengers was helping the carrier keep fares at low discount levels. Massive investment in both business-to-business (B2B) and business-tocustomer (B2C) information systems is expected to translate into important cost savings in procurement, sales, billing and other support activities. The airline's fully automatic ordering system, for example, should reduce order processing costs by 90%, according to Chairman/CEO Jorgen Weber of Lufthansa Aviation Group. Customers enjoy personal treatment, together
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with appropriate advice on getting the best out of their purchases. The airline may also put customers in touch with others with whom they have similarities, for example by inviting them to meetings. For the airlines implementing CRM, it becomes possible to single out customers who are profitable, gaining an understanding of their preferences to improve retention and increase the volumes sold. These valuable customers can become advocates for the airline and its products. Finally, CRM helps an airline to build loyalty. Because it is a marketing truism that it costs five times more to generate new customers than it does to retain existing ones, that is a compelling argument. With e-CRM, airlines can increase sales and customer loyalty. This strategy can improve sales effectiveness, bring higher value to all of airline's key business relationships, help airline to understand what each client relationship is truly worth, develop and reinforce a consistent experience for customers, improve management effectiveness, improve tactical and strategic planning, respond faster to competitive challenges, use critical resources more efficiently, and reduce administrative burdens and overall cost. Finally the aim of airline CRM has been listed as bellow: •
• • • •
Improve your ability to gain and regain customers Improve your brand and image Increase the loyalty of your customers Reduce your costs Introduce change management processes
Operationalizing the Customer Focused Enterprise
The Methodology, as illustrated below, focuses on five key interlinked elements for implementing a successful CRM initiative.
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A. CRM Value Case for Change summarizes “Why?” The Value case helps airlines develop a business case around the CRM initiatives that spans across the multiple customer touch points. It develops a metric based approach which becomes critical to tracing strategy through to implementation and back again. B. CRM Value Proposition helps in defining the specific strategies around the initiatives by doing in depth analysis using proven tools such as moment of truth analysis, touch point mapping that create value for all the stakeholders in the CRM equation including passengers, employees and partners. It also considers the imperatives which are important for business success such as competitive threats, financial pressures or new opportunities. C. CRM Operating Model is the end-state operational blueprint of the CRM program. This includes determining what will be the specific passenger experiences, how an airline will deploy resources, how new technologies and infrastructure will be built, how new processes will be designed and creating a comprehensive strategy for managing a change. D. Multi-Generation Roadmap turns the blueprint into a prioritized, sequence of time-fixed work streams that are implemented at a rate that the airline can handle and manage successfully. This defines customer initiatives into projects that contribute value and ROI on their own as well as build toward long term vision. E. Sponsorship, Change Management and Governance is an ongoing process of managing the program to deliver its objectives and aligning the stakeholders to the process and the outcome. It seeks to build support for
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CRM initiatives to ensure that projects and transformations are measured and directed towards their goals. Using the approach to prioritize resources according to the impact of particular customer interactions, airlines can build achievable operational models that create customer advocates.
Tools and techniques used in Airline CRM
In the airline industry, data analysis and data mining are a prerequisite to push customer relationship management (CRM) ahead. Knowledge about data mining methods, marketing strategies and airline business processes has to be combined to successfully implement CRM. Data mining is very useful to support CRM in the airline industry. In an initial phase of CRM, customer segments based on individual patterns are found that it describes groups of customers with distinct needs and value. The segmentation results are very useful for marketing concerns and for improving customer services. For instance, the derived strategic segments can be used to derive some high-level business strategies and to perform tactical marketing actions, respectively. By exploiting data mining the customer value can be improved while considering operational costs in assessing a flight segment. There is an accounting system, where all kinds of costs (e.g. operational costs as well as overhead costs) are gathered. The information is available for each single flight leg, but it is rather difficult to give a sensible breakdown to single passenger’s costs. Members of the frequent flyer program are only one part of airlines customer. A further task is to find strategies to bundle information about flight activities of all customers. The gained information can also be used to identify future potential customers beyond prospects. One of the
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other applications of data mining in airline business is to work for developing a monitoring system, which is able to identify trends within customer segments, to discover outliers and to control the quality of the segmentation model. This is necessary, since customer behavior is strongly influence by exogenous factors.
Analysis and Conclusion
The airline industry has reached a crossroad. While on one hand fuel and labour costs continue to be key issues, the phenomenal growth in passenger traffic has created new opportunities for growth. In this highly competitive industry, while operational efficiency helps reduce costs, customer satisfaction is the key to market leadership and sustained profitability in the long term. Airlines have realized the importance of having happy customers and are therefore focusing on customer relationship management (CRM) as a tool for managing customer relationships. Unfortunately, in many cases, they have failed to recognize CRM as a holistic strategy, instead viewing it as synonymous with their frequent flyer programs. In order to manage the customer more effectively across all lines of service, airlines must change their approach to CRM in a number of ways: • Customer segmentation—Airlines need to recognize that mileage-based segmentation is inadequate, whereas value-based and needs-based approaches can help guide investment decisions and drive greater insight into the needs of high-value customers. • CRM initiative development—In order to differentiate themselves from the competition, airlines must abandon a “fast follower” approach to CRM
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initiative development, in favor of investing in initiatives with a high return, which respond to the needs and desires of their own customers. • Organizational design and management—Airlines need to instill a service mentality in their employees, empowering them with a complete view of the customer and clearly articulating the employee’s role in the CRM strategy.
By taking steps to implement a truly consumer-centric approach to relationship management, an airline will be better positioned to acquire, develop and retain high-value customers. Through the development and implementation of customer analytics and decision-support technologies, airlines can begin to use customer information not only to differentiate service levels based on customer value, but also to drive crucial operational decisions. In the end, an airline’s CRM program becomes a platform for achieving both near-term operational efficiency and long-term relationship management and growth.
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doc_664446526.doc
Customer Relationship management adopted in Aviation industry.The main objective of this report is to identify the challenges within the airline industry and suggest solutions which will frame the offerings for the industry.
KeyWords: Customer Acquisition, Customer Retention, Customer Development,e-CRM, Architecture of Airline
Contents
Contents..................................................................................................................... 1 Introduction:............................................................................................................... 1 Objective:................................................................................................................... 3 Methodology:.............................................................................................................. 3 Expectations from Airline CRM...................................................................................4 Physical Architecture of Airline CRM...........................................................................7 Process analysis – typical airline service operation....................................................9 The benefit of CRM application to the airline industry..............................................17 Operationalizing the Customer Focused Enterprise..................................................19 Tools and techniques used in Airline CRM................................................................21 Analysis and Conclusion...........................................................................................22
Introduction:
In the competitive travel industry, customer satisfaction no longer
guarantees customer loyalty. Deregulation, increased parity of products, the availability of new and diverse direct distribution channels, industry
1
alliances, and many other factors have combined to force operators in the Airline industry to focus on new differentiators in order to maintain current and develop greater market share. In response to this new environment, travel providers are undertaking initiatives centered on identifying, developing and retaining high-value customers, under the overall banner of customer relationship management or CRM.
One of the most important developments in the tourist industry is the growing attention for service quality from the customer’s perspective. This is the consequence of the increase of the degree of dominance of the customer in the service process. This degree of dominance is high if the customer can dictate his/her demands to the service provider and is low if the service organisation can dictate its demands. In the competitive travel industry, customer satisfaction no longer
guarantees customer loyalty. Deregulation, increased parity of products, the availability of new and diverse direct distribution channels, industry alliances, and many other factors have combined to force operators in the travel industry to focus on new differentiators in order to maintain current and develop greater marketshare. In response to this new environment, travel providers are undertaking initiatives centered on identifying, developing and retaining high-value customers, under the overall banner of customer relationship management or CRM. The overall strategic business objective of CRM is to build loyal customer relationships, where companies can anticipate their customers’ needs and use information to personalize relationships, providing customers with confidence and trust in their dealings with the organization. Under this overall strategy, CRM translates into a multitude of specific projects or tactics, ranging from introducing new, diverse distribution channels aligned
2
with people’s changing lifestyles, to understanding customer value and using this to prioritize marketing and service resources. CRM focuses on three imperatives of customer relationships: • Customer acquisition –Who are the profitable customers and how do we attract them? • Customer development – How do we deliver what the customer wants, how they want it, when they want it to optimize profits and revenue? • Customer retention – How do we build and sustain customer loyalty?
Objective:
The main objective of this study is to see the new challenges with in the travel industry and suggest the solutions blueprint which frames the offerings for air/travel industry. The blueprint would consist of a functional architecture, solution components, a technical framework, and methodology. Also to provide a managerially useful, end-to-end view of the CRM process for airline Industry. The basic perspective is taken is from customer needs and what do managers need to know about their customers and how that information is used to develop a complete Airline CRM perspective.
Methodology:
The study would be a secondary research by analyzing various practices carried out currently in the industry through various articles and papers and
3
then suggesting a service blueprint for implementing effective CRM practices for the same.
Expectations from Airline CRM
We all know that airline's success depends heavily on its ability to intelligently manage sales, marketing, and service processes and to draw mutual advantages from understanding of airline's customers. To help airline maximize the strategic value of customer centric initiatives, Airline e-CRM model provides a comprehensive analytical solution, it can contribute toward improving the way that measure and optimize airline's relationships with customers. Airline e-CRM model can be conceptualized as a system that is made up of components, linkages amongst the components, and dynamics that takes advantage of the properties of the Internet and relationship to make money. It takes advantage of the properties of the Internet in the way it builds each of the components-value, scope, revenue sources, pricing, connected activities, implementation, capabilities, sustainability and crafts the linkages among these components. It is what, preferably, enables an airline to have a sustainable competitive advantage. It includes three components (subsystem): Web Base Airline-Passenger Interaction subsystem; Airline Data Warehouse subsystem; and Airline e-CRM operation subsystem. Airline e-CRM model is an asset-based solution that includes best-of-breed components to build an e-CRM infrastructure and enable anychannel, any-time communication with customers. At the heart of this offering is the CRM Foundation, which includes the CRM data model, starter set of CRM queries, reports and analysis, sample data, a demonstration prototype, data utilities and scripts, and comprehensive documentation that covers implementation guidelines, business perspective and analysis guidelines, system components, data model descriptions, and use and customization guidelines.
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Since managing customer interactions is a vital piece of the e-CRM puzzle, planning and implementing a Multi-Channel Interaction Management solution with the other subsystems and enterprise solutions is crucial. Without Interaction Management, the puzzle remains incomplete. Interaction Management is the foundation for evolving customer service into customer satisfaction by tying together all customer data - no matter where it is located within the enterprise. Making this information easily and quickly accessible to the customer management process, and ensuring each customer is handled in the most efficient and effective way possible is the ultimate result of a well-defined and deployed strategy and solution.
Airline e-CRM model: • Provides an understanding of customer behavior and enables airlines to measure results of marketing and merchandising changes. • Supports more effective promotions through integration of data between marketing and merchandising users. • Provides a single view of customers across the enterprise and across contact points. • Gives airlines the ability to respond more dynamically and quickly to market demands.
5
Figure 1: CRM Architecture for a major scheduled Airline
Significance derived from airline e-CRM implementation will allow for new ebusiness model, based on the wide availability of information and its direct distribution to end-customers. • Directly connect airlines and passengers. • Support fully digital information exchange between airlines and customers, reduced cost of a customer contact. • Suppress time and place limits. • Support interactivity and therefore can dynamically adapt to customer behaviors.
6
• To be able to satisfy customers' need, build customer confidence and retention. • Can be updated in real-time, therefore always up-to-date. • Enhance airlines competitive advantages over its rivals. • Profitable and sustainable revenue growth.
Physical Architecture of Airline CRM
An airline passenger may check in through one of three contact media– telephone, kiosk, or face-to-face at a check-in desk. Whichever channel is selected, the process will be identical. The passenger will present the necessary information to the agent, kiosk interface or Interactive Voice Response (IVR) system for the booking to be retrieved from the departure control system. Information from the customer service system and the frequent flyer application has been consolidated into the data warehouse. Business intelligence and data mining tools have categorized the passenger as a “valuable customer” with a predicted high lifetime value. In addition, the customer service system contains a report that the passenger recently traveled on a long-haul sector in a seat with a broken in-flight entertainment system. Extracts from the data warehouse are replicated in an online customer database designed specifically to support the decision systems in real-time. At the time of check-in the passenger’s identity is passed to the decision systems to identify any “special” action which needs to be taken. Due to the status of the passenger and in recognition of the customer services incident, it is decided that the passenger should be upgraded to first class. The decision system will automatically implement the upgrade via the departure control system and generate a prompt to explain why. At the time of check-in the passenger is automatically upgraded to first class and is given the reason, either verbally by the check-in agent, as a
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prompt on the kiosk interface, or as a synthesized message generated by the IVR. To complete the customer service loop, a letter is automatically generated afterwards to apologize for the incident and reinforce the action taken. n a similar way, should the passenger use Italian as their first language, the automatic check-in processes can be personalized to communicate in Italian. A customer-centric approach can be built up around all customer contacts and transactions, not just those in service recovery. Now we want to see how the physical architecture of this system would be: A total CRM architecture of this type need not be implemented as a whole. CRM is a customer-centric approach to business rather than fixed solutions architecture. In any situation, operators will possess many of the components shown implemented in a variety of forms. Figure 2 depicts the generic architecture which will deliver the benefits of CRM through existing operational transactions. The generic architecture can be broken down into two discrete threads; the processing required to capture data from operational systems, building the data warehouse and adding value to that data through business intelligence; and the transaction system processing appropriate to the business function. An extract of key attributes from the data warehouse will be replicated into an online customer database to provide real-time access to customer information for rapid decision making. The operational transaction processing and the systems and channels which are involved will depend upon the process being supported. However, irruptive of the transactions being addressed, all channels should be coordinated by a common framework to establish consistency of experience, conduct and results. Implementation of the decision layer will also depend upon the nature of the business process being handled. Direct marketing processes may use a campaign management tool to provide this function, whereas other service recovery processes may use a series of triggers and stored procedures in the customer database.
8
Figure 2: Physical Architecture
Process analysis – typical airline service operation
In this section, service blueprints of current pre-flight, in flight, and post flight processes for a typical airline operation are reviewed. Service blueprints of improved processes are proposed. Finally, a number of suggestions for improvements in an airline operation are also provided. The process blueprints (Figures 3-5) show the current processes at a high level from the customer booking a ticket, to picking up their luggage and exiting the terminal at their destination. Figure 3 shows service blueprint of the current pre-flight process where customers book their flights and at check-in, any luggage is tagged and a receipt provided to the customer. The luggage is loaded as passengers board the plane. Figure 4 is a service blueprint of current in flight process showing activities involved as part of take off, the flight itself and landing. We kept this at a fairly high level, as our
9
intention was to focus on the baggage handling process itself rather than other service processes. Figure 5 shows service blueprint of the current postflight process. Customers de-plane and make their way to the baggage claim area and wait for their luggage to be loaded onto carousels to be retrieved. By moving towards a more dynamic, efficient system, the use of luggage handling personnel could be optimized (Figure 6). The process improvement starts at customer booking where they are asked if they intend to check luggage. This is not to force the customer into a decision but, to obtain forecasting information. This forecasting information should be weighed against historic patterns of luggage handling needs based on flight routes, seasonal changes plus any trending noted by the airline. Use of customer profiles will allow the airline to determine likely baggage handling needs (business customers are less likely to check luggage than a parent traveling with a child). As luggage is checked, it is tagged with a RFID or at minimum a bar coded tag (used today). As the luggage is loaded, the bar codes or RFIDs are scanned. This luggage inventory should be reconciled with the passenger list and this should be achievable as passengers boarding passes are also scanned as they board and should prevent most lost luggage. The final luggage load information is sent ahead to the destination airport to confirm any changes in expected luggage load (Figure 6). As luggage is unloaded and processed through the handling system, the RFID (or barcode) is used to update an electronic record of the location of the luggage. Passengers at the destination baggage area are able to scan their tags and see the current status of their luggage and expected wait times (reducing frustration and improving service). This process could be taken a step further to ensure that no passenger leaves the terminal unless they also have the luggage claim ticket but, unless RFID are in use, this would add time into the process during a stage when passengers just really want to get on with their travel. Again, through the use of coupons for future fares for those who are able to travel without the need for checked luggage, the airlines may have
10
excess cargo capacity which can be used for transporting freight or postal packages and may also allow additional services to be offered.
Figure 3 Current process (pre-flight) Figure 4 Current process (in-flight) Figure 5. Current process (post-flight) Figure 6 Proposed process (pre-flight) Figure 7. Proposed process (post-flight)
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The benefit of CRM application to the airline industry
A vexing question for a number of airlines is how much value does customer relationship management, or CRM, really deliver to the bottom line and how does an airline go about getting it? While this question remains unanswered, many skeptical senior managers will continue to pay lip service the strategic importance of a customer-centric perspective and will continue with business as usual. Applied Technologies Group's investigation of 17 world-class airlines has clear indicated that significant revenue improvements of 0.9 and 2.4% are achievable This revenue increase comes from three areas: • Re-attracting defected customers, which accounts for between 0.1 and 0.3% of revenues; • Increasing the share of a customer's travel wallet, which accounts for 0.3 and 1.2% of revenues; • Acquiring new customers, this accounts for approximately 0.05% of revenues. Naturally, associated with these revenues are costs, but this only amount between 0.3 and 0.6% of the existing cost base: • The marginal additional flights needed as incentives estimated to be between 0.2 and
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0.4% of costs; • Additional CRM initiatives amounting to between 0.2 and 0.5% of costs. Savings in costs due to more efficient and targeted running of the existing CRM program, providing a reduction of 0.1 to 0.3% of costs; As stated above, the bottom line impact of CRM is significant, but varies according to the airline implementing the initiatives. The range estimates are: • For a large airline: $100-$250 million per year; • For a midsize airline: $25-$60 million per year; • For a smaller airline: $15-$50 million per year. There are many benefits to be gained for airlines and airline passengers, firstly, passengers could book and check in through internet 24 hours, 7 days a week, at anytime, anywhere. Secondly, airlines could reduce sales cost. American Southwest Airlines CEO, Gary Kelly said the Web site is playing a major role in mitigating the rise in unit costs affected by high fuel prices. It's 10 times cheaper to deliver to customers through the online service than through a travel agent, Kelly said, and costs 5 times less than using Southwest's own reservation staff. The booking cost per passenger online is "well under $1," said Kelly, and is scaling down even further. He said Internet use by passengers was helping the carrier keep fares at low discount levels. Massive investment in both business-to-business (B2B) and business-tocustomer (B2C) information systems is expected to translate into important cost savings in procurement, sales, billing and other support activities. The airline's fully automatic ordering system, for example, should reduce order processing costs by 90%, according to Chairman/CEO Jorgen Weber of Lufthansa Aviation Group. Customers enjoy personal treatment, together
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with appropriate advice on getting the best out of their purchases. The airline may also put customers in touch with others with whom they have similarities, for example by inviting them to meetings. For the airlines implementing CRM, it becomes possible to single out customers who are profitable, gaining an understanding of their preferences to improve retention and increase the volumes sold. These valuable customers can become advocates for the airline and its products. Finally, CRM helps an airline to build loyalty. Because it is a marketing truism that it costs five times more to generate new customers than it does to retain existing ones, that is a compelling argument. With e-CRM, airlines can increase sales and customer loyalty. This strategy can improve sales effectiveness, bring higher value to all of airline's key business relationships, help airline to understand what each client relationship is truly worth, develop and reinforce a consistent experience for customers, improve management effectiveness, improve tactical and strategic planning, respond faster to competitive challenges, use critical resources more efficiently, and reduce administrative burdens and overall cost. Finally the aim of airline CRM has been listed as bellow: •
• • • •
Improve your ability to gain and regain customers Improve your brand and image Increase the loyalty of your customers Reduce your costs Introduce change management processes
Operationalizing the Customer Focused Enterprise
The Methodology, as illustrated below, focuses on five key interlinked elements for implementing a successful CRM initiative.
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A. CRM Value Case for Change summarizes “Why?” The Value case helps airlines develop a business case around the CRM initiatives that spans across the multiple customer touch points. It develops a metric based approach which becomes critical to tracing strategy through to implementation and back again. B. CRM Value Proposition helps in defining the specific strategies around the initiatives by doing in depth analysis using proven tools such as moment of truth analysis, touch point mapping that create value for all the stakeholders in the CRM equation including passengers, employees and partners. It also considers the imperatives which are important for business success such as competitive threats, financial pressures or new opportunities. C. CRM Operating Model is the end-state operational blueprint of the CRM program. This includes determining what will be the specific passenger experiences, how an airline will deploy resources, how new technologies and infrastructure will be built, how new processes will be designed and creating a comprehensive strategy for managing a change. D. Multi-Generation Roadmap turns the blueprint into a prioritized, sequence of time-fixed work streams that are implemented at a rate that the airline can handle and manage successfully. This defines customer initiatives into projects that contribute value and ROI on their own as well as build toward long term vision. E. Sponsorship, Change Management and Governance is an ongoing process of managing the program to deliver its objectives and aligning the stakeholders to the process and the outcome. It seeks to build support for
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CRM initiatives to ensure that projects and transformations are measured and directed towards their goals. Using the approach to prioritize resources according to the impact of particular customer interactions, airlines can build achievable operational models that create customer advocates.
Tools and techniques used in Airline CRM
In the airline industry, data analysis and data mining are a prerequisite to push customer relationship management (CRM) ahead. Knowledge about data mining methods, marketing strategies and airline business processes has to be combined to successfully implement CRM. Data mining is very useful to support CRM in the airline industry. In an initial phase of CRM, customer segments based on individual patterns are found that it describes groups of customers with distinct needs and value. The segmentation results are very useful for marketing concerns and for improving customer services. For instance, the derived strategic segments can be used to derive some high-level business strategies and to perform tactical marketing actions, respectively. By exploiting data mining the customer value can be improved while considering operational costs in assessing a flight segment. There is an accounting system, where all kinds of costs (e.g. operational costs as well as overhead costs) are gathered. The information is available for each single flight leg, but it is rather difficult to give a sensible breakdown to single passenger’s costs. Members of the frequent flyer program are only one part of airlines customer. A further task is to find strategies to bundle information about flight activities of all customers. The gained information can also be used to identify future potential customers beyond prospects. One of the
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other applications of data mining in airline business is to work for developing a monitoring system, which is able to identify trends within customer segments, to discover outliers and to control the quality of the segmentation model. This is necessary, since customer behavior is strongly influence by exogenous factors.
Analysis and Conclusion
The airline industry has reached a crossroad. While on one hand fuel and labour costs continue to be key issues, the phenomenal growth in passenger traffic has created new opportunities for growth. In this highly competitive industry, while operational efficiency helps reduce costs, customer satisfaction is the key to market leadership and sustained profitability in the long term. Airlines have realized the importance of having happy customers and are therefore focusing on customer relationship management (CRM) as a tool for managing customer relationships. Unfortunately, in many cases, they have failed to recognize CRM as a holistic strategy, instead viewing it as synonymous with their frequent flyer programs. In order to manage the customer more effectively across all lines of service, airlines must change their approach to CRM in a number of ways: • Customer segmentation—Airlines need to recognize that mileage-based segmentation is inadequate, whereas value-based and needs-based approaches can help guide investment decisions and drive greater insight into the needs of high-value customers. • CRM initiative development—In order to differentiate themselves from the competition, airlines must abandon a “fast follower” approach to CRM
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initiative development, in favor of investing in initiatives with a high return, which respond to the needs and desires of their own customers. • Organizational design and management—Airlines need to instill a service mentality in their employees, empowering them with a complete view of the customer and clearly articulating the employee’s role in the CRM strategy.
By taking steps to implement a truly consumer-centric approach to relationship management, an airline will be better positioned to acquire, develop and retain high-value customers. Through the development and implementation of customer analytics and decision-support technologies, airlines can begin to use customer information not only to differentiate service levels based on customer value, but also to drive crucial operational decisions. In the end, an airline’s CRM program becomes a platform for achieving both near-term operational efficiency and long-term relationship management and growth.
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