What Retailers Can Learn About Customer Retention From the Latest Airline Mega Merger
Any retailer that's been in business for five minutes knows that a loyal customer is far more valuable than a churner. Yet, an unfortunate fact of entrepreneurial life is that most businesses see half their customers change in five years, according to Fred Reichheld's "The Loyalty Effect." Engaging a new customer is more expensive, costing a whopping seven times more than retaining an existing one.
When customers leave at such an alarming rate, companies lose value on an asset that's expensive to acquire. The good news is this trend isn't inevitable. Companies can increase retention rates by using marketing data to expand meaningful offers to best customers and by delivering relevant communications via customers’ preferred channels. By these same means, companies can raise their chances of holding onto customers even after a product or service mishap, a sign of true loyalty.
The recent merger between American Airlines and US Airways shapes up as a classic customer retention case study that transcends the aviation industry. Among other challenges, the airlines must manage merging their frequent flyer programs to satisfy 100 million members — the world's largest customer loyalty program.
History shows that airlines suffer growing pains during mergers, so flight delays, untracked miles and lost luggage may be inevitable, testing the patience of even the most loyal customers. Meanwhile, rival air carriers will be circling the territory, waiting to pick up any discontented travelers.
Savvy retailers have an opportunity to learn valuable customer retention lessons by observing the American and US Airways marriage. The airlines’ early decisions in the merger process will set the tone for how the customer experience will be post-merger. Those decisions have the potential to distinguish the merged company from its competitors.
In what would be a positive first step, American and US Airways should make frequent flyer miles go further. They should transform American's AAdvantage and US Airway's Dividend Miles to include additional forms of reward currency that expand redemption options for members.