Finding Loyalty

January 21, 2010 by Yuval Brisker

My piece “Finding Loyalty” discussing the idea of reducing churn in the telecom space by establishing loyalty programs was published in 1to1 Media today.

Here it is in its entirety:

Finding Loyalty

Telecoms should take a lesson from airlines on using loyal programs to increase customer retention.

Retaining customers is hard work. It takes inspired thinking, creative programs, and a special attitude.

Take the airline industry, for example.  Flying is fairly generic: Consumers want to go from point A to point B at a certain date and time in a reliable plane, and they want to do it for the best price available. That’s all. Logically, there is no real reason for even a frequent flyer to repeatedly choose one carrier over the other except for price and quality of service. A natural incentive for long-term loyalty to any individual carrier does not actually exist.

When consumers can just search the mainstream market on the Net, find the cheapest option, and buy a ticket, how do airlines gain loyalty? About 25 years ago they found an ingenious way to secure recurring, high-value customers to their specific airlines. The tether? An ever-tightening web of incentives via frequent flyer miles. Frequent flyer programs create the missing link of long-term loyalty that is so strong people will go out of their way to fly with a certain carrier — even if it sometimes means paying a little more or taking a slightly longer route. Even the most sophisticated or travel-weary road warriors (like me) find themselves gravitating towards the option that gets them more miles or points.

In fact, these programs have become more sophisticated over time: adding complex relationships between other vendors, interlinking with other industries, creating tiered status, etc. In the past decade global partnerships such as Star Alliance, Sky Team, and One World have redrawn the shape of the airline industry and the consumer experience, while continuing to increase loyalty to one alliance over the other.

These programs are an unequivocal success. As a frequent traveler myself, I’ve become less and less inclined to look elsewhere as I’ve gained miles and status on one specific airline. Now that I’ve hitched my wagon to an airline and its respective alliances, it’s a self-perpetuating, auto-motivating dynamic to keep coming back for more. I’m upgraded from the general passengers, given perks and freebies, and pampered just enough to make me want more and to stay.

Telecommunications companies are in a similar situation to airlines 25 years ago. So why haven’t they seen the light of loyalty programs?

Broadband, cable, phone, Internet, and video companies have all the conditions to work aggressively and creatively to find ways to increase loyalty among current customers. In a way, they have far more incentive to do so than airlines. Wireless phone, cable/broadband, and satellite companies all have customers making a monthly choice to use their service. What a valuable asset.  In fact, it’s one of the world’s most ideal business models: long-term visibility and a solid revenue stream that can grow with new services and new content. As long as you can keep the customer!

The biggest threat for these providers is customer churn. Subscribers are tempted to switch to another provider for a variety of reasons. It’s human nature to move on, to believe the grass is greener on the other side of the fence, to wonder if the newest of the new is better than what they currently have. Or to just grab the latest deal. Everyone wants something faster, newer, cheaper, better. But service providers seem out of touch.

Aside from reducing prices or pushing promotional incentives with the goal of poaching each other’s customers, these telecommunications and providers still can’t see what’s right in front of their noses. In fact, everyone knows that customer retention is the most important thing a business can achieve. And yet telco service providers have not figured out what the airlines already know: the enticement of tangible and sometimes intangible future benefits, combined with good service at a good price, engenders brand loyalty.

If a cable company treated its long- term loyal customers as well as British Airways does, they would have a completely new tier of loyal customers and advocates.

A subscriber willing to spend $1,200 a year for 10 years is immensely valuable. Why not treat that loyalty with a long-term customer loyalty program? For example, a cable provider could offer every customer who has been paying loyally for 18 months or longer a free or reduced month of service. Create a tiered status of subscribers that rewards both loyalty and spending habits, and cross-pollinate these rewards with other loyalty programs and perks.

If the carriers took that simple lesson from the airlines’ playbook, they would ultimately save billions on marketing and promotional costs to lure (read: buy) customers back. Plus, they would get a much better word-of-mouth buzz about their customer service.  As we know: loyalty breeds loyalty.