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How Predictive Analytics Elevate Airlines’ Customer Centricity and Competitive Advantage

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Learn about the customercentric lessons and insights airlines have used based on predictive analytics to aquire new customers and overcome the competition.

Learn about the customercentric lessons and insights airlines have used based on predictive analytics to aquire new customers and overcome the competition.

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  • 1. • Cognizant 20-20 InsightsHow Predictive Analytics ElevateAirlines’ Customer Centricity andCompetitive Advantage Executive Summary can play in enabling carriers to make timely, meaningful and relevant offers that drive The unbundling of rate structures and ancillary deeper loyalty and engagement among existing services, combined with escalating demands of customers, as well as ways airlines can apply the the “always connected” consumer, have made insights gleaned from predictive analytics to not the similarities between airlines and retail more only acquire new customers but also to outma- significant than ever. Retail and airline customers neuver the competition. are influenced by many of the same factors. The two are increasingly comparing and contrasting Customer Centricity Lessons products and researching their options before from Retail making purchases. Both are looking for inspira- tion to buy through many channels, such as online It is a fact of business that most companies and physical world promotions and coupons, bend over backwards trying to attract new cus- social media and input from friends. Additionally, tomers, often expending a lion’s share of their retail and airline customers are both seeking the resources. What some don’t realize is that while best value and have high expectations for the they are busy ushering new clientele through the products and services they purchase. front door, more valuable customers are walking unnoticed out the back door. This oversight leads Through advancements in technology and to a significant impact to a company’s bottom the proliferation of the Internet, more data is line. Consider that 81% of companies with strong available to be harnessed by airlines, delivering capabilities and competencies for delivering cus- a more tailored offering that spans the traveler’s tomer experience excellence outperform the entire journey. This includes not only transpor- competition, according to a study by Peppers & tation from one destination to another, but also Rogers.1 opportunities to sell more travel-related products, such as convenience- and entertainment-based Loyal customers are truly the backbone of any offerings. It also democratizes information, successful business, given the high percentage of making it easy for customers to make more revenue derived from them. It costs significantly informed, personalized purchase decisions. more to acquire a new customer than to retain an existing one. For this reason, many retailers have This white paper lays out customer centricity shifted to a customer-centric business model, lessons that airlines can apply to their business. focusing on individual customer needs and buying It also explores the role that predictive analytics patterns. They have discovered that understand- cognizant 20-20 insights | august 2011
  • 2. ing customer behavior is critical to building and analytics, to better understand the varying needs maintaining true customer loyalty. That under- of their customers. Predictive analytics is a form standing begins with data analysis. Once data is of statistical analysis that is used in predicting captured and analyzed, the retailer develops a behavioral patterns to shape business decisions, strategy to focus on its most profitable custom- forecast trends and ultimately improve perfor- ers. Retailers build retention mance. Instead of looking backward to analyze Understanding strategies to keep these “best” “what happened,” predictive analytics help customer behavior customers highly engaged and answer the question, “what’s next?” and “what should we do about it?”is critical to building loyal. Additionally, these strat- egies are designed to driveand maintaining true more customers to behave like Predictive analytics is applied in many ways to help businesses make well-informed decisions at a customer loyalty. “best customers.” micro level. The core difference from one mode of One example from retail that illustrates the application to another is what’s being predicted. power of leveraging data to become more custom- Whether predicting customer response, traffic er-centric is Best Buy. When Best Buy determined patterns or defection, each require different that 7% of its customers were responsible for models and deliver business value in different 43% of its sales, the company segmented its ways. customers into several archetypes and redesigned stores to cater to the buying habits of these Predictive customer analytics is also quite particular customer groups, thereby enhancing different from forecasting. For instance, fore- the in-store experience and increasing same-store casting might estimate the total number of seats sales by 8.4%.2 that will be sold on a given flight, while predictive analytics tells you which customer archetypes are Most airlines have strong likely to book those flights. The actuarial methods Forecasting might loyalty programs that bind utilized by insurance companies perform the very same function as predictive models: rating estimate the total their best customersthe same them returning to and keep customers by the chance of positive or negative number of seats carrier. These loyalty programs outcome. However, predictive modeling improves that will be sold on are so powerful that they have on standard actuarial methods by incorporating additional analytical automation and by general- a given flight, while become for many airlines. The strategy the sole retention izing to a broader set of customer variables. predictive analytics “stickiness” of these programs tells you which has allowed airlines to focus Using Predictive Analytics to Deepen Customer Engagementindividual customers largely on revenue optimiza- tion and airline operations, and Today, predictive analytics is primarily used by are likely to book less on customer satisfaction. companies with a strong customer focus, such those flights. However, with the changing as retail, financial, communication and marketing dynamics of the airline organizations. It enables these companies to industry, competing airline loyalty programs (such determine relationships among internal factors as credit card programs that offer travel benefits such as price, product positioning or staff skills, as with any carrier) and the change in customer well as the external factors of economic indicators, behavior (including the use of technology to competition and customer demographics. It also research and engage their social networks), it allows them to determine the impact on sales, is time for airlines to begin differentiating their customer satisfaction and corporate profits. A customer acquisition and retention strategies by company can use information from a variety of becoming more customer-centric. They need to customer sources (e.g., spend history, comment learn from the retail handbook. cards or surveys, online browsing history, call center interactions, etc.) to create, among other Predictive Analytics is the Key things, targeted promotions and personalized to Becoming Customer-Centric interactions. How is it that so many retailers are able to turn data about the buying habits and patterns of their Netflix, for example, has gained a leadership customers into actionable insights? For years, position in the video rental business by predicting they have been using data analysis techniques the changing needs and desires of its customers like data mining, as well as applying predictive and being first to market with a customer-centric cognizant 20-20 insights 2
  • 3. solution. In addition to introducing products that erential treatment, but it is also about intimacyaddress customer desires, such as video rentals and respect.with no late fees and digital video streaming,Netflix mines its video streaming/rental history While retaining customers is a top objective ofdatabase to provide personalized recommenda- many organizations, it can become costly totions to its customers. offer effective retention incentives, such as extremely rich blanket loyalty programs or dis-Not only does being customer-centric enable counted products. The advan-companies to gain market share by being more tage is really only attained Customers wantrelevant to their customers, but it can also help when the incentives are opti-them to reduce promotional expense by deliver- mized to drive the most prof- loyalty to be theiring the right messages and offers to customers at itable customer behaviors. choice based on eachthe right time. For example, we helped a leading For example, an airline should and every interaction,pharmaceutical company save 70% of promo- target the richest offers totional channel spend by leveraging an optimized customers who are most likely and they want tomultichannel approach. to defect. Many companies be recognized and simply can’t afford to deploy rewarded forUnfortunately, customer-centric business models an aggressive retention strat-have been slow to catch on in the airline indus- egy without knowing which their loyalty.try. When looking for new streams of revenue, customers are at highest riskmany airlines have resorted to increased fees of defecting vs. those likely to stay even withoutvs. introducing new value-added products or special treatment. This can be done with a highservices. And, with the exception of special degree of accuracy by using predictive analytics.treatment for some passengers with a high For example, we helped a major telecommunica-loyalty program status, airlines generally do not tions company predict customer defection withdifferentiate the way they treat individual cus- 80% accuracy. Our client was then able to drivetomers. For instance, airlines do little to dif- high customer retention through targeted reten-ferentiate between the business and leisure tion strategies.traveler, a first-time or seasoned traveler, anindividual or group of travelers. The needs of Another example is a major Becoming customereach of these types of travelers before, during airline that wants to increaseand after their flight, are very different. Where the price for a product or centric startsa business traveler might need connectivity introduce a fee. The airline with deliveringand speed of service, a leisure traveler’s needs realizes that some customers’ relevant offers,might be focused on in-flight entertainment, loyalty won’t be affected butconvenience and comfort. that others will likely defect or messages, products publicly criticize the change. and services toTo customers, airlines appear to be solely focused Predictive scoring can be customers, basedon getting the plane from point A to point B, and used to target a campaignthey feel like little more than a boarding pass with precisely and to identify which on their needs anda seat assignment. If an airline were to leverage customers are most likely to desires, preferredcustomer-centric predictive analytics, it would defect. By following these channels and theirbe able to identify opportunities to introduce predictions, an airline canproducts and services that customers desire and provide exemptions or special current situation orprovide the right offers and messages — through treatment for their most loyal, point in the journey.the right channels — to their customers through- profitable customers withoutout every step of the journey. leaving revenue on the table. The reverse logic applies when offering discounted fares or specialBuilding Customer Loyalty by Being offers. By applying predictive analytics, theCustomer Centric campaign’s return on investment is much greater,Airlines can improve the loyalty of their customers in terms of revenue growth and increased profits.by knowing who they are and what they want.Customers want loyalty to be their choice based Becoming customer centric starts with deliveringon each and every interaction, and they want to relevant offers, messages, products and servicesbe recognized and rewarded for their loyalty. This to customers, based on their needs and desires,recognition can take the form of deals and pref- preferred channels (e.g., live agent, Web site, cognizant 20-20 insights 3
  • 4. mobile device, tablet, social network, etc.) and collect with records of income, marital status, their current situation or point in the journey. home ownership and family income, enabling Through the application of a supervised learning them to make assumptions about the customer algorithm, we helped a travel operator identify (e.g., marital status, favorite restaurants, etc.). 20% more unique and loyal customers. The travel Using statistical analysis, they can start to make operator leveraged this data to build a customer assumptions about the preferences of individual engagement strategy that improved its return on Web surfers. investment by 145%. In other words, customers will respond to these cus- We helped a luxury retailer increase its recogni-Predictive analytics tomer-centric offerings by tion of online customers from 6% to 10%, which enabled the company to do more customer- provides a unique becoming more loyal to a centric marketing and preference segmentation. particular airline carrier. competitive Loyal customers are known Similarly, data can be used to lead customers to advantage and to deliver many advantages, buy based on their past travel behavior, specified preferences, social network, etc. Having insight can actually reveal including more frequent into a broad range of data also provides the purchases and a lower sensi- a competitor’s tivity to pricing. They will also means to target specific audiences and to adjust weaknesses before become ambassadors of their marketing programs quickly and efficiently for optimal results. it’s even aware favorite airline by spreading positive reviews through of them. their social networks about Meet Today’s Escalating Customer their travel experience. Expectations As the choice of travel options grows, and With the proliferation of social media sites, customers are empowered with more knowledge, such as Facebook and Twitter, the customer’s they have higher expectations. To keep up with voice has suddenly become louder, which only these demands, airlines must find new ways increases the importance of creating positive to enhance their products, prices, promotions, experiences that are buzz-worthy. In fact, it is operations and customer service. Predictive estimated that 52% of leisure travelers actively analytics can help determine how an airline use social media sites3 and that two in five U.S. should move forward by systematically learning online leisure travelers have friended, followed from organizational experience. Improvements or become a fan of a travel company or destina- delivered through analytical quality control, tion on a social networking site.4 Furthermore, reliability modeling, streamlined services and more than 50% of travelers say online ratings expedited application processing can all help influence their travel choice5 and that they are to identify customer needs and wants, thereby willing to pay more for products that have a enabling carriers to respond more quickly to meet four-star rating.6 The customer voice is power- escalating customer requirements. ful, and customer centric-solutions will help to turn customers into advocates. In the airline industry, for example, predictive modeling can assist in moving from mass Acquiring New Customers by Learning marketing to more personalized, targeted from Existing Customers campaigns and offers. It can also provide insights By using data about existing customers, predictive into where airlines are or are not meeting traveler analytics can help companies identify the ideal expectations. Rather than relying on intuition or customer profiles to target for acquisition, as well limited data (such as revenue forecasts or focus as the channels through which they might find groups) for pricing products, managing inventory prospective customers. For example, online travel or staffing, airlines can use predictive analytics companies know when customers are on their against customer and operational data to improve Web site. Through ubiquitous tracking devices efficiency, reduce risk and increase profits. used across the Internet, they are able to capture customer information before they even arrive at Beating the Competition Through the Web site, gaining insight into specific prefer- Customer Predictions ences of each one. Industry studies reveal why a “tougher competi- tive environment” is the strongest reason for They may or may not know the customer’s name, companies to adopt predictive analytics. To stay but they can cross-reference the data they competitive, airlines have to continuously change cognizant 20-20 insights 4
  • 5. and update their processes. Predictive analytics The world is changing, and the customer is inprovides a unique competitive advantage and can charge. Availability of choice, perceived benefitsactually reveal a competitor’s weaknesses before and personalized value are relevant factors, andit’s even aware of them. How is this possible? A if companies don’t learn about, understand andpredictive model uncovers more refined buying invest in their customers, they will be left behind.patterns and trends. Since this data includes sales,or lack thereof, from customers who are exposed A customer-centric company can benefit fromnot only to an airlines’ services and marketing increased sales and market share, as well as anbut also to those of its competitors, the modeling increase in customer retention. Additionally,process effectively distinguishes the micro-seg- investing in predictive analytics will contributements of customers who choose one airline from substantially to reducing the overall cost ofthose who choose another. Airlines can use this serving the customer. When an organizationmethod to identify where they — and, for that understands its customers, it can interpret theirmatter, their competitors — fall short. needs and what drives them to buy a particular product or service. This enables the company toWhere To Go From Here create offers that the customer needs or will beThis white paper discusses the importance of most likely to buy, thus reducing marketing andpredictive analytics and its role in the customer- operational costs.centric business model. Most airlines already have There is little doubt about the escalating sig-access to a great deal of customer data and travel nificance of predictive analytics to the airlinetrends; however, they don’t have the capabilities industry. Whether it is used to predict customerto take this information and analyze it in a way behavior, set promotion strategy, optimize adthat provides actionable customer insights. spending or manage risk, predictive analytics is moving to the top of the management agenda.Footnotes1 Martha Rogers and Jeff Gilleland, “Customer Experience Maturity Monitor,” Peppers & Rogers Group, April 29, 2009, http://www.peppersandrogersgroup.com/view.aspx?docId=313762 “Best Buy Plugs into the Power of Customer Centricity,” FICO, 2009, http://www.fico.com/en/FIResourcesLibrary/Best_Buy_Success_2271CS_EN.pdf3 Sanskrity Sinha, “Social Media, Mobile Phones Make Global Travel Trendy,” International Business Times, January 23, 2011, http://www.ibtimes.com/articles/103910/20110123/social-media-mobile-phones-make- global-travel-trendy.htm4 Henry H. Harteveldt, Elizabeth Stark, “How Travel eBusiness Can Win Friends And Influence Travelers,” Forrester Research, Inc., September 2010.5 “2011 Canadian Travel Intentions Survey,” Hotel Association of Canada, February 2011, http://www.hotelas- sociation.ca/reports/news%20releases/Travel%20Intentions%20Survey%20Release%202011.pdf6 “Online Consumer-Generated Reviews Have Significant Impact on Offline Purchase Behavior,” comScore, Inc. and The Kelsey Group, November 2007, http://www.comscore.com/Press_Events/Press_ Releases/2007/11/Online_Consumer_Reviews_Impact_Offline_Purchasing_Behavior cognizant 20-20 insights 5
  • 6. About the AuthorsShannon Warner is a Senior Director within Cognizant Business Consulting, providing multichannelstrategy and planning business advice to retail, consumer goods and travel and hospitality companiesseeking cohesive, interactive, value-added customer experiences across store, Web, mobile, social mediaand call center touchpoints. Her areas of expertise include e-commerce, technology services, businessprocess and knowledge process outsourcing, business development, leadership development, projectand vendor management and strategic planning. Previously, Shannon was Group Manager of Target.com. She can be reached at Shannon.Warner@cognizant.com.Samrat Sen leads Cognizant’s Travel & Hospitality Consulting Practice, helping airlines, travel, hotel andrestaurant clients worldwide to optimize IT and business processes. His expertise includes business-IT alignment, IT strategy, business case preparation, vendor assessment, data analysis and businessprocess reengineering. Samrat can be reached at Samrat.Sen2@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 118,000 employees as of June 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. Haymarket House #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA 28-29 Haymarket Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London SW1Y 4SP UK Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7321 4888 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7321 4890 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.