The secret weapon of successful business cases

The secret weapon
What helped increase the original Aeromexico purchase offer by more than 2.5 times? The answer: its customer base and brand loyalty. The buyers know this and are preparing to do what is takes to retain them.
In past months we have witnessed one of the most controversial chapters in the history of the Mexican business community: the process of acquiring the country's largest airline, Aeromexico. The players were Saba Group, a group of businessmen led by José Luis Barraza, and Grupo Mexicana.
The outcome was a public purchase conducted through, what many describe, as a process riddled with irregularities that left a bitter taste for the bidders and the public spectators--a very bad precedent for future bids.
There are many reasons why the sale of Aeromexico captured the interest of political and business communities in Mexico and around the world. One reason is that it affected the transportation and communication industries —which are key in the development and competitiveness of Mexico— but also threatened value and competitive strategies, and even national security. However, there was one point —a very critical point— in the deal that was overlooked by all: the airline’s customer base and brand loyalty.

The basis of it all
When you think of Aeromexico’s assets, you immediately think of its fleet of planes —which individually cost hundreds of millions of dollars, its airport and landing equipment, hangars, sales offices, and even its flagship Premier lounges. However, were these the assets that attracted the final $250 million for the acquisition of the airline?
The first offer made on August 22 by Mr. Saba —based on what they defined as a thorough valuation of the airline’s assets— didn’t even reach $100 million.
So what helped increase the original purchase offer by at least 250%? Without doubt it was its most important asset, both quantitatively and qualitatively: its strong customer base, which was forged almost 20 years ago through its Premier Club and Aeromexico-branded American Express card.
The Premier Club customer base is an important one because it represents a segment of people that travel more frequently than most. But most important, in theory at least, is that the airline has what I call the three basic rules to ensure customer loyalty:
a) Client information: Who are they, where do they travel, with whom and how much time does each spend on the road?
b) A process to exploit such information and thereby deduce patterns and significance of services and benefits for customers.
c) Professional and efficient communication with the client.
It is obvious that Aeromexico has executed the basics well and has reaped its rewards. This is clearly reflected in the number of members that benefit from Premier Club offers and services. So much so that today its customer base can be divided into two groups: Premier Club (CP)-only customers and those who are members of the club by virtue of Aeromexico-branded American Express card (CP/AE).
How much then is the Premier Club client base worth? It is very hard to say. It alone does not have much value, but with CP/AE it is very valuable. So much that Dario Celis reported that American Express was afraid that the airline would end up in the hands of the group backed by Banamex and lose its relationship with the clients.

The road starts here
Now that the airline is under the command of José Luis Barraza, will American Express’ fear materialize? Will the new management know how to approach and retain program customers and partners? How patient will the new administration be?
In the case that CP/AE clients are migrated to Banamex, will they be willing to change the method of payment recommended by Aeromexico? How many of them will end their relationship with the airline?
Only time will tell. Yet, we can be certain that Aeromexico, American Express and Banamex know what they can gain and lose in this new chapter and in the interesting battle in which the winner will not be defined by an opinion from the Federal Communications Commission, but by what they define as the continuous and recurring consumer preference. In other words, customer loyalty.

You can be in touch with us through: mailto:info@8ampersand.com

Fewer, but more loyal clients

The companies that survive a crisis are those who have taken care of and strive to develop a close relationship with their customers. This is achieved with excellent service and mutual understanding.

Today, we live in uncertain times; something that is unfamiliar to a generation that has been so accustomed to good times. The scope and depth of the global economic crisis is latent in all areas of business, government and personal finance. Despite the fact that the crisis did not catch Mexico off guard, there are still victims in all sectors.

Why recount the origins of the crisis or ponder how long it will take before the Mexican and global economies recover? We receive the information and analysis shared by specialists on this topic through media headlines on a daily basis. Suffice it to say that things are not good and all indications say that this something we will deal with for a long time; now is the time to handle the situation with great objectivity and a cunning approach.

Not all is lost
In the midst of this environment, there are great opportunities for companies that have managed their client relationships with care or who are willing to make an extra effort at this time. Beyond the basic strategies, which depend on professional ethics and a healthy financial positioning, there is a strategic strength in developing a close relationship with customers.
A hypothetical example is two credit card issuers that offer the same product: same acceptance rate (CAT), line of credit, fees, and even design of the card. However, the first, issuer "A" spends most of its budget on advertising and widespread acquisition of new customers, and a smaller part in giving discounts and special offers to its current customers.
While issuer "B" spends most of its budget on a loyalty program with communication, education and benefits for its customers, and spends the lowest share in advertising and acquisition-focused customer segments. Now that the crisis has arrived, which of the two issuers do you think will do better?

"A" will most likely find that, over recent years, it has accumulated a greater number of clients than "B." Excellent! The issuer has achieved significant market penetration, and therefore has more customers with whom they’ll ride the storm of the crisis period. Now ask, are these quality customers? What is their credit card spending average? What is the rate of delinquencies and how many late payments do they generate? And more importantly, what kind of customer relationship exists? What is the average churn? What is the level of cardholder loyalty?
While issuer "A" devoted its time and expense to fill their portfolio with customers, issuer "B" invested in identifying, understanding and developing a close relationship with its clients—even with the most risky consumer—to ensure that its customers see the product as more than just a credit card, but also as a tool to help them manage their spending.

So, even though issuer "B" will weather the economic crisis with fewer customers than "A," its customers have a better payment history, a higher spending average and a lower rate of past-due bills. These are customers who, thanks to being fully identified, tend to have a low program dropout rate and who demonstrate a high level of loyalty.

Take a risk!