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.

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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!

Is this the perfect time for loyalty programs?

Despite this year’s grey economic landscape, experts note that there will be a surge in consumer loyalty. Consumers, who know what they like, are looking to have their money work more for them and get them the greatest value possible.

Last December, in the midst of news about disastrous financial losses, falling stock markets and bank collapses, Airmiles (the oldest loyalty program in the United Kingdom) issued a little-publicized but very promising press release. The header read: "Airmiles predicts loyalty boom for 2009."

English style
In the press release body, the company supported the headline with the results of its latest market research conducted in United Kingdom during November 2008, which uncovered the following findings:

• 95% of Britons have collected points in loyalty programs.
• 9 out of 10 people plan to redeem their points during 2009.
• 61% plan to take advantage their loyalty programs to stretch their budgets this year.
• 96% of Britons are members of a loyalty program.
• 64% belong to three or more loyalty programs.
• More women than men have a high probability of taking advantage of most of loyalty programs in 2009: 65% women vs. 59% men.
• Belonging to three or more programs is more popular among women than among men: 72% women vs. 51% men.
• Membership loyalty programs are more common as age progresses: 46% of people between 18-29 years belong to three or more programs, vs. 56% of people between 30-39 and 67% for people 40 and older.
• 25% of the population expected to take fewer vacations in 2009, vs. 14% for Airmiles members.

Although the details of the information disclosed on British loyalty have little relevance to the Mexican market, the general sense of its release does. England, being one of the hardest-hit countries by the global economic crisis, is seeing this as the perfect time to prove the relevance and effectiveness of its loyalty programs.

Andrea Burchet, the Director of Relationship Marketing for Airmiles, reported: "In this adverse economic climate, people are looking for ways to make their money work more for them and get the most value possible. The loyalty programs are ideal for expanding the value of your spending.

"We have begun to see an increase in the number of new members joining the program ... and predict that members who have forgotten their Airmiles balances will return in 2009 to see the benefits of receiving rewards ... for their daily spending."

More value
Like the UK's Airmiles, in Mexico and the rest of the world there are hundreds of companies that are tackling this difficult year with optimism, knowing that their loyalty program is a key tool for retaining customers.

American Express, Hotel Fiesta Americana, Mexicana and Soriana, are just some examples of companies in Mexico that will benefit most from their loyalty programs to retain customers and even gain market share from their competitors.

Similarly, a greater number of companies that currently do not offer the added value of a loyalty program to their customers are accelerating development of such programs. Although this latter group will not see the same extensive benefits as will companies with programs already in place, in the long-term, their results will be great.

Consumers that are aware of their spending appreciate the rewards that come with their purchase. This year’s circumstances can set, re-affirm or destroy the lasting relationships between consumers and businesses.

Mexico is still far from reaching the levels of penetration and relevance revealed by Airmiles in United Kingdom. Here the figures are found only in the dreams of the most ambitious marketers that will take the time to get there. However, this year has already seen more and more companies in all industries use this economic crisis to position themselves in the market.

Is your company taking the boom that Airmiles predicted seriously for 2009?

How can you retain customers?

With the right approach, you can develop and implement a loyalty strategy to strengthen the relationship between your product and your customers, and in doing so, raise the profitability of your business.

Believe in loyalty!
If we transport ourselves into the world of management, statistics, major tactics and methods, I’m sure you will read or hear much about focus groups, consumer-focused organizations, one-on-one marketing and many other concepts and models that teach how to create relationships with customers.

If you have read all of these concepts, I am sure that you have wondered exactly how they can be applied to your business or how you can make them work for your clients and your actual business practice.

The truth is that all these concepts can be extremely beneficial for business, but the accurate and systematic implementation of the concepts is not what make them successful. They are successful if they are used as tools to achieve a broader strategy: to connect with customers and create loyalty.

Establish a real connection
In today’s world you can establish a real connection with buyers, meet their needs each day and learn more about their preferences through a well designed and focused loyalty strategy. http://www.8ampersand.com