Last summer, my American Airlines flight from San Francisco to Miami was diverted to Los Angeles for mechanical problems. By the time the plane finally arrived in Miami — five hours late — many passengers, including me, had missed their connections to South America. American knew, of course, what each person had paid for the ticket and their frequent-flyer customer value status. But everyone was treated exactly the same as they left the plane in the middle of the night — that is, badly: no hotel vouchers, no help with luggage that had been checked through (and locked up). It didn’t matter if you had paid more than $10,000 for a round-trip ticket to Sao Paulo or a few hundred dollars for a domestic coach ticket.
With the number of airline-issued credit cards, grocery-store club cards, department-store credit cards, and reward accounts with hotels, airlines, and car-rental agencies, companies have tons of information about their customers and their purchase patterns. But almost no companies use that data strategically. By “strategically” I mean using information to identify their most profitable customers and figure out, by running experiments, what to do to capture a larger share of the customers’ expenditures on a given category of product or service.
When I told my story to Gary Loveman, CEO of Harrah’s Entertainment, he was not surprised. Under Loveman’s leadership, Harrah’s has become famous for pioneering the use of customer data to drive remarkable business results. By improving the service experience for everyone — through reducing turnover and paying employee bonuses for improvements in customer satisfaction — the company was able to get customers to spend more money playing the same games in facilities that were not nearly as beautiful as the competition’s. Why? Harrah’s ensured that its most valuable customers were well-looked after.
Loveman noted that grocery stores and airlines, as two examples, give rewards and discounts to people based on their past buying behavior. But they almost never use those rewards to drive incremental purchase activity — thereby essentially wasting their money. He also noted that precious few organizations regularly run experiments — for instance, trying different ways of recovering from service problems and seeing how each affects subsequent purchase behavior and customer loyalty.
Why so little use of information? As Usama Fayyad, former chief data officer at Yahoo! commented, most senior leaders don’t see data as a strategic resource and competitive weapon but just as part of the boring IT infrastructure, something IBM handles. Both Fayyad and Loveman recognize that a company’s ability to use information to gain competitive leverage is not about having data warehouses and data analysis software — that’s necessary but largely insufficient for achieving business results. Instead, gaining strategic advantage entails:
1. Recognizing the potential to use information to gain business intelligence;
2. Asking intelligent questions of the data;
3. Using the data to segment your customers so you can treat them differently on a moment-to-moment basis; and
4. Running and analyzing experiments to continuously learn how to make your marketing more effective.
This year, my two trips to South America for consulting gigs won’t be on American. If I’m not going to get much for my platinum status, I might as well try a different carrier. Another customer lost — but I don’t think American Airlines will even notice. This lack of attention to customer data is one of the reasons that U.S. airlines, grocery stores, and other companies have such poor financial results.
