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Five years ago, American Airlines (a member of the Oneworld alliance which includes Qantas) entered new territory by launching the industry's first Web site. In those early days of the Web, allowing customers to check logistical details such as baggage requirements, in-flight movie schedules and airport maps was big news. But the airline had even bigger plans: American hoped that opening up the online channel would not only streamline communication with customers but also cut costs of handling customer transactions and eventually generate additional revenue by allowing customers to book flights online. "At the time, paying commissions and booking fees to computerised systems [such as America Online and CompuServe] made it expensive to do business," says John Samuel, vice president of interactive marketing. "So saving distribution costs was a major driver." Before launching its Web site, American knew a great deal about the 35 million frequent fliers who had joined its AAdvantage rewards program. And it had started to single out its highest-value customers for preferential treatment like free upgrades and higher mile bonuses. "What started out as a [frequent flier] program to encourage repeat purchases has grown into a tiered recognition program that identifies our best customers and gives them perks," says Samuel.

But even though American had a vast store of customer information, the airline wasn't able to put it to good use. "Our customers were already telling us a lot about themselves, and they were disappointed that we weren't serving them better," Samuel says. "As soon as you ask a customer what they want, you create an expectation of 'You now understand my needs, so I expect you to act accordingly'." Acting accordingly, however, was easier said than done in the pre-Web era, when American's main vehicle for communicating with AAdvantage members was its monthly mileage statement mailings. Although it used those statements to promote special deals to large segments of customers, "it wasn't as targeted as we would have liked," says Samuel. He adds that while the airline was already using its AAdvantage database to target offers for new routes (for example, customers who had flown to Europe on business would be notified of a new European destination), "we knew that we should structure that information more proactively". The Web offered the opportunity to more finely customise communications, service and offers in a cost-effective way - as well as the ability to conduct transactions.

American's early optimism about the Web's potential was well founded. Now ranked No. 2 (behind Southwest Airlines) among airline sites by MediaMetrix, American's site has evolved from a repository of information into a true e-commerce site where customers can now book flights and find up-to-the-minute status reports on individual flights. Each month, five million visitors use the site to review their AAdvantage accounts, check flight schedules and fares (for both American and competing airlines), make reservations, download electronic timetables and find answers to frequently-asked questions. Customers earn up to 1000 miles for every flight booked on the site. So far, about 50 per cent of AAdvantage top-tier (Platinum) customers and 60 per cent of the approximately 11 million active AAdvantage members have visited the site. More than two million NetSAAver e-mails, which announce last-minute specials, are mailed each week. The site has also begun to generate revenue. In 1999, Web traffic yielded nearly $US500 million in booked revenues - airline parlance for reservations, which don't always result in actual sales. "We expect more than $US1 billion in revenues booked over the site this year," says Samuel. That figure translates into nearly 5 per cent of American Airlines' total annual revenues.

Personalisation in Practice

American is betting that personalisation technology will play an important role in helping lure more visitors to its site - and turn them into more frequent fliers. The personalisation process begins when a customer either calls American's toll-free number or visits the site and creates a profile of personal preferences, such as home airport, frequent destinations, and the names and AAdvantage numbers of companion travellers. Then, whenever that customer visits www.aa.com, personalisation software from BroadVision and Epiphany lets American customise the page according to the customer's tier level (for example, Gold or Platinum) and location.

Here's how it works. Two databases provide the information needed to build the page - a customer profile database (which includes customer profile and preference information) and a content database. Based on the customer's profile and tier level, a set of business rules builds a page with content targeted to the customer. So, for example, if you indicate that you usually fly out of Atlanta, your page might contain special deals being offered this weekend departing from Atlanta, as well as what Samuel refers to as a "stretch" message telling you that you are only X number of miles away from being upgraded from Gold to Platinum status.

Personalisation software also lets American try out offers on small groups so it can roll out those with the most potential on a wider scale. Last year, the airline began quarterly tests to determine the success of various offers as well as which offers will be likely to appeal to specific customer segments.

"We make an offer to two sets of customers and track how each group responds," says Samuel. The groups range in size from several hundred to several thousand.

"These tests have shown which offers are more attractive," he explains.

"They've allowed us to prove our approach. And that helps convince a company of this size that personalisation is a good idea." From Personalisation to CRM So convinced were American executives that personalisation is, in fact, a good idea, they launched a companywide CRM initiative in 1999. Led by American Airlines veteran Elizabeth Crandall, managing director of personalised marketing (who reports to Samuel), the customer relationship management effort will focus on the CRM structure for the Web site and other Internet tools. "We need an effective way of capturing customers' needs and delivering on [them]," says Samuel. "So we must broaden our capabilities beyond the Web site and e-mail to include all other customer touch points." The focus of the CRM initiative is sharing customer information companywide.

"We want to create success metrics so that people throughout the company go beyond the functional level to better understand the customer," Samuel says.

"We haven't done a lot of reporting at the customer level in the past. We've tracked metrics, such as on-time performance, but not at the customer level. We want to know, for example, if we're starting to disappoint a Platinum-level customer with on-time performance." As part of the overall CRM effort, American is now working to integrate the customer profile database with the AAdvantage database across the company. Some data from the AAdvantage database is currently available across all customer touch points. The customer profile database, however, is only available via the Web. Once the two are integrated, the entire company will have a 360-degree view of the customer. According to Samuel, by late summer the company expects to give its call centre reservation agents a complete view of the customer.

Getting all its ticket counter agents on board will take longer. "With more than 220 domestic airports as well as international airports, the logistics are a lot more difficult," says Samuel. But he thinks it will be worth the effort; giving all agents access to complete customer information will allow American to increase efficiency, speeding the ticket-buying process at airports. Because the airline will understand more about the profitability of customers, it will also be able to provide premium services more effectively to higher tier customers. Finally, American will be better able to target customers for "stimulation" (sending a NetSAAver e-mail that convinces a customer to book an extra trip because it's a bargain) and "sell up" (enticing a business customer to join the Admiral's Club, which gives them access to American's private airport lounges). "All three benefit the customer and us," says Samuel.

The Challenges of Personalising

During the last five years Samuel's team has learned a few lessons.

"Personalisation has been harder and more demanding than we initially expected," says Samuel. "When you personalise, you have to create enough content to satisfy customers' needs for relevant content. It's easy to underdeliver when it comes to customers' high expectations. In the past, we asked our customers what types of trips they wanted to make and didn't always deliver." Samuel's group quickly recognised that people across the company would need to pitch in to develop sufficient content; other groups such as sales and advertising now contribute to the content database for the Web site as well.

And then there is the question of how to execute a strategy that identifies each customer and creates a unique experience for everyone. "Technically we have struggled with the infrastructure: from building pages dynamically to handling the volume of traffic," says Samuel. Although his staff initially considered developing a customised application in-house, they finally decided to invest in third-party software. Even so, there were technical details that had to be resolved. "Customer identification sounds trivial," says Samuel. "We use the AAdvantage number and a PIN, and that works. But we, along with the customers, are anxious to find an alternative such as voice recognition or thumbprints that will be easier for both parties." Managing growth has also been difficult. "It's a full-time job," says Samuel, who reports that his staff has swelled from six to about 50. In fact, all of the technical work, such as programming and help-desk support, is outsourced.

Samuel maintains that it's still early in the game when it comes to personalisation at American Airlines. "We're still struggling and learning a lot," he says. "Just because we had an early start doesn't mean that we're experts." Expanding Customers' Options As American has discovered, being a Web pioneer doesn't earn a company the right to rest on its laurels. Once customers have had a taste of personalisation, they come to expect it. And it takes more to impress them the next time. This growing demand for personalisation has compelled the company to revamp its site every few months.

To boost customer loyalty via the Web, American announced in January that it will partner with America Online to create what it calls the world's largest online customer loyalty program. Combining the AOL Rewards Program and the American AAdvantage Program under one roof will let customers earn and redeem miles for products such as CDs and books, and services such as hotel accommodations and car rentals. "We wanted to broaden our customer reach on the Web," says Samuel. "AAdvantage is one of our key marketing tools, and anything that we can do to make it more attractive benefits us." The America Online deal has already earned at least one vote of confidence. "I'm an AOL customer, and I think that American is doing something very smart," says Richard Scherr, a western regional sales manager at Allegiance Health Care in California, who logs more than 100,000 miles each year on American Airlines. "Now I'll be able to go to AOL directly and take care of scheduling my flights and watching my mileage. When you have to coordinate work and family, you have to manage your time carefully. They're creating brand loyalty." And that gets to the heart of what personalisation and CRM are all about.

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