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Are Russian Frequent Flyer Programmes Competitive? - Comment on the article by Ravindra Bhagwanani

Unfortunately, voices of foreign experts are still seldom heard in the Russian market. Even more rarely do players (members) of foreign markets share their views on the processes running in our country, usually confining themselves to relating stories about their own practices.

 

 

Being myself a member of such programs as ‘Aeroflot-bonus’, ‘Miles&More’ and a silver status holder in the Skywards program, I am following with interest the discussion about loyalty programs for frequently flying passengers in Russia. I should say that the situation in this field looks quite typical of the Russian loyalty programs’ market in general. At present the major problem of all industry sectors without exceptions is a lack of comprehension of the strategic role, which loyalty program plays in the operation of the company; almost no companies have long-term plans of the loyalty program’s development and there are few of them which have ever thought about the ethical aspect of customer relationships. Compared to others airline passengers are lucky enough because national air carriers feeling pressure from their Western competitors have to adopt the best foreign practices of customer service standards.

 

As for the latest stiffening in the ‘Aeroflot-bonus’ program, de juro everything was done correctly. From the point of rules of the program any changes in the terms are legal, up to its total cancellation. Every member was informed about it and agreed upon it when joined the program. It means that when letter of the law is considered, everything is all right. But the spirit of the laws of building customer loyalty has certainly demanded totally different approach.

 

Some day market players will begin to realize that loyalty program is not a rudiment of marketing but a defining part of which every business philosophy consists. The main benefit of such philosophy is that it enables one to follow different trends. One way is to work with ‘mass customer’ treating every customer on equal terms, the other way is to build different ‘behavior patterns’ with each customer according to his/her ‘merits’ beneficial for the company. Both options present themselves quite viable models; so on the whole I do not consider a creation of loyalty program to be obligatory for each business. For instance, the fact that such companies as ‘McDonalds’ and ‘Wal-Mart’ have no loyalty programs at all does not prevent them from being undisputed leaders in their market segments.

 

Deciding to build a loyalty program, the company management inevitably takes on moral and ethical obligations. Business relationships change into mutually beneficial cooperation through series of mutual concessions and compliments. A customer spends more, thus, he is better recognized by the company, which shows him its respect and gives him presents. The longer a customer and a company know each other, the more valued by the company the customer appears, the more precious are the presents given to him and the more important is the role of emotional connection between him and the company. That is why in Western rhetoric the involvement of a customer into the loyalty program is often compared to the engagement.

 

However, the proverb ‘to promise does not mean to marry’ still remains timely. Meanwhile, by reducing the value of the ‘feedback’ of loyalty program, the company gives its customer a clear personal signal of the decrease of his personal importance to it.

 

Unarguably inconsiderate steps in marketing should be corrected, exceeding costs need reducing and changes in the market ought to be monitored. Nevertheless, all the steps towards stiffening in loyalty program should be carefully considered beforehand with large amount of money invested in providing customers with compensations and explanatory information.

 

Russian loyalty programs’ market is growing up turning from an infant into an awkward teenager. Correspondingly in accordance with it, requirements on the parts of all market members - from customers to rivals and partners - are constantly growing. This process is natural and definitely positive. One should just work more on self-improvement rather than blame the mirror.

 

Are Russian Frequent Flyer Programmes Competitive?

 

Ravindra Bhagwanani

Managing Director, Global Flight

Ravindra is the founder and managing director of Global Flight, a specialised management company in the field of customer loyalty. Since 1996, the company has been offering a range of management-related services around the topic of loyalty programmes to customers around the world.

 

Frequent Flyer Programmes are proliferating in Russia. But where do they stand in international comparison?

 

There are more than 200 Frequent Flyer Programmes (FFPs) worldwide and around a dozen of them are in Russia. A range of airlines from Aeroflot to Sky Express offer such a scheme these days, aiming at creating loyalty among its core customers. But how well do they really perform in international comparison? What does the future look like for them?

 

As in any other business, it is paramount for a programme operator to understand the wider strategic importance of those programmes. Many airlines still think that it is enough just to offer a programme, but that there is no further action, e.g. at a Customer Relationship Management (CRM) level, required. Treating a loyalty programme in such a manner reduces it to a discount scheme for existing customers, who would purchase your service anyway, without any significant return in terms of upselling potential. The main objectives of a loyalty programme to attract new customers and increase the share of wallets of existing customers are not exploited at all like that. The second important aspect is to understand that these programmes are aimed at the best customers of a company and that these customers should be treated accordingly.

 

Unfortunately, all Russian FFPs have shortcomings in at least one of those two areas. Let’s take the examples of the two leading programmes in the Russian market, those of Aeroflot and S7, the two only Russian airlines belonging to one of the global alliances.

 

While Aeroflot does incorporate several elements, which can be found in best practice FFPs, it lacks of an overall vision what it is doing with its Bonus programme and has no strategy in place for positioning itself in the international alliance context. The recent deteriorations in the programme, like a hefty increase in award levels, often took place without any advance notice - it is common practice to give at least a 3-month advance notice in such cases. As a result, not only the overall attractiveness of the programme has suffered, but, probably even worse, customers have also lost trust in the way the airline treats its best customers. And since Aeroflot does not operate in an isolated world, savvy customers look at alternatives within the SkyTeam alliance: So even when continuing to fly on Aeroflot, many customers are now much better off with partner programmes like the one of Delta than with the Bonus programme. Rather than paying up to 50,000 miles for an Economy Class award flight within Europe, they can now get the same flight for 25,000 miles. Also some other practices by the programme, like requiring an Aeroflot or Nordavia flight in order to be able to redeem miles at all, can’t be found in any other decent programme around the world. Has the Bonus management realised that customers do have a choice beyond the Bonus programme? And that the strong growth for partner programmes in Russia is directly related to what Aeroflot does to the Bonus programme?

 

Also when S7 joined the oneworld alliance late last year, the airline showed almost a shocking naivety, expecting to join a club of friends. But competition within alliances is very tough when it comes to FFP membership since each member airline is keen on exercising customer ownership, which requires that customers are enrolled in their own programme. While S7’s integration was sponsored by British Airways, British Airways did everything right what S7 did wrong: Just ahead of S7 joining the alliance, British Airways dramatically enhanced its own programme. Flying now on a discounted Economy fare between Moscow and London, a S7 Priority member requires 33 roundtrips until he has sufficient miles to claim an award flight on the same route. A British Airways member gets the same award after 7 roundtrips only, however. Which programme would you choose? Also the recent launch of a second co-branded credit card in Russia with RSB (British Airways doesn’t have a very strong international credit card portfolio, so this is even more significant!) clearly shows that British Airways is not so much a friend as S7 might still think. And what is S7 doing to correct that situation? Basically nothing and it is losing more and more ground like that every day.

 

The overall impression of the Russian market is also characterised by the fact that many airlines (and other companies) think that the introduction of a co-branded credit card is the most important aspect of a loyalty programme. True, it might be a revenue-generating option, but only if the rest of the delivery side is sufficiently taken care of as well. New kids on the block like Avangard Bank with its AirBonus card, which offers free flights without any capacity restrictions since the bank actually buys regular revenue tickets, are a clear threat to established FFPs. Such a development of independent bank products has already started in other places like the US or certain Asian markets and Russian FFPs seem not to be really aware of that danger.

 

In conclusion, the Russian FFP market looks well developed at first sight by looking at the number of FFPs available. But none of the programmes is likely to generate the value for the operating airline it could by embracing some of the best practice methods available in other markets. This observation is true both for the large international airlines as for smaller independent airlines, where the focus would need to be put even more on the CRM side. A stronger focus and better understanding of the topic would definitely pay off for all of them. But every day the airlines wait for a self-resolution of the issue, the international competitors are glad and increase their market share, what will become a hard process to reverse. It is high time for Russian airlines to take their FFPs out of their infancy and reap all the benefits by adopting some international best practice standards - an effort, which will definitely pay off and justify all related investment!

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