Customer Focus: Window Seat

FRAMINGHAM (07/17/2000) - Five years ago, American Airlines Inc. entered new territory by launching the industry's first website. 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 computerized 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 website, 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 customize 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. (In fact, received a Web Business 50/50 award in the July 1, 2000, issue of CIO.) Each month, 5 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 1,000 miles for every flight booked on the site. So far, about 50 percent of AAdvantage top-tier (Platinum) customers and 60 percent of the approximately 11 million active AAdvantage members have visited the site. More than 2 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 $500 million in booked revenues--airline parlance for reservations, which don't always result in actual sales. "We expect more than US$1 billion in revenues booked over the site this year," says Samuel. That figure translates into nearly 5 percent of American Airlines' total annual revenues.

PERSONALIZATION IN PRACTICE American is betting that personalization technology will play an important role in helping lure more visitors to its site--and turn them into more frequent fliers. The personalization 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 travelers.

Then, whenever that customer visits, personalization software from BroadVision and Epiphany lets American customize 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.

Personalization 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 personalization is a good idea."

FROM PERSONALIZATION TO CRM So convinced were American executives that personalization is, in fact, a good idea, they launched a companywide CRM initiative in 1999. Led by American Airlines veteran Elizabeth Crandall, managing director of personalized marketing (who reports to Samuel), the customer relationship management effort will focus on the CRM structure for the website 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 website 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 center 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 PERSONALIZING During the last five years Samuel's team has learned a few lessons. "Personalization has been harder and more demanding than we initially expected," says Samuel. "When you personalize, 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 recognized 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 website 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 customized 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 personalization 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 personalization, they come to expect it. And it takes more to impress them the next time. This growing demand for personalization 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 Newport Beach, Calif., 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 personalization and CRM are all about.

Do you have an interesting customer-focused case file to share? Send your ideas to Louise Fickel ( is a freelance writer based in Denver.

EXPERT ANALYSIS BY LYNNE HARVEY BEYOND CHEERY GREETINGS American Airlines understands that effective personalization really makes it easy for its customers to do business with the airline. Although at a glance it may seem that offers mass customization rather than individual personalization, American Airlines is in fact providing the right mix of information and services. For most customers, this means being able to assess which flight enables them to get to their destination at the best possible price in the shortest time possible--and to buy their tickets online. But even if a customer just uses the site to verify an arrival time before heading to the airport to pick someone up, can create a positive impression that may lead to future transactions and possibly even customer loyalty.

To be effective, personalization has to go far beyond providing a cheery greeting, a cross-selling suggestion and a bunch of frequent flier miles in a marketing program. Personalization must enable customer loyalty by providing highly individualized service. When applied to a tiered marketing loyalty program like AAdvantage, it should enable American Airlines to recognize its customers and provide a framework for structuring relevant information and offering rewards.

The challenge for American, as well as for most businesses, is to offer a consistent customer experience across channels. Loyal customers like Scherr should be able to access the same kinds of services from American through their cell phones and Palm Pilots that they can get through their computers. A potential minefield, however, that American needs to navigate, involves privacy and their use of each individual's profile data. If American is providing a joint rewards program with America Online, the potential for violating customers' privacy is huge. The two companies really need to communicate their privacy policy clearly with their customers and allow them to opt into, rather than opt out of, their personalized services and rewards programs. Overall, if American Airlines continues to apply personalization to deliver highly individualized service, it will continue to foster a loyal base of customers.

Lynne Harvey is a senior consultant and analyst specializing in CRM, customer intelligence and e-marketing strategies at the Patricia Seybold Group in Boston.

CRM AT AMERICAN AIRLINES Website objective: Build stronger relationships with AAdvantage customers, control distribution costs, generate revenue Enabling technology: BroadVision's One-To-One and Epiphany's E.4 System draw from American's customer profile database and a content database to serve up customized pages to website visitors. Powered by Oracle, both databases are managed via USWeb at a data center in Sunnyvale, Calif. (The AAdvantage database, which tracks frequent flier data and is synchronized with the customer profile database via proprietary middleware, runs on an NCR Teradata database.) Scope: Gradual expansion of personalization capabilities with the ultimate goal of integrating information across all customer touch-points companywide Payoff: An expected $1 billion in booked revenues this year and better communication with customers The Company: American Airlines Founded 1929 Revenues $17.7 billion in 1999 Headquarters Fort Worth, Texas Employees 92,000 Customers 38 million Aadvantage (frequent flier) customers URL

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