It's 1982. You're a consultant sitting on the plane next to your client, who is the CEO of American Airlines. The client tells you that American can't seem to keep many repeat customers and wants to institute something called a "frequent flyer" program to reward loyal passengers with "points" they can redeem for free flights. He turns to you and asks you to analyze the merits and faults of the program. How do you respond?
This is a good candidate for the Four P s framework. (Note that the interviewer has deliberately set this case at a time when you cannot use online membership as a substitute or addition.) A good analysis would tee off with some scoping questions to understand the evolution of the idea:
- Are you aware of any programs currently in existence that caused you to consider this idea for American Airlines? If so, what do you feel are major advantages/disadvantages?
- Have you done any market research within your customer base to determine how well this program would be received if instituted?
- Can you sketch the purchasing habits of your top flyers for me? How much do they currently spend on air travel per year, what percentage is business vs. leisure, are there a particular set of routes this group frequents, do they stick with one airline or purchase tickets on many airlines, etc.?
- Would the current customer service business unit be charged with implementing this program or would you consider investment in a separate initiative?
- Would there be a membership fee for this program? Would this program be available to all American customers or only those who fly at or over a certain threshold?
- Based on your customers' current flight habits, would you set milestones for award redemption?
- Would the program be based on miles, segments, price of tickets, or another factor?
- What need would this program satisfy that does not currently exist in the marketplace?
- Would there be any redemption restrictions based on route or day?
- What other rewards would be available to members besides flights? Special member lounges in airports? Car rentals? Hotel rooms?
- What would be accumulated - points, miles, levels?
- Would these accumulated criteria ever expire?
- Would you award extremely high-volume flyers with additional perks? What would they be? Would flyers have to re-earn this status or once attained would it be good for life?
- Are you aware of any similar programs in today's marketplace? If so, what would differentiate your program from others that already exist?
- Based on your knowledge of your customers' behavior, would you think that a frequent flyer program would induce high switching costs, such that it would make it difficult for high-volume customers to switch airlines due to the loss of miles/status with American?
- How would you introduce this program to your customers? Through airports, the media, travel agents? Would it be available only to frequent flyers or all the flying public?
- How would customers sign up for this program? Would it be automatic, a form, a phone call to customer service?
- Would there ever be any promotional drives such as doubling awards or offering bundle pricing (such as two-for-one)?
Be careful of using historic precedent in historic cases. While frequent flyer miles are a fact of business history, your analysis might show that the long-term benefits are not worth the creation of the program.