Affinity programs and why they fail.

Affinity Programs Rarely Create Affinity

Almost all businesses from retailers to transportation companies have affinity programs designed to foster brand loyalty. Most work very poorly and often are simply a table stake in the category. Retailers, manufacturers and airlines will often find that their customers belong to a host of affinity programs that most certainly includes their competitors. (Affinity programs are an extension of CRM. Read an article on CRM here)

Affinity programs are similar to coupons

In many ways, discount coupons can be part of the affinity programs because they are all aimed at fostering trial and gaining repeat business.

As retailers know all to well, this sort of affinity program has severe limitations because consumers all begin to regard the couponed price as the real price.

Affinity programsAs a result, a business built on couponing lowers the standard price point significantly and reduces margins. P&G (Proctor & Gamble) are victims of this game. As margins reduce so do advertising dollars. What these packaged goods giants are left with is poorly supported brands that rely on a discount price for business success. Not a very good model to say the least.

I have written extensively about the airline industry in the past. Nowhere are affinity programs more a part of day-to-day business and many are utter failures. Often times the programs seem more like a criminal sentence rather than a benefit. Let me give you a personal case in point.

Airlines use affinity programs as a cornerstone of customer relationships

I have frequent flyer accounts on a multitude of US airlines. These affinity program accounts promise advantages on international carriers as well because of the alliances (like the STAR Alliance, SKYTEAM or ONEWORLD Alliance). I am a perfect example of a prospect who belongs to a host of competing programs. How then do the airlines try to compete for my business? In a word—Status.

United Airlines affinity programsWhen you fly as much as I do, gaining status on one or more airline is not that difficult. The key number to remember is 100,000 miles. Generally, at that threshold your status is considered premier. Don’t confuse this with PREMIER STATUS, which is an industry designation. I am speaking of having gained a premier position in status over other flyers. And this is where the trouble begins. The promise of status is very different from the reality.

I have flown over 2.5 million miles on United Airlines. As a result, I earned their top tier status. I am officially known as a Star Alliance, 1K Gold Member. This means I have flown over 100,000 miles in the previous calendar year. Sounds impressive on the surface but the system really falls apart after that.

Global Services. The Pinacle of Affinity Programs

On United Airlines they have a special status known as Global Services. If you have ever waited in your designated line at a United gate you have probably heard this group called to board the aircraft after people with disabilities that need extra time to board and in conjunction with military service people in uniform. United does not disclose how they formulate the invitation to Global Services but there are plenty of blogs around that speculate in a revealing if not an accurate way on just how they do it.

Global services is the ultimate affinity programTwo years ago, United awarded me with a Global Services member invitation. Benefits included first on the aircraft boarding, upgrades to first class 72 hours before your flight based upon availability. A separate phone line to call to speak with a Global Services representative. No fee charges to change a reservation. Hotel rooms paid when needed —regardless of the reason (including weather). And if possible, they will even pick you up at a connecting gate with a tight connection and whisk you off directly to the next gate in a company automobile. I have even had them bump a fellow traveler from a flight in order to guarantee me a seat in a last minute change.

Affinity programsSounds pretty good. And it can be. The problem is in how United manages the Global Services membership. It turns out that Global Services status is not based upon miles flown but rather the revenue you generate for the airline— in comparison to your peers.

This past year, for example, I flew my usual 100,000+ miles on United. I also have a United credit card upon.which all of my travel is booked. My Hilton Honors program is linked to the United account (Hilton touts it as double-dipping) and even my Hertz rentals get logged into my United Mileage Plus account.

This year, United took away my Global Services status. The reason? Because their revenue was down on my total spend. I’m now just a 1K flyer.

I know, who am I to complain. Well I’m going to complain and I’ll tell you why. I am a human being and we all feel about our privileges in the same way we feel about a coupon price being the REAL price. Once we have it we feel punished without it.

How should affinity programs measure affinity?

What United did not recognize was the value of my long term business with them. They have no metric for understanding it and as a result will be the ultimate loser in this game.

American Airlines affinity programsAs a 1K, I’m on upgrade lists but I rarely get them because they continue to discount the first class seats up until the time of departure and award the remaining seats to any and all Global Services members. I no longer have a designated customer service rep to help me sort through the myriad of travel issues that accompany this many flights per year. On top of this, no one cares if my connections are tight or that I miss flights because of delayed connections. Well, almost no one because my clients and I care. It’s just that United does not.

Affinity programs

What United does no know is that I also have a premier status on American Airlines. I am an Executive Platinum with American and United just said goodbye to  all of my business.

Here is a bit of history. My local airport is a small regional one in Greensboro NC. Aside from a few select destinations like New York, Chicago, DC, Atlanta, Philadelphia and Dallas all flights require a connection. Many years ago I started flying with US Airways because they had the most connections out of Greensboro. I could get almost anywhere in the nation via a short 20 minute connecting flight through Charlotte NC.

As my international business grew, I began to fly more and more on US Airway’s STAR Alliance partner United Airlines because they had great connections internationally through another partner airline Lufthansa. Over the years, I flew more and more connections through United as opposed to US Airways because the hubs of Dulles, O’Hare and Newark worked as well for me as connections from Charlotte.

This seems to happen to everyone. Affinity Programs lose relevance.

What happened to me, as often happens to frequent flyers, is that my status with United grew and I tried to consolidate more of my flights with the airline to gain greater status. In an odd twist, United began to cut service from Greensboro at about the same time they acquired Continental Airlines.

United eliminated direct flights to Houston (a Continental staple flight), took on the Newark connection route and eliminated all real United flights from my airport. In its place they flew only United Express flights from GSO (as Greensboro is known) which utilizes small regional jets and are owned by companies like GOJet and other regional carriers. These flights were smaller and more cramped but the longest leg of the connection was Newark and you can put up with anything for an hour and a half.

Affinity programsThe next shoe to drop occurred when US Air merged with American Airlines, thus eliminating the option of any connecting flights through Charlotte. American is part of the ONEWORLD Alliance and not the STAR Alliance. At the same time as this merger, United stopped flying jet aircraft between GSO and Dulles and replaced those flights with a turbo-jet WW2 throwback that added 20 additional minutes to the flight.

Then United cut back on the frequency of flights eliminating the possibility of caching an afternoon flight out of DC for any international flights. Reliability of the on-time arrival of the connections was so bad that I took to always taking the earliest flight. Regardless of the length a layover I flew early because I was consistently missing my connections on United Express from Greensboro. To be safe, the best bet was first flight out in the morning on flights that originated from GSO.

Affinity programsThrough all of this turmoil, I remained loyal to United because of my Global Services status. They bailed me out of many a tight squeeze by meeting me at the gate and shuttling me to my connection. They provided me with the flexibility of flights by booking me on competing airline flights when the connection failed to work as planned. They treated me as if I mattered. As a result, everyone in my company flew United because often my colleagues fly with me. United failed to measure this value.

Affinity programs and the nNFL Baltimore ColtsThis past January, when United dropped me back to 1K status I gave up my loyalty. The reduction in status did not make me want to try to book more flights with the airline in an attempt to regain status. It had the exact opposite effect. It made me angry with them. I felt like a Baltimore Colts fan who had an emotional connection to a team that left me stranded in the middle of the night.

Suddenly I realized that my belief that I mattered to them was a figment of my own imagination. The affinity program was completely one-sided. They had no affinity for me.

In measuring my value to the airline, they failed to take into account the sacrifices I made to remain loyal. They also failed to calculate the value my fellow employees brought to United by flying with me. They completely missed the point. Affinity must work both ways or it simply does not work.

The brand opportunity for affinity programs

Here then is the brand effect of affinity programs; the value of a member needs to be calculated as a lifetime benefit not a short term measure. Once a benefit is granted it should be considered long term because anything less than that is viewed as a punishment. So the threshold of premier benefits needs to be a bit higher and the forgiveness of not meeting that criteria once gained needs to be significantly lowered.

Cvs affinity cardIt is possible that all affinity programs are incomplete or failed attempts at fostering loyalty. Often they begin to feel more like handcuffs than they do a life-line. The very act of specialness always requires that many be left out.

Think about this for just a moment. How special would it feel to be a premier member only to find out that everyone had the same status and boarded at the same time? You see the conundrum. Signaling out specialness is a double edged sword. It must cut a bit but not so much that it hurts.

Affinity programsThe airlines are in deep trouble. Currently, their revenues are up but that is due only to the dropping cost of fuel. They have never understood the costs of doing business and they continue to miss the value of customer loyalty. For the airlines the battle is defensive not offensive. They struggle to maintain loyalty and have very little to offer in the battle to steal market share.

To make up for this they have created affinity programs that express no love for the customer or prospect and reward only short term investment. They have never developed a metric to understand real value and fail to measure and reflect the sacrifice the member has made to remain loyal.

We have many choices in today’s world and most of us chose based upon short term values. Businesses, or rather brands must have a longer horizon. If they do not they become prisons rather than coveted havens.

 

Airlines and thier markets

The retail category market study

The worst marketing. Airlines.

CVS drops the cigs: Why it’s happening now

The most interesting part for me about CVS no longer selling cigarettes at its 7,600 locations is that the pharmacy chain didn’t do it sooner.

CVS made the announcement today, claiming it will lose $2 billion in sales by eliminating the cigs but hoping to reclaim those losses by positioning itself with a greater focus on good health.What does banning CVS Tobacco sales mean?

I already thought that’s what a pharmacy was?

CVS Tobacco BanThat was the point we at Stealing Share tried to make years ago when pitching new business to a large pharmacy chain. (Not CVS.) As a brand, how can a position of health be believable if you’re selling the cancer sticks?

The answer was that the pharmacy makes too much money on cigarettes – and it (like others) soon added alcohol to its offerings. Soon enough, the chains lost whatever brand equity they had by trying to be all things to all people. It wasn’t just cigarettes and alcohol they were selling. You could also find as disparate of items as gift cards to Applebee’s and cheap MP3 players. Nobody knew what the brands actually stood for.

From a brand standpoint, what CVS is doing makes sense. I also suspect the real reason CVS is doing this is because cigarette sales are dropping (falling 31.3% over the last decade) and it’s only going to get worse. They are not quite the cash cow they once were.

So, good job, CVS. Bravo! But let’s not get on our high horse about it.

A strategy for RiteAid’s brand

The drug store chains have always had a hard time defining who their customers are, which is a key tenet in developing a brand. Their inventory lacks so much focus that you can find everything from pharmaceuticals to wine to NFL punching bags for the kids at the stores.

Who is supposed to shop there?

How about this? Baby Boomers.

RiteAid is thinking about that audience, but only tip-toeing into attracting them rather than diving right in. It is airing a new advertising campaign aimed at the 65-and-over group that gives seniors 20% off and earning points based on drug co-pays for an expanded pharmacist consultation.

imagesIt’s only a marketing tactic and will fail because it is not woven into RiteAid’s brand persona.

Why not go all the way? Baby Boomers buy the most pharmaceuticals now anyway. If you were a drug store that only catered to seniors as a brand focus, you would represent a true choice in a market where there is none.

The only reason to choose is based on location or being on the right side of the street. The loyalty programs help a bit and consumers eventually become locked into the pharmacy that has their insurance information.

By unapologetically stating who it is for, RiteAid would have a unique place in the market and be most meaningful to the largest segment of the drug store audience.

You only steal market share when you are different and better than the competition. And you only create preference when you are a direct reflection of a target audience. Go for it, RiteAid.

Walgreens brand looks to new leadership

As Walgreens installs Brad Fluegel as its new chief strategy officer, a few words of advice: Figure out what you are.

That sounds simple enough, but it’s the problem “drug stores” have had for years. There isn’t a sliver of difference between Walgreens, CVS, RiteAid and the rest. Walk into any of these shops and you’ll find they have disparate things like milk, wine and an anachronistic photo station standing empty in this digital and photo-printer age.

What are these stores? More importantly, who do they serve?

Walgreens brandThe lack of brand precision means that choice usually comes down to location, such as being on the more accessible side of an intersection. A RiteAid near my house closed recently. Not because it offered less than its competitors. It failed because it was difficult to get to from the street.

When choice is based on such benign values, there is no brand. A brand that’s persuasive means consumers will inconvenience themselves and pay more for it. That hasn’t happened in the drug store category.

Walgreens must stop trying to be everything to everybody and focus. It needs to find the highest emotional intensity in the market – from the point of view of consumers – and align itself with that intensity.

The opportunity is huge because no company in the category is doing that. If Walgreens continues with business as usual, it will soon be looking for another new chief strategy officer.

The largest prescription drug buyer in the world. So what?

In the battle over prescription drugs, Walgreens has announced its plans to purchase European Health and Beauty’s Alliance Boots for $6.7 billion. This purchase will make the US-based drug store chain the largest purchaser of prescription drugs in the world. It will also place Walgreens into the economic crisis in Europe and cause the drug chain to focus less on the US domestic market where it is already seeing decreased sales.

We have written about drug stores before. They seem to be on every corner and always come in groups – a Walgreens on one corner and a CVS on another. Like banks, choice is often predicated on what side of the street the drug store is on. There is little difference in one over the other. They are both laid out basically the same with “As seen on TV” junk in the front and the pharmacy in back. For those who have prescription cards, there is little, if any, difference in cost between them for prescriptions and the rest of the “stuff” that fills the store is the same regardless where you shop.

So why does Walgreens purchase of Alliance Boots matter? Well, it matters because it demonstrates that Walgreens fails at creating a better brand for its customers and prospects. Like Walmart, Walgreens hopes to steal market share by putting its competitors out of business through operational savings. That only works if your brand promise is just that – such as Walmart’s “Save Money. Live Better.” – and is unclaimed in the market.

The prescription drug wars

For Walgreens, this is dropping into the pit of being a commodity business – purchase everything you can and squeeze competitors with scale. A purchase like this is not for the consumer. It is for the business, plain and simple.

I am not saying that business should not act in its own interest. Businesses should act in their best interest, but they need to better understand where their best interest lies – economies of scale or increased consumer preference?

In highly competitive markets, consumer preference and loyalty are the only way to ensure future success. Too many businesses, including Walgreens, have moved away from this ideal in favor of a knee-jerk reaction to some projection. Without preference and consumer loyalty, businesses are always in danger of a bigger company coming along that can squeeze them out. There is always a bigger fish.

Given the current global economic climate, Walgreens spending $6.7 billion on a company guarantees only one thing – its focus will not be on creating a better Walgreens brand, it will be on figuring out how to be a bigger fish.