Customer Loyalty and Profitability: Empirical Evidence of Frequent Flyer Program

摘要

The aim of loyalty reward program is to retain profitable customers to the organization. Airline loyalty program such as frequent flyer program (FFP) is a phenomenon in marketing strategy used by airline industries to maintain customer loyalty and gain more financial benefit. However most airlines have very little understanding of their FFP members yet have little knowledge about their most valuable customers. This study aims to determine customer value to the company in the context of aviation loyalty reward program in Indonesia based on RFM analysis as well as to analyze the correspondence between the members’ value and their socio-demographic profile. This study used a proprietary dataset from a FFP’ membership of an Indonesian airline. The empirical result shows that axiomatic 80/20 rule is fit well on this FFP. Around 75% of the revenues come from only 20% of the members. Furthermore, seven segments of the FFP members are identified sequentially from the most valuable to the least valuable customer to the airline. Top Members generate the highest revenue and the highest RFM whereas Inactive Members are the least valuable customers. In summary, high value members are dominated by male members, age 46-55 years, having elite tier levels (Platinum & Gold) and working as a director and or an owner of the companies. The result contributes to the industry in developing marketing strategy, enhancing customer loyalty and implementing accurate marketing functions in term of FFP. The study offers a more accurate model for FFP member valuation than just simply based on the miles flown.