31 March 2005

Malaysia Airlines Enrich programme

Enrich is the Malaysia Airlines frequent flyer programme. To qualify for the gold card, you need to travel 35,000 miles in one year in either business or first class. I'm an Enrich member and have been for around 10 years. For a couple of years, I had a Gold card. They took it away from me this week and replaced the gold card with a blue card that offers no other benefits than air miles. Negative brand experience, to say the least.

If we assume that the purpose of the Enrich programme is to gather information, understand customers better by profiling individuals and by being in a position to offer customers what they want, when they want it with a view to change the way the company operates internally to improve customer service and make marketing more segmented which in turn, will lead to improved profitability, then the system is obviously flawed.

Customer loyalty and communication with existing customers are critical to the long term success of brands. In 'Scoring Points', the definitive account of the world's most successful loyalty scheme, the authors talk of the Tesco Clubcard being 'as much about Tesco showing loyalty to the customer as it is about the customer showing loyalty to Tesco'.

Much of this focus on retention is due to the fact that despite US$1.5 trillion a year spent on marketing, 80-90% of products fail to become brands. This poor success rate (imagine an airline with a failure rate of 90%!) is a result of most strategies being acquisition focussed. McDonalds for instance, used to spend 60% of its marketing budget on TV advertising, it is now down to around 35%. The 25% is being spent on retention programmes.

Over the past 10 years, Malaysia Airlines has rarely commmunicated with me. As a result they have little information about my purchasing habits, opinions and preferences. (Even the 'demotion' from a Gold card member to a blue card member warranted a meagre two lines at the top of a generic mailshot!).

If they did communicate with me, they would know that whilst I may not be travelling first or business class as often as I used to, I am definately spending more with MAS than I ever have done!

Let's use Bali as a case study because I recently took my family to Bali and we're going back again in April. Now, according to malaysiaairlines.com, a business class ticket to Bali is RM3,044 return.

To fly my family and I to Bali, all economy class, there are a number of fares quoted (subject to availability) on the above site, ranging from RM3,399 and RM7,161 for all of us. Even if I were able to secure the lowest fare, and invariably the lowest quoted fare never seems to be available, I would still spend more than if I travelled Business Class. Indeed, the last trip we paid around RM5,000. However, none of the miles accrued, and technically I've travelled 6 times further than a business class passenger, would contribute to my attempt to qualify for a gold card.

In April, we're flying around 20 staff to Bali and the cost is approximately RM12,000, equivalent to 4 business class tickets. Despite paying for the tickets and because we are all travelling economy, none of the miles will go towards qualifying for a Enrich gold card.

Outdated yield-management systems and bad pricing strategies have been exposed by the internet and low cost airlines. And because an airlines' internal financial workings are as mysterious as the ability to make airline food taste the way it does - in business or economy, it is practically impossible to find out what it costs to operate the flights to Bali or where the profits are however it is common knowledge that to turn a profit, ASM and RPM need to be as close as possible. But let's not go there.

Come on MAS. The future success of your brand depends on how well you develop relationships with your existing customers and how you encourage them to become brand ambassadors.

Perhaps Malaysia Airlines Enrich team would like to borrow my copy of Scoring Points. Then they can develop a loyalty programme that is relevant to the customer economy of today and is therefore of benefit to customers and not just the airline. Better still, (and this is a shameless plug) get in touch with FusionBrand and let them update the Enrich programme!

27 March 2005

So near, Sony

Incoming Sony Chairman Howard Stringer has his work cut out.

Right now he is making all the right noises - cross company collaboration, renewed focus on innovation and customer centric products and services. Wait a minute, did he say customer centric products and services? Yes he did. Sony also said, and this time i think it was Ryoji Chubachi, that Sony was going to "put the consumer first". Whoa! this I gotta see!

Sony was successful because they shrewdly used the tools of the mass economy. They advertised repeatedly in the mass media of one, two or three TV stations, one or two newspapers and magazines and knew where consumers were most of the time. They also used mass production to achieve economies of scale, and they used distribution to penetrate mass markets. Competition was limited. Research and development was cutting edge. Customer retention didn't really matter. Markets were growing so fast, and the mass-economy tools were so powerful, that it is was fairly easy to acquire a new customer for everyone that was lost.

But today, the mass economy is dead. In its place, we now have the "Customer Economy." Companies no longer have the exclusivity to make the rules and control information by "positioning" products or promoting "brand equity" through advertising and PR like they did in the mass economy. Consumers are more knowledgeable and spoilt for choice.

In fact, the balance of power has shifted from the seller to the buyer. Customers are beginning to demand business be done on their terms, and they have more and more influence over the design and manufacture of products to meet their requirements. Look at Sony's below par performance of their MP3 player. It was less user friendly than a Trabant!

The Mass economy is over. Companies playing by mass-economy rules are going to do more than lose they game. They are not even going to be given the chance to compete.

This is how Bill Lamar, Jr., senior vice president of marketing at McDonald's put it last year, "Reaching our consumer targets is no longer TV-driven. The days of spending hundreds of millions of dollars on TV advertising are over."

So it's a relief to hear Mr Chubachi getting the message. Mr Chubachi will be in charge of the electronics division. He wants more focus on what consumers actually want. Sony's incoming president has gone on record as saying that the electronics giant's future products must be more in line with what consumers want.

Well, it's about time. No matter what Landor might say about the Sony brand, Sony has struggled to compete against rivals in recent years, losing ground in key growth areas such as plasma TVs. And that despite a $500 million marketing budget.

In January, Sony cut its operating profit targets for the current business year. Again. Further proof that brand equity, awareness and reach are unimportant to the success of a brand today. The only key indicator of a successful brand is profitability.

In fact, Mr Chubachi is so nervous that he also said recently that the squeeze on profits was likely to continue until the reforms were complete. In fact, he warned it would be difficult for Sony to hit its profits target for the 2006/07 business year.

He went on to identify three main weaknesses in Sony's electronics business - a decline in product competitiveness, an inefficient manufacturing structure, and a design process that did not place enough emphasis on what the consumer really wants.

"Right now there is a gap between what consumers expect from Sony, their image of the Sony brand and reality," said Mr Chubachi, who will be in charge of Sony's electronics division.

"A recovery will come when we can close that gap." Damn right it will. Problem is, Sony has only got half the message. Mr Chubachi went on to say that Sony would be able to develop more attractive products by improving communication between engineers and marketing staff. Hang on a minute, what about all that stuff about customers? Surely, if you want to sell the consumer something, it makes sense to ask him/her, what he/she wants? But no. Mr Chubachi then goes on to say, "We need to ensure the wishes of the designer quickly reach the consumer and that feedback from the consumer quickly makes its way back to the design stage," he said.

Mr Chubachi, try this. Carry out some research with your consumers. Ask them what they want. Take that to the designers and tell them to do it. Take it back to the consumers and ask if it's what they want. When they confirm it is, manufacture.

25 March 2005

Post Tsunami branding lessons

According to most reports, the number one reason tourists are canceling trips to affected areas is because of uncertainty about the destination, not because of the cost. And yet, firms such as Kuoni, for whom the Maldives, Thailand and Sri Lanka are historically their top selling destinations, has released a brochure of selected regions affected by the tsunami that features holidays where the margin is a paltry US$20 and half of that sum has been pledged to local communities.

Any marketing pro will tell you the line between business stimulation via pricing and the impression there is something wrong with a product, or in this case, destination, is fine. In the long run, heavy price cutting could backfire later on as companies try to raise prices.

Anyway, is there any reason to panic?

According to Somak Holidays, the answer is no. The long haul African and Indian specialists based in the UK, has launched a brochure covering eight countries and featuring 145 hotels in more than 45 resorts and cities in countries such as China, Cambodia, Indonesia, Malaysia, Thailand and Vietnam. Although they are not discounting due to the Tsunami, they are donating £5 for every flight-inclusive holiday sold from the new programme to the tsunami disaster appeal.

Anton Grossman, UK sales manager with Malaysia Airlines had the right idea when he said the airline had "taken a firm stand" and only waived cancellation charges up to January 10. His reasoning was that Malaysia has been less damaged by the tsunami than other regions and that by continuing to waive the charges it would have "confirmed people's misperceptions about the size of the disaster."

Most compelling of all, is a recent survey conducted by Visa Asia Pacific for the World Tourism Organization, that found that 65% of those surveyed said the tsunami had no impact on their travel plans to the region.

More interestingly, about 20% said the tsunami had made it more likely for them to visit affected countries, especially those from China (20%), the UK (19%), Canada (18%) and Sweden (18%).

There are many branding lessons to be learned from the Tsunami. The importance of consumers; repeat visitors, the need for brand ambassadors; the power of viral marketing and so on. But slashing prices to build a brand-that’s one lesson we should have learned already. It is a short-term solution that will, at best, result in a short-term sales spike. It will not build a profitable brand.

24 March 2005

Toy City, KLCC

More often than not, our first experience of a brand is via a retail outlet. Which means the service, knowledge and skills of the staff must be good (more on this later). If you are business owner and looking for a role model, you could do worse than using the staff at Toy City, KLCC. These guys are good. From the moment you walk into the store the staff are checking you out, deciding if you are a genuine buyer or simply window shopping. If you have a child or two hanging off you, that's it, you have your own personal shopper, following you around the store, ready to answer questions on the battery life of a remote control car, the expected range of the car or whether the action doll your son is screaming for is wearing underwear.
They will help you carry toys, lift heavy goods from the top shelf without complaint and insert batteries (that they cross sold you on) while you wait.
It's a pleasure handing over my hard earned cash to these guys and I'll keep coming back to do so, especially if they create a loyalty programme..........

Maxis, a postscript

The irony is that I phoned Maxis, indignant to the core and threatened to change providers if they didn't re-connect my service. They did, in record time! Which surely defeats the object of the initial exercise! Anyway, a brand needs to work hard if it wants my money because I work hard to get it in the first place.
Maxis doesn't work hard enough so I am changing providers. We'll see how Maxis reacts.

22 March 2005

Maxis, oh Maxis

Maxis is a telecoms provider in Malaysia. It professes to have a strong brand. Why? Well, because they spend a bundle on advertising and promotions. Barely a day passes without a Maxis advertisement in the papers, on the radio, on TV a billboard and so on.

Vicious price wars and spectacular offers are increasingly common as competing firms attempt to get consumers to switch providers. But once they’ve spent millions convincing consumers to sign up or switch providers, what do they do with those consumers to ensure they stick around so that they can make a profit from them? Well, practically nothing!

My wife and I are probably a rare breed because we have Maxis at home but use a competitor provider for my mobile service. We’ve had Maxis at home since 1998, we spend, and this is a conservative estimate, around RM500 (around US$150) per month. That adds up to around RM42,000 (more than US$10,000) revenue since 1998. For someone to use a service for around seven years, they must be happy with it.

Furthermore, Maxis must know that we don’t use their Maxis mobile service. That makes us a hot prospect. And yet what do they do when our bill is a week or two overdue? Well, you’d expect them to give us a call right? Ask if we have made payment or if there is a problem that has delayed our payment. If they are too busy to contact us, you’d expect them to at least send us a warning letter, right? Wrong, they just cut us off! Not once, but three times in the last year! Haven’t these guys heard of customer retention? Don’t they know that once you have a profitable customer, you do what you can to hang on to him! Don’t they understand that expensive acquisition campaigns do not build profitable brands?

Wake up Maxis! A brand is not built on ads, a nice logo, jingle or the awards your advertising agency wins. A brand is built on the lifetime value of your existing customers.