What banks can learn from airlines

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18 February 2014
Daniel Latimore
Celent thinks that banks can learn a lot from other industries. Since I spend a lot of time on planes, I’ve gotten to thinking about the similarities between banks and airlines. They have a lot in common when we think about the way that they interact with their customers. They are both: 1. A means to an end. Just as no one says, "Let’s go to the bank for fun today," no one says "let's pack ourselves onto a metal tube with a bunch of strangers for several hours" (frequent flyers making year-end mileage runs notwithstanding). People bank so that they can have a safe place to store their money, pay for things, and borrow. Similarly, people subject themselves to flying in order to get somewhere a lot more fun than the airport. 2. Typically not held in high esteem by their customers. While this is certainly strongly related to the point above, it’s also the case that even when banks and airlines perform perfectly, customers aren’t excited. “How was your trip?” “Oh, fine” meaning that the airline did what it committed to do. Rarely does someone who hasn’t been bumped up unexpectedly say, “That was a fantastic flying experience.” Rather, it’s a case of, “That was uneventful,” or “that was as good as can be expected.” Banks, too, suffer from the curse of being unappreciated (as do, for that matter, utilities). Only when something goes wrong do people pay attention. 3. Involved with their customers in a very intimate way. Banks know many details of their customers’ personal finances. Airlines put travelers in very close proximity to perfect strangers for hours at a time. This intimacy engenders strong feelings in customers and lays the groundwork for strong feelings to flow. Despite how much worse the US airline experience has gotten for most customers, airlines are nevertheless returning to profitability. Bankers may want to mull some of the tactics that airlines have used, if not for outright emulation, than at least for lessons that they might provide in a banking context. Five key areas come to mind: 1. Pricing fairly 2. Being human 3. Setting expectations and being transparent 4. Recognizing valuable customers 5. Providing value-added services 1. Pricing fairly Unbundling products and services is one element of pricing fairly. Charging fees for baggage is the most prominent example of unbundling a service that used to be included in the price of a ticket. Customers squawked, and behavior changed in ways anticipated and not (have you ever squabbled about overhead bin space?), but they adapted and paid up, opening up an annual revenue stream counted in the billions of dollars. Even as the typical airline seat shrinks, airlines have added rows of more comfortable seats that they either give to their frequent fliers or sell on a variable-priced basis. Airlines are segmenting their frequent fliers and letting other customers self-select with respect to what they’re willing to pay for extra comfort. The lesson: demonstrate the value in the services that you provide, then charge customer segments appropriately. 2. Being human Because of the intimacy I mentioned above, it’s critical that firms let their employees act as people rather than automatons or faceless bureaucrats. Three key areas help ease the pain of a long flight or a mistake on an account. Foster personalities and connections: Having a person-to-person conversation, rather than focusing only on the business at hand, can drastically change the tone of an interaction. A simple “are you heading to or from home?” from a flight attendant makes me feel better about the flight, and the feeling is a critical part of the customer experience. Thank people for their loyalty: When an airline actually thanks me, it again helps with the good feelings. Similarly, the airlines send me coupons that I can give to staff who’ve performed exceptionally – the corporation has given me the opportunity to be human, too. Develop a brand personality: Airlines are required to give a safety briefing at the beginning of the flight. Some personnel simply read their manual in an incredibly bored (and boring) tone; others personalize it and manage to make it sound interesting. Some, like Delta, even have genuinely funny video briefings (see a YouTube version here: http://youtu.be/eduNjwNvcH4). 3. Setting expectations and being transparent It really helps to makes rules and expectations (in both directions) clear and easy to understand. Once those mutual obligations are set, then the firm has to stick to them – think about boarding by rows. When someone in group 4 tries to board with group 2, gate attendants who politely ask them to wait are reinforcing the mutual obligations that everyone on the flight has assumed. And you’ve got to be transparent about what’s going on; airlines still have some ways to go, but they’re making some progress in explaining why, for example, a flight is delayed. 4. Recognizing valuable customers Banks have recently begun doing a better job of segmenting their customers, but they can still learn a lot from the ongoing refinements that airlines continue to make. Airlines give passengers goals (elite status levels), keep them apprised of their progress, and have devised ways to monetize the desire to achieve those goals. “Mileage runs” are a topic of discussion on frequent flier community sites, and some airlines have dispensed with that and will simply sell miles at the end of the year to allow people to achieve their desired status. Providing differentiated service to valued customers is very basic, but airlines do it transparently and consistently while laying out the benefits different elite segments stand to reap. Incidentally, this isn’t to say that banks aren’t doing some of these things now, but if and when they are, it’s not necessarily widespread. 5. Providing Value-Added Services The basic function of an airline – getting a passenger from one airport to another – is pretty commoditized. Airlines try to differentiate on all the elements that we’ve just discussed, but they also try to make themselves stand out by offering a variety of value-added services. These are often driven by a web of partnerships that the airline has developed. Some of the most basic include:
  • Building a network of partners (e.g., Delta and Starwood) whose members enjoy reciprocal benefits
  • Booking hotels or renting cars through the airline site
  • Redeeming miles for a variety of goods or services offered through the airlines network of partners
  • Describing the weather at the destination (easy to do, not necessarily a huge value, but a nice touch)
There are a host of other value-added services that airlines offer. Rather than going into an exhaustive list, I’d simply point out that banks should examine what kind of additional value they can offer to their customers on top of the increasingly commoditized product suite on offer today. There are undoubtedly other salient comparisons that I’ve missed – please comment on what other areas airlines (or other industries) can provide lessons for banks.

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Asia-Pacific, EMEA, LATAM, North America