The Analytics of LoyaltyThe Analytics of Loyalty –Qantas Frequent Flyerq y

Vaughan Chandler and Wade Tubman© Qantas / Quantium

Qantas Frequent Flyer

COALITION LOYALTY PROGRAM RELATED BUSINESSES

• 8 million+ members – 50% household penetrationB d t t hi

• Operates over 100 loyalty programs• Scalable marketing and analytics 

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COALITION LOYALTY PROGRAM RELATED BUSINESSES

• Broadest earn partnerships• Unrivalled partner network, redemption options and Qantas assets

• Program design creates considerable i d f Q

platform• Significant opportunity exists to leverage IP in adjacent industries

strategic advantages for Qantas

Vii Loyalty

Driving Growth in the Core Innovate and Expand along the Loyalty Value Chain

2

The coalition engagement model

WorldBEHAVIOURAL OUTCOMES

World leading partner profile

Customeracquisition

Improved retention

Increased Improved 

Valued member proposition profile share of wallet

pmargin

p p

• Simple• Achievable• Desirable

• Reach• Breadth• Brands

• Innovation and technology• Communication channels• Leverage assets• Community• Community

3

Qantas Frequent Flyer Business Model

Billings of over $1bn

Cash / deferred

revenue of over $2bn

EBIT of over $340mn

over $2bn

4Source: 2010 Qantas investor briefing and Qantas Data Book 2011

The evolution of Qantas Frequent Flyer

Fundamental shift of business model in 2007 World 

leadingCustomer Engagement and Fi i l b fi• Shift to Coalition model

•Position for growth into mass market

leading partner profile • Continual Evolution of the business, for  • Record membership satisfaction

Financial benefits

example:• Platinum One• Auto‐rewards• epiQure by Qantas Frequent Flyer

• 60% increase in EBIT• 50% increase in membership• Over 3.5 million award seats redeemed and 400,000 items of merchandisep Q y Q q y

• New comms channels,

Analytics Capabilities

5

Analytics CapabilitiesLoyalty design 

analyticsPredictive and event modelling

Campaign optimisation

Customer behaviour analytics

Qantas Frequent Flyer is unique

AUD* MultiplusAIMIA

(Nectar and Aeroplan)

Qantas Frequent Flyer

2010 2010 2010

Core Markets Brazil UK and Canada Australia

Billings per capita of core markets $3.50 $21.50 $41.50

Estimated Breakage Rate 23% 18% <10%

Adjusted EBITDA per capita $0.89 $2.53 $7.30

6

Market Penetration of core markets 4% 34% 37%

* converted to AUD at spot rateSource: Annual reports and QFF analysis

Systems and data are not the end goal

Organisation structure

Organisational Culture

Commercial acumen

These elements are all required to 

Measurement and KPIs

Knowledge management

qbe in balance to optimise valueKnowledge management

Investment

optimise value from data

7

Process and practice

Case Studies : QFF continues to break new ground in the loyalty sector by combining internal assets with proven analytical approaches and external data

Case Studies : QFF continues to break new ground in the loyalty sector by combining internal assets with proven analytical approaches and external data

1. Setting liabilities through customer engagement modelling

2. Targeting customer retention efforts with predictive modelling

Case Study 1 - Customer engagement modelling

• Program liabilities and the release of revenue are dependent on the eventual use of each point

• Over the long term all points are either redeemed or expire unused• Over the long term, all points are either redeemed or expire unused• Modelling future points expiry (breakage) helps inform the setting of

assumptions by management• There is a balance between customer engagement and breakage, between

long term customer value and shorter term revenue

Modelling techniquesModelling techniques

Many international loyalty programs have “life of point” where individual points

Breakage is often modelled using pension

life of point , where individual points expire, say, 3 years after they are earned

g g pfund techniques

The QFF program is based on member

Breakage is modelled with a multi-state

The QFF program is based on member engagement, so customer activity levels

are the key determinant of breakage

Source: Quantium

Breakage is modelled with a multi state transition model based on the level of

customer activity

Learnings for financial servicesLearnings for financial services

Whole of business focus Holistic customer viewContinual assessment

Coordinated executive level committee – finance,

strategy, analytics, Consider customers

across multiple dimensions

Ongoing monitoring of customer activity and touch

pointsmarketing, product etc

Culture and KPIs supporting balanced

– status tier, channels, source, level of

engagement, value, activity etc

Actuarial assessment of customer engagement

implications of keysupporting balanced outcomes

activity etcimplications of key business decisions

OutcomeApproachObjective

Case study 2 - Predictive retention modelling

Targeted surprise and

Outcome

1.Market Blueprint® used to identify loyal and

Approach

Identify customers at risk

Objective

Textg p

delight campaigns to most valuable customers before the “defect”

y ydisloyal behaviour, and measure potential customer value

Identify customers at risk of disloyalty to focus retention and winbackinvestment

Text

Text

TextAbility to respond to disloyalty on an ongoing basis

Build a predictive model to rank customers on their risk of “defection”

2.Calibrate model to QFF customer variables (both internal and external) tointernal and external) to score loyalty for individual members

The loyalty / value trade off

Hig

h

ue

Focus retention efforts on those

with most potential Ideal

customer

tom

er V

alu value

LowC

us Upsell to these highly loyal

customers to increase value

Low HighLoyalty

increase value

Number of Points Redeemed on Domestic Classic Awards Redeeming rewards generates loyalty

54%

60%

eing

Qan

tas

42%

48%

of n

ext f

light

be

36%

42%

Like

lihoo

d o

30%

Points redeemed on Classic flightsSource: Quantium

Lounge Access Flag (Qantas Club and Higher Tiers)Lounge access generates loyaltybe

ing

Qan

tas

d of

nex

t flig

ht

Like

lihoo

d

No lounge access Lounge access

Lounge access - Qantas Club and high tiersSource: Quantium

Supermarket Loyalty ScoreLoyalty carries across industriesbe

ing

Qan

tas

d of

nex

t flig

ht

Like

lihoo

d

58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Supermarket loyalty - by percentileSource: Quantium

Focusing retention efforts - customer value overlay

Source: Market Blueprint ®

Fitted versus ObservedOutcome : Individual customer risk of defection

eing

Qan

tas

Focus retention efforts

of n

ext f

light

be Focus retention efforts

on customers with 5-10 times the risk of others

Like

lihoo

d o

0 10 20 30 40 50 60 70 80 90 100Model Percentile

Ranked IndividualsSource: Quantium

Learnings for financial servicesLearnings for financial services

Predictive modelling Ongoing monitoringRoot cause analysis

Predictive models allow retention activities to be

Implementing retention risk measurement on CRM Multivariate models help

understand the drivers ofretention activities to be targeted on the highest

value customers at risk of churn, maximising ROI

systems allows ongoing monitoring and rapid

response at an individual customer level

understand the drivers of churn behaviour, informing

the design of potential retention initiatives customer level

C l i H li ti i f th t• Traditional customer, product

and transactional data• CRM data customer profiles activity

1. Effective use of internal data

Conclusion: Holistic view of the customer

• CRM data – customer profiles, activity, touchpoints

internal data

• Obtain a view of customers and their behaviours outside your organisation2. Exploiting external

Maximising customer

loyalty and l• Predictive modelling at an individual3 Extensive customer

y g• Monitor, understand and capitalise on

emerging trends

p gdata sources

valuePredictive modelling at an individual customer level for acquisition, cross-sell and retention

3. Extensive customer focused modelling

• Supported by customer centricSupported by customer centric management and culture

• Ongoing investment in knowledge, systems and processes

4. Customer centric organisational focus

Vaughan ChandlerHead of Strategy and AnalyticsHead of Strategy and AnalyticsQantas Frequent Flyer

Wade TubmanWade TubmanPrincipalQuantium