Marketing BS Podcast: Southwest Loyalty and some announcements

Happy new year! Expect fewer posts this year. I will keep going with this podcast, but I am shifting my time commitment to (1) get the book over the line. No more excuses; and (2) Work on developing “business comedy”. I will write more about #2 at some point, but for now enjoy the podcast, and be happy if you weren’t flying Southwest the last few weeks!

Full Transcript

Edward: Peter, how were the holidays?

Peter: Wow. It seems like a million years ago, doesn't it? It's amazing. We had that kind of one day after New Year's adjusting and then boom. But it was great. I went down to Antarctica and it was amazing. Super fun, super interesting. What about yourself?

Edward: We tortured ourselves by taking our four little children to Guatemala and Belize.

Peter: Wow, that's bold. That's bold.

Edward: But I think the nice thing is both of us missed the travel meltdown that happened. I think we both got out before everything started falling apart across America.

Peter: It was amazing actually being down in Antarctica. where it's kind of warmer and more pleasant than it was in most parts of the us. What a mess that was

Edward: Go to Antarctica for the heat .

Peter: Well, it was summer and, I think unfortunately the repercussions of that are still rippling through and it's gonna be a while before that all settles down.

Edward: It's interesting. We were flying on Alaska and there's now a direct flight between Seattle and Belize City. and there were three flights before ours, and they're a limited number of flights now that go back and forth. Like they're only every couple of days. And the three flights before ours were all canceled, so we're on the edge of our seats and whether we were gonna get back on time.

Peter: And between all the cancellations that were happening earlier in the summer for different kinds of reasons, staffing, and now all of the kind of Southwest mess, which is more kind of operational issues, we have a very different feeling in the stomach when we pull up to the airport these days.

Edward: One of the news this week, southwest Airlines had a big, big mess up where every, all the airlines kind of had trouble, but I think Southwest had the most at one point, I think they'd canceled half their flights. It was like a huge, huge, huge.

Peter: Yeah. And I guess, if you read, some of the, articles and blogs about it, it seems like it was, it was inevitable, right? That they've been on a bit of a downward spiral in recent years and letting go of some of the operational aspects that would've never happened back in the old days. But, it's a shame it had to hit. Abruptly, and it's such an inconvenient time.

Edward: Well, that's what's gonna happen, right? When you run really lean, if everything's going well, it's not a problem. It's when things start to go wrong, all of a sudden they can go really, really wrong because that's when things break.

Peter: Exactly. And of course, the lessons to be learned are, How not to let them break, but also how to, how to recover from it. And I still think there's a lot of lingering questions about that.

Edward: I think the Wall Street Journal was just publishing earlier this week about how Southwest is now saying, sorry. They're admitting their failures. They're offering, they said 25,000 frequent flyer points so that passengers hit by the travel meltdown. What do you think of that? Like, what is the value. The passengers who are getting that treatment to get them to come back? Or is it the signaling to non passengers that, Hey, we really.

Peter: It's very interesting. My, initial reactions be really, really fun to, to talk through, was not a positive one. About that move. Couple of reasons. Number one, devalues the point. It's like, we're just gonna throw some stuff at you. You spent all this time trying to get people to value points and earn and get status and all the great things you can do. But just to use it as a way just throwing stuff at you, it kind of makes you wonder about the value of that currency and what it really means to Southwest. So there's one reaction. What, do you think about that?

Edward: I think they claimed in that same article they said, those 25,000 points is worth $300, which would, which you put each point at worth more than a penny, maybe it's $300 if you do it absolutely perfectly in how you use it. But I think most people value these points at less than a penny. But you're saying that the fact they're giving points at all rather than giving people the $300, in either future travel or $300 in cash, the fact they're doing it in points, what degrades the value of the point .

Peter: I think it does, maybe less from a fungibility standpoint, but from a psychological one, we try to associate these points with good things and aspirations and bonuses and like, wow, look at all things we can do with it. But here we're framing it or they're framing it as, this is a way that we're covering our ass and, and making up for a problem. And, I think it taints the idea of, of what these points are all about.

Edward: I'm just thinking, when I was traveling, I stayed at,, back before Marriott bought them. I was staying at Starwood Hotels and they offered points for all sorts of things, but that was their go-to for both good things for, Hey, do these things we want you to do and we'll give you bonus points., get our credit card, we'll give you bonus points, stay in our hotels, get more points. But they would also use them for when things went wrong. And I remember times where like, Hey, they messed up my hotel room. Or there was really loud noise at night. Or they had, the pool wasn't working. And in those cases when you said, Hey, you guys made a mistake, their go-to thing was, well, here's some points. And I don't think I felt bad about that. I felt, I think I felt good about that.

Peter: = I think it's different. I think it's a very different situation because, I've of course been in many of those situations myself, but, when it happens on an ad hoc basis like that, it's like, look at me, you know, I was a good negotiator. Look at what I got out of them. So at that point, it seems like a bonus. , I got something that other people might not have gotten. Whereas in this case it's a blanket offer, so it's not so no one's gonna feel like that they got something that they earned it, they're being treated all the same, and it's just sort of being thrown at them. It's not the outcome of some kind of, negotiation or something like that. So I think it's the points are framed very differently.

Edward: Should they have done it below the line? . So instead of announcing that the Wall Street Journal they were doing it, should they have just approached each individual independently and said, Hey, we felt really bad. What happened to you specifically? Here's 25,000 points to make up for.

Peter: And maybe vary the amount of points based on what people paid for the ticket or just how much inconvenience they were. Something like that. I think if they tried to make it a little bit more personal instead of just, again, sweeping it under the rug. Here you go, people, here's your points. Now shut up and let's keep going. I think that it might have just felt a little different.

Edward: Who's to say they're not doing that? Maybe, they led out with the top line saying, Hey, it's 25,000 points to everybody. Here's the Wall Street Journal article. But maybe below the line they're saying, Hey, we're giving 25,000 points to everybody. But for you, We're gonna give you 30 or we're gonna give you 40 because of what happened to you and we wanna make so special.

Peter: Or maybe it opens up that negotiation where people will go back to 'em and say, 25 isn't enough. I deserve more. In which case they would feel a little better about those incremental points that they were able to negotiate for. One of the other things that I find interesting about it, and this just kinda shows our age over here a little bit, is that Southwest, unlike the other airlines, hasn't been as, Has dependent on the loyalty program. They haven't called attention to it quite as much, and for years and years and years, they actively resisted having one. They always said that, look, we're just giving you a good deal. We're gonna treat you really well. We don't need to sweeten it in the way that some of these other big evil and personal airlines do. I kind of admired that about them, but then eventually they caved in. Everyone has to have it, but

Edward: now they're so much money and a credit card.

Peter: They have to do it, and that's fine. It's inevitable they would, but now they're calling even more attention to the program. And again, they're doing it in a way that has nothing to do with loyalty, that has nothing to do with that good feeling. It's just another currency. And it, takes, something special out of it and makes you start thinking about Southwest in a slightly more, I don't know, commoditized way .

Edward: Have you looked at cohorts like this? So, like either an airline or something similar where something really bad happens. The people who experience that really bad thing, do you see what happens to their lifetime value? Does it drop significantly?

Peter: I love that. I I love that. I can't believe that you raised that before I did. We do that all the time. In fact, the most obvious example being covid. But plenty of others, you know, we'll, we'll find cases where there's some kind of either competitive entry or the company engaging in some kind of other big strategic change. Not so much the first thing to do, but maybe the most telling thing to do is to say, , what's the nature of those customers, of the customers acquired during that time and how do they compare, you know, better or worse to, to others? I think that's a really great analysis to do and ends up being, I think, much more telling about the impact of that intervention than just a lot of the kind of day-to-day moment to moment. Nonsense on social media. So it's a great analysis. Now let's press pause on that and pick it up, a year from now and it would be great if Southwest would divulge some of that data.

Edward: To me there's, three effects. There's one which is Southwest did this big mess up. It's in the news. How is that gonna affect my future travel with Southwest? Like how many times was I going to travel with Southwest? I wasn't affected by it, but I heard about it. Is that gonna drive down my future likelihood to fly Southwest then? Then number two is the people who were actually affected by it. They were traveling on Southwest, they released somewhat loyal to Southwest and that they bought one ticket. How is that going to affect their future travel with Southwest and is it gonna be more so than how my, I'm affected? You can even break that down even further by. People who, people who that was their first flight with Southwest. That's their only experiences with those Southwest. Versus a frequent traveler. And then number three is what effect did the intervention have? And I think the problem with this is that, Number two and number three, we can't separate because they're giving it to everybody. Now, if they've done it below the line, they could have just given it to like 90% of the people and 10%, 10% get nothing. You're screwed, buddy. Just so they can measure the effect of whether their intervention paid out.

Peter: I love that. I love that. Or at least to communicate it differently to different people. Some people it could be a more positive message like, Hey, you get a free vacation on us. Or with other people it might be a, oops, we screwed up. You know, we feel bad. So that there still could be ways that they could try to get some insight from it. I suspect they're not, I suspect they're gonna try to make it as blanket and generic and, just get it out there and forget about this thing, which of course raises another problem which is they, giving points away isn't addressing the problem. all the operational issues that have been creeping up on them. The last thing they want is to throw a bunch of points at people and to see issues like this keep recurring, even if it's not quite as severe and public as what happened a couple of weeks ago. They're gonna still have operational concerns. And this whole points thing, the fact that weren't even talking about it, might call even more attention to future problems they have.

Edward: Have you seen any examples like that? Like what should Southwest expect? What should it do to propensity to fly for people like me that weren't, didn't experience it? What should it do to the propensity to fly to the, for the people who got hit?

Peter: Maybe The Thing to do, you gotta give some points or money or do something. But maybe it should be more communications around here's what we're doing to fix the problems. You know, here are the new people we're gonna hire and the new systems we're gonna integrate, and the new processes that we're gonna have to try to keep people alert. Again, I haven't stayed that close attention to this, but, I'd rather hear about the issues and how they're addressing them, rather than trying to just, throw points at people and pretend it's all better.

Edward: I imagine this what the investors would care about more than anything else.

Peter: Sure. And ultimately that might be what matters most, cuz there's no doubt they took a big hit here and I think people are gonna be looking at 'em skeptically for a while now. They need to earn people's trust back and again, it's not clear that 25 k points, closes the chapter here.

Edward: They need a new, what's their tagline? Like, flying the Friendly Skies. Is that Southwest?

Peter: No, that's, United.

Edward: Oh my gosh. What's Southwest tagline?

Peter: Oh, geez. , we should know our airlines better here. You're look, looking it up.

Edward: Lofas. Nothing to hides. That's transparency. That's their, oh my gosh. That's terrible. .

Peter: Yes, exactly. And, and here they're, they're trying to hide a lot, . And again, it's not very evil. It's not a conspiracy, but they're not being transparent. They're not addressing the issues. At least through this one tactic,

Edward: they can do the new tagline. We will try harder. We'll do better.

Peter: and we'll throw some points at you if it doesn't work.