CUSTOMER LOYALTY MANAGEMENT FOR OCCASIONAL RIDERS ANALYSIS OF OCCASIONAL RIDERS USER BEHAVIOUR

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1 CUSTOMER LOYALTY MANAGEMENT FOR OCCASIONAL RIDERS ANALYSIS OF OCCASIONAL RIDERS USER BEHAVIOUR BRETZGER, FRANK PROBST & CONSORTEN, MARKETING-BERATUNG, DRESDEN, GERMANY 1. INTRODUCTION In the last years the liberalisation of public transport led to extensive efforts of transport companies to improve their economic situation by focusing on revenue management besides cost reduction programs. Important elements are strategies and measures for customer loyalty management. To extend customer relationships fluctuation of customers has to be reduced and new customers have to be acquired. 1 At present, there is a differentiation between strategies and measures of pricing, distribution and communication for regular customers (especially monthly pass subscribers) and for occasional riders. Thus a customer service according to the frequency of use of occasional riders is rarely possible. Due to increasing needs and a higher motorization an intensified use of cars is the consequence. For this purpose successful efforts by the automobile industry concerning young people and women are important factors. In order to tackle these problems, it is indispensable for public transport companies to increase their efforts with regard to occasional riders. These customers must be bound to public transport surely on a lower usage level than the regular customers by suitable measures. Thus a further decrease of public transport usage by this important and, if its share of population is considered, largest customer group can be prevented. As it is shown in practice, today customer relationship management (CRM) is implemented only to a very limited extent in public transport industry. Applications of the so-called analytic CRM are at present not in active use. In many cases the technical facilities for data collection of accurate user behaviour are missing. Furthermore present forms of market surveys and observations give only an insufficient idea about occasional riders. It should be emphasised that CRM does not only stand for the employment of information technology. It is rather a holistic approach for the management and attitude towards customers. In the described project an analysis of occasional riders user behaviour was accomplished for the first time. This quantitative analysis took advantage of usage data of the electronic purse GeldKarte in Hanover. 2 The analysis focuses on methods of analytic CRM in order to identify starting points to increase customer retention of occasional riders. The paper finally recommends a migration path in order to develop today s pricing and distribution systems towards an electronic ticketing.

2 2. CUSTOMER LOYALTY MANAGEMENT AND CUSTOMER DATA 2.1 Benefits for return through customer loyalty management Return through customer loyalty management is caused by the optimization of the three most valuable means of customer loyalty. These are the duration of customer relation, a revenue orientation and the cost efficiency. The aim of customer loyalty management is to raise the absolute share of public transport and its share of the individual mobility budget of each user. Priority objective is to increase the length of customer relation because the longer the retention of a customer lasts the more valuable the customer will be for the company. With assistance of marketing information systems effective measures for increasing the length e.g. by preventing losses thanks to individualised marketing before expected critical incidents come into effect could be implemented. In a first step the market size has to be examined. If the absolute share of public transport is decreasing, two aims have to be in mind for the second step: Gaining new passengers and committing existing passengers to increase loyalty to public transport. The third step is to raise public transport s share of the individual mobility budget of each user. For this, by marketing today s tariff and opening up new combinations of tariff and target groups, new passengers could be gained. Maximisation of revenue should be derived by getting more revenue per trip and more trips in the group of existing users. The following illustration summarizes the named three steps. 2.2 Classification of occasional riders Today there s only little known about occasional riders. So what has to be done to make the occasional riders more known to the companies? First the customers behaviour pattern has to be identified. Then customer data has to be won for implementing effective customer relationship management including measures for customer loyalty of occasional riders.

3 In the following illustration, a classification of occasional riders was made. The aim was to show, which objective and subjective reasons exist that make a lot of public transport s users only occasional riders. 2.3 Use of customer data for customer loyalty management It could be said that effective marketing has to realize revenue. So the question is, how the usage of customer data could support this aim. Customer data is necessary for the implementation of customer relationship management (CRM). CRM is a holistic approach for the management and attitude towards customers beneath the use of information technology and customer data base. But as it is shown in the next illustration, CRM is much more than pure use of information technology and customer databases. 3 It could be divided into three parts: analytical, operational and collaborative CRM. 4 The focus of the analysis in Hanover was on analytical CRM.

4 2.4 Customer data in public transport Public transport companies do have a lot of data at their disposal but the usage often turns out difficult. So the following questions have to be answered: What do customer data bases have to record and which data should be used for effective measures? As it is shown in the following illustration, customer data could be divided into four parts: Basic data, action data, reaction data and potential data. The preconditions in public transport are different for the two groups of users. In the group of subscribers, extensive basic data but no personal reaction data is available. In the group of occasional riders, reaction data but no personal data is available. The last-mentioned is only valid if electronic mode of payment with collection of transaction data is realized.

5 Finally it should be considered that today there are solvable restrictions by law and only little reserve by customers towards the collection of customer data. If the principles of permission marketing are considered and the benefit of customer data s usage is apparent for the customers, they are willing to make their personal data known Future of sales and distribution results of the German Delphi Study From 2004 to 2005 Probst & Consorten together with the Technical University of Dresden carried out a german-wide delphi study about the future of public transport. 6 In this study, the years until 2015 were examined. For the field of electronic ticketing the study provided interesting results as shown in the following illustration. In conclusion, German experts don t see the chance for an implementation of an integrative electronic ticketing system within the next ten years. 3. USAGE ANALYSIS: THE ELECTRONIC PURSE GELDKARTE 3.1 Usage development and significance of the GeldKarte in Germany The electronic purse GeldKarte was established in the year The acceptance by people is continuously increasing but its significance is still very low. 7 Most German public transport companies have installed ticket vending machines accepting the GeldKarte but the usage is still on a very low level. The next two illustrations are showing the usage development of the GeldKarte in Germany until 2003.

6 3.2 The GeldKarte payment procedure in Hanover There are some aspects in Hanover, which are advantageous for the GeldKarte -usage analysis. The payment with the GeldKarte is possible at all light rail-/tram-stops. The tickets are already validated for an immediate start of the trip. Thus the trip s starting time could be derived. Besides, there are no vending machines in the light rail-/tram-cars, so that an exact assignment of each payment to the accompanying trip s starting point is possible. In the beginning of Hanover s electronic purse implementation only the payment with GeldKarte was possible at the new vending machines (the socalled Tix ) later on cash payment was additionally enabled (but initially without change). Thanks to this history of implementation procedure, today there s is a very high share of GeldKarte -users in Hanover. Hanover s tariff system is divided into zones for passes but just three zones for tickets. Tickets with reduced fare are valid for the whole area.

7 3.3 Results of the usage analysis The described usage analysis was carried out for the year 2001 in which the usage of the GeldKarte in Hanover had reached a certain level. If the sales according to distribution channels and ticket sorts are considered there s a clear preference of single tickets at the GeldKarte vending machines. This effect could be interpreted to the rebate for single tickets at the GeldKarte vending machines. The ticket use depending on usage frequency shows that with increasing frequency the usage of single tickets is decreasing for the benefit of day tickets and short trip tickets. Because the day ticket (for one person) is mostly not more expensive than two single tickets, the question is are rare users purchasing the classic single ticket because of ignorance? Another effect is the increasing share of short trip tickets with increasing frequency of usage. This effect is explained by the price advantage of short trip tickets towards monthly pass even in case of frequent use.

8 The ABC-Analysis of GeldKarte -customers shows a strong differentiation among occasional riders. The A-customers with a share of only about 13 percent cause for more than 57 percent of the share of turnover. In some cases they make up to more than 900 Euro of revenue per year and customer. In contrast there are over 50 percent of customers which have only up to four purchases per year (C-customers) and realize just up to 14 Euro on revenue. This big group of customers is using public transport so rarely, that it is even not taken into account in classical market surveys! With regard to revenue per year and customers, it should be amphasized that regular customers cause a much higher revenue per year than occasional riders. Although occasional riders are if the share of population is considered the largest customer group, the value of a monthly pass subscriber is (at an average of about 400 Euro in Hanover, even not regarding cross-selling like onward tickets) clearly higher. With regard to the days of public transport usage of GeldKarte -customers, it s getting clear, that the majority of occasional riders are using public transport relatively little. The analysis shows that more than 60 percent of all GeldKarte -users used the public transport just up to five days annually (respectively paid with the GeldKarte ).

9 The analysis also shows that with increasing usage frequency the leisure usage compared to the non-leisure usage decreases. To simulate the effects of a so-called best price, extensive estimations were made. The basis for the best price were regular monthly pass prices; Hanover urban area was always completely calculated (i.e. 2 zones), because trip distances are not known and their determination is practically impossible. Price reduction and charging of single and day tickets (for one person) as onward tickets for several zones as per chosen number of the monthly pass zones were made. The extension possibility was also regarded. Extension possibility means, that if several tickets were bought within the same minute attention was paid to the possibility that the ticket could have been extended to another person. If it had been possible the ticket would be included in the calculation, otherwise it would be additionally charged. The following illustration shows the effects of a monthly best price for the GeldKarte -customers if there weren t any effects and usage changes due to the best price. Especially more far-reaching effects on the development of total revenues caused to fluctuations of subscribers to best price offers and therefore arising losses of revenue on the one hand and increasing revenues through new customers gained thanks to the attractiveness of such an offer on the other hand were not regarded in this analysis. With the named restrictions it could be said that a monthly best price would lead to little loss of revenues in the group of occasional riders.

10 As analysis conclusion it could be recorded that the key figures of GeldKarte -usage make clear how inaccurately average values are describing the actual usage behaviour. In average there were 11,9 purchases, 9,3 days with usage and 22,16 Euro transaction volume per GeldKarte -user per year , which are only 1,9 percent, GeldKarte -customers bought every month. 4. CONCLUSION AND FORECAST Getting from analysis to implementation it should be shown which conclusion could be drawn from the analysis. In a short-term view, enhancements of electronic purse usage for optimizing the existing system should be realised. Possibilities to extend the user range and partners to activate the user range should be drawn out. Existing users should be motivated to increase their use. Migration and additional forms should lead to more flexibility of today s use. For this, possibilities for the development of card-based solutions have to be regarded. On topic is the consideration of present visions and thinkable incentives for increasing occasional riders usage. Electronic purses have to be completed innovatively and sales-channels have to be better co-ordinated. A third recommended field of action is the fundamental optimization of the system by integration of ticketing and sales. For this, innovations in the tariffsystem have to enable a better customer retention in cash-based tariffs. In addition it has to be shown which discounting systems could make sense and which connection of occasional riders tariff to monthly passes and subscribers should be realised. Last but not least the system of tariff and sales has to be included in the efforts of the recovery management. If the conditions of today s multi-trip cards are regarded, optimization of fares is thinkable even without implementing electronic ticketing systems. Incentives for customer retention in cashed-based tariffs arise from an intelligent spread of discounts (compare following illustration).

11 Another possibility for increasing revenues is the profit by price differentiation. For this customer s willingness to pay has to be skimmed by an intelligent price differentiation and improvements in customer retention as it is shown in the following illustration. 5. DEVELOPMENT POSSIBILITIES In the long term the differentiation between occasional riders and regular customers has to be obliterated by implementation of electronic ticketing. In a first step new ways of communication (esp. direct communication), an adjustment of the pricing system and of distribution channels (esp. increasing attractiveness and strengthening of electronic payment in addition to concentration of marketing efforts on subscribers) lead to a reduction of classical cash payment and to increasing customer retention in a short term.

12 The following medium- to long-term consideration leads to the obliteration of the differentiation between occasional riders and regular customers. In the future, the highest share of customers use public transport with account cards. In a city and its suburbs like Hanover with about inhabitants a potential for account card customers of about is then imaginable. By calculating a potential on the basis of today s users of electronic purses and translating their usage behaviour to users of other tickets and distribution channels in addition to the monthly pass users a potential of about customers is resulting. If today s monthly pass subscribers are additionally regarded, the total potential of about customers regardless of school and student tickets and passes is reached. To reach these aims, public transport has to implement effective marketing measures, controlling instruments and intelligent marketing information systems. Further developed marketing information systems in public transport in conjunction with electronic ticketing lead to reasonable customer loyalty management. Finally it should be underlined that electronic ticketing itself without new customer loyalty management strategies does not make sense. Bibliography 1 Kummer, S. and Probst, G. (2001) Kundenbindungsmanagement im ÖPNV, Internationales Verkehrswesen (7+8) The analysis was part of the author s diploma thesis at the Technical University of Dresden (2004). 3 Homburg, C. and Sieben, F.G. (2003) CRM Strategische Ausrichtung statt IT-getriebenem Aktivismus, Handbuch Kundenbindungsmanagement, Bruck, S. (2002) CRM: Mehr als die Summe seiner Teile, Acquisa (3) Attlfellner, R. (2003) Big Brother war gestern, Werben & Verkaufen (26) Technical University of Dresden and Probst & Consorten, delphi study ÖPNV-Markt der Zukunft (2004) 7 Bundesverband deutscher Banken and S-Card-Service (2004)