We have been hearing for years about how the increasing availability of data is changing how marketers engage with customers. But what does that look like in practice? Are customers seeing improved service, better options, and more responsive offers? And how are these changes hitting companies’ bottom lines?
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For more than six years as senior vice president and chief marketing officer for United Airlines and president of United MileagePlus, Tom O’Toole has had a finger on the pulse of a radically changing marketing landscape.
O’Toole, who also serves as a faculty member in the Kellogg Chief Marketing Officer Program, sat down with Eric Leininger, a clinical professor of executive education at the Kellogg School, to discuss what marketing looks like in his industry today—and what it may look like tomorrow.
This interview has been edited for length and clarity.
LEININGER: We’ve seen marketing shift to become more personalized, engaging customers in a different kind of relationship than in the past. What’s surprising to you about the way this marketing is changing?
O’TOOLE: It may not be fully appreciated how advanced data-driven targeted marketing has become.
At United, for example, we are currently doing a targeted marketing program, particularly to grow our market share in what are called “key spoke” cities, meaning important cities that are not our hubs. This is the largest such program we’ve undertaken, targeted to several million individuals. Each individual received, and is now tracking toward, a multi-tiered personalized offer based on her or his actual flights, spending on United, and other factors in the last year.
Even a few years ago, this would have been a much more conventional frequent-flyer program promotion based on customer segmentation and promotional offer cells. Now it is extremely individualized and extremely targeted—and extremely measurable: we develop personalized offers based on individual customer value and other criteria, deliver those offers to specific individuals through email, digital channels, and social media, and then have the feedback loop to business results at the individual level: Did they book? Did their number of flights with us increase? Did their spend with us increase? And, by extension, did our share of the customer’s total flights and flight spend increase?
This example isn’t hypothetical. We optimize marketing at the individual level on a very large scale. Sometimes I hear people talk about how companies are going to be doing this. I think, no, we’re doing it. And others are doing it as well.
“Sometimes I hear people talk about how companies are going to be doing this. I think, no, we’re doing it. And others are doing it as well.” —Tom O’Toole
LEININGER: Does a traditional segmentation study, in which you identify six or eight groups of travelers based on some number of dimensions, have value today, in a world where you can do what you were just talking about? Are these just new capabilities that help us to pursue our fundamental thought process more effectively? Or are we leaving the fundamental thought process behind?
O’TOOLE: We’re taking the conventional segmentation, advancing it to the individual level, and optimizing it. People have talked for years about doing this, but now it is the established practice that we continue to refine.
I’ll give you a specific example. United Airlines serves and must serve and will serve a wide range of customer segments. We value and want to provide a good travel experience to all of our customers. That said, there is an identifiable customer segment—“high-value customers”—that produces a greatly disproportionate share of the revenue and the value creation. We focus intensively on driving our share of business, not just at the segment level, but at the individual level, for these customers. We monitor and score their business with us and their experience flying with us for each individual customer on each individual flight, and over time to get to know how we’re performing with that customer and how we can recapture, retain, and grow their business.
So, yes, we’re still talking about customer segments, but now we’re focusing at the individual level within customer segments.
Another key shift is that we are now in a world of ongoing, dynamic testing and optimization. If you want to sell Economy Plus seats, do you market the benefit of “more legroom,” or “more space to work,” or “more space to stretch out and relax”? Before, there were conventional ways to test this, but not in real time. Now, we can and do test and optimize dynamically in real time, based on specific customer attributes.
I’m quite mindful that people have talked about “a segment of one” and personalized marketing for years. That’s not new. What I think is increasingly advanced is the capability to do highly individualized marketing driven by robust data analytics at very large scale and to optimize it dynamically in real time.
LEININGER: Making this shift requires different personnel and priorities. Let’s talk about the people involved. You’ve been in your job for six years. How does your marketing team look different now than it did six years ago, and what do you think it’s going to look like six years from now?
O’TOOLE: I hear people say, “We need data scientists.” Well, yes, very selectively—but what you need more broadly are people in different types of functions who are able to translate business needs and problems into data analytics, manage the data required, perform the analytics, and then apply the analytic output in the execution of marketing initiatives and activities.
“The conventional marketing organization is an artifact of a prior era.” —Tom O’Toole
The basic, minimum level of understanding of how to use data analytics has risen, and continues to rise. For virtually any marketing manager, it’s foundational to your daily job. For the CMO, proficiency in the use of data analytics is imperative.
I see companies continuing to retrofit and adapt and incrementally change conventional marketing organizations—but ultimately what is required is a restructuring of the marketing organization, which is a wrenching transformation. The conventional marketing organization is an artifact of a prior era.
LEININGER: What does that restructuring look like?
O’TOOLE: If you really strip it down, the core elements include: data, content, and platforms. Content includes what was previously called “advertising” or, specifically, “creative.” Platforms include what was previously called “media.” Foundational to it all are data and data analytics. That’s rudimentary, and certainly not the whole framework, but I think it’s a rough start.
The conventional marketing functional structure is increasingly anachronistic. The functional distinctions are now at best arbitrary and becoming problematic.
Look at e-commerce. Where does the marketing function leave off and the IT function pick up? That’s a stress line in every organization I’ve ever been involved with. Look at data-driven advertising. Where does the data-analytic function leave off and the advertising function pick up? That is a stress line right now and will become more so.
LEININGER: Organizations created separate digital marketing and e-commerce teams because their legacy marketing teams couldn’t do what needed to be done, and if digital marketing or e-commerce was made subordinate to classically trained marketers, change wouldn’t happen fast enough.
Now organizations are saying, “I created these separate teams so I could get something done—and now I have three organizations where really I need one unified organization.” What do you see as the biggest challenge of getting from those siloed organizations to one organization?
O’TOOLE: Restructuring the marketing function requires getting comfortable with and proficient at much greater integration between what were conventionally different functions. In the era of broadcast network television commercials, how much integration was required between broadcast network television advertising and consumer data analytics at the individual level? Not much. (I’m not referring to media planning or audience research). But how much integration is required between targeted digital marketing through addressable media and analytics? A lot.
LEININGER: How unique is this trend to the airline industry?
O’TOOLE: I don’t think that it’s at all unique to the airline industry. Yes, travel and financial services and retail are relatively advanced. But it also applies increasingly to health care and energy and a wide range of other industries. I think that it ultimately will apply and can apply to virtually all industries.
I was giving a presentation once about exactly this subject: data-driven marketing. A guy came up to me afterwards and basically said, “Yeah, that all sounds great, but I work for a company that makes steel. We’re a commodity, so how does this apply to my company?” I don’t know much about the steel business, but thought about it and said, “Well, do you make different kinds of steel? I imagine you make rolled steel, formed steel, cut steel, tooled steel.” He said, “Yeah.” I said, “I imagine you have different types of customers and that you know who buys what type of steel. Couldn’t you get the data and figure out which customers might be prospects for specific types of additional products or offers?” And he said, “I suppose that we could.” I think that it’s really a matter of reframing the business and looking at it in terms of what data is available and how it could be used.
LEININGER: How do you use the richness of the data that you collect to reinforce loyalty or a sense of relationship with a customer?
O’TOOLE: It lets us track and evaluate the customer experience over time and intervene if we see the relationship weakening or how to grow it. It enables us to be very, very informed about individual customer relationships.
I’ll give you an example. The most valued benefit of being a Premier member of MileagePlus for many people is the complimentary upgrade. The availability of complimentary upgrades on a given flight is a function of the bookings on that particular flight and the resultant seat availability in the front cabin. It sometimes happens, just by circumstances, that a 1K member can have an extended series of flights without a complimentary upgrade. This can put us at increasing risk of losing a high-value customer.
Now, we track if an individual has had a run of X number of flights in a row and their upgrade never cleared. We can then automatically override the algorithm and intervene to be sure that the individual gets upgraded. This has been proven to result in a measurable business gain.
LEININGER: You’ve got all these smart people on your marketing team, and they’re trying to figure out how to get more cash from each transaction. How do you make sure that, as they write those algorithms to maximize cash, they do so in a way that is consistent with how you want the brand to be perceived?
O’TOOLE: In terms of the brand, there are certain things that we could do that we just decide not to do based on brand considerations.
I’ll tell you a different and growing question that we think about: operational complexity. Here’s an example. One of the things that we know is potentially popular with travelers is offering preordered meals, where instead of getting three choices, here’s a menu and you can choose from 25 choices in advance. That all sounds fine until the flight attendant needs to know that the guy in 12B had the kale and quinoa. And what happens when there is bad weather, and to get you out sooner, we swap aircraft or put you on a different flight, when you paid in advance for the kale and quinoa?
The point is that we can, through digital channels and data use, create highly differentiated service offerings that can cause enormous operational complexity at scale in the real world. Thus, we increasingly need to balance service individualization with operational execution to find the optimal combination of personalized products and services with reliable operational service delivery in a highly dynamic business on thousands of flights around the world every day.
Fred Schmalz is the business editor of Kellogg Insight.
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