The differential effects of touchpoint functions in airline apps on customer engagement and customer retention for different traveler personalities

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The differential effects of touchpoint functions in airline apps on customer engagement and customer retention for different traveler personalities

Master Thesis

Student: Nadja Ella Hutton-Mills Student No.: 11145781

Study: MSc in Business Administration- Marketing Track 1st Supervisor: Prof. Dr. Ed Peelen

University of Amsterdam Date: 27.01.2017

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Statement of Originality

This document is written by Student Nadja Ella Hutton-Mills who

declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is

original and that no sources other than those mentioned in the text and

its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the

supervision of completion of the work, not for the contents.

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Abstract

This research has the purpose to shed more light into the field of customer engagement and retention research in the field of Customer Relationship Management. More specifically, it attempts to explore the potentials of touchpoints in mobile CRM apps and explain their effects on customer engagement and retention in the field of aviation. With different touchpoints in mobile CRM apps of airlines, the effects of touchpoints are assumed to be differential, especially under consideration of different traveler personalities.

The research consists of an exploratory research part, which provides insights into the current status quo of touchpoint development in mobile CRM airline apps and an explanatory research part, which tests the effects of those different touchpoints on engagement and retention among different traveler personalities. The research has been executed with an expert interview with Product Manager at the Lufthansa Innovation Hub in Berlin, a field analysis on current app development in the airline industry and an experiment conducted at Düsseldorf Airport in Germany.

The research affirms, that current touchpoint development in mobile CRM apps in the airline industry is moved by trends such as big data, digitalization, personalization and instant messaging. Touchpoints have many different functions and even incorporate other technologies to complement for better service offerings. Moreover the research revealed, that touchpoints do have the potential to evoke customer engagement and that they generally trigger even higher levels of customer retention. Moreover, research reveals that only a short term exposure to touchpoints in an airline app can affect the basic levels of engagement and that different touchpoints have different effects on among different traveler personalities. While value focused travelers generally show higher levels of customer engagement than other traveler personalities, efficiency travelers seem to show remarkably high levels of engagement and retention when being presented with additional help and contact touchpoints. Finally the research reveals, that touchpoints that provide customers with economic advantages, additional help for the journey, and travel related tips evoke the highest engagement levels, while personal information, and key travel information related touchpoints evoke the highest levels of retention. Ultimately, it was shown, that long term investments into mobile CRM touchpoint development are required to yield stronger engagement levels, but that touchpoints can already offer additional profits and competitive advantages in the short-run.

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1 Introduction

1.1 Background

“In this light, relatively little is known about mobile customer relationship management and from marketing perspective we are still dealing with an extremely unacknowledged phenomenon.” (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2006, p. 1)

This statement was made by researcher Jaakko Sinisalo and his colleagues in their study called “Managing Customer Relationships through Mobile Medium- Underlying Issues and Opportunities”. The quote perfectly describes the current state of research done in the area of mobile CRM.

Mobile Customer Relationship Management (Mobile CRM), which has been named as one of the “5 Customer Experience Trends for 2016” by Forbes magazine, has emerged only recently and shown unique potential for building stronger, more interactive and more personal relationships with customers (Morgan, 2015). With mobile applications (apps) as part of mobile CRM being installed on customers’ phones, companies are now able to interact and engage with customers along their entire customer journey through touchpoints on the app faster, simpler, more personal and more responsive (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2006, p. 774).

The touchpoints used in the mobile applications are points, where customers can interact with firms and their products through different functions such as product information, special offers, discount pop-ups, store locators and feedback (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2006, p. 2).

Not only have mobile CRM programs just started to flourish, but the functions of the mobile CRM touchpoints have also become more varied, thus now offering customers more ways to interact with brands. Also, the variety of the touchpoint functions have enabled companies to gather more specific data at every touchpoint along the entire customer journey in order to customize offers for the individual users (Edelman, 2010, p. 2) (Edelman, 2010, p. 4).

However, research so far has not identified the effects that the different touchpoint functions in mobile CRM apps have on customers or more specifically their levels of customer engagement and retention. Considering the fact that customers show different levels of influenceability in different touchpoints along the customer decision journey, there is also a need to research the differential effects that each touchpoint has on customer engagement (Edelman, 2010, p. 2) (Edelman, 2010, p. 4) Finding out about these effects on customer engagement and customer retention along the customer journey would give companies vital advantages when creating content and allocating resources to every touchpoint within the mobile app.

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7 Because mobile CRM programs are still in their infancy, many mobile CRM apps used by companies are not that sophisticated yet. Therefore, an industry is needed, that has higher levels of usage in the area of mobile CRM. For this research, the airline industry will be assessed as it has high share of usage of mobile CRM, it incorporates multiple touchpoints in its mobile technology to deliver its services and it shows customer satisfaction challenges faced in the area of mobile CRM (Budd & Vorley, 2013, p. 41)

Furthermore, it is questionable whether the touchpoints in mobile CRM programs have the same effect on all customers, since customers have different traveler personalities and preferences (Arnold & Reynolds, 2003, p. 90) (Forstbach, 2016). Thus, different traveler personalities among customers have an antecedent effect to the main effect of touchpoint functions on customer engagement and customer retention.

This research firstly aims at identifying the different touchpoint functions found in mobile apps of mobile CRM programs in the airline industry. It aims at defining the status quo of touchpoints in mobile CRM apps at this point in time. Secondly, the research aims at contributing to mobile CRM effectiveness by researching the differential effects of each touchpoint along the customer journey in the mobile apps on customer engagement and customer retention among different traveler personalities.

The methods of investigation applied to this research will be an exploratory expert interview, a field analysis of current airline apps, and an experiment executed at Düsseldorf Airport in Germany to ultimately research the potentials of touchpoints.

Or as the statement made by the expert Fredrik Forstbach by the Lufthansa Innovation hub in Berlin says:

“I think that any moment in the journey where the traveler actually needs personal contact or assistance is an opportunity for airlines. This means: If he just needs to drop his bag, check-in, get through security etc. he is not in need for any personal interaction. And in fact, research shows that most people would prefer a way of doing this without any need to stand in line or talk to somebody”

(Forstbach, 2016).

Fredrik Forstbach, Business Service Designer and Product Manager, Lufthansa Innovation Hub

1.2 Scientific Relevance

Concerning the scientific relevance of this research project, this research aims at contributing to theory by providing exploratory insights into mobile CRM touchpoints and their connection to customer engagement and customer retention. More specifically, this research aims at exploring what this connection to customer engagement and customer retention looks like and how it can be influenced.

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8 Additionally, different customer typologies are explored and how they may influence the connection between CRM touchpoints and customer engagement and retention. Especially, the interplay between customer engagement and retention is interesting as customer engagement is often considered the foundation of customer retention, however retention may also occur without customer engagement being involved.

Ultimately, the results gathered from this thesis study should provide scientific insights into how much potential impact touchpoints as personal interaction elements of CRM apps have on customers along their journey. The insights are particularly relevant since mobile CRM programs and the touchpoints within are highly personal and novel tools of interacting with different customer types and affecting their attitudes and behaviors. Based on that, the results gathered from this thesis study should also provide scientific insights into what extent and how customer engagement influences customer retention.

Also, the research tests the suitability of scales for the different constructs will be done and how well they measure the different effects. Since the research on the constructs of traveler personality and customer engagement gains more scientific interest but is still in its infancy, it can be of value to assess how well these different scales involved measure the relationships.

1.3 Managerial Relevance

In reference to the managerial relevance of this research project, this thesis study can contribute to managerial practice by firstly assessing the status quo of current mobile CRM app development in aviation and more specifically the touchpoints in the apps. Thus, current trends and developments in the industry will be assessed as well as industry leaders in terms of mobile CRM app development in aviation. Also, the different strategic approaches of different airlines in the market will be assessed and their foci on different touchpoints in their mobile CRM apps.

Most importantly, the thesis study should provide useful insights into the impact that touchpoints in airline apps may have on consumers in terms of consumers’ engagement and retention. This impact will be assessed by also considering different customer typologies, and how their typologies may affect the impact of certain touchpoints. Ultimately, the thesis study should give useful advice on which content to create in which touchpoint along the customer journey for which type of airline customer. The latter contribution should help companies achieve refined touchpoint design and optimized customer engagement and retention ultimately leading to higher CRM effectiveness.

1.4 Research Question

The main research question of this Master Thesis has been posed as the following:

What are the differential effects of touchpoints in mobile CRM apps in the airline industry on customer engagement and retention for different traveler personalities?

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2 Theoretical Framework

2.1 Customer Relationship Management

Customer relationship management, also known as CRM, is “a comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer” (Parvatiyar & Sheth, 2001, p. 5). The term first emerged in the mid 1990’s within the information technology vendor community and was later connected to the academic community with the term “relationship marketing (Payne & Frow, 2005, p. 167)”. Academic literature mentions, that companies in the past were often ambiguous about what CRM exactly means and accounted multiple functions such as call center activities, direct mail or databases to CRM (Payne & Frow, 2005, p. 169). This shows that there are multiple activities included in the framework of CRM, and that companies are making use of a portfolio of various opportunities to engage with customers ranging from the point of initial advertising until the after- purchase phase of evaluation and feedback. The authors Reinartz, Krafft and Hoyer recognized the high variety of CRM activities as mentioned above and attempted to classify them into three major categories, namely: “(1) functional, (2) customer- facing, and (3) companywide” (Reinartz, Krafft, & Hoyer, 2004).

Since the rise of the internet and mobile technology, the mutual creation of superior value for the company, the customer and the CRM activities have become more varied, integrated and fast-paced. With the internet and mobile technology, companies were suddenly able to communicate with customers on more personalized levels and storing customer data from different channels in more integrative CRM systems (Nguyen & Mutum, 2012, p. 403). As Nguyen and Mutum (2012) state in their article, the technological advancements enabled CRM activities “being utilized to deal with customers individually, one customer at the time”, which once again stresses the increased level of customer centricity through technology (Nguyen & Mutum, 2012, p. 412).

The technology advancements named by Nguyen and Mutum (2012) also relate to the “electronic commerce environments” described in the article by Robert Davis, Margo Buchanan-Oliver, and Roderick Brodie (1999), which have been changing conventional marketing practices of building relationships with customers and which are said to be increasing exponentially (Davis, Buchanan-Oliver, & Brodie, 1999, p. 319). Considering early insights from studies by Frederick Reichheld, Darrell Rigby, Chris Dawson about customer loyalty and retention leading to increased firm revenues, the role of technology as a major contribution to customer centricity gained considerable interest (Rigby, Reichheld, & Dawson, 2003).

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10 Two important CRM activities, that have recently emerged as part of electronic commerce environments and in response to changing customer behaviors, are social and mobile technologies which Nguyen and Mutum rate as “increasingly effective ways for firms to interact with their customers” (Nguyen & Mutum, 2012, p. 412).

2.2 Mobile Customer Relationship Management (CRM)

Mobile CRM, which is named one of the elements in the multichannel integration process in Payne and Frow’s Conceptual Framework for CRM Strategy (Payne & Frow, 2005), is about “communication, either one-way or interactive, which is related to sales, marketing, and customer service activities conducted through the mobile medium for the purpose of building and maintaining customer relationships between a company and its customers” (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2007, p. 773).

Unlike social CRM, mobile CRM is solely integrated into mobile devices which customers use frequently (Alahuhta , Helaakoski, & Smirnov, 2005) (Das, 2016) Because of that, it provides a unique additional value to firms and customers with its high mobility. Companies are now able to constantly reach their customers at any place and any time. Also, unlike PC’s, mobile devices are usually only used by one consumer, which makes the customer information gathered more accurate (Alahuhta , Helaakoski, & Smirnov, 2005) (Das, 2016).

Alahuhta et al. (2005) identify mobile CRM services as electronic services “on the move”, whose key drivers are ubiquity, reachability, security and convenience (Alahuhta , Helaakoski, & Smirnov, 2005). These authors once again stress the benefits of mobile CRM helping firms to strengthen the relationships with customers with less limitations of location or time and with increased ability to identify users and gather their data in comparison to other CRM activity channels. Sinisalo et al. (2007) mention that higher returns are earned when companies send personalized information via mobile CRM to a few customers than when they send impersonalized information via mobile CRM to many customers, thus once again outlining the profound benefits of building relationships with customers (Sinisalo , Salo , Karjaluoto, & Leppäniemi, 2007). The authors Lee and Jun add to this by highlighting the added value of two- way interaction between the firm and the customer, which is further facilitated through mobile. Thus, firms can not only personalize their communications more, but also receive direct feedback on their activities from customers in a more facilitated way (Lee & Jun, 2007, p. 798).

On the other hand, Sinisalo et al. importantly point out that due to the high degree of customization and ubiquity of mobile CRM and the high degree of intimacy of mobile devices, mobile CRM can also pose challenges to companies.

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11 This may happen if mobile CRM activities irritate customers or intrude their privacy (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2007, p. 774). As a result, if the exact effects and echelons of mobile CRM are not well understood by companies, they can actually do harm to a firm’s CRM.

2.3 Mobile CRM Applications

Is mobile CRM about web browsers or mobile applications? According to an article by Forbes.com called “The Mobile Browser is Dead, Long Live the App” by Ewan Spence, users are increasingly turning away from mobile browsers and spend 86 percent of their mobile usage time on phones with apps (Spence, 2014). Additionally, Spence highlights that companies gain more control and transparency about who uses their apps and how than when offering mobile browsers to their customers (Spence, 2014). Another important aspect to mention is the high level of personal interaction of firms and customers via mobile apps, which does not exist when customers interact with companies via the regular internet browser (Das, Mobile CRM apps to grow by 500%, 2016). Thus for the scope of this discussion, mobile CRM is understood as all value creating mobile CRM activities via companies’ mobile apps.

2.4 The airline industry

However, considering that CRM differs among different industries and that many companies are just in the beginning phase of using mobile CRM, the insights for mobile CRM affecting customers could be very varied when being gathered per industry (Rivera & van der Meulen, 2013). Therefore, the choice of a relevant industry that engages in mobile CRM heavily is recommended.

One highly competitive industry that has a strong increase in customer numbers every year and that also represents one of the most important groups of mobile technology adopters is the airline industry (Budd & Vorley, 2013, p. 41). Many global airlines use mobile technology to inform customers about check- in times, ticketing and journey updates to interact with their customers and accompany them along their journey (Budd & Vorley, 2013, p. 41). Especially in the face of volatile fuel pricing, intense competition, security concerns and a focus on the environmental impact of air travel, airlines feel a stronger need to connect with their customers more directly as mentioned in an article by Ben Kepes on Forbes.com (Kepes, 2014).

In a study by Budd and Vorley (2013) mobile CRM apps used in the airline industry had high dissatisfaction scores with “45 percent of users being dissatisfied with the features and functionality offered with the airline apps” (Budd & Vorley, 2013, p. 42). However, the latter measure does not give any specific indications on which functions in the app caused dissatisfaction.

Nonetheless, the study might indicate interesting challenges in the mobile CRM programs of airlines, where touchpoints might not be used effectively for fulfilling customers’ wishes.

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12 Therefore, the airline industry poses interesting implications on the topic as it has high share of usage of mobile CRM, it incorporates multiple touchpoints in its mobile technology to deliver its services, and it displays frictions in the areas of market developments and customer management.

2.5 Touchpoints in CRM

As reported in academic literature, CRM has many different touchpoints with customers, which can be defined as “points of human, product, service, communication, spatial, and electronic interaction collectively constituting the interface between an enterprise and its customers over the course of customers’ experience cycles” (Dhebar, 2013, p. 200).

Sinisalo et al. mention CRM touchpoints such as internet, direct mail, sales call and mobile medium (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2006, p. 7). Furthermore, they mention that “communication through mobile can occur in the form of information, advertising, promotion, feedback, shopping, ordering, alerts, reminders, votes, competitions, lotteries to mention a few” (Sinisalo, Salo, Karjaluoto, & Leppäniemi, 2006, p. 2). However, the authors do not specify whether the communication forms above are used through mobile apps or through web browsers. Also, they do not mention the whole list of forms of communication.

In a research called “Branding in the Digital Age” by David C. Edelman, it is mentioned that touchpoints occur along the customer decision journey (CDJ), also referred to as the customer journey, and that this customer journey has several stages, namely: “consider, evaluate, buy, enjoy, advocate and bond” (Edelman, 2010, p. 3). The customer decision journey not only includes touchpoints before and during a purchase, but also after the purchase, where companies can interact and build relationships with their customers, whom might advocate the brand among peers and bond with it.

The author importantly mentions that there is a meaningful shift of consumers now engaging more with brands in the after-sale stages of a product purchase by reviewing the product purchased by sharing the experience online and using word-of-mouth online (Edelman, 2010, p. 4). Furthermore he mentions that the traditional funnel structure of selling concerned with the pre-purchase stages is outdated, as a deeper connection with a product develops after the purchase (Edelman, 2010, p. 3). This development increases the importance of touchpoints in the after-purchase stages and as stated in Edelman’s article, new media recently adapted to this by making the “evaluate and advocate stages more relevant” (Edelman, 2010, p. 4).

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13 Edelman (2001) interestingly highlights that the touchpoints have changed in number and nature and that customers show different levels of openness to influence in different touchpoints. Also, he found a mismatch between marketing allocations and the most influential touchpoints for customers (Edelman, 2010, p. 2) (Edelman, 2010, p. 4). Thus, leveraging touchpoints effectively is vital and requires thorough knowledge of their exact function and effects on customers.

Considering the unique customization and convenience of mobile CRM, the touchpoints in this novel CRM area could have different functions along the stages of the customer journey and also differential effects on customers. This would have important managerial implications on marketing budgeting and long-term effectiveness of a company’s CRM strategy.

2.6 Managerial Perspective of Touchpoints in Airline Apps

As previously mentioned, scientific literature about touchpoints in mobile CRM apps is still in its infancy. Therefore, to gather further insights about touchpoints in mobile CRM apps in the airline industry, an in-depth expert interview was conducted with Business Service Designer and Product Manager Fredrik Forstbach from the Lufthansa Innovation Hub in Berlin. This was particularly beneficial, because the Lufthansa Innovation Hub is a well-connected leader in airline app development and digital innovation. The Lufthansa Innovation Hub was contacted via email and the Co-Founder of the company suggested a knowledgeable candidate suited for the interview. The interview was executed via phone and was executed in an unstructured and exploratory way. The aim of the interview was to increase the understanding of touchpoint functions in airline apps, the current trends and developments in the industry and how customers currently perceive and interact with touchpoints in the apps of different airlines. The findings of the interview are briefly discussed here. According to Fredrik Forstbach, airline apps currently serve the function of facilitating the customer journey and even making it more exciting, more specifically:

„Airline apps currently serve the function of being at least efficient and reliable in leading the customer through his or her flight journey. They facilitate the journey and even make it more exciting. Also, they serve the function of giving quick and precise reactions and updates on the flight status. They should also have the function of offering the customer an attractive and easy-to-use interface”

(Forstbach, 2016).

Moreover, the expert mentions that touchpoints in mobile CRM apps in the airline industry can be categorized into 7 main functions: (1)Personal and Account Information, (2)Booking and Flight Information, (3) At the Destination (Hotel, Travel Tips), (4) Special Offers, (5) Flight Inspiration, (6) Shopping and Entertainment, (7) Service and Feedback (Forstbach, 2016).

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14 In a study on the different touchpoint functions in mobile CRM apps executed by the Lufthansa Innovation Hub, it was found that not all airlines include all seven categories on their apps and that airlines put different weights on the touchpoints used in their apps (Forstbach, 2016). He stresses that especially the feedback touchpoints in airline apps have gained significant interest:

„Many airlines increasingly focus on the feedback touchpoints and invested in them for achieving closer interaction with their customers. Sri Lanka Airlines and Ryanair for example use a feedback pop-up in their apps, for the customer to directly give a short feedback about the flight once he

landed”(Forstbach, 2016).

Besides trends and developments in the area such as instant messaging, travel updates and pop-ups in the app, Fredrik Forstbach also mentions developments related to data usages and customer centrification:

„There is of course the trend of location services, which can tailor the customer information even more and make apps more useful in giving customer journey updates and other interesting functions. On top of that, there is the trend of “Übersales”, which means that you bind the customer to the app by offering him or her everything through the app, so that the customer does not have to use the browser anymore. In that way, you can create deeper relationships between the customer and the company and find out more about them. Then you generally have the trend of automation and digitalization at the airport for the flight ticket, the check-in and the boarding passes, which can all be

handled through the app now”(Forstbach, 2016).

Fredrik Forstbach interestingly mentions, that customers rather make use of the app after having purchased a flight and that airline app touchpoints can be used at any point of the customer journey, where a customer needs assistance by or interaction with the company. This may be during check-in and boarding times, during flight delays, and especially when the customer has landed at the destination and has to orient him or herself in the country:

“According to our data, people check in roughly 10 times more often (in absolute numbers) than they make bookings.(…) I think that any moment in the journey where the traveler actually wants personal contact is an opportunity for airlines. On the other hand any moment when the traveler needs help, like a change or cancellation of booking, or support when something goes wrong in the journey, as with delays, lost or delayed luggage, there is a big opportunity as a company to emerge with a better tie to the customer. The company can respond in a human and constructive way through the app, that does not make the traveler feel like an anonymous part in this huge operation that the airline business is. Another interesting moment is when the traveler arrives at the destination.

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This is one part that also causes high stress levels, since the traveler might be in a new country, with a new language, maybe tired and a bit helpless - and now needs to get to his hotel or other final destination. In this situation it seems to be extremely valuable for a company to assist the traveler with information- and possibly also with a channel for personal interaction, that gives the traveler the knowledge so he is covered and can explore the new country without fear” (Forstbach, 2016).

Finally, airlines seek to build the touchpoints in their app in a way that they have a high functionality. According to Fredrik Forstbach, a touchpoint shows high functionality if it helps the customer find what he is looking for in a fast and easy way:

“When touchpoints are reliable and efficient as mentioned before and when they can help the customer to quickly help him or her find what he is looking for in all relevant areas. This may be enabled with sorting criteria, quick and clear information and an easy interface of the selection options in the app. Its rather the absence of this level of information that will cause trouble and lower a touchpoints functionality” (Forstbach, 2016).

As general industry leaders, the expert considers the airlines RyanAir, EasyJet and AirBerlin , because of their “usability, features and overall look and feel” (Forstbach, 2016).

The complete interview results can be seen in Appendix 1 of this document.

The field analysis revealed that the vital touchpoint functions in airline apps are related to the flight booking, the check-in and boarding, any other flight related information and service and feedback (lufthansa.com) (klm.com, 2016) (ryanair.com, 2016). Often airlines also offer special offers, price alerts or tourist information on the app (qantas.com, 2016) (easyjet.com, 2016) (airberlin.com, 2016) (delta.com, 2016). However, touchpoint functions are often in line with the strategies that airlines pursue, thus Emirates airlines being more focused on lifestyle tourist information such as hotspots for dining and culture events at the destination and less focused on discount offers (emirates.com, 2016). The opposite is the case for AirBerlin, where a focus is set on special offers which can be searched within different categories (airberlin.com, 2016). The principle of “Übersales” as mentioned by Fredrik Forstbach was also found in the field analysis with Qantas Airlines for example enabling customers to book at the destination activities within the Qantas app (Forstbach, 2016) (qantas.com, 2016). Some special functions found in the field analysis were the incorporation of new technologies into the app such as live travel updates on the smart watch, passport scanners, special offer pop-ups for food and beverages at the airport or a travel concierge guiding the passenger through the airport (etihad.com, 2016) (emirates.com, 2016) (lufthansa.com). The full information of the touchpoint functions found through the field analysis can be found in Appendix 2 of this document.

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16 Scientific literature so far only addressed touchpoints along the customer journey in the broader sense and not in the specific mobile CRM context yet. And despite many sources elaborating on the IT- related challenges of mobile CRM, there is only little research on the psychological effects of mobile CRM on customers (Das, Mobile CRM apps to grow by 500%, 2016). Therefore, the question arises, what psychological effects mobile CRM touchpoints evoke in customers and how they could be measured to ultimately provide companies with profound customer insights and guidance on how to appeal to customers.

2.7 Customer Engagement

One theoretical concept, which is frequently mentioned as representing a psychological response to CRM activities, is the concept of customer engagement. The term “customer engagement” (CE), which has only started to appear in the business world and in academic literature since the early 2000’s, is considered a strategic imperative for achieving increased firm performance and sales growth (Brodie, Hollebeek, Juric, & Ilic, 2011, p. 252). CE is defined as “the intensity of an individual’s participation and connection with an organization’s offering or organizational activities, which either the customer or the organization initiates and which may be manifested cognitively, affectively, behaviorally, or socially” (Vivek, Beatty, & Morgan, 2012, p. 133) The authors Vivek, Beatty and Morgan contribute greatly to the understanding of CE by mentioning that “the cognitive and affective elements of CE incorporate experiences and feelings of customers, and the behavioral and social elements of CE capture the participation by current and potential customers, both within and outside the exchange situations” (Vivek, Beatty, & Morgan, 2012, p. 133). Therefore, CE “involves the connection that individuals form with organizations based on their experiences with the offering and activities of the organization. Potential or current customers build experience-based relationships through intense participation with the brand by way of the unique experiences they have with the offering and activities of the organization” (Vivek, Beatty, & Morgan, 2012, p. 133).

Academic literature also refers to this concept as a psychological process that drives customer loyalty (Bowden, 2009), and that exceeds the concepts of “involvement” and “participation” by being “based on interactive and co- creative customer experiences with an engagement object” such as a firm or a brand (Brodie, Hollebeek, Juric, & Ilic, 2011, p. 264). Customer engagement “may be in the presence or absence of other consumers, may happen online and offline (Vivek, 2009) and may happen under high and low involvement (Vivek, Beatty, & Morgan, 2012, p. 137).

Vivek et al. capture the foci of the concept of CE in a fourfold table as it can be seen below in Table 1. According to the authors, CE can be provider initiated with offerings and activities geared towards the customer, and customer initiated with consumer offerings of a company’s products and services or

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17 with customer activities (Vivek, Beatty, & Morgan, 2012, p. 132). Thus engagement can be evoked in the classification of offerings and activities and by providers and customers, which may all be present in mobile CRM apps with companies for example posting events in the app or customers for example blogging about their travel on the app.

Table 1: Categorization of Customer Engagement Foci by Vivek et al. (2012) (Vivek, Beatty, & Morgan, 2012)

Besides creating competitive advantage for firms, customer engagement among customers may contribute to new product development and customer experience and value co- creation and was named a key research priority by the Marketing Science Institute in the year 2010 (Brodie, Hollebeek, Juric, & Ilic, 2011, p. 252).

In the literature field of social sciences, customer engagement builds on theories such as the self-schema theory (Markus, 1977) or the attachment theory, which both examine the drivers of how consumers start to relate their self-concept to a brand due to the brand supporting their identity and providing cognitive consistency with their self- schema (Ball & Tasaki , 1992). Thus, customer engagement connects with customers on a highly personal level. Higgins and Scholer add to this with their regulatory engagement theory by referring to engagement as a state of being occupied and fully absorbed by an engagement object (Higgins & Scholer, 2009, p. 100).

However, the conceptualization of customer engagement has not yet fully matured and it still remains a diffuse term in business as well as in the scientific world (Brodie, Hollebeek, Juric, & Ilic, 2011, pp. 252-253). An article by Adrian Swinscoe on Forbes.com called “What does customer engagement actually mean” adds to this by stating, that companies have actually not yet fully understood what customer engagement means and have not yet fully achieved to create deep customer engagement among their customers (Swinscoe, 2016).

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18 All in all, customer engagement is considered a multi-faceted customer behavior as the verb “to engage” with synonyms such as “to hold fast or to take part” implies (van Doorn, et al., 2010), which describes a deeper connection with customers and increased activity from customers.

The concept of customer engagement and its facets show great potential for providing insights into how different touchpoint functions in mobile CRM apps affect customers along the customer journey. Furthermore, it has the potential to indicate in which touchpoints customers show more or less openness to influence as mentioned in Edelman 2001’s article. Also, it can indicate the interaction effects of touchpoints on each other, thus how a certain level of engagement in one touchpoint affects the level of engagement in another touchpoint. The latter indications could give companies specific guidance for which touchpoints to leverage in which part of the customer journey.

But, in what way could customer engagement as a response to companies’ interactions in mobile CRM specifically be measured?

In their study called “Customer Engagement with Tourism Brands: Scale Development and Validation”, the authors called So, King and Sparks attempted to provide a rigorous measurement of the construct of customer engagement (So, King, & Sparks, 2014).

The authors once again support previous statements by mentioning, that it is “a multidimensional concept subject to a context- and/or stakeholder-specific expression of relevant cognitive, emotional and/or behavioral dimensions” (So, King, & Sparks, 2014, p. 307).

So et al. (2014) have come up with a scale of 25 items for the concept of customer engagement from the factors of: “enthusiasm”, “identification”, “attention”, “absorption”, and “interaction”, which can measure the differential effects of the different touchpoints on customers in mobile CRM. Besides all factors being found to be significant for measuring customer engagement, the authors recommend to put particular emphasis on the factors of attention and enthusiasm due to their high factor loadings (So, King, & Sparks, 2014, p. 304).

The authors importantly mention, that the dimensions of “enthusiasm” and “attention” can be sparked through companies sending consumers newsletters, news or advertising, while the dimensions of “absorption”, “interaction” and “identification” are evoked in more engrossing ways (So, King, & Sparks, 2014, p. 307). While absorption is triggered by a company involving its customer with activities full of concentration and immersion, identification is triggered by companies offering memberships and clubs to customers and classifying them with other customers (So, King, & Sparks, 2014, p. 307). Finally, interaction is triggered with companies inviting customers to actively participate in activities instead of just being a passive receiver (So, King, & Sparks, 2014, p. 307).

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19 The latter insights show, that the dimensions “enthusiasm” and “attention” can already be triggered with basic and short-term CRM activities, while the other dimensions “absorption”, “interaction” and “identification” require more sophisticated and long-term activities.

The author called Shiri D. Vivek has come up with a similar CE scale consisting of 21 items as part of a three-dimensional scale with the dimensions of enthusiasm, conscious participation, and social (Vivek, 2009, p. 111). A highlight that he mentions is the importance of physical action as “an essential dimension of consumer engagement” (Vivek, 2009, p. 61). Vivek further explains that consumers physically participate in activities that engage them and that literature calls physical and social aspects of immediate environments antecedents of involvement (Vivek, 2009, p. 61). Despite Vivek putting much emphasis on physical action being an essential dimension of customer engagement, the author unfortunately does not present it as a separate item in his scale after all, which leads to the scale not adding significant value to be considered further.

All in all, the scale by So, King and Sparks can be used for measuring the effects of the individual touchpoint functions on customer engagement along the entire customer journey. But how does the concept of customer engagement evoked by touchpoint functions in mobile apps ultimately become profitable for firms?

2.8 Customer Engagement and Customer Retention

In reference to the effects of customer engagement for firms, there are different effects of customer engagement mentioned in scientific literature. Connecting the dimensions of customer engagement to Edelman (2010)’s insights, customer engagement may evoke customers to further interact and bond with a company. Especially in the after-purchase phase, where customers increasingly bond with a company according to Edelman, customer engagement may evoke customers to advocate the company and its products through word of mouth and customer reviews (Edelman, 2010).

Other research refers to firms having improved reputations as a result of increased customer engagement (Fombrun & Shanley, 1990), or customer engagement having an influence on customer equity through referrals and word-of- mouth affecting purchase behavior (Kumar, Aksoy, Donkers, Venkatesan, Wiesel, & Tillmanns, 2010).

The authors, Reinartz, and Krafft (2010) take an interesting approach in grasping customer engagement in a conceptual model comprising literature insights from different studies (Verhoef, Reinartz, & Krafft, 2010). In their study about the new perspective of customer engagement, the authors present that customer engagement ultimately increases customer retention with customers repeating purchases at a company (Verhoef, Reinartz, & Krafft, 2010, p. 249).

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20 More specifically, they line out that customer engagement first of all triggers activities such as customer- to- customer interactions and co-creation and ultimately leads to increased customer retention. (Hoyer, Rajesh , Dorotic, Krafft, & Singh, 2010) (Kumar, Aksoy, Donkers, Venkatesan, Wiesel, & Tillmanns, 2010).

Customer retention, which can be defined as “the probability of a customer repurchasing from a firm after an initial purchase” (Gupta, et al., 2006), is an important measure indicating the effectiveness of a CRM strategy (Gustafsson, Johnson , & Roos, 2005). The authors called Reichheld and Schefter have found that a 5% increase of customer retention may lead to 25%-95% of firm profitability increases (Reichheld & Schefter, 2000, p. 106).

In two articles on Forbes.com, it is interestingly mentioned, that customer retention is greatly affected by personalization strategies and that it has gained more significance in recent years due to consumers having “shorter attention spans and an increased excess of options” (Jao, 2015) (Jao, forbes.com, 2014). These statements can be linked back to the earlier mentioned research findings by Sinisalo et al. (2007) and Alahuhta et al. (2005) in a way that the personalization of touchpoints in mobile CRM apps is indeed beneficial for customer retention and that retention is especially important nowadays that customers interact with mobile CRM touchpoints on their mobile phones “on the move” and with an excess of other information that may interfere (Helaskowski, Alahuhta, & Smirnov, 2005, p. 3).

The latter insights have significant implication for this research context. Applied to the context of mobile CRM apps, the different touchpoint functions should have differential effects on the construct of customer engagement, which will ultimately affect customer retention.

Thus the first hypothesis is posed as:

H1: Customer engagement has a direct positive relationship with customer retention.

In reference to the measurement of customer retention, the authors called Kassim and Souiden developed a scale for customer retention measured by a likert scale. More specifically they probed respondents on sub- items of intention of recommending the service to others, intention of continuing using the service, and intention of increasing the usage of the service (Kassim & Souiden, 2007, p. 221). All in all, the measurement scale by Kassim and Souiden (2007) is suitable for this research context for the measurement of customer retention in response to changed customer engagement levels through touchpoint functions in airline apps.

But will all consumers be affected by touchpoints in the same way? Are there no other human factors that might influence the effect of touchpoints on customer engagement and retention?

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2.9 Traveler Personalities

Considering that this research context deals with touchpoints in mobile airline apps, it is noticeable that customers will interact with these touchpoints on a very personal level.

Therefore, other human factors influencing the effect of touchpoints on customer engagement in the airline app are quite probable. But what kind of human factors would that be and how would they differ among customers, or even groups of customers?

Several travel magazines and the ABTA Travel Trends Report 2014 mention traveler personality as a factor to influence company interactions with customers and that traveler personality influences a customers’ expectations of the desired experience they want to receive when purchasing a product or service (Kresge, 2015) (ABTA.com, 2014) (airtreks.com, 2016). However, these sources are not scientifically validated. Regrettably, there is also no validated scientific literature available on travel personality types, which is suitable for this discussion.

One suitable and frequently mentioned human factor variable in shopping behavior and experience literature is the concept of “shopping motivation”, which is about the “underlying reasons for why people shop and start interacting in a shopping environment” (Arnold & Reynolds, 2003, p. 77). These underlying reasons may be functional or non-functional (Tauber, 1972, p. 46). The authors Westbrook and Black extend the latter thought with their research claiming, that shopping behavior may arise for three reasons: “(1) to acquire the products for which needs are experienced, (2) to acquire the desired product and to provide satisfaction for various additional non-product- related needs, (3) in service of needs unrelated to the acquisition of the product” (Westbrook & Black, 1985, p. 79). As a result, shopping motivation is not only related to the ultimate purchase of a product but also to other need fulfillments in the shopping environment such as the gathering of information, inspiration or seeking interaction.

The different motivations can “magnify the experience in the mind of the shopper” and can have the effect of “making in-store evaluations and affective responses to the elements in the shopping environment more intense, either positive or negative” (Arnold & Reynolds, 2003, p. 90). The identification of shopping motivations has significant advantages as companies can tailor products and services more adequately and interact with customer in a more compelling way (Arnold & Reynolds, 2003, p. 90).

Applied to this research context, the latter insights have interesting implications for this research: When customers with different shopping motivations use mobile CRM apps for purchasing a flight, gathering information, seeking customer service or getting inspired, their different shopping motivations could interfere with the effects the different touchpoints used in the mobile CRM apps on

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22 their levels of customer engagement. They can influence the effectiveness of the touchpoints in a positive or negative way. As a result, the variable of shopping motivation acts as an antecedent to mobile airline app touchpoints ultimately affecting levels of customer engagement.

However, before researching the interference of shopping motivations, the different motivation types should be defined.

The authors called Kiseol Yang and Hye-Young Kim identified different shopping motivations among customers in the context of mobile shopping in their article “Mobile Shopping Motivation: an application of multiple discriminant analysis (Yang & Kim, 2012). They assessed how shopping motivations and demographic characteristics differ among mobile shoppers and non-mobile shoppers by executing a study including eight different shopping motivations, namely: (1) idea shopping, (2) efficiency shopping, (3) adventure shopping, (4) gratification shopping, (5) role shopping, (6) achievement shopping, (7) social shopping, (8) value shopping (Yang & Kim, 2012, p. 784)

While customers using mobile with an idea shopping motivation aim at obtaining information about the product, the price and the latest product-related trends and news, efficiency shopping motivated customers favor general efficiency enhancing functions and location- based functions in mobile shopping to quickly find products, information and purchase related locations. While customers with an adventure shopping motivations like to try new functions and features of shopping services that entertain them, customers with a gratification shopping motivation favor a shopping experience that provides them with good feelings and special treats to reduce tensions. Furthermore, customers using mobile with the role shopping motivation focus on finding the right product or gift for their family, and achievement shopping motivated customers easy access and exploration of the functions to fulfill the shopping task with a couple of touches. Lastly, socially motivated customers focus on social interaction, reference group affiliation and communicating with others and value shopping motivated customers focus on finding special discount and bargain information in to seek inexpensive shopping opportunities (Yang & Kim, 2012, pp. 778-780).

Fredrik Forstbach from the Lufthansa Innovation importantly mentions that the shopping motivations outlined by Yang and Kim (2012), can also be translated into traveler personalities in the airline industry (Forstbach, 2016). Thus, there are traveler personalities with the same motivations such as efficiency shopping or value shopping, that can in this case be called the efficiency traveler or the value traveler. However, Forstbach limits the traveler personalities to the following types: the efficiency traveler, the gratification traveler, the social traveler and the value traveler.

This is due to the fact, that through research done at the Lufthansa Innovation Hub, the expert observed motivations such as efficiency and gratification, but also strong social motivations among travelers and value motivations.

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23 In the interview this was expressed with “Bleisure” travelers, whom incorporate efficiency motivations for their business travel but also gratification motives for enjoying culture and activities during the free time of their business trip (Forstbach, 2016). The social motivations were mentioned in the context of consumers whom according to the expert like to gather and share travel information in their social circles (Forstbach, 2016).

Also the expert mentions value motivations with many consumers trying to get the best deal when they have carefully decided for the destination (Forstbach, 2016). The expert considered these motivations as the most prevalent ones (Forstbach, 2016). Thus for the scope of this research, the shopping motivations are translated into traveler personalities and the latter traveler personalities mentioned are considered.

Therefore the efficiency traveler personality is a traveler that favors efficiency enhancing functions and information that help him or her to quickly find products or locations (Yang & Kim, 2012, pp. 778-780) (Forstbach, 2016). while the gratification traveler personality like to treat him or herself with special gifts and good feelings along the journey (Yang & Kim, 2012, pp. 778-780) (Forstbach, 2016). And while the value traveler personality focusses on special discount and bargain information for lower priced purchases, the social traveler personality focus on social interaction, group communication and affiliation (Yang & Kim, 2012, pp. 778-780) (Forstbach, 2016).

Especially in personalized CRM app environments, the different traveler personalities of customers can have a significant preliminary effect on the effectiveness of the touchpoints on customer engagement and ultimately customer retention. Thus, for the design of effective mobile CRM apps and their corresponding touchpoints, the effect should be taken into consideration as an antecedent variable.

Touchpoint functions categorized under account information and check-in and boarding provide customers with vital information about the journey. Touchpoints such as check-in, flight status and passport scan automate and simplify the customer journey (Forstbach, 2016) (lufthansa.com). Customers with the efficiency shopping traveler personality favor efficiency enhancing functions to quickly help them achieve their shopping goal with a couple of touches, which would intensify the effects of the information touchpoints on the customer engagement of customers with this traveler personality (Yang & Kim, 2012, p. 778) (Forstbach, 2016).

Therefore, the second hypothesis will be posed as:

H2: Touchpoint functions categorized as “Account Information” and “Check-in& Boarding” have the strongest direct positive relationship with customer engagement for the Efficiency Traveler Personality.

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24 Touchpoint functions categorized under shopping and entertainment provide customers with retail shopping options and media entertain along the customer journey (Forstbach, 2016) (lufthansa.com) (klm.com, 2016). Customers with the adventure and gratification shopping traveler personalities seek special touchpoint functions that entertain them and give them good feelings or special treats to evoke feelings of pleasure and well-being, which would intensify the effects of the shopping and entertainment touchpoints on the customer engagement of those customers (Yang & Kim, 2012, p. 778).

Therefore, it can be hypothesized:

H3: Touchpoint functions categorized as “At the Destination Options” and “Shopping and Entertainment” have the strongest direct positive relationship with customer engagement for the Gratification Traveler Personality.

Touchpoint functions categorized as “Service and Feedback” provide customers with options to get into contact with the company to seek help, assistance or give feedback (Forstbach, 2016) (klm.com, 2016). Customers with the social shopping traveler personality seek human interactions and social affiliation throughout their journey, which would intensify the effects of the service and feedback touchpoints on the customer engagement of those customers (Yang & Kim, 2012, p. 778).

H4: Touchpoint functions categorized as „Service& Feedback“ have the strongest direct positive relationship with customer engagement among the Social Traveler Personality.

Touchpoint functions categorized as “Special Offers” provide customers with special deals and discount prices for products (Forstbach, 2016) (airberlin.com, 2016) (easyjet.com, 2016). Customers with the value shopping traveler personality seek special bargain information and inexpensive purchases, which would intensify the effects of the special offers touchpoints on the customer engagement of those customers. However, since the benefits, that customers with the value shopping traveler personality derive from the touchpoints are mainly transactional, one might hypothesize, that only customer retention is affected, thus skipping customer engagement (Yang & Kim, 2012, p. 778) (Verhoef, Reinartz, & Krafft, 2010, p. 249)

H5: Touchpoint functions categorized as „Special Offers“ have no direct relationship with customer engagement among the Value Traveler Type but have a positive relationship with customer lifetime value.

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2.10 Conceptual Framework

Variables:

Traveler Personality (Antecedent Variable):

 Efficiency shopping  Gratification shopping  Social shopping  Value shopping

Mobile CRM Touchpoint Functions (Independent Variable):

 Account Information  Check-in& Booking  At the Destination Options  Special Offers

 Shopping& Entertainment  Service& Feedback

Customer Engagement (Dependent Variable):

 Enthusiasm  Identification  Attention  Absorption  Interaction

Customer Retention (Dependent Variable):

 Continuation (Intention of continuing to use the service)  Frequency (Intention of increasing the usage of the service)  Recommendation (Intention of recommending the service to others)

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Conceptual Model

Hypotheses

H1: Customer engagement has a direct positive relationship with customer retention.

H2: Touchpoint functions categorized as „Account Information“ and „Check-in& Boarding“ have the strongest direct positive relationship with customer engagement for the Efficiency Traveler Personality.

H3: Touchpoint functions categorized as „At the Destination Options“ and „Shopping& Entertainment“ have the strongest direct positive relationship with customer engagement for the Gratification Traveler Personality.

H4: Touchpoint functions categorized as „Service& Feedback“ have the strongest direct positive relationship with customer engagement among the Social Traveler Personality.

H5: Touchpoint functions categorized as „Special Offers“ have no direct relationship with customer engagement among the Value Traveler Personality but have a positive relationship with customer retention. H1 H4 + H3 H2 + + + H5 + Traveler Personality (Antecedent) : 1) Efficiency 2) Gratification 3) Value 4) Social Mobile CRM Touchpoint Functions (IV): A) Account Information B) Check-in& Boarding C) At the Destination Options D) Special Offers E) Shopping& Entertainment F) Service& Feedback Customer Engagement (DV) Customer Retention (DV)

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3 Data and Method

3.1 Research Methodology

In order to test the hypotheses posed, a cross-sectional mixed method research design was adopted. The mixed method design contained an exploratory part with a semi-structured in-depth expert interview and a field analysis on the one hand and an explanatory part with an experimental Vignette study distributed in the form of a survey on the other hand.

The in-depth interview and the field analysis were conducted in order to gain deeper insights into the field of touchpoints in airline apps, which is still in its infancy in the business and scientific world. The experimental Vignette study was conducted for the purpose of researching possible causation between the airline touchpoint functionality and customer engagement under consideration of different traveler personalities. Thus the mixed method design was chosen for firstly collecting state of the art insights on airline app touchpoints and then testing how these touchpoints affect customer engagement and retention.

3.2 Method Design and Collection Procedure

3.2.1 Exploratory Research: Expert Interview

For the semi-structured in- depth interview, an interview script was written that would probe and extend the insights gathered through existing literature on airline app touchpoints. Since, the field of airline app touchpoints is still in its infancy, the interview was semi-structured in nature in order to enable opportunities for additional information on the matter.

The in-depth expert interview was conducted via phone with Fredrik Forstbach, Business Service Designer and Product Manager at the Lufthansa Innovation Hub in Berlin. The Lufthansa Innovation Hub is dedicated to developing state of the art digital solutions for the airline industry in corporation with innovation leaders from different industries. The Lufthansa Innovation Hub also developed the Lufthansa App, which is currently used by the airline. Therefore the company was approached.

3.2.2 Experimental Research: Vignette Study

For the experimental Vignette study, a realistic airline app containing the most critical touchpoints along the customer journey was to be built. App pictures have been created displaying the different touchpoint functions along the customer journey. For implementing the experimental treatments of high and low functionality of the airline touchpoints, two different versions of pictures were created. In that way the causation between airline app touchpoint functionality and customer engagement could be tested. While one version of the touchpoint was very helpful for the respondents, the other version was not very helpful. Subsequently customer engagement and retention among respondents were measured for each version.

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3.2.2.1 Pretest

Before implementing these two treatments of high and low functionality, a pre-test with n=50 was conducted in order to test whether high and low functionality was perceived accordingly by consumers. The pre-test was designed and distributed via Qualtrics displaying app pictures for each airline touchpoint function, which can be seen in Appendix 3 of this document. For the pre-test a convenience sampling was chosen and a total of n=50 respondents filled in the pretest. Respondents were presented the high and low functionality versions of the touchpoints and were asked to rate, which version was more helpful, the “right” or the “left” version. After having conducted the pre-test, the codes of “right” and “left” were recoded into the scores of “10” meaning high functionality and “0” meaning low functionality. Subsequently, mean scores were computed for each touchpoint in order to analyze, whether most respondents recognized the high functionality version of the two. The mean scores had to be equal to or above 5 in order to show that the majority of respondents recognized the functionality of the touchpoints correctly. The results of the pre-test are displayed in table…below: N=50 Special Offers Flight Inspiration Account Information Shopping& Entertainment Check-in & Boarding At the Destinatio n Options Service& Feedback Mean Score of Touchpoi nt Function ality 7,6 5,6 8,8 8,4 4,8 7,4 6,4

Table 2: Pre-Test Results

In reference to the results of the pre-test, it can be said that the touchpoint functions of “Flight Inspiration”, “Service and Feedback” and “Check-in and Boarding” had lower scores of perceived recognition of the high and low functionality with mean scores lower than 7.0. Especially the mean score of the touchpoint function of “Check-in and Boarding” was below the score of 5 and thus not satisfactory. In order to test for significance of these findings, a One Sample T-Test was performed with a test value of 8.0 in order to test for significant deviations in the mean scores. The test revealed that the deviations in mean scores from the test value of 8.0 were significant for the touchpoint functions of “Flight Inspiration”, “Service and Feedback” and “Check-in and Boarding” with p- values= 0.001 for Flight Inspiration, 0.000 for “Check-in& Boarding”, and 0.024 for Service& Feedback.