Tacos, United Airlines, CLV, and Customer Service in Today's Social Media World

Perhaps you have heard the infamous Taco Bell lifetime customer value (CLV) lesson? Short story, Taco Bell calculates the lifetime value of a customer at roughly US$12,000. So when a customer is upset at service or food quality, just give them a few tacos, smooth it out, and keep that customer.

Today's Taco Bell taco costs $1.19. Experience and a variety of sites supports a 40/30/20 rule. That is 40% food cost, 30% labor cost, and 20% supporting costs. So if this is true, an average restaurant has a tight margin of <10% . If that is true, a Taco Bell taco costs just over $1.07 and there is $0.12 profit.

Let's say you have an upset Taco Bell customer. CLV calculations suggest that if you give that customer some tacos to make them happy, you save that customer for life. Let's also say that the number of tacos you give is five:

5* $1.07 = $5.35

In this scenario, it costs you $5.35 to save a customer who represents over $12,000 in direct and referral future sales. Car dealerships do this, too. They estimate the CLV somewhere around US$334,000. Even airlines have done this, which is how we got frequent flier programs (FFP).

CLV is not a new concept to sustainable business and, specifically customer satisfaction. This article is about the latter.

United has clearly forgot about the CLV concept. I'm confident they are aware of it because they still have a FFP. They have forgotten that customer satisfaction is how you KEEP customers.

We all know about the events on April 9th, when Dr. David Dao was pulled off a United flight, United Airlines became the poster child for a CLV revolution.

On April 12, MarketWatch published an article stating United's stock fell 1.1%, or US$255 million, off their market cap in the three days following The Event.

They were offering US$800 each for four seats to be vacated. From the news flurry, we can infer that Dr. Dao was selected because he had bought the cheapest possible seat. A weekend trip on UA3411 costs about $230. Now I don't pretend to know the costs behind an airline seat. I'm only talking about the price paid plus the benefit of vacating your seat. Consider this:

$230 + 800 = $1030

In two days, United's mishandling of this situation cost them $255,000,000. That doesn't include the reparations paid to other passengers, nor the imminent lawsuit to be filed by Dr. Dao's attorneys.

That's big. Let's compare.

$1030 or $255,000,000+

Oops. That is a number from April 12th. Let's look at today (April 18th). United's stock continues to fall. As of market close today, United is down 5.6% since that fateful day. That translates to a market cap loss of nearly US$1.3 BILLION!!!

Let's compare again.

$1030 or $1,300,000,000 and growing.

United is taking it on the chin. But really they are taking it on the chin because of a video. A few videos, to be honest. All over a fateful intersection of company policy and customer service.

This poor example of service has cost United more than ONE-POINT-THREE-BILLION-DOLLARS. Say it out loud. Say it again. One bad service experience and $1.3 billion.

This serves as a notice to every company on this planet. Make sure you understand the lifetime value of a customer. Review your policies. Make sure you embrace the reality that customer service is how you keep customers.

It takes one video posted on social media. My point is not if United handled it right or wrong. My point is that social media changes the way business works. Your customer service had better be on point.

And I think CLV concepts have just been blown out the window.