Guest Editorial by Jim Davidson, CEO, Farelogix
Just a few short years ago, merchandising was new to the airline industry. “New Revenue!” was the mantra, and bags were the proverbial low-hanging fruit. Fortunately—from both airline and traveler perspectives—airlines are fast moving beyond this nascent phase and embracing a more strategic view that focuses on giving travelers choice and the best possible travel experience.
Without a doubt, the single biggest driver of new merchandising initiatives is personalization. Competition is no longer based solely on price, but rather on the airline’s ability to compete for traveler business on each and every transaction and across all touch points. 78% of airlines are focused on personalizing what they offer*, whether it be for-sale optional services, earned traveler rewards, premium white-glove service, or real-time “customer recovery” after a trip disruption. The ability to personalize is king. IATA’s New Distribution Capability is yet another example of this momentum. Its stated objectives focused on transforming airlines from commodity sellers to dynamic retailers capable of delivering customized travel experiences and Amazon-like levels of personalization and engagement.
New merchandising technology makes this new level of personalization possible. As such, a growing number of airlines are investing in centralized merchandising solutions that can internally serve the needs of marketing, revenue management, loyalty, and distribution, and externally feed multiple sales channels. This is no small feat for many airlines as they must cross internal “silos” and adopt new technologies, faster and more effectively than their competitors, as the industry races toward personalization and competitive engagement with the customer.
The broad scope of these efforts is reflected in the 7R’s of Merchandising: Relationship, Revenue, Retention/Rewards, Retail, Redemption, Recovery, and Regulatory. Practically speaking, the 7R’s teach us that, if done well, merchandising not only drives revenue, but also builds loyalty, stimulates repeat business, improves rewards programs, creates new retail opportunities, assists with regulatory compliance, and, through real-time recovery, grows traveler trust that even when things occasionally go wrong, the airline will make it right.
Naturally, no airline’s merchandising strategy is alike, and how the airline tackles the 7R’s will vary based on target market, brand identity, culture, and more. But the common thread for all is that merchandising strategy now sits at the heart of the airline–customer relationship and is the driver of today’s competitive landscape.
The world of commoditization is ending. Technology to achieve the 7 R’s and put the airline in control of personalized offers across channels exists today. The competitive playing field is set. Are you ready?
*Airline IT Trends Survey 2012
Guest Editorial by Ornagh Hoban, VP Strategy and Marketing
Airlines are focused on transforming their retail strategies, with a view to boosting their bottom line while delivering improved service and value across the traveler experience.
As part of this move, low margin air revenue is being supplemented with high margin ancillary sales. A larger product portfolio offered across an increasing number of channels and touchpoints means the number of merchandising decisions to manage has increased exponentially.
As consumers, we are accustomed to contextual, collaborative and intuitive conversations with retailers such as Amazon, Zappos or eBay feeding our demand for relevance in real time. We look to minimise dwell time in an always-connected world. We do not want more aggregated content and choice which adds complexity, has no context to our shopping journey, and takes no account of who we are, where we are and what we value.
For airlines, this requires a fundamental shift in merchandising strategy. Airlines must leverage the opportunity to enhance and add value to the travel experience while increasing their share of traveller wallet.
A merchandizing platform is required to manage this exponential increase in the number of merchandizing decision points in this area.
It should allow small teams of business users to configure and influence merchandising outcomes in real time without IT intervention. Revenue earned through distinct merchandising models should be measurable and comparable, allowing for continuous revenue tuning of this platform. Equally, the operational cost of setting up and maintaining this merchandising capability should be minimised.
Personalisation requires data as a crucial retail currency in the pursuit of active customer engagement. Yet data will only be advantageous if an airline can effectively use it to segment, target and engage to add value.
The merchandising platform must have the ability to capture large volumes of traveler behavioural data, both historical and in real time. Shopping and booking behaviours are broken down into a multitude of variables that describe the traveller, the shopping context, and the products with which they interact. Patterns emerge from the data as to which variables have the greatest strength of relationship with conversion outcomes per class of traveller.
These contextual variables are then fed into merchandising questions that are asked of predictive models, the type that understand how like-minded travellers have behaved in the past. Predictive learning models use this information to recommend products that are most likely to result in conversion. For example, a predictive model may indicate that a business traveller on his way to the airport is more likely to book lounge access compared with other ancillary products. The conversion outcome is then fed back into the model to improve the quality of decision making for subsequent traveller interactions.
The legacy problem
Traditional travel ecommerce platforms have often adopted a sledgehammer approach to online distribution, offering identical products to all irrespective of individual preference, market, channel or touchpoint.
Where market segmentation does occur, merchandizing decision points are often configured using business rules or, worse still, embedded in hard-wired programming logic. As the number of merchandising decisions increases, so too does the number of manual configuration rules required to merchandise in a personalised and contextualised fashion. As a result, these traditional tools are not operationally feasible nor are they cost effective.
Furthermore, travel retailers know that innumerable tests must be run across a vast matrix of market segments, channels and touchpoints to optimize the merchandising engagement. They also know, rather frustratingly, that the answers to merchandizing questions are forever changing as travellers and market conditions evolve. Thus the use of traditional tools results in lost revenue opportunities where travellers are offered the wrong product at the wrong time at the wrong price.
The generic problem
Generic tools exist but are unlikely to address the specific needs of the travel industry.
Firstly, the travel merchandising platform should source products from multiple systems, including airline reservation system or global distribution systems, and partner systems. Product inventory and fares are perishable and airlines often want the ability to manipulate merchandising decisions using pre-existing configuration capabilities embedded in the merchandising platform. An airline may want to show preference to a given hotel provider as they offer a higher rate of commission while still providing competitive rates and a quality product to their customers. Generic tools operating in information silos are not well positioned to make these types of decisions.
Secondly, generic tools do not understand if and how a product can be fulfilled. A product may no longer be available, for example, or a price change may require compensating transactions such as modifications to the ticket mask or passenger name record.
Thirdly, generic tools require all traveler and trip data to be loaded onto their systems to generate merchandising decisions. This results in significant setup and ongoing maintenance costs and seems wasteful given the data that already exists in the reservation system of the merchandising platform. As a result, the most compelling solutions for the industry are likely to come from travel-oriented merchandising platforms.
Merchandising platforms defined and managed by travel experts, coupled with powerful real-time learning algorithms allow for personalization and optimization of the traveller engagement.
Poorly performing products are shown less often, whereas performing products and partners are given preferential treatment. Where product performance is channel, touchpoint or traveller dependent, the model can test, measure, and merchandises accordingly. An infinite number of complex business rules is no longer required to manage distinct traveller behaviours. Instead, the travel-focused merchandising platform empowers the business to revenue tune the system in a user-friendly and cost-effective fashion, delivering sophisticated merchandising of the traveller experience.