Ai Editorial: 5 Keys to Successful Airline Merchandising

Airlines’ retail infrastructure must enable one single view of the customer if they intend to assiduously address the retail opportunity across a traveller’s journey. An interview of Datalex by Ritesh Gupta, Airline Information Correspondent

How strong are retailing and ancillary merchandising capabilities of an airline?

This is one question that airline distribution, e-commerce and revenue management executives can’t evade today. Airlines have drifted away from rudimentary upsell practices and rather now dwell on passengers’ main objective when coming to an airline website; understanding their intent and offering what they require in the quickest time, with as seamless experience as possible. No doubt, airlines today are savvy enough to drive profitable revenue growth in this arena. And this means there is a way to meet the expectations of a shopper in the multi-channel, multi-device environment.

“In the eyes of the consumer, e-commerce and retail are now one.  Airlines need to address this reality as the new battleground for a sustainable and competitive business,” says Ornagh Hoban, VP - Strategy and Marketing at travel e-commerce software specialist Datalex.

As Hoban points out, there is no silver bullet and the airline as a business must engender a culture of innovation and experimentation to continuously test and learn in the pursuit of measurable value.

Here we explore what can impact merchandising initiatives:

• Aptly assess the efficacy of pricing and structuring of offers: There is no fixed formula to bundling and unbundling. Carriers bundle services, conditions and charges collectively, crafting a fare family under a branded fare name. Some carriers go for a brand strategy that feature fare attributes and offerings through branded fares, and there are others that work out a traditional fare structure and keep ancillaries separate from fares, with bundling a constituent of ancillary plan.

Hoban explains airlines are investing heavily to unify their retail infrastructure and exploring new revenue optimization models.  “For example, dynamic bundling and pricing within fare families have already driven hundreds of millions to the bottom line for some of our customers,” said Hoban.

It’s just not enough if airlines are solely focusing on keeping fare families simple. Rather such initiatives should complement the profile of the target audience, and enable the segment to easily evaluate the advantage of buying up to the bundle in comparison with buying the items separately.

• Go for “one single point of truth”: The team at Datalex refers to “one single point of truth”. It essentially means that airlines need to ensure that data is unified. “There should be one central hub for all pre-trip, during-trip and post-trip operations and a record of all offers and purchases at all touchpoints,” says Datalex CIO Malachi Faughnan.

Hoban adds, “Omni-channel engagement and a 360-view of customer remains out of reach for many airline retailers with competing and silo’d transactional and data technology platforms.  Big data is just data unless it can deliver one single point of truth, unless it’s synchronized, omni present and actionable.” She adds, “This will be the true retail challenge and will require a much larger price/ revenue optimisation framework. One which dynamically predicts customer choice, demand and value optimized for market conditions, channel, device/ media.”

• Focus on “smart selling”: The industry is witnessing interesting initiatives when it comes to selling. There are dynamic packages/ bundles that are driven by a passenger’s profile, buying pattern or past track record.

Datalex stresses that the time has come when organisations need to intuitively identify customer intent and tailor offer as per the persona of the shopper. The team recommends that airlines should be spot on when it comes to knowing the customer and optimising each interaction across various touchpoints, and focus on real time predictions of implicit interest and relevant content that customer values.  

• User experience: Passengers need to be clearly informed about current fare/ product and what other products and services are available and the cost.  Airlines require a deep understanding of the digital customer experience for even the most complex searches.

Also, according to specialists, airlines also need to consolidate information to create an online profile on the site, and create single customer view. Importantly, the need of the hour is to work out personalisation by channel, by use case. Airlines are successfully leveraging personalisation for tracking past shopping behavior in order to customize experience on the website. A single view of the customer is reflecting in the manner in which channels/ platforms including the web, email and mobile are being targeted. For instance, in case of email personalisation, a visitor who hasn’t completed a booking is being targeted after closed web session, and the focus is on streamlining path back into booking.

Other than direct channels, airlines also need to continuously strengthen their ties with indirect distribution partners. As Ailsa Brown, senior commercial director, Global Distribution Sales And Services, South Asia & Pacific, Travelport, mentioned recently (during Airline Information’s Loyalty, Ancillary & Co-Brand Conferences - Mega Event Asia-Pacific 2014 in Singapore),”...We need to understand ways to best use the intermediary channels, trying to take direct channel experience and apply into the indirect channel – we need to understand an agent’s workflow. Our goal is to connect how people want to sell with how they want to buy.” On the positive side, one is witnessing increasing acceptance of ATPCO OC and IATA EMD for ancillaries.  

• Performance counts: Revenue generation featuring “bags”, “seats” and other items are enabling airlines to improve upon on their financial performance.

For instance, Delta Air Lines, in its Q2 2014 Earnings Call, termed its merchandising initiatives as one of its commercial successes. The airline considers its seat merchandising as a growing revenue stream, increasing by $45 million over last year.  In order to achieve this, airlines also need to answer critical questions – if we are going to work out our revenue model around branded fares, then what sort of attributes are relevant to our passengers? Also, there is a need to avoid errors like losing out on up-sell volume if the families feature a substantial price difference.

Optimizing ancillary revenues and fare families demands coordinated changes to multiple interdependent systems. These include inventory systems, point of sale locations, revenue accounting etc. But airlines can’t slow down, as a lot is at stake today.   

As Hoban says, the merchandising framework should provide the tools that encapsulate the customer characteristics at all specific journey interactions, which infer preferences, intent, needs and which enable a real-time retail decision.

Datalex recently spoke at the Ancillary Merchandising Conference, a part of Airline Information’s Loyalty, Ancillary & Co-Brand Conferences-  Mega Event Worldwide held in New Orleans (18 – 19 November, 2014).

The 7R's of Merchandising: Essential Strategic Imperative

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 

Merchandising the Traveller Experience

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.

What’s required?

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.