Ai Editorial: Making merchandising an integral part of a traveller’s journey

First published on 16^th December, 2016

Ai Editorial: If airlines are seeking a greater share of the customer’s wallet then they actually have to care about a passenger’s journey, writes Ai’s Ritesh Gupta   

Airlines are digging deep to ascertain what passengers love about them, and striving to become an integral part of their journey. So for a family it could be about making the most of togetherness on the day of travel, whereas a business traveller would prefer flexibility on ticket changes, and for their part, airlines are trying to entwine their merchandising around this.

Constant effort is being made to ensure unbundling or re-bundling matches with what a brand stands for and at the same time make benefits apparent.

Merchandising continues to evolve, a fact exemplified by the constant introduction of new offerings from airlines across the globe. So be it for Ryanair’s tailored bundle of discounted travel extras or American Airlines opting to extend availability of Preferred and Main Cabin Extra Seats to travel agents, there is plenty of action in this arena. Unbundling, branded fares, service bundles, fare families and subscription are all being played around with, and airlines are refining these all the time.

This level of product differentiation is must as the game of merchandising and ancillaries is bigger than ever. According to IdeaWorksCompany, airline ancillary revenue generation is projected to reach $67.4 billion this year. The report mentioned that optional services, such as onboard sales of food and beverages, checked baggage, premium seat assignments, and early boarding benefits, is expected to generate $44.9 billion of the total figure.

Being part of a journey

Every airline has unique values that appeal to different people, for one it might be a particular seat pitch, for another carrier it might be the food served or the airport experience or the on-time performance, says Mark Lenahan, co-founder, CJ Ingition. He says this varies by customers also. “Maybe there’s a UX (user experience) for the hundreds of different things I might want to filter flight results on, but I think the answer is not to just keep adding more data to the booking engine shop window,” says Lenahan. He says the vast majority of passengers are not first-time passengers, most of them are familiar with most of the airlines competing for their business on a given route. So a traveller might know a special feature, say a seat pitch, is worth $10-$20 more for a better experience. “What airlines need to work towards is improving the experience in the whole journey not just onboard their flights but including interline partners, ground transport, destination and airports. If you want a greater share of the customer's wallet then you actually have to care about their problems. The alternative - equally legitimate - strategy is to be the cheapest and most efficient transport provider you can be, but drop any pretence about being a retailer,” explained Lenahan.  

Also, airlines need to look beyond cost, revenue, margin, etc., and rather assess retail metrics like revenue per visitor, average basket size, and attach rate - which can apply to all ancillaries or down to individual products, says Lenahan. He says analytics tools need to be across all channels and fine grained - reporting views, clicks, purchases down to the individual product. “I think the two most significant KPIs are cost of acquisition and lifetime value. The industry has significant issues minimising the former (e.g. paying for the same customer over and over) and understanding the later (strong tendency to ignore the earning potential of all but the top tier). If the customer experience in the whole journey (airport, on board, at destination) isn’t competitive then lifetime value will decline, even while the attach rate on the app or website improves in the short term. Airlines have to think of the long-term impact of everything they do.”

Value should stand out

Do you get peeved when you have to pay for a seat?

The fundamental idea behind charging for a particular seat is not the opportunity cost, but the benefit of choosing where to sit and removing the uncertainty of where you will finally sit, says Maria Cardenal, head of product development at Vueling Airlines. She says Vueling passengers will have a seat assigned for free if they choose so or will be able to choose it themselves if either they pay for Optima fare or pay for Basic fare and then the seat they prefer. Either in an unbundled way or in a bundled way, there is value behind the possibility to choose.  It’s the same simple principle for which you have different prices depending where you want to sit at the theater or the Opera or a football match. You will have to pay extra if you want to sit in a privileged zone.

Sell what makes you special

Fare and product attributes need to be presented in a way that is easy to understand, digest, compare and personalise. There are several areas where airlines can improve.

When I spoke to Robert Albert, CEO, Routehappy, (a company that helps airlines to deliver their product attributes wherever flights are sold) same time last year, he indicated airlines are between 5-15% of their differentiation potential in their own channels overall, and closer to 0-5% in indirect channels. More recently, during one of our conferences in Kuala Lumpur, he urged airlines to take concrete steps. “Airlines everywhere are investing to transform their products. When will we merchandise these innovations in flight shopping? When will we showcase product in up-sell, ancillary and other offers?”probed Albert, who said the hotel industry has differentiated “well”, and get their “customers excited to buy their products”.

Irony is that content exists, but the industry struggles to show the same in the transaction flow. Albert asserted that one needs to “sell what makes you special”. For instance, ANA can count on their 34” seat pitch in economy, Singapore Airlines on their champagnes etc. and this needs to be integrated into product offers. Also, avoid overly generic or inconsistent presentation of product attributes. Don’t opt for “too general” a way of showing content which can’t be truly useful to a consumer's decision process. Information shouldn’t presented inconsistently so it doesn't reinforce usefulness, importance, comparability, or accuracy of the product attributes. 

As for technology and e-commerce, airlines need to seamlessly integrate all ancillary products and services into their own payment and booking processes. As Datalex points out, airlines require significant investment in re-platforming their digital commerce suites to enhance their ability to dynamically price, promote and reward customers across all channels and devices. The industry may not be equipped to assess the booking flow in real-time, say what to display after the first click or the third click, but retailing is evolving all the time. So watch out for IoT commerce or new checkout experiences, and strengthen commerce initiatives.

Lastly, what is being promised needs to be delivered as well. So, for an example, if an airline identifies that a flyer tends to buy certain items on-board, let’s say a mango pudding, then the catering and crew needs to be informed about the same.

Ai is set to conduct the 11^th edition of Ancillary Merchandising Conference in Spain next year.  

Date: 25 Apr 2017 - 27 Apr 2017; Location: Mallorca, Spain 

For more info, click here

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