Airline Merchandising: Five Years From Now
There Are Many Views Of Where The Industry Is Going. So, Where Are We Going?
During the past seven years or so, I have enjoyed the opportunity to be very involved in an important and fundamental change that has taken place in the airline industry. Between 2005 and 2010, I was part of the team working on the capabilities that Sabre Airline Solutions® and Sabre Travel Network® were introducing to enable airline merchandising.
In a recent issue of Ascend, we dedicated an entire special section to airline merchandising — the bundling, unbundling and repackaging of products and services by airlines. The reasons behind this movement are well documented and are — at their core:
- A means to drive health into an industry that struggles for profitability by improving the revenue picture,
- A path to better match the product offered to what the customer values. In the beginning, the industry pursued “quick-and-dirty” approaches to enabling the new revenue-enhancing capabilities — generally termed “ancillaries” or “branded fares.” And, these tactics were very effective. Most of the revenue went straight to the bottom line. While there was an often difficult-to-ignore customer pushback on some of the unbundled ancillaries, where travelers paid for services that had previously been a part of the base fare, most people understood that the industry needed a way out of red ink, and this approach offered a path with potential for that.
Multiple Customer Interactions
The airline industry has the advantage of multiple interactions with travelers in a single transaction or trip. Travelers may engage airlines when they initially dream about the trip, but certainly when they’re shopping and buying. Airlines often engage travelers between buying and traveling, ensuring that they have everything they need. There are many touchpoints during the day of travel — critical to both the airline and the traveler. And, the traveler may engage post travel as well, perhaps giving feedback, documenting or following up on loyalty status.
Nevertheless, the quick-and-dirty had its drawbacks. Things were often limited to just the direct Web channels, with limited to no ability to extend to other direct channels (such as call centers), much less indirect channels.
Service and support on the day-of-operations was an exercise in hope and prayer in the event of irregular operations. As the programs grew in their success, an interesting artifact of that success has been an ever-increasing percentage of airline revenue that is sub-optimally managed. Meaning, it is not subject to the rigors of decades of increasingly sophisticated revenue management. As such, we (Sabre Airline Solutions and Sabre Travel Network) were more aggressively pushing the industry toward standards-based technologies — primarily to allow for the technical solutions to simultaneously address multiple opportunities.
In 2010, I moved into a role outside of airline merchandising. And, when I had the opportunity to get back a few months ago, in a role looking at where the industry was headed in the coming years in its approach to merchandising its products, I jumped at it. I found that things had progressed:
- The industry was increasingly pursuing more long-term, standards-based technical solutions.
- There was greater desire to approach ancillaries in distribution strategies.
- Some progress had been made in day-of-travel fulfillment. Still, many opportunities for improvement remain.
The State Of Retailing
During the past few months, we have been researching where the airline industry is going in its path to becoming better retailers. We talked to airline professionals who are regarded as best practitioners in merchandising, thought leaders in driving new revenue streams and the most accomplished revenue-optimization experts from around the world.
Additionally, we engaged retail experts from other verticals, including:
- Technology vendors such as Teradata, Microsoft, Best Buy and Dell;
- Online/offline retailing experts, such as jcpenney and The Container Store;
- Travel and non-travel service providers such as Disney, FedEx and various hoteliers.
These groups stressed the fundamentals of retailing:
- Seamless experience/ease of use — Make shopping easy, giving consumers the ability to quickly find the product they need. Drive consistency across distribution channels, allowing customers to shop where they want.
- Customer insight/personalization — Know your customers and recognize them throughout the process to better anticipate what they need.
- Optimized offering — Continually test and tweak for the right mix of offerings, tailoring the offer based on the type of person shopping.
- Applying the right technology — Ensure that you have “one view of the truth,” that your data drives clarity, not confusion. Have the best-in-class systems, which, increasingly, means outsourcing as opposed to building.
Ease Of Use
The retailers were quick to heap praise on what they viewed as good shopping and buying experiences, and they were just as quick to cast dispersions on the things that they viewed as underwhelming. Too often, they find that poor retailers do at least one of two critical things badly. Retailers need to listen to their customers and give them the ability to easily find and buy what they want.
Addressing ease of use is vital. Customers need the ability to find the product in your store. In a traditional brick-and-mortar store, this means a well-organized presentation of products. And, it means the exact same thing in the online world. Every retailer cited the search tools as critical. Airlines need to provide shoppers with the ability to find the right product and find it quickly and efficiently.
Easy search and the tools to filter to the products that are most relevant are keys to success. Many struggle with the desire to throw countless additional offers in the face of customers, hoping to drive additional revenue. However, experts caution against clutter. It confuses and frustrates customers, and it can drive them away.
Making too many offers sub-optimizes. This is a reflection of personalization, which is discussed in greater detail in the next section. If it isn’t relevant, it can actually impair the relationship with the customer.
Main Areas Of Focus
Through in-depth research, Sabre Airline Solutions grouped the airline needs into three broad categories, with many detail findings underneath the groupings. These include: 1. Increased share of wallet (or selling more products and services at the optimized price), 2. Customer centricity and personalization (or selling the right product to the right customer at the right time), 3. Consistent implementation into operations (ensuring that fulfillment of the traveler’s expected services are easily and efficiently delivered).
We invited John Thrailkill, vice president for The Container Store, to speak at a recent customer advisory board meeting to provide a retailer’s perspective. He gave good insight on the history of The Container Store, its products and how they’re marketed. He also outlined what differentiates The Container Store as an excellent retailer, focusing on a continually optimized product mix and knowing its customers’ personas very well, with the right data underpinning this insight and the inventory systems investment required for it. And, consistent with ease of use, The Container Store symbolizes the concept of organization. It is both the product it sells (solutions for organizing) and its mantra (both online and offline).
Ease of use means one more thing. Every best-in-class retailer we interviewed, as well as a couple of airlines that most would consider the best practitioners of retailing, said they want their customers to be able to reach them in whatever channel they prefer.
There was a general acceptance that you relinquish some control outside your call center, your branded stores and your website. However, the upside of reaching a customer that otherwise may not see or be able to purchase your product was viewed as an easy trade off.
Airlines push for as much uniformity in price, product and promotion as they can get, but they accept that the different channels of distribution may drive some differences in any of these, simply from a lack of control.
A few years ago in the airline space, we began to hear about the desire to move toward deeper personalization of offers, and this remains a key theme today. Like the retailers said, good personalization drives increased wallet share in the transaction, as they are better equipped to tailor offers to their customers. It also increases long-term customer loyalty, which is a contributor to in-transaction revenue. More importantly, it drives lifetime value.
Still, the retailing experts were very consistent in their views on both the positives and the negatives of personalization. When done well, it accrues the many benefits already outlined. When done poorly, it can actually be worse than no personalization at all.
When you appropriately tailor an offer to a customer, it shows that you are listening to them and value their time. However, if you inundate them with countless random offers, many of which may be irrelevant to them, their views of you as a provider plummet.
Also, the retailers consistently used the word “creepy” when referencing tactics of personalization that have gone too far. It seemed that the notion of creepy came up in every discussion when they were describing actions that make consumers begin to question you in a “big brother is watching” sense. What does it mean? Airlines need to guard against being too good at tailoring their offers. How? This brings up the next point.
Best-in-class retailers consistently warned against bombarding consumers with offers for other products and services. They need to be relevant based on what you may know of that customer or customers that fall into a similar segment or buying persona. They also need to be contextually sensitive — making the right offer at the right time. Absent that, you can actually drive customers away.
It was enlightening to hear retailers talk about revenue optimization. Interestingly, most retailers understood that the airline space has given more thought to revenue optimization than virtually any other industry in the world. It has evolved revenue management into an art form of customer segmentation that most industries can only dream of emulating. It was encouraging to hear this tremendous validation about the practice our industry, and specifically Sabre Holdings, introduced to the world years ago.
However, that isn’t enough for revenue optimization. As discussed, the good retailers give the right tools to their customers and are also good at listening as they sell to them. Having the right tools is important. It allows customers to find products without becoming so frustrated that you actually impair their view of you.
Still, just as importantly, you need to hear what they’re telling you discretely, or what they’re telling you implicitly. Good retailers watch their customers’ actions. So when they’re making offers, they watch conversion of the offer as well as its impact on the overall transaction. They then measure the impact on more lifetime views of that customer, keeping a good eye on the “creepiness” factor that must be avoided.
They do lots of “A/B” testing — checking to see which product moves better at what points in the transaction lifecycle. The airline industry is ripe for this. Having the right product for sale is only half the battle. The airline business is different than most. Airlines interact with customers a multitude of times in a single transaction: when they dream, when they shop, when they initially buy, the time between buying and traveling, during the day of travel and post travel. The best retailers are now thinking about the entirety of those touchpoints as a single transaction.
Disney is furthering its thinking in this area, tracking customer buying behavior from the time of shopping and booking through completion of the trip. It watches both the big ticket items (cruises, hotel stays, excursions, and park and resort ticket purchases) and the little things (meals, Mickey Mouse ears or other themed trinkets bought in the shops and gift shop refreshments). Disney measures all of this, segmenting customers for their shopping and buying behavior, understanding willingness to pay and likelihood of purchase and total spend. The company revenue-manages all of this as a single transaction — optimizing total revenue. More on this a bit later.
The Container Store also employed one more practice that the best-in-class retailers cited as critical … getting the technology right. This meant several things, but two significant areas of focus include:
- Getting the underlying data right,
- Buy when you can.
Having the right data is critical to many things:
- Knowing your customer and what they like,
- Understanding what products are moving and at what price,
- Knowing what you have to sell to your customers — regardless of channel — at all times.
When a customer is shopping, knowing where all the red storage boxes are can mean the difference in conversion or not. Whether on the store shelf, in the stock room, in a different store, in the warehouse awaiting shipment or on a truck en route to any particular store location, you can’t sell it if the customer can’t find it.
With smartphones and tablets, consumers often know as much or more than you about what you have to sell. Whereas some sellers may have considered not availing consumers to selected products or prices in the past, today’s consumers will quickly see when that happens, placing the entire relationship in peril.
On the customer end, having the right data is just as critical. Just as you want one view of the truth about what you have for sale, you want one view of the truth about what was sold, to whom, at what price, in what storefront, in lieu of what other offers were also available.
This suggests a data warehousing need that wasn’t possible a few years ago. However, with the tools increasingly available to manage big data problems, we can tackle data-mining questions previously unapproachable. These tools are new, but they are out there in growing numbers, and they will become table-stakes capabilities, things every business will need to simply be competitive, in the near term.
The second point on technology that we heard consistently: buy solutions whenever you can. Ten to 12 years ago, many retailers built the systems they needed, and the reason behind this was simple. In most cases, there weren’t good options to meet the retailer’s need.
That has changed. There are many good tools to solve countless retailing needs, whether dealing with a big data question, an offer management need, search and filter tools, personalization solutions, etc.
In our industry, we have these discussions with airlines every day. Whether you choose our tools or not, the recommendation is clear: don’t try to build something when a commercially-available product likely meets more than 90 percent of your needs. That third-party product will come with ongoing investment, in both capabilities you know you need and those you have not yet considered.
Gaining Customer Loyalty
While the wrong offer can injure your customer relationships, really understanding your customers — their product and service needs and their experiences with you as a service provider — gives you the opportunity to differentiate. You can know what they want and when they’re likely to want it. You can also know when you may have exceeded expectations or when you might have fallen short, information critical in helping drive loyalty and lifetime value.
Applying It To Airlines
From the outset of our research, the goal was to ensure that we have clarity about where the industry is going and what we need from a solution perspective to meet the evolving needs of our airline customers. When we collected feedback from airlines and married it with the retailers’ views, we outlined three key tenets for the industry’s direction:
- Customer centricity — Improving insight about the relationship with customers,
- Wallet share — Driving additional revenue, both in the moment and over the lifetime with customers,
- Consistency in operations — Introducing capabilities that streamline, not negatively impact, operational environments.
Taken together, it means the solutions that continue to evolve will be extremely complex. They will be able to market specific offers to a customer based on data that is aware of the broad market appeal of products and services as well as specific to individual customers’ perceptions. The offers the systems recommend will be based on a view of the total revenue that the traveler is likely to spend, given historical information about the type of trip he is taking. The systems will consider:
- Number of travelers,
- Day of departure,
- Length of stay,
- Specific amenities he asks the airline to price and any other elements he may request up front.
Our offer-management system will know the likelihood of a particular traveler needing or wanting additional products and services and will factor that into the equation. Then, the system will determine the appropriate price for the right offer for that point in the travel lifecycle, cross selling based on many data elements.
It will only offer things that are relevant at that moment. For example, two months from departure, it will be possible to anticipate how many bags will be checked, but it may not be the right time to offer baggage check as a pre-paid option when the traveler may not yet know his likely number of bags … ironic given that the airline’s predictive models could make a reasonable prediction.
Further, the offer-management system will have real insight as to when it’s an appropriate time for travelers to make a decision on baggage check — whether that is three-days, one-day or 6 hours from departure.
The system will understand the right elements to include into a bundled offer for the traveler, again based on her personal history, coupled with insights gained from the marketplace as well as information gleaned from social networks and current marketplace trends. It will package offers that comprise an airline’s products and services as well as those offered by its airline partners and other third-party partners.
Let’s say a traveler requests an itinerary for a specific seat including checked and carry-on baggage, hotel accommodations and a black car upon landing, departing and returning on a specific day, on a routing that can only be met by marrying together schedules from two or more airlines. The system will have insight into the detailed amenities that the airline and its partners have available at that moment to fulfill the traveler’s request. Additionally, the traveler will have the ability to manage this via his preferred relationship with the airline, improving the airline’s understanding of the traveler the next time he shops.
It is a fascinating world that will evolve. From Sabre Airline Solutions’ perspective, the good news is that this is either completely consistent with our current product direction or a collision of capabilities where we have well-placed solutions prepared to evolve in that direction. We can’t wait!
Airline Merchandising Strategy
Kyle Moore, vice president of retailing for Sabre Airline Solutions discusses some of the key things you should be thinking about in developing and managing your airline's merchandising strategy.