October 2018, Las Vegas
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5 sirens that could signal the wrong kind of change
Embracing new technologies and strategies may seem like a good idea, but Tom Bacon is worried that, without clear direction, airlines could end up on the rocks
With rapidly changing markets and technology, leaders in every industry are advising: ‘Embrace Change’. The travel industry is no different.
But there is also the wrong kind of change. Not all responses to new demands are appropriate. Bain Consulting talks of strategic ‘Sirens’ vs ‘Lighthouses’ – many new airline strategies are less like ‘lighthouses’ and more like ‘sirens’, superficially alluring but misguided if pursued without broader strategic and functional alignment. Don’t end up on the rocks!
For airlines, there are ‘sirens’ in fleet selection, in schedule strategy, marketing and distribution, operations and customer service – in every airline function. In fact, even in dynamic pricing – which has become more and more sophisticated across the industry -- there are the wrong kinds of change. In airline pricing, for example, beware of the following potential ‘sirens’:
System solutions, the ‘latest technology’. Often, airlines that embrace change do so by installing new systems, including state-of-the-art revenue management and CRM systems. However, new systems often require whole new processes - which have tremendous people issues, including new training and integration requirements. Often, the ‘best’ system doesn’t fit an airline’s specific competitive situation or its ability to attract the right skills.
Ancillary fees. A popular new strategy is new airline fees. However, too many fees can be confusing to customers. Ancillary success requires an integrated plan across functions, including pricing, RM, marketing, distribution and even operations. Distribution issues, in particular, have limited what some airlines can accomplish with ancillary fees.
‘Optimised’ channel strategy. The market wants consistent pricing and/or marketing across all channels but technology currently limits airlines’ ability to achieve this; and some airlines offer incentives or penalties for certain channels. ‘Optimised’ channel pricing is different for different airlines and needs to be consistent with other elements of strategy.
Leveraging entrepreneurial and tech start-ups. There are many travel-related start-ups with innovative approaches to pricing, to personalisation, and to channel management. All airlines need to ‘embrace’ new technology - but simultaneously they need to avoid inadvertently disrupting existing long-time successful processes. Start-up culture is so different from legacy airline culture that fully engaging with new technology may put existing processes and relationships at risk. Airlines really do need to ask the question: how do we best exploit new technology?
- Me-too strategies. Many airlines adopt ‘me too’ strategies that don’t actually fit their unique competitive positions. Airlines shouldn’t blindly copy competition or even industry ‘leaders’. Each needs to cut its own path with the proper focus on its own target customers. Indeed, change requires each airline to clearly define its strategy in its market. Two ways to do this are:
Airline-specific strategy: Ask the questions: Who is the customer? How does the company uniquely position itself? An ‘ultra low cost carrier’, for example, must offer a lower base fare than its competitors – and can rely more heavily on ancillary sell-up to realise its total revenue goals. An airline that distributes its product heavily through third-party channels, on the other hand, may want to avoid a third-party fee that could jeopardise its sales.
Holistic execution; integration across all related functions. Pricing cannot act as a silo within an airline; any pricing innovation, such as new fees, must be supported by customer-facing employees, who are responsible for its execution.
To conclude, every travel company needs to embrace change but, at the same time, to be selective about the kind of change it pursues. Rather than be attracted to the latest marketplace ‘sirens’, they need comprehensive strategies that position them uniquely in the marketplace. They need to ensure any change they choose to pursue is fulsome, consistent, and integrative.
Tom Bacon has been in the business 25 years, as an airline veteran and now industry consultant in revenue optimisation. He leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Questions? Email Tom or visit his website