Following on from his article on July 13, Tom Bacon now ponders whether airlines need dedicated product managers to grow ancillary revenues
Most airlines think geographically. Sales, revenue management and marketing are each organised around regions. In fact, often the commercial functions are organised like the airport folks who man flights into and out of a region – Midwest flights vs West Coast or Europe vs Asia.
Most consumer–oriented companies, on the other hand, have ‘product managers’ that work to meet unique customer needs for individual products and whose responsibility cuts across a variety of functions – and geographies. So as airlines begin to emulate more product-driven firms, do they now need ‘product managers’?
Of course, for airlines ‘product’ can mean many things. Sometimes the product means a flight from say London to New York. Airline commercial organisations are set up around such products or flights into or out of a certain region. For a definition of product broader than flight, airlines generally think of cabin: first class, business class, and economy. But there is rarely a product manager for first class, one individual or team that specifically tracks ‘F’ revenue across the system and works with each of the functional groups to drive higher ‘F’ profitability. Although there has often been someone in charge of ‘lounges’ and ‘frequent flyer programmes’, these separate ‘products’ tend to be the exception.
With the proliferation of ancillary fees and services, there is now a need for more conventional product managers at airlines. Kimpton Hotels, which clearly understands the need for employees focused on ancillary aspects of the hotel experience, has separate directors for ‘bars’, for ‘nightlife’, and for ‘music’, all at the corporate level and with network–wide responsibility. Should airlines now appoint directors of ‘big seat’, ‘third party ancillary’, and ‘assigned seating?’
In consumer products’ companies, product managers have responsibility for working cross-functionally to increase profits from a certain product or group of products. They are responsible for sales of a subset of products across the system. To grow sales, they influence all the 5Ps in the marketing mix: product, price, positioning, place, and promotion. They define target customer segments and develop programs to increase purchases in key segments.
All of these dimensions are similarly relevant for growing airline ancillary revenues.
Let’s take a closer look at the 5Ps
The attributes of ‘product’ need to be flexible and the product manager needs to ensure that it continues to be relevant in meeting changing customer needs. Third-party ancillary, for example, entails a multitude of different products with unique customer needs for each. Paid seat assignments can be highly granular – reflecting customer preferences for window versus aisle, for seating close to the front of the plane, for emergency rows or bulkhead seats, and so on. The ‘product’ also includes an operational aspect; how does the airline ensure the product is delivered properly, whether by airline employees, by technology, or by third parties?
Pricing for ancillary services needs to be reviewed systematically. A designated product manager, specifically responsible for monitoring product sales and operations and competitive offerings, is best positioned to conduct pricing reviews. Highly popular ancillary products – representing significant airline revenue – need to have pricing that reflects changing customer demand and competition.
Distribution of each ancillary product – ease of purchase across channels – continues to be a challenge for many ancillary products. The product manager should be the advocate for more comprehensive distribution of ancillary products across channels.
4 & 5. Positioning/Promotion
How a product is positioned impacts demand significantly – is the reserved seat an opportunity to sit with family or to sit closer to the front for faster boarding? A product manager can be attuned to the needs of different customer segments and ensure the message is appropriate for each.
With the growth in ancillary products, airlines need to consider the appointment of ‘product managers’ similar to those in consumer products companies. Airlines have learned to look at online retailers for lessons on e-merchandising – they also need to mimic CPC’s in product management.
Tom Bacon is a 25-year airline veteran and industry consultant in revenue optimisation and leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Questions? Email Tom or visit his website