Fresh frontiers: three essential lessons for driving new revenues from mobile

If you were wondering what mobile has to do with revenue management, then EyeforTravel guest columnist Tom Bacon may just have some answers.

First question: everybody knows that mobile is the future but what exactly does mobile have to do with revenue management? After all, RM doesn’t typically focus so much on distribution channels. Everyone who books early will tend to get lower prices; everyone who books closer in will tend to pay higher prices. And mobile is ‘just’ another distribution channel, like OTA’s or travel agents or supplier websites. In some ways mobile simply represents a new way to access the same information (customers can access an OTA or agency or supplier information all through mobile). It has even less basis for new RM (it’s a device, not even a channel). 

This brings us to question two: Should revenue management change in the new mobile world?

Of course, the answer is ‘yes’. Mobile does present new opportunities for RM because of its incredible convenience relative to other channels. Our customers use mobile differently to other channels, which in turn offers RM new opportunities. For example, mobile is like new shelf space at the virtual travel store, providing a fresh opportunity for more spontaneous purchases. While the other channels tend to be more premeditated (requiring sitting at your laptop or, in a retail sense, driving to the store’s location), mobile can be the prominent shelf space at check out: now that your meeting has run late, don’t you suddenly need a nearby hotel room for tonight?

A high margin game

At the retail outlet, the goods displayed at check out tend to be among the highest margin items in the store. For us in travel, mobile represents additional convenience for travellers that should translate into higher average rates and higher margins.  However, currently, mobile bookings often represents lower than average hotel rates and airfares. How can we reverse this trend and gain the additional revenue that should be inherent in mobile? 

It is worth bearing in mind that by discounting bookings made on your mobile site tends to be a share-shift strategy. However, over time, this generally drives your competition to lower rates as well – which ends up having a long-term revenue negative impact on industry revenue.

Three opportunities for adding new revenues from a growing channel

1.  The new mobile-impacted booking curve:

As mobile makes it more convenient to make travel arrangements ‘on-the-fly’, the booking curve will move closer in. More bookings will occur in the zero to seven day booking window (within seven days for travel). These are not ‘new’ bookings but a shift of the booking curve from further out.

Of course, current pricing favours making bookings further out. Our customers are inclined to book earlier to can get the lowest rates. In this sense, customers resist using all of the new convenience of mobile. If you book your hotel or airline within seven days, you pay a much higher rate/fare, often at least double what you would pay more than 21 days out.

For some customers, however, the convenience of mobile is large enough that they are willing to pay the higher rates; in these cases, mobile represents a windfall to travel suppliers (lots more full-fare bookings!). Of course, there are many more mobile customers today who will not change their behaviour given the effective penalty for waiting. In the end, the equilibrium price – balancing a higher rate and greater convenience – is likely higher than the current >14- day fare and somewhat lower than the current zero to seven-day fare. Nevertheless, savvy suppliers will still end up with significantly more revenue.

Here’s an example of how a supplier can realise a 10% higher fare through a shift in bookings:

2.  Mobile Upsell

What does Mobile add to the new Sell-Up process for hotels and airlines? The Right Time!

All travel suppliers are trying to be better merchandisers, offering customers the right product at the right price at the right time. Mobile greatly enhances “the right time” as we can engage with customers at any point in the travel process – including on the way to the airport and once he has reached his destination. The desktop and even the laptop don’t offer this same opportunity for engaging with customers at the right time.

If Ancillary is already 20-30% of total revenue – which it is for many airlines - it can be expected to increase with Mobile. The offer of a better inflight experience (bigger seat, meal, drink) is potentially more compelling to the traveler when he has completed a tough day and is hurrying to the airport to catch his flight. The offer of an upgraded room may similarly be more attractive to a customer who has had a less-than-perfect flight experience. Just as the ancillary revolution has introduced new merchandising opportunities for travel suppliers, Mobile expands these further.

3.  Third-party revenue

Besides upsell, mobile represents new ancillary revenue opportunities with third parties. There are many services related to travel that can also benefit from ‘the right product at the right time’. And ‘owning the customer’ (having the customer booking through your mobile channel) means the travel supplier has the customer engagement throughout the travel timeline – up through and past the travel itself. Hotel companies may pay advertising or commission fees to airlines which can provide new access to their mobile customers; hotel companies may earn commissions from local restaurants, from local transportation providers, and from events. Allegiant Airlines, a growing airline based in Las Vegas, has had a particular corporate focus on third-party revenue – and reports third-party revenue quarterly as part of its earnings releases – Allegiant gains over 4% of its total revenue from third-party commissions and advertising – even without a new mobile orientation. And, of course, this revenue comes at virtually no operating cost – it essentially falls right to the bottom line! Travel suppliers would be remiss to miss the new opportunity for third-party revenue from their mobile customers.

Approach with caution

An important note on ‘the right time’: both additional upsell (#2 above) and advertising/commission revenue (#3 above) are driven by capitalising more on ‘the right time” that can be enhanced through mobile. However, many mobile customers are overwhelmed by the wrong offers at the wrong time on their mobile devices today. Thus, all travel suppliers need to test their theories of ‘the right time’ with extreme caution -- with the same care, discipline and statistical rigor they apply to revenue management today. Mobile will fail as a blind outlet for ill-conceived offers.

Tom Bacon has 25-years experience as an airline veteran and industry consultant in revenue optimisation. Questions? Contact Tom at tom.bacon@yahoo.com or visit his website

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