November 2019, Amsterdam
RM & pricing: mere ‘accessories’ to the customer experience?
In the past airline revenue management (RM) used to be most closely linked to pricing decisions but with the customer now first, Tom Bacon argues a more holistic view may be in order
When the Ford Motor Company hired a furniture maker as CEO in 2018 analysts were unsurprisingly a little confused. But as an article in the 160-year-old publication The Atlantic suggests, the move by this century-old manufacturing company may, in fact, capture the spirit of the times. Its argument goes: “We don’t live in the age of the automobile, or even the age of the computer. We live in the age of user experience.”
This was a breakthrough for Ford’s design team, which instead of thinking of a smartphone as an accessory to a car, considered whether in fact the car should be an accessory to the phone! If you think about self-driving cars, this isn’t so radical, and it may even be the most appropriate way to think of Ford and other automobile manufacturers in the future. In some sense already, Uber and Lyft could be viewed as ‘accessories’ to a smartphone.
Application to RM
The question of what can and should be considered as an accessory could arguably be applied to airline revenue management (RM) which is now closely associated with the customer experience. Traditionally, of course, big data analytics has been particularly strong in RM systems, and incredibly sophisticated pricing has been applied to what historically has been a largely commoditised product.
Today, however, bigger pools of customer data and continued demand for increased personalisation are driving a vision for RM systems with a new mandate
Today, however, bigger pools of customer data and continued demand for increased personalisation are driving a vision for RM systems with a new mandate – and this includes having a customised product definition. But should such personalisation become a facet (an accessory) of RM or should RM instead become an accessory to the wider vision of the customer experience? Instead of designing the best price or product based on the RM objective of maximising revenue, maybe RM should take a more holistic view of the customer.
4 reasons to tackle RM and pricing differently
Data. The data needs for personalisation are much broader than pricing. In fact pricing is, arguably, just a tiny aspect of the new data needs. A broader view of data includes social media, new demographic analysis, signals about passenger intent, competitive comparisons, and the whole web experience – in other words, who clicks on what. RM is not well positioned to manage such large-scale customer data.
Experience. Airlines are moving away from offering a commoditised travel experience. Now, most airlines present a long list of choices including type of and location of seats, baggage options, boarding alternatives, onboard meals, drinks, video, web access and so on. Arguably, revenue management (pricing) is not the most effective perspective for tailoring the menu of choices to individual customer needs. It is about knowing what the customer wants.
Search and booking. If airlines wish to move away from customer decision-making based primarily on price, then the customer experience begins with search and booking. Making it easier for customers to define the experience they want includes dramatic changes in the user booking experience. Again, this task does not fit in well with existing RM capabilities.
Operational impact of choice. Given the opportunity to customise the customer experience, fulfillment becomes more complicated for frontline employees. We’ve seen how free carry-on bags have driven overflowing overhead bins. Similarly, in-airport or inflight choices can drive new resource requirements. Front-line employees now have significant upsell opportunities that extend beyond the scope of RM.Ultimately, the new mandate revolves around the customer. With the customer as the focal point, pricing and revenue management now become accessories. Airlines that miss this change in perspective will, in the end, lose the customer.
Tom Bacon has been in the business for 25 years. When he isn’t penning his regular column for EyeforTravel, he is an industry consultant in revenue optimisation, and leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Want to find out more? Email Tom or visit his website