June 2018, London
Why using customer wealth data is a tricky business
Tom Bacon considers how customer wealth data should and should not be used
A recent Travel Weekly article suggested that travel suppliers could productively use customers’ personal wealth data to ‘price dynamically’. Most readers assumed the worst: travel suppliers could use individual financial information to exploit less price sensitive customers by extracting higher prices from wealthy customers. ‘Deals’ would only apply to customers who might not be able to afford the standard fares. Many readers were outraged.
Of course, this is not a winning strategy for any travel supplier. In fact, ‘productive’ use of individual wealth actually means helping customers - wealthy and not-so-wealthy - make travel more comfortable and design the entire travel experience in a way that better meets individual needs.
But take note: a customer’s wealth should be used with extreme caution for setting higher fares or fees.
Of course, basic economic theory might suggest that wealthier customers would likely be less price elastic with respect to many goods and services – isn’t that why many purchase those Mercedes automobiles and stay at the Ritz? In practice, however, differential price elasticity among customer segments is far more complex. And generalisations are dangerous! American business magnate Warren Buffett, in fact, famously prefers a modest lifestyle. Indeed, one could actually argue that customers who are less wealthy may travel less and may not be as astute in investigating fares or rates; as such, they may not efficiently compare prices across hotels or flights and may actually be less price sensitive!
A wealthy customer, like all customers, generally focuses on the variance in pricing among alternatives. They purchase a Mercedes only if they perceive it has value relative to a lower-priced option. Any supplier that prices his product without regard for the alternatives, that charges a price premium that is not associated with a better product attributes, will lose customers, whether wealthy or not. For this reason, charging higher fares based strictly on a customer’s wealth do not make sense for travel suppliers.
On the other hand, customer wealth can be used to the benefit of customers for ‘offer optimisation’ to:
- Customise a travel experience
Although prices of both the base flight and the sell-ups may be the same for all customers (who are asking for the same flight at the same time), the travel supplier can use wealth to help customers navigate the choices and associated features. Wealth may not be the most important factor; annual travel spend or propensity to check a bag or to buy a big seat may all be more relevant to e-merchandising. In conjunction with the other factors, wealth still may help further segment a market: “Other customers like you also purchased…” In this way, lounge access and premium economy may be highlighted to certain customers as a much more relevant sell-up than in a broad, less targeted merchandising initiative.
- Construct attractive offers
Similarly, wealth may help a travel supplier better construct travel offers relevant to the individual. For example, certain destinations may be much more attractive to a wealthy segment (think Monte Carlo or Palm Beach). Also, certain events catering to a wealthier audience may stimulate interest (polo, tennis, car shows). In many situations, price alone may not attract a wealthier traveller so offers constructed around promotional fares may not be as effective as offers constructed around greater convenience or a more personalised experience. In all such cases, however, wealth is likely not determinative but, in conjunction with travel history and other information about the customer, can help a travel supplier filter all of the various travel alternatives to construct an offer that is more meaningful to the individual.
Personalisation, including potential use of individual wealth, should be used to help the traveller. Personalisation can drive loyalty and can improve the online customer experience. Travel suppliers, and travellers worldwide, should regard such personalisation as a potential competitive weapon – to better meet customer needs and to drive increased value.
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