October 2018, Las Vegas
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Customer-centricity: the new competitive edge for airline RM?
Guest columnist Tom Bacon takes a look at how airline RM is evolving and identifies four ways to deliver change
Traditionally, revenue management has sought employees with expertise in pricing and economics if direct RM experience is unavailable. Understanding the basic economics of supply and demand, the application of price discrimination, different approaches to market segmentation, and the process flow of customer purchase decision-making, are all useful in forecasting flight demand, and allocation of scarce seats across different price points.
Another much valued criterion is ‘competitive focus’. Historically, air travel has been viewed by many travellers as a commodity, so price competitiveness is built into most RM processes. Monitoring fares offered by other airlines and aggressive fare matching is built into the pricing workflow – and in fact the underlying culture - of many airlines. Many airlines maintain a clear focus on ‘winning’ versus other airlines: they track market share and direct significant pricing, as well as marketing and sales resource, to capture a valuable set of business from a competitor.
Historically, air travel has been viewed by many travellers as a commodity, so price competitiveness is built into most RM processes
A recent survey of important criteria for successful RM analysts introduces another factor that perhaps has been undervalued historically. According to Skift’s 2017 survey on airline leadership in ancillaries, revenue management and marketing, airlines are shifting the importance they place on different factors for success. Micro-economics and RM experience remain important but ‘competitive focus’ is much less valued in this survey. Interestingly, the new criterion, ranked most highly in terms of important skills for RM analysts, is 'customer-centricity'.
For old-time RM managers, this is a potentially ambiguous change. Is there really a difference between gaining or protecting market share (competitive motivation) and better meeting customer needs (customer-centricity)? Is the ‘new’ orientation just a way of spinning the same old activities in a new consumer friendly way? Will behaviour really change?
If the principal tool is price then, in my view, there is little difference between competitive motivation and customer-centricity. In both cases, RM strives to attract the customer through the highest possible price – while still resorting to heavy discounting for highly price sensitive passengers. When customers view airline alternatives as a commodity, then price is the most important factor and, in this world – long the norm in the airline industry – competitive motivation is the principal way to be customer-centric!
Four ways to change
The real change underway, however, lies in the new tools available for RM – branded fares, ancillary options, new fare rules. These tools are designed to better meet individual customer needs and to offer RM new weapons beyond base price to drive value. With these new tools, RM can be more customer-centric by:
Ensuring its ancillary options recognise the value of amenities to different customer micro-segments;
Designing branded fares that meet unique needs of different groups of passengers;
Continuing to consider fare rules more broadly with basic economy restricting carry-on bags, for example, or premium economy offering additional amenities;
- Pricing dynamically based on micro-segmentation built around varying customer needs
All of these new tools must be considered in a competitive context; American Airlines, for example, just changed its rules for basic economy to match Delta’s. More fundamentally, they are created with different customers in mind. Such customer-centricity must become the focus of the new RM.
Tom Bacon has been in the business 25 years, as an airline veteran and now industry consultant in revenue optimisation. Not only is he a regular EyeforTravel moderator, he also leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Questions? Email Tom or visit his website