When revenue managers become matchmakers
RM is often viewed as a clinical process but it can really help airlines choose customers wisely, while delivering them a relevant and personal experience. Tom Bacon explains
Often revenue management is viewed as a ‘black box’: a mysterious algorithm that sets prices for flights based on complex forecast equations and linear programming optimisation techniques.
RM can also be viewed as a ‘central nervous system’, capturing information from all over a network of flights and dates and converting this into discrete business decisions.
Finally, in the new world of merchandising, RM can be seen as a ‘carnival barker’, pushing high margin products, maximising revenue through an increasingly complex assortment of new fees.
These are relatively clinical perspectives on RM. Perhaps we need instead to be viewing RM as a ‘matchmaker’, matching service and experience along with fares to individual passenger needs. What’s clear is that RM needs to provide solutions – whether that is low fares, a more comfortable journey or increased travel flexibility.
Rather than maximising total revenue, RM should seek value for customers, giving them real choice, offering tailor-made solutions, and fully engaging with them. Matchmaking includes providing practical information but also offering inspiring and entertaining content. Matchmakers are also good at listening; in a similar way RM needs to respond to what is unique about each customer and his individual needs. Successful traditional travel agencies have always done a great job of this; in the new world of merchandising and online direct bookings, RM can play an important role here.
Rather than deselecting ‘cheap’ passengers or further up-selling ‘high rollers’, the matchmaker sees the value of each type of passenger and tries to match the airline’s capabilities with individual passenger needs. They take an unbiased view so:
- Price sensitive passengers aren’t ‘cheap’, they are ‘flexible’
The most price-sensitive passengers are critical to filling seats during the less-desirable times. By booking early, they also provide a base of bookings and revenue that gives the airline a foundation for the closer-in bookings; such early bookings also offer a source of financing. By purchasing non-refundable fares, they represent more certain revenue than fully refundable full fares. Rather than de-selecting price sensitive passengers because ‘they don’t want to pay enough’, RM needs to match these passengers with the right choices for them:
- They need to book earlier to get the lower fares
- They need to respond to special sales windows
- They need to accept fewer features/services
- They may need to select less popular times/flights
Can RM make the flight planning process a less mysterious and anxious time for them? Rather than surprise them with fares that may go up significantly tomorrow, can’t airlines give them information on booking performance and fare rules?
Airlines – and RM specifically – shouldn’t want to completely reject any traveller interested in flying one of their flights
‘Two seats left’, for example, is helpful but we may want to give them more information to help match needs with our various options. Airlines – and RM specifically -- shouldn’t want to completely reject any traveller interested in flying one of their flights.
- High rollers’ are really just passengers seeking more ‘value’
For relatively price insensitive, service intensive passengers, airlines still need to offer choice and value. The price structure offers them a more full-service, last minute product. It includes flexibility. Airlines need to convey clearly that they are trying hard to meet the special needs of these passengers. These customers may value additional services – but they will not appreciate aggressive marketing. Finding the balance – effectively, expert matchmaking – is critical for these customers.
There are many other segments too
There are, in fact, many unique segments which need special matchmaking: families with small children, tall people, an older couple going on a cruise, a young couple venturing into the big city for the weekend, reunions, weddings, and so on. In the end, all customers seek value. The new world of ancillary services is well suited to such matchmaking. Airlines can match the needs of different segments with the travel experience they each value by understanding their differing needs and clearly communicating the most relevant alternatives.
When done right, RM isn’t a ‘black box’, or a ‘central nervous system’, or a ‘barker of hidden fees’. Increasingly, RM is being called on to be a matchmaker, seeking to meet the needs of each individual traveller with the ‘right’ combination of features and prices.
When RM becomes good at matchmaking, it will help find that set of features/prices that translates into ‘value’ for its customers. No airline will be able to meet all the needs for all possible passengers but by taking on the perspective of a matchmaker, RM can both create value and improve customer perception. And, unlike traditional matchmaking, when it’s done right, airlines will gain repeat business.
Tom Bacon is 25-year airline veteran and industry consultant in revenue optimisation.