Suppliers continue to talk incessantly about these two strategies for revenue generation: merchandising and loyalty. Can they co-exist peacefully? Can third parties do either well? In short, not yet.
To win over or to up-sell, that is the question.
Suppliers have long played the loyalty game. For more than 30 years, airlines have wooed frequent fliers with promises of upgrades, free trips, and priority lines as a way to secure their repeat business and reduce price sensitivity.
In many ways, it has worked splendidly.
No road warrior fails to name their favorite carrier and the perks one gets easily outweighs inconsistent price and service.
But in the last few years, airlines have tried to upsell travelers on everything and anything. This merchandising philosophy has generally worked, raising revenues at a crucial time, allowing airlines to keep fares reasonable to stimulate demand during the latest downturn.
But loyal customers are getting prickly. One cannot promise a free upgrade and then try to upsell that same seat for hundreds of dollars simultaneously, but that doesnâ€™t seem to stop some airlines today.
By doing so, they are muddying the waters, making loyal customers less loyal and would-be buyers less likely to buy when others are getting it for free.
The one tool they have to combat this is knowledge about each individual traveler, theoretically making it possible to finesse both merchandising and loyalty to the point of optimization rather than conflict.
But few airlines are capable of using their vast customer databases for anything other than mass e-mails advertising completely impersonal and irrelevant fares.
Get your hands off of my loyal customer
When it comes to third parties, this problem is exacerbated. OTAs and other third party travel sites are even less able to cater to individual travelers since they often know a lot less and have much less control of inventory.
Even if theyâ€™ve collected your frequent flier data, itâ€™s difficult to action that data aside from an incrementally more informed search experience. Since they work with multiple competitive suppliers, they break down many of the benefits of loyalty.
It was little surprise when DeltaÂ and American AirlinesÂ cut-off access to their loyalty programs to sites like UsingMiles, SuperFly, and AwardWallet. By definition, loyalty means never having to say “shop around”, or at least thatâ€™s what airlines would like to believe.
Nobody would consider a husband faithful if he goes on lots of dates with other women, even if he ends up returning home to his wife. While airlines might be less able to enforce this level of fidelity, I donâ€™t expect them to encourage it.
That would be like asking this same manâ€™s wife to post an online dating profile so he could better compare her to his potential dates. Try that at home and see what happens.
Similarly, merchandising is also a tough sell for airlines. Partly, itâ€™s designed just to increase ancillary revenue. But much of that revenue (eg. baggage fees) airlines will get anyway, without anyone taking a cut.
Also, merchandising features are designed to reduce the impression that airline tickets are a commodity purchase. But by shopping and comparing on OTAs, we debase that primal goal. GDS and OTAs need to prove to airlines that they add incremental revenue by the way they do things, not just their customer base.
They need more than just access to OTA/GDS customers, they need value-additive techniques that deliver enhanced revenue and lifetime value, tough things to deliver when they are also encouraging competition among airlines
Where are we, where are we going?
There will be a time when we can use data on travelers to construct a personalized set of offers, mixing the best of both merchandising and loyalty techniques. But weâ€™re not there yet, not even close.
Airlines need to better collect and use their own data, and third parties need to figure out how they add incremental revenue without debasing the integrity of airline loyalty and de-commoditization efforts, if such a thing is even possible.
In the meantime, airlines are sending mixed messages about whether they value a travelersâ€™ long-term loyalty or their short-term wallet. Third parties are clamoring for access to both loyalty programs and ancillary inventory without any real value proposition other than trying to keep themselves relevant.
The answer is Big Data, but the solutions are hard to get right and challenging (near prohibitive?) for airlines to implement on their legacy IT stack.
Until we crack that nut, airlines and OTAs should stick to what theyâ€™re good at. Airlines should focus on building loyalty among frequent travelers without debasing it through petty merchandising.
Similarly, OTAs should focus on comparison and competition, giving confidence the traveler is getting what they want. Sure, airlines can also merchandise better in the meantime, but be careful what you ask for.
More aggressive merchandising without requisite intelligence carries a risk most airlines arenâ€™t prepared to bear.