merchanding love
619 days ago
 

Can airline merchandising and loyalty co-exist?

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 doesn’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 they’ve collected your frequent flier data, it’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 Delta and American Airlines 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 that’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 don’t expect them to encourage it.

That would be like asking this same man’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, it’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 we’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 travelers’ 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 they’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 aren’t prepared to bear.

NB: Tnooz-Datalex Webinar VIDEO – Traveller experience: bridging divide between merchandising and loyalty

NB2: Heart and luggage images via Shutterstock.

 
 
Evan Konwiser

About the Writer :: Evan Konwiser

Evan Konwiser is a contributing Node to Tnooz and was co-founder of FlightCaster, which was acquired by Next Jump in December 2010.

Currently, he works with travel start-ups and consults on new technology and trends in the travel industry. He started FlightCaster in 2009 to provide better tools for travelers using advanced technology.

After the acquisition, he managed Next Jump's travel distribution business, which includes employee discount programs for Fortune 500 companies.

Prior to FlightCaster, Evan was a consultant at Bain & Company and he also spent time at Kayak. He's an industry blogger and speaker on both consumer and corporate travel topics, a recipient of PhoCusWright's first ever Young Leadership Award and a member of the critics circle for the Travel Innovation Summit.

 

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  1. Timothy O'Neil-Dunne

    I agree with the premise of this article – IE the inherent disconnect between the airline’s efforts in loyalty and value. However I don’t agree that Big Data is the panacea. I believe that loyalty, personalization and value are hollow words used by any seller in Travel. However this is understandable. There is an inherent conflict between Loyalty – IE keeping coming back to a particular brand/product/service and value – getting the highest amount of revenue from said customer.

    Let me give you an example. I am loyal to a brand that meets my needs and does ABSOLUTELY nothing to engender loyalty. They are rude the service is really bad but its consistent and achieves the goal of the reason I travel. Yet I keep going back. Why? because this brand delivers the product that best suits my needs at the time i need it. On the other hand I have loyalty to a company that i user only once a year. Very loyal when that company’s products fall into my use field.

    Oh yes that first company – my #2 airline used by flights. Ryanair.

    Loyalty occurs when there is alignment between the customer and the brand, it should be a natural cause and effect. It comes based on a wide number of attributes, What Evan didn’t dive into was how badly certain companies have he tendency to mess with that brand in a number of areas. Let me give an example where brand value can be debased quickly and fast.

    Brand Extension.

    Why for example would I buy a discrete product such as a cruise from an airline? Well if there is a value proposition that works I MIGHT consider it. But consider the downside. I will only likely buy a third party product such as a cruise from an airline.com website if there is one heck of a deal. (No, frequent flyer miles wont cut it!). Which in turn turns me more into a less brand loyal by virtue of my searching for price value more often. The logic here is that if the price is better to buy a cruise on airline.com then i will shop more. If I dont find that the price value proposition is good on airline.com what else is the airline trying to do to me- perhaps screw me for more money on the core product? Not exactly a loyalty engendering set of behaviours.

    Airlines are really bad at understanding the life time value of a customer. A customer can switch overnight if the service fails on his last trip. (or if he dumps all his retention value at the end of every year and offloads his frequent flyer points). The obfuscation of the brand dilutes its value and pushes the consumer to lessen value and continue his relentless search for alternatives based primarily on price value. No where is this more prevalent than amongst the airlines in their partnerships (particularly JV, alliance and code-shares). A certain airline has stopped using a commercial tag line because the consumer proposition was just so awful. When it spoke about Brand X people being the differentiator – that rang hollow when it turns out that only about half of the customer touch points were interactions belonging to that airline’s staffers. I recently made a trip where the entire product was sold on an airline’s website on a service that included 2 generations away from the airline. IE even the third party providing the service had outsourced the flying to yet another airline. And yes I counted the number of direct customer interactions. Less than 30% were with the brand who sold me the product. (And Air France personnel can have an appalling attitude problem).

    Let’s face it – airlines number 2 focus is price obfuscation. (Fortunately #1 is safety). The consumer never loses sight of that fact even if the industry doesn’t!

    So I think we should all take a step back and ask about that true brand proposition and how well it performs against the stated proposition. Not through surveys but through behaviour. Hard I know but trust me on this one, people do not tell the truth in surveys. Evan is right – we need better data – or more accurately we need to be better at using the information that we already have. Jeff Smisek recently was interviewed by Forbes and he stated the obvious, “We are an industry with lots of data”.

    Can Merchandising and Loyalty co-exist? Yes if the brand is honest, open, truthful and engenders trust. However if the brand is being debased – through stupid merchandising and anti loyalty actions – then the brand will be damaged. However a final thought… in the age of short supply do the airlines really care?

    That I am sure is a great topic to debate.

    Cheers

     
  2. Martijn Moret

    Nice article Evan! If I may add, not only the integration with legacy data is a big problem, but also the availability of data at time of sale. Compare to earth-level retail, the ability of airlines to have information on the customer at the right time and place, as well as to be able to send pax level sales data back to an information system, is still faint. However, the trend to start using mobile devices in the cabin (by the crew!) may solve this. I said “may” because it still is important on what the airline or airline does with the data.

     
  3. Jim Davidson

    Great article Evan. It is refreshing to see a bit of a shift in the dialogue around merchandising being the “nickel and dime” approach to being a full blown customer startegy. Thanks. JIM

     
 
 

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