www.simon-kucher.com
Seeing pricing from a customer perspective
Customer centric revenue managementAmsterdam, 25th November 2014
Dimitris Hiotis, Partner
London office3rd Floor, 1 Plough PlaceLondon EC4A 1DE, UKTel. +44 20 7832 6700 [email protected]
Damien Robert, Partner
Paris office17 Square Edouard VII75009 Paris, FranceTel. +33 1 56 69 23 [email protected]
Revenue management is mainly a sophisticated operational process and function and less a marketing one.
Revenue management is often internally-focused rather than customer focused
Classic Revenue Management is typically operational
...but communicates one of the most important marketing messages the price
In very simple terms, revenue management is a sophisticated system/process/logic that compares bookings to expectations and recommends price changes.
It is often based on a combination of forecasting, optimisation algorithms and some business rules, but with, usually, little consideration of the customer.
The end result of Revenue Management is the price of a product one of the most important marketing messages.
It needs to make sense, be simple, reflect the valueof what you are selling and most importantly be optimal for that customer.
130
100
56
50
40
180 TODAY –4 wks ago
TODAY 0
Days to departure
ForecastBooking curveActual
1016
Expected in the last 4 weeks
Booked in the last 4 weeks
eye_for_travel__25Nov2014 2
Today’s customer is a price-educated customer that shops around for flexibility and choice, is not interested in paying for frills but will be willing to pay more for convenience and speed.
Source: Simon-Kucher customer survey on travel trends; *Guardian 2013 on the success of Airbnb
So, let’s reverse the normal flow and consider the customer in order to determine our RM & price
Looks for the best deal
… but values convenience and speed
Is price educated
Start holiday booking on a search engine or aggregator
Will look at both a holiday package and build their own
Will be willing to go on a low-cost no-frills long-haul flight
Will consider paying for fast-track security check at an airport
Expect airline prices to go up as they move to departure
Will try both ‘build your own’ and packages
Does not want frills
3 in 4
2 in 3
55%
72%
70%
eye_for_travel__25Nov2014 3
What does that mean for revenue management & pricing
Start holiday booking on a search engine or aggregator
Will look at both a holiday package and build their own
Will be willing to go on a low-cost no-frills long-haul flight
Will consider paying for fast-track security check at an airport
Expect airline prices to go up as they move to departure
3 in 4
2 in 3
Create a base fare/product to ensure you are competitive but also give flexibility to customers
…at the same time offer clear and comprehensive sales dialogue to enable them to upgrade & upsell
1
2
If you offer a bundle, make it clear that it is a saving and advertise it
3
Be ready to adapt your products and features to the customer needs
4
Recognise they are price-educated and maximise the potential of that education
5
….and if they are not, be more consistent on your pricing to achieve that
6
55%
72%
70%
eye_for_travel__25Nov2014 4
In a price transparent market you need to create a base product with a clear and simple up-sell path
Aegean’s Go-light option creates a “base” product, with no luggage and restricted T&Cs, with a clear intention to create a competitive fare (e.g. vs. low-costs)
…at the same time provide a clear upsell path to the Flex and Business fares that is easily understood by customers and allows them to make easy comparisons
Booking.com offer for the same room with and with no breakfast included to provide the most competitive rate
…but at the same time offer clear upsells both in terms of room types and flexibility, to incentivise upsell to customers who value flexibility and breakfast more
1/2
eye_for_travel__25Nov2014 5
A matrix with multiple rules is really only going to confuse a customer and go for.
…and remember to be simple1/2
eye_for_travel__25Nov2014 6
…and sensible
The business class ticket (£617) is cheaper than the economy (£834)
…completely mis-selling the value of the product
Don’t undersell your upgrades But also don’t kill any chance of an upgrade
The breakfast inclusive price is more expensive than booking the non-inclusive and booking breakfast separately
1/2
eye_for_travel__25Nov2014 7
BA holidays always advertises the saving of the packages and First Choice has an AI calculator to sell the benefits of an all inclusive package.
If you package products, sell their saving or give customers tools to work it out themselves
Sell the package savings by having a “buy separately price” and a “combine & save” discount
Provide customers with tools to appreciate the value of the package you are offering
3
eye_for_travel__25Nov2014 8
Account for new customer needs beyond your standard products
Always13%
Some instances
59%
No28%
Consumers are willing to pay £10 for speedy security
checks of 5 minutes or less
Would you consider paying for airport security fast-track if you had the option…
4
eye_for_travel__25Nov2014 9
Recognise that your customers are price-educated and use it to your advantage
As you book your ticket closer to departure price goes…
5
Warn them when the system is close to increasing the price?
As your customer becomes more price-educated you can hasten their purchase by “sharing” some small stats on the price
…# of seats left
…how many people are looking at this
….when was the last booking
70%
Up
11%
No change
19%
Down
eye_for_travel__25Nov2014 10
But if they are not, be more pro-active with signalling
As you book your ticket closer to departure price goes…
6
34%
Up
24%
No change
41%
Down
Why?
Late deals have “doomed” the package holiday industry to a last-minute discounting frenzy
Customers are confused on when the price is cheaper
What to do:
Need to link discounting with a “lower-value” product in the later market
Or… hasten them based on capacity left.
Why?
Hotels mixed messages & late market practice
…this is partly driven by the “fragmented” nature of the market and the relevant inconsistency from hoteliers
What to do:
So, the remedy here is that of:
Consistency
Clear messages where and when the best prices occur (e.g. direct website and in respect to time to departure)
Set minimum rates to avoid price contamination42%
Up
26%
No change
33%
Down
eye_for_travel__25Nov2014 11
What does that mean for your RM then
1 Create a base fare/product to ensure you are competitive but also give flexibility to customers
Must manage the price of multiple products, with a competitive base price
2 …at the same time offer clear and comprehensive sales dialogue to enable them to upgrade & upsell
… and ensure their price hierarchy is sensible and clear to follow
3 If you offer a bundle, make it clear that it is a saving and advertise it
Ensure that bundles offer a saving
4 Be ready to adapt your products and features to the customer needs
….and be ready to re-invent bundles as time moves on
5 Recognise they are price-educated and maximise the potential of that education
…share some stats to your customers to hasten the purchase when it is in your advantage
6 ….and if they are not, be more consistent on your pricing to achieve that
….put, implement and follow a more structured RM strategy
eye_for_travel__25Nov2014 12
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