Airlines Transitioning From Merchandisers To Retailers

Let us start with the difference between merchandising and retailing within the context of the airline industry. Merchandising relates to selling an airline's basic products and services - seats and schedules - deploying random and piecemeal marketing tactics and using shotgun marketing approaches with, for example, irrelevant promotions. Standard merchandising also includes offering too many options, making choices difficult for customers. Retailing, on the other hand, means recognising what customers want, when they want it, how they want to shop, how they want to pay, and how they want to be supported after their purchases. These aspects require customer centricity that relates to the marketing of products and services that reflect how people now live, work, and travel. That, in turn, requires airlines to move beyond selling traditional air and non-air related ancillaries to selling personalised ancillaries based on 360 degree views of customers and customer intelligence acquired from the use of emerging technologies - analytics and artificial intelligence, for example.

Consequently, retailing strategies go well beyond even the sale of ad hoc travel related products and services - hotels, car rentals, ground transportation, insurance, and, possibly even, a wide array of events at destinations. True retailing calls for providing solutions to travellers' total mobility requirements. From this perspective, retailing can enable airlines not only to meet the contemporary and varying needs of the always on and connected customers, but also for airlines to take a larger share of the first and the second wallet from sales in the total travel ecosystem. Let us also not overlook the fact that spending from the second wallet brings in much higher margins. Moreover, selling proactively, while solving customers' mobility problems, also generates valuable data from the travel ecosystem. And the potential for greater engagement in the travel ecosystem is there given that it is the airline sector that brings customers into the 'travel store' in the first place.

Based on the experience of the best-in-class retailers, however, airlines also need to address customers' empathy and emotional needs in the delivery of products and services. This aspect, in turn, calls for the development of much more meaningful ways to measure customer satisfaction and experience. To begin with, the fulfilment of these two needs - empathy and emotions - requires that airlines focus on the total customer journey, segmented, for example, by trip purpose (why the person is travelling). With this knowledge, promotions, if offered, need to be personalised and designed to increase repeat business. As for measuring customer satisfaction and experience, information is required on how an airline is perceived by customers, those who travel frequently (at least once a month) and those who travel infrequently (just once a year). Such insights will enable an airline to analyse customer behaviour and ways to predict current and future purchases, as well as to provide information on tactics to convert a much higher percentage of browsers to buyers.

While most airlines are continuing to be merchandisers, about a dozen airlines are on track to transition to become true retailers. What are these leading airlines doing?

They have already developed Level 3 capability within IATA's NDC framework - the initiative that provides airlines the flexibility and the capability to innovate and differentiate their services. Next, they are examining different aspects of IATA's One Order and One Identity initiatives that promise to simplify the processes relating to booking, ticketing, billing, order fulfilment, reconciliation, and airport processing, using one identifier and one document (a single customer record, resulting in one version of the truth), rather than multiple IDs and multiple documents (PNR, e-ticket, EMD, and so forth), as well as different accounting methods. One Order shows the promise, for example, to facilitate communications among all parties in the travel ecosystem, not only among airlines, distributors, and airports, but also within each sector, say airlines, through communications between full service and low cost airlines, for instance. These three initiatives - NDC, One Order, and One Identity - along with the collection of meaningful data and analytics to derive actionable insights, have the potential for this small group of leading airlines to move away from the conventional third party distributors and take back control of their customers.

• They have begun not just to collect and store data from all sources (conventional such as loyalty programmes and non-conventional such as social network chatter), but also to monitor, process and analyse data in real time using advanced analytics and artificial intelligence to convert a higher percentage of browsers into bookers while meeting the needs of customers and airlines' retailing strategies, including their revenue mix and distribution channel mix. Data driven insights are already providing this group of airlines with the capability to understand the preference of a customer making a search and then create a differentiated offer (with ancillary options) to fulfil the needs of the customer and then to refine the selling process based on real time experience and to re-align the airline's products, physical and digital. They are getting ready to put in place the process to gather sufficient information to create meaningful customer profiles and segments. They have also begun to look into the development of much finer levels of segmentation - not just business versus leisure but different kinds of business trips (an urgent meeting with a short notice versus attending a future annual conference) and different kinds of leisure trips (an annual family holiday versus a weekend getaway).
  
  
• They have already begun to explore relations with a new breed of distributors and their distribution platforms (coupled with a networks of APIs and data links) that not only operate within the NDC framework but also adapt quickly to the changing consumer shopping trends while increasing the percentage of bookings made directly with airlines. And they are getting ready to provide frictionless, efficient, and personalised customer experience with a value-adding follow up capability. Real time customer engagement frameworks, coupled with a new breed of digital platforms, will enable this group of airlines to offer a suite of curated, personalised, and differentiated offers.
• This group is finally willing to develop a different mindset toward risk. This group has been persuaded to use relevant technologies to enable real time customer engagement that will enable management to adopt fail-early and fail-fast mentalities, compared to the industry's traditional risk averse nature for discarding the legacy systems and third party distributors. They are almost ready to test smartly bundled and dynamically priced 'products' based on customers' needs and willingness to pay, brand preference, and event triggered sales offers. The new mindset also encourages the group to market test loyalty programmes based on relevant and contextual based offers, with information relating not just to demography, but customer lifestyle. And, they are planning to adapt quickly to the mobile channel with small screens and customers' small attention spans, not to mention the multi-screen challenge relating to the fragmented journeys. The group is testing apps that go beyond the click-type-tap format for personalised solutions and offer biometric capability (finger print, facial recognition, retina scans for verifications instead of conventional password for security and booking). Finally, the group is looking into supplementing the mobile channel with interactive voice technologies (next generation of Google Home and Amazon Alexa, for example) and step up from basic Q&A to interactive conversations to provide solutions to total mobility requirements, based on a person's lifestyle and identity.

Among the dozen or so aforementioned potential true retailers, a smaller subset is even looking deeper into ways to become the best-in-class retailers. For example, according to this very small subset, why is there a need for traditional booking classes, conventional inventory, filed fares, and credit cards? Why couldn't an airline implement dynamic bundling and pricing based on customer insights and real time customer engagement to increase the share of first and second wallet expenditures? In fact, going even further, given the potential to introduce advanced back end and front end systems, why is there a need for tickets or check in?