A defining moment for dynamic pricing and offers

This is a viewpoint by Daniel Friedli of Travel in Motion, on behalf of Datalex .

With the trend towards digital retailing in the airline industry, and the desire for airlines to become the sole source of the offer, there has also been a lot of discussion related to dynamic pricing.

Here, we aim to demystify some of the concepts and definitions of dynamic pricing and take it a step further - to dynamic offer creation.

It is a good time to look into the crystal ball. Technologies such as artificial intelligence, cognitive intelligence and machine learning - all somewhat related - are on the rise. Concepts such as segmentation, personalisation and contextualisation in airline offer creation are taking shape, and in some cases, are quite advanced. With the increasingly competitive market and new tools and channels available to make offers and sales, airlines need to rethink their understanding of not only their competitors but also their customers' needs and desires.

The airline’s nightmare

Currently, the business traveller’s dream of an omnichannel, seamless booking experience for a complex itinerary is also the airline’s nightmare. Putting together a multifaceted offer is a difficult task.

To make an offer compelling enough to keep the traveller within an airline's own channels - or those of its alliance/codeshare/interline partners - is even harder as is the ability to offer the end-to-end experience from a single place.

Airlines do not have systems today to create and view complex orders such as these. While individual components are easy to figure out, and prices from airline partners can be quoted, there is no way to build the complete offer, and have a certain degree of confidence that the traveller will choose one offer over another because it is attractive enough – or more attractive than the competition.

And lastly, airlines are lacking the systems which help them determine what it is that the traveller needs and what he wants. Knowing this can make the difference between converting the traveller or watching him move to another website.

While there is a widespread conviction within the industry that airlines are somehow “different”, this type of scenario is in fact not unlike consumer retailing or telecommunications. Retailers understand consumer behaviour very well, and tailor offers to their needs. While the pricing of these offers is not real-time like airline offers, there is a relationship in terms of how retailers customise individual offers to consumers.

Consider Netflix. It determines content based on your viewing behaviour. Amazon Prime, iTunes or Spotify make suggestions based on other music you have listened to. These are all behavioural, contextual offers to improve the service and offering to the customer.

Some of the current practices may not be dynamic in terms of pricing (and an online clothes store will not have such a dynamic range of prices as an airline), but they can be dynamic in terms of bundling the offer and perhaps providing incentives - a rebate ,voucher or perhaps free shipping for additional purchases.

But what about travel?

The airline business model has changed, and the airfare itself is being taken apart in new ways. The new unbundling is more than seeing seat selection, meals and baggage are upsells. In some cases, airlines are taking apart fare components even further. Is refundability a product? What about flexibility? Fare families in the market today would certainly indicate that this is the case.

Put simply, the logic being applied is the “need and desire” philosophy. Airlines are offering to fulfil a need at a base price. At the same time, they are identifying possible desires, such as the ability to refund a ticket, to select a specific seat, or to be picked up by a chauffeur. But who receives which product offerings? Different people have different desires as well as a differing ability and propensity to spend.

There are three ways to approach this.

There is the mainstream restaurant on the corner, offering all that is available in the kitchen on a huge, difficult-to-read and often sticky, smudged menu. While this method does present everything that is on offer, it often results in frustration and lower conversions due to the sheer amount of menu items presenting too much choice.

Alternatively, there is the current approach used in the airline world, which is very similar to how the automotive industry sells cars. There is a base model, and then there are the “SL” and “SLX” versions, which both have certain add-ons packaged in a price. Nonetheless, it is still possible to select the massaging rear seat, a child-silencing DVD player and other additions. This relates closely to the fare families used by airlines, while still giving the ability to purchase several ancillaries beyond that.

Finally, there is what is now the talk of the town - understanding who is asking for the offer based on segmentation or personalisation, and using the context of the inquiry to dynamically put together the offers which are most likely to be purchased.

Various industries are using personalisation and, more recently, artificial intelligence to provide a better customer experience. Using again the example of Netflix, they are working on identifying a user’s intent when logging in. Does the customer want to continue watching a movie which they previously started? Or is it more appropriate to suggest a new show? And if so, which one? What is the person likely to want to watch at this time of day? These recommendations, and ultimately the underlying decisions, will at some point in the future be made by artificial intelligence.

Lifting the fog

In our full white paper “Dynamic airline offer creation – is the future here?” we go beyond the topic of dynamically determining airfares and flight prices, and provide clarity on the definition of dynamic pricing. While dynamic pricing is practiced today, the determined price is not fully dynamic or continuous, thus not allowing the airline to sell at an optimal price. Various industry experts provide their thoughts and opinions on pricing, offer creation and artificial intelligence which would allow airlines to optimise revenues even further.

We also discuss the distinction between segmentation, contextualisation and personalisation, and what are the new revenue management parameters in offer creation.

Finally, looking beyond the horizon, how will cognitive computing, artificial intelligence and machine learning help us to learn what the market wants?

To download the Travel in Motion white paper “Dynamic airline offer creation – is the future here?” click here.

This is a viewpoint by Daniel Friedli of Travel in Motion , on behalf of Datalex . This article appears as part of the tnooz sponsored content initiative.

See also:Payments: airlines’ under-appreciated, under-leveraged asset(Jun17) Does a transition to digital retailing make sense for an airline  (April17)

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