Travel loyalty to depend on lifestyle bundles?
More than half of frequent travellers surveyed by Collinson Latitude said they would be happy to buy travel and lifestyle related products and services as a bundled package from a trusted travel brand in addition to their core travel requirements.
Apart from creating a new revenue stream, this gives brands an opportunity to increase customer loyalty, the company argues. Brands hoping to capitalise on this opportunity must therefore focus on optimising the 'customer journey' and providing a more dynamic, convenient, transparent and seamless experience, according to business planning director, Janet Titterton.
For many years, brand marketers have recognised the potential of selling complimentary products and services alongside a core offering. And indeed, the importance of ancillary revenue has increased significantly over the past five years, particularly in the troubled airline sector.
For example, while British Airways and Ryanair have recently posted losses of 401 million and 145.9 million respectively, some carriers now generate more than 20% of their total revenue from ancillary products and services. Many airline consultants have already gone on record as saying that they expect ancillary revenue to transform the industry over the next decade, in terms of revenue generated and customer relationships.
In the past, travel products and services were sold as a package - so your in-flight meal and seat allocations were built into the seat fare. In the past five years there has been a sharp trend of 'unbundling' these products and charging what is known as 'a-la-carte' fees for added benefits.
Whereas five years ago it was assumed you were within the limitations of your ticket to check luggage into the hold, now this is an optional choice for those who are willing to pay. In the next decade it is likely that this trend will go full circle and products will be bundled once again. However, these bundles will be targeted at specific audience profiles, and the whole aspiration of bundling will be relative to audience lifestyle and behaviour patterns. In effect, bundling will return - but it will be used to offer added customer value.
With IATA predicting that the world's airlines will collectively lose some US$9 billion in 2009 alone, carriers everywhere are closely examining the potential of ancillary revenue, and most are considering it as a commercial necessity. However, the industry has been plagued with bad press due to some misguided ancillary revenue and unbundling practices. To help alleviate this problem, a focused strategy based on customer needs is required, rather than one that is implemented solely to drive short term profits.
The company's recent research in conjunction with YouGov showed that more than half of British consumers (54%) would be happy to buy a package of related travel and lifestyle products and services from a trusted airline, hotel or travel brand. Products of interest to survey respondents included insurance, lifestyle and leisure benefits (e.g. gym membership, airport lounge access, and so on).
The most suitable price points identified by the research were between US$99 and US$299 depending on the package. Researchers in the US have established that ancillary products could be generating an extra US$3 billion for airline brands, so the potential for airline, hotel and other travel brands is enormous.
The financial services sector has a long history of up-selling products such as insurance and car breakdown cover as part of a monthly account fee. The travel sector has had a tendency to look at flight fares separately to other areas of commission-based ancillary sales of non-ticket products and services, but a holistic view could potentially be a catalyst for success and increased customer loyalty.
Current ancillary revenue thinking in terms of an approach to boosting profits and loyalty is to consider the entire customer journey and associated customer needs in a single, more holistic manner, across multiple touch points. As travellers make numerous purchases across several stages of their travel experience, the opportunity is to optimise the journey by providing a more dynamic, convenient, transparent and seamless experience.
Indeed, the survey confirmed that customers recognise the value and convenience of well-designed, segmented bundled products, offered at prices as much as 75% below market prices, when compared to purchasing these products individually. If done correctly, this strategy can also engender loyal customers who are receptive to what is being offered, as products are tailored to their lifestyle and behaviour.
The opportunity to maximise ancillary revenue programmes starts with clear customer centric strategies shaped and guided by best practice methodology, and implemented seamlessly.
Customer data and insight can provide the framework for a successful ancillary revenue strategy. This should be the starting point as opposed to the company balance sheet - customer centric programmes, which will prove more successful than short term gains which go against the brands values. If done correctly your ancillary revenue programme will address current needs and motivations, provide tangible benefits and become a vehicle to drive loyalty.
A common first layer of airline ancillary revenue is product unbundling, which can be taken to the extreme. Another downfall of some ancillary revenue strategies is the lack of transparency, sometimes clouding the purchase of a fare with the 'inclusion' of ancillary items (i.e. travel insurance, or extra baggage) at check out. Like all short term measures to drive profits, if they are borne from deliberately misleading information, short term wins or efforts to achieve temporary loyalty, the impact on a brand's reputation can be significant and negate the short term profit.
Ryanair's ancillary revenue strategy clearly drives profits (specifically, 23% of its profits). But does this kind of approach really drive customer loyalty? Does it engender trust and create customer engagement? While the sale of travel related products and services (from electronic check in, hand and hold luggage, on board food and drink through to car hire and travel insurance) is commercially astute, it is based on a captive audience of high value customers and multiple touch-points.
Airlines are indeed well placed to optimise the traveller's entire journey. Very few question the power of taking a holistic view of the traveller and their journey and optimising all the customer touch-points, but the manner in which these products and services are sold is subject to great criticism currently levelled at some airline brands.
There are three crucial stages to providing value and relevance that will benefit consumers and your brand and drive loyalty through ancillary revenue programmes.
- First, identify ancillary products with mass appeal for your customers. The rationale here is creating a business case for ancillary products and generating a return on investment and return on customer.
- The second phase reviews learnings from the first and exploits the ability to refine segmentation - offering more products tailored to specific segments, providing tailored relevance. At this stage is useful to begin testing niche or impulse single purchase products that can be up-sold. Upgrades provide choice to your customers and additional revenue.
- Finally, by phase 3 your strategy aims to optimise learning's and continue to refine mass and tailored products. The effort and focus should be applied to develop sophisticated CRM strategy which will drive profits from high renewal rates and high customer retention. Throughout the process the critical success lies in the tracking of behaviour to ensure targets are realistic and the programmes deliver high returns.
But brands viewing ancillary revenue streams as pure profit generators could well miss the longer-term gain. Short-term sales uplifts are rarely a substitute for long-term customer relationships. In industries such as travel where cost-cutting and customer exploitation is rife, the opportunity to reverse this pattern is one few brands are seizing.
Marketers must reject the thinking that profits and customer satisfaction are mutually exclusive. The survey showed that regular travellers are receptive to additional products. In fact, they will make these purchases at some point in the travel cycle, so offering these products gives brands the opportunity to develop another touch point and bolster their customer relations.
If implemented correctly, with the customer at the heart, value added product packaging could just be the key innovation that transforms commercial performance while also building true traveller loyalty and strengthening customer relationships.