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www.simon-kucher.com Seeing pricing from a customer perspective Customer centric revenue management Amsterdam, 25 th November 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place London EC4A 1DE, UK Tel. +44 20 7832 6700 [email protected] Damien Robert, Partner Paris office 17 Square Edouard VII 75009 Paris, France Tel. +33 1 56 69 23 90 [email protected]

Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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Page 1: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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]

Page 2: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 3: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 4: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 5: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 6: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 7: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

…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

Page 8: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 9: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 10: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 11: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 12: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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

Page 13: Customer centric revenue management - EyeforTravel · Customer centric revenue management Amsterdam, 25thNovember 2014 Dimitris Hiotis, Partner London office 3rd Floor, 1 Plough Place

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