Jane is a consultant and frequent traveler. She’s loyal to one particular airline. This week when her travel was disrupted due to inclement weather in Chicago, the airline failed to support her attempts to rebook on her laptop and mobile phone. In the middle of it all (and ironically), she received an email from the airline pitching vacations to Mexico. Frustrated, she told her story to friends on social media and wondered whether her loyalty was really appreciated. Could “her” airline really support travel on her terms?
The fundamental truth and challenge facing every business today is that people buy experiences, not products. Businesses across all industries must deliver great, personalized experiences to win in an increasingly competitive world. Doing so involves operating with a subscription service mindset, knowing that customers can choose to renew or cancel with every click. It also means transforming how you operate as an enterprise–being always-on, knowing the past, and anticipating the future–across every device, channel, and moment.
According to a study conducted by Forrester Consulting on behalf of Adobe, the 25% of travel brands that currently operate as experience-based businesses understand the promise and impact of personalization. What’s more, they’re already reaping the rewards with a 2x increase in revenue compared with competitors.
Source: A study conducted by Forrester Consulting on behalf of Adobe, February 2018
But personalization for personalization’s sake isn’t the right strategy. The goal should be meaningful and contextually relevant personalization. Remember, the next generation of travelers have high expectations, and the goal is to meet them in order to win their loyalty.
Customized offers could even help travel brands grow ancillary revenue streams. For example, more than half of all airline executives surveyed by Skift, in partnership with Amadeus, said they expect the shift to customized offers will increase passenger revenue by 15% or more.
Correctly pricing ancillary choices, such as checked baggage options and preferred seating, is already critical to the success of most of today’s airlines. The Skift/Amadeus airline survey found that 93% of airline leaders regarded pricing choices as very important or critical to their businesses, 19% said they’ve already started work on ancillary price optimization, and 62% responded they would do so between 2019 and 2020.
Another critical component to personalization is understanding differences in generational travel preferences. Armed with an understanding of these behavioral trends, airlines can make strategic investments to personalize the journey based on age categories.
For example, Gen Z (24 years old and younger) approaches travel as a series of decisions to be made and executed in the moment and while on the go. As such, they have an appetite for mobile apps and tools to aid in trip budgeting, planning, and organization. Integrating these services in an “on the go” functionality should be a priority for travel brands looking to differentiate themselves in this increasingly competitive industry.
“Pricing choices and real-time capabilities for ancillary revenue is key as Generation Z has the highest interest in in-the-moment decisions that improve their overall experience,” said Julie Hoffmann, global head of industry strategy for travel at Adobe.
Pricing To Personalize
Pricing models continue to adapt to customer demand across industries. Three areas have been gaining traction.
1. Mixed bundling: Mixed bundling allows customers to choose among different product packages, such as one that includes flexible seating, checked bag, and seat selection, for one set price. They can choose items individually, too. This approach is not unlike meal options at fast food chains, where customers can buy, for example, a Value Meal #1, Value Meal #2, just a hamburger, just fries, or a hamburger and fries.
In recent years, a growing number of airlines have shifted toward this mixed-bundling approach. One pioneer is Frontier Airlines. When the carrier first launched its mixed bundling strategy in 2015, travel industry analyst Henry Harteveldt of Atmosphere Research told USA Today: “Frontier may raise more than a few eyebrows with this [bundle] offering. But they’ve included services that travelers appreciate, the savings are quite substantial, and it’s a great tool for families and business travelers. [Customized offers] could help Frontier attract more customers to the airline.”
2. Bidding: One bidding model with relevance to airlines is the “name-your-own-price” model, in which the customer proposes a price to a firm, and the firm can accept, reject, or even counter the offer. One opportunity for carriers to implement this type of bidding is for the sale of upgrades.
There’s already technology designed to help with bidding. For example, Plusgrade helps airlines with the pricing of seat upgrades and other products. The airlines can use any number of predefined criteria to determine whether a customer’s bid is acceptable, approving the upgrade when conditions are met.
3. Subscriptions: The concept of subscriptions is yet another time-tested pricing strategy. One forward-thinking airline has had some successes with it already. Surf Air, a commuter airline based in California, targets business travelers with a flat, monthly subscription for unlimited flights. The subscription approach allows the company to offer a straightforward price that’s appealing to its most lucrative customers.
Given Gen Z’s overall interest in services that include both planning and budgeting for trips, this strategy could work for other airlines, as well. According to Adobe’s report, almost 55% of Gen Z is looking for a trip-budgeting tool or app to help them determine how much they will need to spend, while 46% would like a trip-planning tool or app that allows them to book, track, and manage their full trip in one place.
The Rise of Services: Gain Loyalty through Service
2019 Next Generation Traveler Research, Adobe; click to enlarge
Personalization must be properly contextualized to be successful. These days, travel brands can do so by harnessing artificial intelligence (AI) and push toward active differentiation in this still-nascent area for the industry. Personalization based on preferences is familiar and important across the generations. However, activating it invisibly and in the moment via mobile with location-based services is where Gen Z, in particular, can be won over. This generation, more than any other, understands the power of technology to surface relevant information when needed–minimizing the user’s burden and maximizing discovery.
Then there’s micro-personalization, the ability to hypertarget high-value audiences, one-to-one, layering in context from IoT devices and using AI and machine learning to deliver at scale. It comprises two main elements:
1. Location for real time: In travel, the customer journey is literal and not linear. It’s the one industry where a customer journey isn’t merely a model to understand customers over time—it’s a real thing people do. This means mobility and geolocation are more central to personalization than in any other industry, and contextual cues are critical as customers discover, plan, book, enjoy, and share throughout the journey. Forty-six percent of Gen Z is looking for “in the moment” location-based discounts, and 51% are looking for location-based activity suggestions.
2. Machine learning and AI to drive scale: AI-driven real-time analytics engines can learn customer preferences—not only basic “likes this but not this” characteristics, but specifics relevant to a particular moment in the travel journey or even predictive of what that traveler may want in the near future. For example, search can inform the next best offer or action based on behavioral information from previous interactions, as well as modify the experience a customer receives when landing on a digital channel.
It’s important to remember that the next generation of travelers, Gen Z, has grown up traveling. They often began exploring in family cars supported by digital maps and navigation, studying abroad, and then extending work trips into “bleisure” trips at double the rate of previous generations (14.4% compared to 6.3%, according to Adobe).
“Newer pricing models could influence these savvy travelers positively as they are the most open to new services and offerings,” Adobe’s Hoffman said. “The most critical outtake is that contextual personalization for on the go and in the moment experiences will become the norm. All brands need to garner AI/ML in coordination with data to activate.”