Your marketing team deployed a customer-level mobile promotion for a discounted upgrade and it yielded a high redemption rate. Success! Or was it?
NB: This is a viewpoint by Cornelius Kaestner, senior vice president, Applied Predictive Technologies (APT)
Did the promotion truly drive customers to upgrade or did the discount offer simply subsidise purchases that would have been made anyway? Would they have upgraded without the promotion?
Your team frequently sends expensive marketing materials to your highest spending loyalty customers, confident that this is the best way to retain these high-value customers and generate additional bookings. But might you already have maxed out these passengers, throwing marketing budget at a segment where there is little opportunity to grow?
Decisions, decisions
Airlines are constantly trying to figure out which strategies – from bundled promotions to accelerated loyalty status offers – successfully increase loyalty and drive direct bookings. For instance, Delta has recently reduced fees for its customers, announcing it will drop fees for tickets purchased at the airport or over the phone. Meanwhile, United Airlines is attempting to re-engage formerly loyal flyers with aggressive bonus point promotional offers.
However it’s challenging to understand which of these initiatives are truly effective as airlines struggle to accurately attribute changes in performance to a particular initiative or campaign. This challenge stems from the natural day-to-day variation in revenue data and the many ongoing initiatives an airline and its competitors have in-market at any given time.
The result is that it is difficult to tease apart what works and what does not.
Deploying in-market business experiments can provide airlines with insights about which promotions and loyalty initiatives drive revenue and market share gains, as well as which customer segments, flights, or markets should be targeted to generate maximum revenue.
By trying an idea - such as a new loyalty benefit or fare bundle pricing - with a small subset of customers, flights, or markets, airline executives can gain a view into which programmes drive increases in KPIs that would not have occurred without the programme.
These KPIs can include revenues, booking volume, customer satisfaction or met profit, among others.
This "test and learn" approach consists of four key steps:
1. Generate hypotheses and collect testing ideas for new programmes from across the organisation. Marketing, loyalty, revenue management, ecommerce and strategy teams should be involved.
2. Compare the subset of customers, employees, flights, or markets that were affected by the initiative to a set of highly similar “control” group. Similarity can be in terms of level of spend, demographics or even flight duration.
3. Measure the incremental impact of the initiative in real time and understand how results varied across channels and categories to determine if it was successful.
4. Segment results by various customer, flight, or market attributes to understand where the programme worked best and inform a targeted, profitable roll-out.
Case (study) in point
Consider an airline offering a bundled promotion for discounted baggage and in-flight entertainment to customers at the end of their booking process. The airline could use the approach above to understand if offering the promotion caused more passengers to add ancillary services to their booking or if the discounted rate simply subsidised purchases that customers planned to make anyway.
Further, by comparing “test” flights that offered the promotion at the end of booking to “control” flights that did not, the airline could measure the true incremental profit impact of the offer. In addition to determining if the program worked overall, the airline could determine which customer segments and flights responded most profitably.
In doing so, the airline could then target the offering only to those customer segments and flights predicted to generate a positive impact on revenue.
In this case the airline found the promotion did generate an increase in revenue on a standalone basis, but did not have a significant impact on total revenue due to cannibalisation of business class bookings.
But the airline was able to segment the results to identify a subset of flights, such as those with a lower percentage of business class travelers, where the price change drove incremental revenue.
By only offering the deal to passengers booking on specific flights, the airline significantly improved the overall positive impact of the initiative by minimising the cannibalisation.
Promotions and rewards are often effective in attracting direct bookings and fostering loyalty. But airlines and other travel suppliers must be cautious that such offers are generating new bookings that would not have occurred anyway and that promotions do more than just pull demand forward.
Rigorous in-market experimentation is the only accurate way to confidently identify the winning promotions and ensure that each customer segment, flight, and market receive the optimal offers and campaigns.
NB: This is a viewpoint by Cornelius Kaestner, senior vice president, Applied Predictive Technologies (APT).
NB2: Image by Jakub Jirsak/BigStock.com