Branded Fares/Fare Families Strategies. Ronan Fitzpatrick

Transcription

1 Branded Fares/Fare Families Strategies Ronan Fitzpatrick

2 Where we started Competitive Environment Aer Lingus had to convince the customers in the Irish Market that it had low price fares available We moved to one-way fares on our shorthaul network with a simple one price available at any one time direct model On Longhaul we retained an each-way pricing model with some elements of fare fencing To reach the low prices we went some distance down the unbundling path but retained some of the key differentiators in our market; assigned seating Central airports customer service element to our product Multi-channel distribution We are currently in excess of 80% online with Ancillary revenue a key part of our business We do not class ourselves as full LCC, more the hybrid, New world carrier A low fare in our market place is 0 with discounted taxes We will deliver profit in

3 Ancillary value Top 10 Airlines Ancillary Revenue as a % of Total Revenue Annual Results % Allegiant 23.9% Spirit 22.2% Ryanair 19.4% easyjet 19.4% Tiger Airways 18.1% Jet2.com 14.4% Aer Lingus 13.3% Alaska Airlines 13.2% Flybe 13.1% AirAsia The study was released by IdeaWorks and Amadeus, It was based on published figures for the year

4 Branded Fares - Why do it? To Support a customer choice model or achieve more revenue The truth is a combination of the above. Once you have unbundled, it is logical to consider re-bundling to offer choice to those motivated by other than the lowest fare Unbundled pricing created transparency but is it real transparency between carriers across all passengers One carriers baggage policy can lead to perception all are the same One carrier charges for check-in the others must too? The concept is not new and other carriers have exhibited strong returns 2,000 lemmings can t be wrong Creates upsell opportunities for airlines Empower your customers, provide customized passenger experience and increases loyalty Allows for airline product differentiation 4

5 Fare Opportunity Principles Permits Flexibility and Time to Market Does not drive additional operational resource Delivers incremental Revenue and Customer Value Differentiates from competition 5

6 Evolution A-la-Carte I have a menu, a common dictionary defining each of my ancillary components, from insurance through to meals. Micro-Bundled Dynamically aligning ancillary components into a proposition. Bundled based on time of sale, channel, customer, itinerary and more. Fare Families Consumer branded offering, with an intrinsic value. The consumer has an expectation as to what they are acquiring. These reflect your brand promise. 6

7 Steps 1. Distinguish Value Priced Attributes that create Customer Value 2. Use lowest fare as the tactical market fare 3. Focus Customer on Price + Experiential Value 4. Maintain Transparency: Clear Differentiation 5. Coordinated a-la-carte and branded fare family offerings 6. Customer Focused Brand: Build Brand Equity 7. Consistent and Seamless across point of sale channels 8. Empower Resource to measure and monitor : Optimal Differential 9. Align Enterprise Functions to ensure delivery 10.Reassess. Refine, - Champion and Challenge 7

8 LAN findings Middle Fare: Optimal price differential from bottom fare was

9 Frontier experience 30% of customers who are offered a bundled fare choose that option basic model is 5/25/60 Revenue is positive when all costs are taken into account i.e. bag fees lost, changes, miles, TV etc. Flexibility allows us to continue to grow the bundled side of the business changing attributes, matching competitors with a better and different product, exploring addition of other bundles 9

10 Watch points Process Complexity Understand Complexity BEFORE jumping in. Involve all delivery stakeholders from the outset and no your base product Employees Ensure that they understand the product well. If you have an onboard element consider commission foregone/recognition onboard and delivery. Customers Market it enough and ensure it is easy to understand. Don t expect to dupe your customers Competitors Understand your market and manage buy-up expectation accordingly Technology Systems need to be in-place that enable the product, not complicate it. Management They all need to be on-board. Financials Keep track of P&L and Let everyone know. It is not a departmental effort, it spans the organisation. Understand cause and effect. 10

11 Customer Focus Groups Understanding how the consumer understands It is important to pay attention to the costs and benefits associated with bundling from a consumer perspective and the consequent circumstances under which bundles might be more or less attractive for them. Consumers will not be duped Given consumers proficiency and experience in online booking they will not believe that a bundle is automatically a good deal. They will inevitably unbundle the bundle to make sure that it makes economic sense. However, over time, choosing the bundle option may become an established behaviour when making particular flight bookings Expect consumers to continue their search beyond the bundle Regardless of the offer or bundle, consumers may also check other carrier options in order to validate that they are getting the best deal possible. Remember, bundles are not for everyone Depending on the peculiarities of the booking context and background, bundles won t always make sense but must continue to be communicated as an option, for future consideration. 11

12 Make it work Name and benefits should instantly communicate a bargain / saving among relevant traveller segment(s) Comparison must be effortless Stand Out Understanding Generating interest Delivering benefits Pre-selection Vibrancy & colour Simple layout Transparency will emphasise bundle elements Be obvious Needs Value Make the unbundled option more expensive Ensure the bargain is logical Be convenient Reduce effort Offer control Reward sensible decisions 12

13 Be Clear Be clear about the value If there is a lack of clarity about the elements that make up then bundle, the benefits of that bundle or how the bundle is better than the build option, consumers may find it difficult to evaluate what is on offer. As a coping mechanism they may use a simplifying heuristic to deal with the daunting task of evaluation. In this circumstance consumers will anchor their evaluations on the most important item in the bundle and adjust up or down for additional items (i.e. 1. Bag, 2. Seat, 3. Excess Baggage) In evaluations of three item bundles, consumers tend to anchor on the most important item, adjust for the second most important, and give minimal weight to the third. Make sure the value is real When the consumer un-glues the bundle they must arrive at a point where each element as a separate entity costs the same or more than if bought together. Consumers, armed with very accurate information about costs, will un-glue the bundle very quickly. 13

14 Our Trial 14

15 Options For the pay-as-you-go customer, the strategy may begin with a simple lowfare search that draws the customer into the buying process but provides opportunities to add other services as the consumer shops. Alternatively, the airline may elect to create a fare-family product with different bundles of products and services that meet the needs of specific customer segments. The primary benefit of these strategies is driving additional revenue through better customer segmentation or up sell and cross sell of other products and services. But, the strategies also offer consumers additional opportunities to complete their trip and create site stickiness. The risk involved is the customer may be confused by the choices or be shocked at the end of the process Brian Borg: Airline Shopping Solutions for Sabre Travel Network Psychology of choice: Textbook writers often recommend four or five options per multiple-choice item. Recent reviews of research on the desirable number of options for a multiple-choice test item reveal that three options may be suitable for most tests. A study of the frequency of acceptably performing distractors is reported. Results from three different testing programs support the conclusion that test items seldom contain more than three useful options. Consequently, testing program personnel and classroom teachers may be better served by using 2-or 3-option items instead of the typically recommended 4- or 5-option items. 15

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