customer relationship management in airlines a revenue management perspective agifors rym study...

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Customer Relationship Management in Airlines A Revenue Management Perspective AGIFORS RYM Study Group, Bangkok 2001 Shankar Mishra

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Customer Relationship Management in Airlines

A Revenue Management Perspective

AGIFORS RYM Study Group, Bangkok 2001

Shankar Mishra

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AGIFORS RYM Study Group, Bangkok 2001

Outline

CRM Definition & Evolution

CRM Opportunity in Airline Industry

Current Revenue Management View

ABCs of CRM

Revenue Management & ABCs of CRM

The Integrated 3600 View

CRM Goals

Conclusion

3

AGIFORS RYM Study Group, Bangkok 2001

CRM Definition

CRM is the adoption of customer focused Sales,

Marketing and Service Processes

Integration of people, processes, and technologies

in a collective effort to:

•ACQUIRE new customers through effective marketing

campaigns and analytics

•BUILD customer value over time by understanding their

travel needs enough to retain them and enhance the

relationship with cross-sell, up-sell opportunity

•CARE translates into customer retention. Must be based

on informational infrastructure built on business

intelligence

4

AGIFORS RYM Study Group, Bangkok 2001

CRM Evolution

First Generation - Web Presence• One-way relationship• Mostly stand-alone systems• Real-time flight information • Schedule information

Second Generation - Site Integration (Business Intelligence)• Integration with business processes & back-

end systems• Feedback from customer profile & history

5

AGIFORS RYM Study Group, Bangkok 2001

CRM Evolution

Third Generation• Customer-centric models

Direct Mail

E-Mail

Wireless

Chat

QIK/RES

Kiosk

6

AGIFORS RYM Study Group, Bangkok 2001

CRM opportunities are spread across the entire travel value chain.

initiation reservation embarkation conclusion

1

Idea

2

Arrangement

3

Pre-Trip

4

Experience

5

Post-Trip

7

AGIFORS RYM Study Group, Bangkok 2001

Airline/Passenger Key Touchpoints

Idea/ Need - Research potential destinations, travel options, travel packages

Arrangement - Perform shopping, booking and ticketing for travel

Pre-Trip - Prepare, organize and make final arrangements

Experience - Travel which encompasses air and ground services

Post-Trip - Contact to resolve issues and explore future needs

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AGIFORS RYM Study Group, Bangkok 2001

A few of the CRM opportunities being provided include...

initiation reservation embarkation conclusion

1

Idea

2

Arrangement

3

Pre-Trip

4

Experience

5

Post-Trip

E-mail campaigns

Direct Mail

Smart Search Technology

E-mail delivery of itineraries

Event notification services

Flight disruption notification & re-accommodation

Agent Customer Handling

Check-in processing

Response management

Baggage Handling

Thank You campaigns

Traveler feedback and satisfaction

Integrated banner advertising

Sign-in Messages

Recommendation engine

9

AGIFORS RYM Study Group, Bangkok 2001

CRM components are classified by what part of the customer experience they touch.

Marketing Sales ServiceP

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Man

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Dat

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Cam

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Op

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Sal

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fig

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E-P

artn

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E-S

ales

Sal

es C

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vc &

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Source: Gartner Group

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AGIFORS RYM Study Group, Bangkok 2001

CRM Components & Passenger Personalization

E-mail Direct Mail Media Ad Banner Ad FQTV Insert Smart Search

Technology

Res. Center Web Selling Agent Sign-in

Messages Campaigns

based on market and route

E-mail delivery of itineraries

Integrated banner advertising

Event notification

E-mail campaigns

Event notification services

Flight disruption notification & re-accommodation

Airport Services Baggage Handling Agent Cust

Handling Web check-in

Response management

FQTV account statement

Baggage Handling

Idea Arrangement Pre-Trip Experience Post-Trip

Proactive & reactive customer interactions

E-Sales

E-Service

Campaign ManagementData Mart

Call Management

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AGIFORS RYM Study Group, Bangkok 2001

CRM Enhancing Travel Experience

Agency or traveler checks custom inventory Traveler can

have theinquiry saved for later

Airline suggestsadditional options via Sales Manager

Travelerbuys

Inventory is updated, SalesManager historyupdatedOnline ITIN,

destination information via

Virtually There Online,traveler profile

is updated

Traveler travels and ismotivated toprovide feedback via Virtually There Online

Customer CustomerManagement

Traveler hasmultiple, convenient ways to refineprocess

Next trip - allpreviously-learned data isused to aid their future planning

Proactivedemandstimulation

Travelerenters

profileinfo

Agency makes an educated offer based upon traveler’s history

Airline partner adjusts car pickup time for MVTs on delayed flight

Airline partners suggestadditional optionsthrough Sales Manager

Filtered travel and destination suppliers make custom offers via Virtually There Online.

Airline proactively

accommodates traveler before

delayed connecting flight

arrives

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AGIFORS RYM Study Group, Bangkok 2001

Current Revenue Management View Maximize total revenue for given capacity

Best estimate of revenue - O&D, Fare-Class, POS based, netted down by commissions/overrides

Majority of revenue management systems are still flight based• Further approximation of revenue used in

inventory control

Almost all revenue management business processes are still leg-based

Current inventory control view is still focused on a seat in plane• Vendor-Centric View

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AGIFORS RYM Study Group, Bangkok 2001

Current Revenue Management View

Three ScenariosA Million-mile person books a seat using miles

A corporate booking, using corporate discount, booked in the highest valued inventory unit

A Leisure booking, part of a group, from a tour operator

How Revenue Management would value each person today?

What would be CRM view?• Cost of losing each one of these in future?

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AGIFORS RYM Study Group, Bangkok 2001

Need for CRM - Why Now?

Amount of CustomerInformation

Collected

$$$ Cost/Benefit 1990's

Benefit

Cost

Amount of CustomerInformation

Collected

$$$ Cost/Benefit 2000's Benefit

Cost

MarginalProfit

Emerging technologies are making the management of customer relationships based

on value more practical, feasible and cost effective

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AGIFORS RYM Study Group, Bangkok 2001

CRM: Maximizing Passenger Value

ABCs of Customer Relationship Management

CurrentSituation

Relationship Duration

Cu

sto

mer

Co

un

t

Relationship Value Full Potential

Acquire

Build

Care

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: AcquireAcquire Targeting (“Recency & Frequency”)

• High Valued Passengers - “not flying”• Business Passengers for Leisure markets• Pushing Distressed Inventory in a targeted

manner to acquire RM decides what to sell and who to sell

• Use of Dynamic Pricing to target a market (passenger) segment Pricing and RM decision to target a particular

segment

• Target cross-segment migration• Potential for Cross-selling & Up-Selling

Partnerships - Affiliate Networking

Business Process • RM in the background of Passenger touch points

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: BuildBuild Most Analytical Layer

Customer Segmentation - Identify Acquisition & Retention candidate segments• Target passenger segments to push Distressed

Inventory• Target for Dynamic Pricing (both acquire & retain)• Predicting Churn targets• Pax Revenue Vs Profitability

Risk and Cost associated with revenue

• Spread across multiple distribution channels

Customer Profile Database, PNR Database, Clickstream Data, Passenger DNA• Data mining the combination

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: Build - Build - Data AnalysisData Analysis

Interaction Analysis• Comparing two segment models - risk to recency

Dependency Analysis• Nesting of one pax segment within other segment• Clustering may be needed to identify dependency• Frequent fliers who haven’t traveled recently

Clustering by corporate accounts/travel agencies

Cross-Segment Migration• High valued passengers have moved down

Clusters by corporate accounts/agencies

Cross-Time Migration

Product Package Analysis

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: Build - Build - ValuationValuation

What if one airline could buy passengers from other airlines?• Who to buy and at what price?

Segment CurrentValue

Life TimeValue(LTV)

PotentialValue

PotentialLTV

CurrentLevel

BestLevel

1 High High High High 1 12 High Low High High 1 13 High Low High Low 1 34 Low Low Low High 3 15 Low Low High High 3 16 Low Low Low Low 3 3

Using passenger profitability to guide marketing• Revenue Management in the background of pax

touch points

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: Build - Build - Inventory ControlInventory Control

Forecasting by passenger segment• Origin, Destination, POS, Value, Loyalty Level,

Product Packages, Distribution Channel etc.

Passenger State Space• Acquisition (multiple levels possible),

Retention, Each Frequent Flier Level etc.• Probability of moving from one state to another

Expected Life Time Value of passenger• Real time Business Intelligence Modules

Airline Resources - capacity at flight/leg/cabin level

Bid Price based inventory control • Availability for each passenger segment

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Passenger Value: Build - Build - 1:1 Revenue Management1:1 Revenue Management

Customized Inventory Control & Pricing • Availability bias based on Bid Prices &

Passenger expected LTV

Targeted sales promotions• Pushing distressed inventory

• Up-Sell & Cross-Sell promotions

• The product package view thru partnerships Hotel, Car Rentals, Golf, Ski etc.

Corporate Promotions• Deals linked to hedging risk

Objective is to consistently increase passenger utility

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AGIFORS RYM Study Group, Bangkok 2001

Maximizing Customer Value: CareCare Passenger touch point - building loyalty

Predicting and Preventing Churn

Tracking Success Metrics• Tracking response to “Acquire” and “Build”

efforts• Tracking movements in segment membership

Closed Loop Solution• Changes to Passenger utility

Track and include in optimization (“Build”)

• Communication between RM and Operations Identification of “high-valued” flights Pre-removal and Re-accommodation on

overbooked flights DOD Monitoring - Dynamic response to

Cancellation and Overbooking

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AGIFORS RYM Study Group, Bangkok 2001

CRM: Revenue Management Role Acquire

• Targeted Promotion Sales - passenger segment and markets

• Up-Sell and Cross-Sell among Active Loyal• acquisition/stimulation offers for Passive Loyal

Build• Customer Segmentation and related forecasts• Cross-Segment migration probability• Passenger Utility Metrics• Inventory Controls

Care• Tracking performance metrics to refine

analytics• Closed Loop solution

Incorporate value created by CRM in PYM decisions

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AGIFORS RYM Study Group, Bangkok 2001

CRM: Revenue Management View Customer-Centric View

• Passenger Itinerary & Profitability• Passenger Value to Airline

Distribution Channel Management• Matching channel with profile• Airline websites had 26% increase in traffic

year over year compared to 7% for online travel agencies

• Availability Conflict, Channel Stealing Revenue Management Data Support

• Schedule• Inventory• Fare Database• PNR Database3600 View of Passenger

• Customer Profile Database• Clickstream Data• Business Intelligence Module

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AGIFORS RYM Study Group, Bangkok 2001

CRM: The Integrated View

Custom Inventory Offer (Acquire/Build) Traveler can

have theinquiry saved for later

Airline suggests additional options (Build) via Sales Manager

Travelerbuys

Analytics updatedSales Manager history updated(Care)

Online ITIN, destination information via Virtually There Online,traveler profile is updated (Care)

Traveler travels and is motivated toprovide feedback via Virtually There Online (Care)

Customer CustomerManagement

Traveler hasmultiple, convenient ways to refineprocess

Next trip - allpreviously-learned data isused to aid their future planning (Build)

Target Identification (Acquire)

Travelerenters

profileinfo

Custom Pricing (Acquire/Build)

Airline partner adjusts car pickup time for MVTs on delayed flight (Care)

Airline partners suggestadditional optionsthrough Sales Manager

Filtered travel and destination suppliers make custom offers via Virtually There Online. (Build)

Airline proactively accommodates traveler before delayed connecting flight arrives (Care)

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AGIFORS RYM Study Group, Bangkok 2001

CRM: What’s available today

Broadcasting software for marketing promos• Cross-Selling Capability, Feedback provision

Bid Prices based on O&D, POS, Fare-Class

Data Warehousing and Data Mining • Different customer segmentation software

based on variety of techniques - Clustering, Decision Trees, Neural Networks etc.

Business Intelligence modules• Distressed Inventory, Dynamic Pricing

Integration with a CRM perspective is needed!!

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AGIFORS RYM Study Group, Bangkok 2001

CRM: Short Term Goals

Targeted Promotions & Campaigns

Leverage existing modules (Distressed Inventory, Dynamic Pricing) for Acquisition & Retention

Availability Bias based on existing Revenue Management System

Performance measures to provide feedback

Link to Operations - pre-removal & Re-accommodation for overbooked flights

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AGIFORS RYM Study Group, Bangkok 2001

CRM: Long Term Goals

Business Intelligence Module to provide passenger valuation

Revenue Management Optimization models to consider maximizing expected “Value”• Nonlinear Programming problem with modified

objective function• Stochastic Dynamic Programming problem

(probability of moving from one state to another)

Tracking Passenger Utility• Pricing and Inventory control decisions should

consider changes to passenger utility

An Integrated 3600 View

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AGIFORS RYM Study Group, Bangkok 2001

Conclusion A shift from “Vendor-centric” view to

“Customer-centric” view is essential for survival

Effective Customer Relationship Management (ABC) is needed to support this view

Revenue Management is the backbone of ABC (Acquire, Build & Care)

From maximizing “revenue” to maximizing “value”

Linking all pax touch-points in an integrated view through Revenue Management

Performance Measures (e.g. pax utility) to provide feedback - Closed Loop Solution

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AGIFORS RYM Study Group, Bangkok 2001

Questions?Questions?