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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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
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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
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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
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AGIFORS RYM Study Group, Bangkok 2001
CRM Evolution
Third Generation• Customer-centric models
Direct Mail
Wireless
Chat
QIK/RES
Kiosk
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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
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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
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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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Man
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Op
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anag
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Sal
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E-P
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ales
Sal
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Fie
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vc &
Dis
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Cal
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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