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Making the icing on the cake even sweeter

Flying is a privilege. Every time I watch the clouds fly by I consider myself extremely lucky. But the icing on the cake comes when the airline delivers a great experience, sometimes literally including icing on a cake.

Unfortunately many of our colleagues appreciate customer experience only as a cost center. For them, thicker icing only increases fuel burn, and putting sugar in a cake is akin to filling it with money. These costs exist, and designers must be mindful of them. But when it comes to the benefits side of the business case, product designers can be at a loss to explain why their thicker icing, whether in the form of a bespoke galley or amazing IFEC, will really boost the bottom line.

In this series of articles I am writing about how concepts in pricing and revenue management (PRM) can be used to help product designers. Check out my first article to read about why revenue managers can be the product designer’s best friends.

So how do PRM principles help specify the revenue side of the product and service business case? There are three channels.

Selling more seats
High standards help sell seats. Experiences make great collateral for pitches and marketing, and help seal valuable corporate deals. Unfortunately your budget holder will probably not say how many extra seats you will sell. But PRM specialists are always hungry to understand demand drivers, so reach out to them to find out more. Tell your PRM friends about when products changed and ask if they can find the impact on historical seat factors (remember to control for schedule and connection changes). Digging deep enough will reveal benchmarks that prove product enhancements sell more seats and form the first part of the product revenue case.

Achieving higher fares
Your budget holder rightly knows that most passengers buy tickets based on the cheapest fare. But PRM specialists also know which passengers are less price sensitive. Speak to PRM experts about identifying these market segments and consider increasing fares to cover product costs. A few extra dollars for a small but significant segment all add up and can make a product enhancement profitable. This is part two of the product revenue case.

Improving the inventory mix
Higher demand will force a revenue optimizer to upsell some seats at higher fares, especially on flights forecast to be heavily booked. Speak to your PRM analysts to understand how product-driven demand increments will improve the mix of inventory sold and take the results to your budget holder as the third part of a product revenue case.

Multiplier effect
Don’t forget that each of these channels multiply together, so the whole is greater than the sum of its parts. More seats sold, each at higher fares and aggregating to an improved inventory mix, provide a nice little boost that will raise smiles, even with the strictest bean counters. This is the final component of the product revenue case.

Coming soon: how demand influences your LOPA; customer profiling and market segmentation; and the forgotten case for intercontinental first class!

Oliver Ranson is the founder of Ranson Pricing. Oliver was educated at LSE, where he took a First and then a Masters in economics. The rigorous microeconomics grounding that he received at LSE formed the basis of his passion for pricing.

After graduating Oliver joined leading consultancy Analysys, where he helped a mobile phone network operator justify their prices in front of their local regulator and conducted research for the European Commission.

He then moved to revenue management at Qatar Airways, creating from scratch the strategy framework and tools necessary for the airline to completely redefine their pricing. Before founding Ranson Pricing he was head of product research at Qatar Airways, where he applied his deep understanding of pricing concepts to investigate how product enhancements drive revenue.

Oliver believes that effective pricing based on both rigorous analysis and sound intuition is the key to long-term profitability.

 

6 January 2017

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