multi-channel revenue management shankar mishra & vish viswanathan agifors rym study group...
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Multi-Channel Revenue Management
Shankar Mishra & Vish Viswanathan
AGIFORS RYM Study GroupBerlin, 16-19 April 2002
3
Introduction
The Proliferation and Diversification of Distribution Channels appear Irreversible
Online Travel Sites in U.S.January 2002
Sales: $2.3BVisitors: 47.5M
In 2001
Travelocity & Expedia sold $3B worth of Travel Products
4
Online Channel Growth
$31B
$50B
2002 2005
29% Increase over 2001
50% of all travel sales will be from supplier’s own website
13% of all U.S. travel in 2002 will be booked online
5
CRS/GDS
CRS/GDS
CRS/GDS
CRS/GDS
Different Distribution Channels
Airline Inventory
Airline Websi
te
Online Travel Sites
Airline Sales
Online Corporat
e Booking
s
Email Campaign
s
Allotments
Others
6
Channel Characteristics
Emerged as most popular online travel channel
Least Cost, High Visibility
Majority of Demand (not all) coming through may be “Price Sensitive”
Detailed Customer Information Available Reliable Customer Segmentation
Targeted Campaigns in Practice
Airline Website
7
Channel Characteristics
Market Converging to few Dominant Players Travelocity, Expedia, Orbitz
Includes Opaque Sites Priceline, Hotwire
Published & Opaque Fares
Price Sensitive Demand
Online Travel Sites
8
Channel Characteristics
Includes Special Negotiated Price
Low Fare Search Engines
May Include Last Seat Availability
Online Corporate
Others
Auction, Reverse Auction Sites
Negotiated Availability & Price
Effective Demand Stimulation
Low Cost Medium
Email Campaigns
9
Channel Characteristics
Dominance of this channel varies by region
At times ‘Inventory Controls’ are at odds with ‘Sales Allocations’ Depending upon volume/quality, other channels may be
preferred over sales allocations
If Airline Sales is the only channel Maximizing revenue translates to inventory control of sales
allocations
If not Common view of inventory
Airline Sales
10
Is Fare the Only Differentiator?
Airline Inventor
y
Email Campaigns
Airline Sales
OnlineCorporate
OnlineTravel Agencies
Airline WebsiteGroup Demand by Fare
Group Demand by Fare
Fare-Class
Fare-Class
Fare
-Cla
ssFa
re-C
lass
11
Common Inventory View
Common Inventory with Price as only differentiator among channels
Current O&D Revenue Management Model should suffice Availability Decision will be independent of Channel Based on Bid Prices
An extension would be to define product at ODF & Channel level
Still Current O&D Revenue Management Models should suffice Problem size increases due to added dimension
A Bid Price based O&D RM is the First Step
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And the Solution…
O&D Revenue Management
System
Fare Management
System
Demand Aggregation
Fare Analysis
Email Campaigns
Airline Sales
OnlineCorporate
OnlineTravel Agencies
Airline Website
Physical & Financial Inventory Controls
Data Interface between distribution channels & RM system Demand & Value aggregation to appropriate
level
13
Common Inventory View
Demand StimulationResponse to pricing changes differ by
distribution channel
Differentiation beyond Price
Sell-up within & across channelEffect of sell-up strategies vary by distribution
channel
14
Growing Complexity
Channel Analytics
Dynamic Pricing Module
Ability to create fare promotions dynamically at the point of sale Minimize spoilage without diluting revenue
Gain/Protect Market Share
Personalized Product Definition
Promotions & related Strategic Initiatives by Channel Channel importance for distressed inventory
Using strategic data in forecasting
Better passenger segmentation
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And the Solution…
O&D Revenue Management
System
Demand Aggregation
Fare Analysis
Email Campaigns
Airline Sales
OnlineCorporate
OnlineTravel Agencies
Airline Website
Physical & Financial Inventory Controls
Dynamic Pricing Module
Fare Management
System
Channel
Analytics
16
Implications of “Airline Sales” Channel
Initial Sales Allocations are set early in the booking process
Closing availability with “open allocation” Not necessarily the preferred option for sales
If Sales Allocation were to be protected? Only option may be to refine “Allocation Mix” on a periodic
basis
Needed Info…
Pax Valuation thru this channel
Channel Performance
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Value of Growing Complexity
Valuation Module
Performance Measures
Valuation of a passenger thru a particular channel Channel profitability taken into account
Availability Bias can be incorporated
Protection for special offers, sales allocations etc.
A Feedback Loop to Revenue Management System & Processes (Channel Analytics) Performance of promotional campaigns by channel
Value creation linked to strategic initiatives
Performance of “Sales” channel – Observed Vs. Allocation
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And the Solution…
O&D Revenue Management
System
Demand Aggregation
Fare Analysis
Email Campaigns
Airline Sales
OnlineCorporate
OnlineTravel Agencies
Airline Website
Dynamic Pricing Module
Fare Management
System
Channel
Analytics
PerformanceMeasures
Valuation
Module
Physical & Financial Inventory Controls
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So what’re we saying?
At a macro level airlines should maintain a single view of supply and demand Forecast free value of inventory
Financial Inventory Control, preferably at ODF level is the first step
Exploiting channel characteristics further Maintain market response & product control in each
channel
Linking Pricing & Inventory to channel characteristics
Merging Pricing, Revenue Management & Distribution?
20
The Other Viewpoint
All the channels will have extensive overlap in terms of “Passenger Value”
Let us consider distribution channel as merely “Inventory Access Medium” for Passengers… Understanding passengers with a preferred channel
becomes important
Passenger Value remains the most important decision criteria
Importance of channels is limited to the related cost
Promotions, Strategic Initiatives can be directly linked to passenger segment (broader definition than grouped by distribution channels)
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Promotions & Strategic Initiatives based on “Passenger Segmentation”
Inventory Controls based on “Passenger Value”
Continuous Tracking of Passenger Profile & Behavior
The Other Viewpoint
Customer-Centric Revenue Management
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Demand Aggregation
By Pax segment
Fare Analysis
Same Solution?
O&D Revenue Management
System
Dynamic Pricing Module
Fare Management
System
Pax Segme
nt Analyti
cs
PerformanceMeasures
Valuation
Module
Physical & Financial Inventory Controls
Distribution thruPreferred channels
23
System View
RM System must support “Common View of Supply &
Demand”
“Financial Inventory Controls” should be the base
to build upon
Integration of Pricing, Revenue Management & Distribution
Bound by limitations of CRS/GDS – Airline.com may be first step
Fare Management System is no less important than RM System
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Common Process View
Planning Strategic Initiatives Campaigns & Promotions Customer Segmentation
Valuation Passenger Valuation Market/Flight Valuation Control over all Variables Affecting
Valuation
Operation Critical Flight Handling Tactical Planning Day of Departure Support
Distribution Link between Passenger & CCRM Communication Channel for other
departments (Pricing, Scheduling, etc.)
Migration of revenue management analysts Route Controllers Market Analysts Strategic/Tactical Analysts
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Conclusion
The Proliferation and Diversification of Distribution Channels appear Irreversible
Can we afford to ignore alternate distribution channels in our RM perspective?
A common look at all channels together may bring us closer to Utopia Integrated Pricing, RM, Distribution
This common look must see both Supply & Demand side
Convergence of Systems & Processes towards customer-centric environment seems to be the next step
You don’t have to beat the bear!!!
Questions?