An evaluation of the New Distribution Capability of IATA

The choice of distribution channels is not a one-time choice. As technology is improving and developing itself continuously, more alternatives for distribution channels are available, for example applications on mobile phones. For an airline it is almost impossible to adopt a single channel approach, thinking of the profit and exposure they miss out on not cooperating with global distribution systems and Online Travel Agencies (OTA).

Around the 1970’s the airlines already achieved the top e-commerce because of their high level of IT (IATA, 2016), but this might, from the customer perspective, not be the best way to find good tickets as many customers like to compare or get advice from a third party. Unfortunately, airlines using indirect distribution channels have difficulties differentiating their product, providing personalization and there is a long time-to-market (Payne, A., & Frow, P., 2004). Exactly this is why some airlines decide not to use OTA’s. On the other hand, these airlines might have a loyal customer base and/or find that the OTA is too competitive in a way of only showing the lowest fares and not price/quality comparison. Therefore, the International Air Transport Association (IATA) developed a New Distribution Capability (NDC). This intends to bring the top level of e-commerce airlines already achieved on their own website, to the travel agencies, global distribution systems or basically any intermediary.

The NDC is based on XML technology, enhancing the capability of communication and data transmission between airlines and travel agents. In this way OTA’s have the opportunity to offer the client fast and more personalized offers because they have the ability to get all this specific data through this technology. This technology can go through OTA but practically it can go by any intermediary. Another significant advantage of the NDC for airlines is that linked with offering customization or even personalization, they generate valuable market data with these interactions as well. Every time an OTA asks the airline offer management team for specific information, the airline can store this as it is representative for a market. Besides that, customers will value them more because of the transparent and richness of content they offer via the NDC.

Regarding the three strategic criteria to use when assessing current channel combinations (Wilson et all, 2008), when the NDC is used especially the costs will be affected positively, although still commissions have to be paid to OTA’s, the offers will be more effective due to the enhancement of the communication (more extensive and transparent) and might result in more consistent consumer behaviour. Moreover, the customer experience will increase as most of the content that is on the airlines own website is now also available on OTA’s and the comparisons are based on price/quality so customers will have more accurate expectations. The accessibility aspect is not so much influenced as the NDC is about the matter in which airlines and third parties communicate and exchange data. Although this technology is not necessarily new, it is an advancement on already existing technology and certainly a great opportunity for both airlines and travel agencies.

(Image source: IATA, New Distribution Capability, e-services)

Sources:

IATA. (2016). New Distribution Capability, IATA e-services, Airline Distribution. Retrieved from: http://www.iata.org/whatwedo/airline-distribution/ndc/Pages/default.aspx

Kooa, B., Mantina, B. & O’Connorb, P. (2011). Online distribution of airline tickets: Should airlines adopt a single or a multi-channel approach? Tourism Management, 32 (1), 69-74

Payne, A., & Frow, P. (2004). The role of multichannel integration in customer relationship management. Industrial marketing management33(6), 527-538.

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The way to tackle the challenge of customer data management

It is not a secret that airlines, especially low fare airlines, struggle with their customer data base (Rygielski, Wang & Yen, 2002). That is primarily because customer data management is not only about managing, it is also about acquiring and maintaining the quality of the data. Acquiring a customer data base is challenge one, which starts with registering the necessary information from the first contact onwards. Managing the information is key for having an integrated customer data base, using the information to deliver a better customer experience, create better products and target the market. Then lastly, is the maintenance of the data base. Data changes, from simple information as address and age, which is easy to update, to specific interests and needs of the customer.

As acquiring customer data is a time consuming and expensive activity, sometimes even requiring a special department to do this, it might be a sensible thing when companies identify their most profitable customer segment and take most care of acquiring detailed information on this segment, for example the business class flyers or members. The data on their most profitable segment in particular must be current, complete, correct and unique (Peelen, E. & Beltman, R. 2013). In this way new customers in the right segment (with the highest Customer Lifetime Value) have a higher chance to be generated if the extensive data on this segment is used effectively.

In the airline industry companies can make a detailed profile for their segment with the highest CLV and target these customers more, both for acquiring new clients and for retention. However, managing the data in such a way that this is possible is another challenge. The most crucial thing to have for an airline company is a good customer data base system, which can identify unique customers with correct information. Only then, the customer data base can be managed effectively, products are created based on accurate information, the customer experience will be accordingly and the right customers are targeted at the right moment and for the right product.

Unfortunately, little mistakes are made quickly in enormous data bases and this can make a customer feel unappreciated, such as an error in the spelling of their name. In addition, other information such as address is obviously even more important because advertising might be delivered to the wrong person. Without maintenance of the data, customers can be lost quickly. Variable characteristics of the customer need most maintenance, and this is a time consuming task. Therefore, focussing on the segment with the highest CLV is the most profitable way and investing less in customer data management for the segments that are less profitable or even cost airlines money.

Sources:

Chen, I. J., & Popovich, K. (2003). Understanding customer relationship management (CRM) People, process and technology. Business process management journal, 9(5), 672-688.

Liou, J. J. (2009). A novel decision rules approach for customer relationship management of the airline market. Expert Systems with Applications, 36(3), 4374-4381.

Peelen, E., & Beltman, R. (2015). Customer Relationship Management. Pearson.

Rygielski, C., Wang, J. C., & Yen, D. C. (2002). Data mining techniques for customer relationship management. Technology in society, 24(4), 483-502.

The possibilities of mass customisation for the airline industry

The airline industry is an extremely competitive sector where fixed costs are causing most of the trouble. The price competition strategy is therefore a difficult and even dangerous manner to compete. Airlines can rather choose service quality as a competitive advantage (Chang & Yeh, 2002).

For the airline industry there are two customisation types most applicable, namely the cosmetic customisation and the collaborative customisation, (Gillmore & Pine, 1990) which also provide most opportunities. The information technology and flexibility in processes are already achieved in most airline industries which forms the basis for mass customisation. Many airlines manage an enormous customer data base already and the industry is primarily service oriented, which means it is open to customisation without drastically changing processes.

Cosmetic customisation is about the presentation of the product. The airline industry offers seats in an airplane and the only difference in presentation might be the choice between first or economy class, which does not fit most of the customer’s preferences exactly. Nevertheless, one can think of simple adaptions by means of showing the customer’s name on the inflight entertainment screen and immediately showing the customer’s favourite TV shows, music and movie genre. Besides that, also the items that are placed on the chair might add up to a possibility for cosmetic customisation, customers might prefer an extra pillow instead of headphones. These are simple changes that might increase customer satisfaction.

Together with collaborative customisation an airline could achieve excellent mass customisation. Collaborative customisation focusses more on tailored products. Within this focus most profitable and easy improvements can be made. First of all, airlines offer so many services before, during and after the flight, but for few passengers these services are actually available. Think of the lounge on the airport, this is only available for first class passengers usually. Making this available for all passengers is a way of upselling. During the booking phase airlines could offer economy class seats with access to the lounge (additional costs of course) or a first class meal. In this way, customers can choose themselves what type of ticket and additional services they prefer, and airlines profit highly of this by means of upselling their services.

In conclusion, although some changes to achieve mass customisation might ask for additional time and thus money (especially cosmetic customisation), this will result in a higher customer satisfaction and engagement. Customers feel that the airline knows who they are and what they want. Whereas collaborative customisation has the potential to increase the airlines revenue drastically as services might be used more often.

Sources:

Aggarwal, A., Chan, F. T., & Tiwari, M. K. (2013). Development of a module based service family design for mass customization of airline sector using the coalition game. Computers & Industrial Engineering66(4), 827-833.

Gilmore, J. H., & Pine, B. J. (1997). The four faces of mass customization. Harvard business review75, 91-101.

James J.H. Liou, A , Leon Yen, B., Gwo-Hshiung Tzeng, B. C., (2010) Using decision rules to achieve mass customization of airline services. European Journal of Operational Research, 205, 680-686.

Liou, J. J., Yen, L., & Tzeng, G. H. (2010). Using decision rules to achieve mass customization of airline services. European journal of operational research205(3), 680-686.

Unknown (2011) Is mass customization the airlines savior? IATA, Retrieved from: http://www.4hoteliers.com/news/story/8895

The way to become excellent in CRM – Case study on KLM

The excellent customer relationship management that airline company KLM performs nowadays, is connected with a history dating back to the beginning of the 21st century. Although the competitive aviation industry in Europe started around 1992 when the European Union passed legislation to deregulate the industry (Viaene & Cumps, 2005), this caused that all airline companies could fly where and when they wanted. Since then, the market became competitive, though it took 10 years for KLM to implement a CRM strategy.

Their first successful attempt was not until 2003 with the new Executive VP Commercial, at the time KLM was more focussed on operational excellence rather then customer intimacy, when they realized the opportunities of personalized services and consistent service delivery. Their goal shifted to becoming a truly customer centric organization, where a customer database was essential in executing their new customer centric operations. The name of this new project was Customer Insight, Analysis and Opportunities (CIAO). KLM claims that CRM is impossible without a customer database, and that there is always more valuable information in such a database then the information used for example for frequent fliers or rewarding systems. KLM could, due to the integrated customer database, campaign more targeted instead of launching one huge campaign every year, this increased KLM’s sales a lot and at the same time reduced costs in other aspects.

KLM’s strategy is translated into this mission: “We enable optimal customer interaction and profitability by shaping the KLM into a customer centric organization”. Within this strategy they defined three goals: more personalized and consistent service delivery across all interaction points; more customer profit based steering; more customer centric KLM organization. This was set up in 2003/2004, when social media was not that present yet as it is nowadays, but also in this regard KLM responds very well, launching social media campaigns too.

An example of a success story of KLM was the setting up of the “surprise team” who took care of analysing social media (Twitter, LinkedIn and Facebook) to then research the customers that were mentioning KLM on their social media so that they were able to come up with a personalized gift that the surprise team could give when the customers made use of KLM’s services. This resulted in that KLM was mentioned over a million times on social media just because connections of the ones surprised also mentioned KLM and so the campaign spread quickly.

KLM has learned many lessons over the years, trying to become a customer centric organization which was a success because of among other things: targeted and personalized campaigns, a systematically integrated customer database and a strong head with a great vision for the CRM department. So although it took quite some time for KLM to realize the opportunities of CRM and to actually implement and perform CRM in an excellent way, in the end it has been very profitable for KLM to do so, not only looking at ROAS but also operations that were simplified for the good of the customer and thus required less money.

Sources:
Hudson, S. & Thal, K. (2012) The Impact of Social Media on the Consumer Decision Process: Implications for Tourism Marketing
KLM Royal Dutch Airlines (2004) Annual report 2003/2004, KLM Royal Dutch Airlines, Amstelveen, The Netherlands.
Unknown, (2010) KLM Surprise, Youtube KLM Royal Dutch Airlines, retrieved from: https://www.youtube.com/watch?v=pqHWAE8GDEk