Ancillary Revenue Squared

The retail sector has perfected a multifaceted approach to customer retention and profitability in recent years, which serves it very well. The crux of this approach is the use of both behavioural and attitudinal data to generate a holistic customer profiling system. Thanks to well branded loyalty card programmes, the likes of Tesco and Sainsbury’s are capturing very specific data about where customers live, the time of day they shop and which items they purchase together, in order to understand their needs, and, not only respond to those, but inspire them with possible cross-sells and up-sells, all of which help retain customer loyalty.

 

The Tesco Clubcard statement, for example, has an above 90% open rate, because not only is the branding instantly recognisable, but, more importantly, customers believe that the contents are going to be relevant to them. By comparison, as a customer, the chances of an email from Easyjet or a local hotel being relevant to your needs are significantly lower, and consequently open rates for such mass communications are also much lower.

 

In the travel sector, there is definitely room for improvement in targeting communications in order to create more relevant customer propositions. Hotels should be monitoring how customers shop across all their touchpoints, from the type of room they stay in and their food and beverage preferences, to whether they use the gym, what movies they watch in their room, and whether they visit the local theatre. Similarly, airlines could track the type of flights bought, destination chosen and wider travel spend, in order to understand the right messaging to provide.

 

And the messaging must be easy to understand, as well as relevant, for the customer, and measurable for the merchant – because understanding how customers do – or don’t – redeem offers is equally as important as targeting them, in terms of building accurate customer profiles. Hotels, for instance, are notoriously guilty of providing single property promotions, instead of leveraging their network and allowing customers greater choice in redeeming them. Another important point is that there is no one-size fits all solution to reward offers. While points work effectively for everyday purchases, that kind of programme would not work for a high-end hotel, for example, which would be much better served by implementing a membership programme that offered exclusive invitations and experiences, rather than discounts.

 

The travel sector is very transparent now, thanks to price comparison websites, but very few merchants give relevant ideas/information based on individual interests. Even lastminute.com puts its suggestions into very generic bundles by genre. As Amazon has demonstrated with huge success, there is a very real demand among consumers for interesting, inspiring and relevant ideas, which the travel industry could readily replicate – joining forces with Trip Advisor, for example, would provide useful data for offering substitutions or add-ons.

 

In terms of extending a brand’s remit, the most important lesson to learn from retail is, that even with reliable behavioural and attitudinal data, whenever new products are introduced, implementing limited trials before widespread investment is a must.

 

There is, however, great scope for expanding a brand’s remit, whilst expanding customer engagement, through the acquisition of coalition partners – as demonstrated both by Nectar in the UK and Asia Miles in the travel sector. Not only does having more brands under the same loyalty programme provide the customer with more everyday opportunities to earn and redeem points, and therefore reasons to keep the loyalty card at hand, but it also provides the loyalty programme owner increased insight into how customers spend money across a whole host of sectors, enabling significantly more effective marketing. Furthermore, another revenue stream presents itself in the ability to charge coalition partners for this insight, or for targeted marketing opportunities, as the major supermarkets are currently doing with great gusto.

 

In terms of building long-term relationships with customers in this recession era, the travel sector could gain from recognising the sheer power of repeat purchase, because a loyal customer far outspends a new or casual one. A shift in focus from just high-value customers to more frequent lower-value ones is paramount in increasing total revenue potential.

 

An area of great challenge to travel merchants is the issue of personalized contact prior to purchase. Increasingly, in retail stores, emphasis is being shifted away from purchase and onto marketing and consumer interaction with merchandise, while the purchasing may happen remotely. Since people can rarely experience hotels or modes of travel before purchasing, there is a greater need to insert a personal touch into the remote purchasing experience. Social media is perfect for this. The electronics equipment merchant Best Buy has implemented this effectively by getting dedicated in-store staff to post live responses to consumer enquiries on its Facebook page. Likewise, when the ash cloud wreaked havoc for travellers KLM responded to redirection enquiries in a matter of hours on Facebook – compared with a three-day response time for email enquiries.

 

However, the opportunities for influencing customer engagement in the travel sector extend further. Travel, and holidays in particular, has huge emotion attached to it, which could be harnessed. Holiday companies should encourage happy customers to upload pictures of their recent trips onto social media sites, in order to give prospective customers a highly emotive pseudo ‘instore experience’ of the products they offer.

 

Likewise, in a saturated market, there is great opportunity for travel companies to differentiate their brands through multi-channel servicing. Some are already doing this well, for example with online and mobile check-ins. However, there is always a danger of focusing too much on the channel and not enough on what’s actually being delivered through it. The service provided must always be relevant and convenient for the customer. For instance, some retailers are starting to implement QR codes on shelving, which, when scanned provide topical examples of the merchandise being favoured by celebrities and other such means to inspire purchase. Hotels could certainly implement this, to help people orient themselves, or they could provide mobile technology, such as an iPhone app, which facilitates ordering room service etc.

 

With advancing technologies at their disposal, travel companies have a great opportunity to further engage with customers and enhance their profitability. There are numerous possibilities for brand extension across multiple, relevant products, but the challenge lies is ensuring companies take their customers with them on the journey and are always providing value and reasons for repeat purchase. The retail sector is leading the way admirably and travel businesses shouldn't be afraid to follow that lead.

by Phil Szymala, Business Insight Director, ICLP

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