Finding revenue in unexpected places with dynamic pricing science

May 22, 2017

By Alberto Carlos Hinke

Airlines have transformed obstacles such as downward pressure on fare structures, fluctuating demand patterns and inventory non-utilization into opportunities to accelerate growth.

NB This is a viewpoint by Alberto Carlos Hinke, director, strategic consulting at PROS.

A large part of the airlines’ success has been the ability to do what many industries have yet to figure out – maximize inventory through intelligent pricing.

Revenue optimization is becoming increasingly difficult, however, due to several factors, not the least of which is an uptick in entrants to the low-cost carrier segment and an expanding list of competitive in-flight amenities.

With fierce competition and market volatility, airlines must continue looking forward and evaluate new ways to maximize revenue and deliver superior customer service.

As ecommerce strategies and CRM systems adapt to changes in buying preferences, the inability for airlines to dynamically price at market speed will emerge as the biggest obstacle to realizing a modern commerce strategy. Enter sophisticated dynamic pricing science powered by artificial intelligence, machine learning and cognitive algorithms.

These merchandising engines are providing far more than just a seat. In fact, dynamic pricing technology can help pinpoint buying patterns so precise and accurate that airlines can synchronize their pricing strategies in real-time and present the right price at the right time.

To stay ahead, airlines need an approach that provides fair pricing and a quick and easy buying experience:

• Create the right offers
  Create the right offer for the right customer at the right time by treating each buyer as a “segment of one.” Personalized, customized offers based on the intelligence gained from algorithmic analyses create more impact in competitive market segments. Carriers that deploy dynamic pricing science are, for the first time, able to offer products that are specific to each individual customer. Gone are the days of random offers; today is the era of personalization.
• Efficiently deliver pricing to the end customer
  One of the major sources of friction when buying airline tickets is that fares and seat availability generated from a GDS or OTA can often be stale, causing frustration among customers about flight availability and real-time pricing when they attempt to book. Optimized pricing can only be effective if both the sales teams and the channel are empowered to access and use price recommendations. Tools that allow airlines to deliver pricing to sales at the time they deliver a quote – extended across all direct and indirect sales channels with the same capabilities – are essential in creating a consistent sales experience, no matter where or how customers buy.
• Track and analyse
  Airlines need systems to assess hundreds and thousands of internal and external factors. They also require data points to create the deepest segmentation, understand customer buying patterns and identify meaningful correlations. With visibility into customer buying behaviours, airlines can distinctly forecast for booking and cancellations, and then convert the right deals at the right price with greater speed, accuracy and scale.
• Ensure speed
  Modern commerce moves at breakneck speed, which means airlines need to respond to customers with precision and consistency across all channels. According to Forrester Research, 50 percent of deals are won by the vendor that responds first. Static, outdated prices that were once designed to protect margins today represent lost revenue. Dynamic pricing science delivers what modern commerce requires: speedy, financially sound deals that are consistent across channels.

The lynchpin to making modern commerce work lies in the ability to price dynamically based on insights rooted in data science, creating experiences that can accelerate deals and improve customer satisfaction and loyalty. By embracing dynamic pricing as a foundation for how they sell, airline carriers will be able to synchronize their pricing strategies across channels in real-time and present the right price to the right customer at the right time.

The cost of maintaining status-quo selling processes is too high to ignore, and many industries will be disrupted by the uneven pace by which they rise to this challenge. Airlines that innovate their business toward science-driven commerce will be in the best position to capture opportunities previously lost without leaking revenue or sacrificing margin.

The science of the sale is here, and airlines must be “wheels up” on this approach if they wish to stay competitive.