Unlocking Dynamic Pricing Strategies
The ability to price dynamically means instant revenue increases, but the unlocking these capabilities isn't always easy. PROS product managers, airline pricing experts and customers discuss the steps they’ve taken to chart a path to true airline dynamic pricing. Discover how airlines are transforming their pricing and distribution strategies to drive revenue.
Full Transcript
Dimitar Kamenov: My name is Dimitar Kamenov and I'm a product manager at PROS responsible for our creation product. And today I'm hosting the panel discussion here. We're going to be talking about dynamic pricing strategies and how you get value of the dynamic pricing and how to do that, what strategy you need to put in place in order to start getting that value from using dynamic prices and distributing those throughout the different distribution channels. And these are my guests, so I'll ask first to introduce yourselves and then we'll go on.
Mario Maier: Okay, thanks a lot. Good afternoon everybody. Thanks for having me. My name's Mario Maier. I am heading the distribution solutions team at Lufthansa Group, which is basically responsible for everything, which is Not Dot Com, which means NDC, Not Dot Com, and also PROS shopping solutions that we have for meta searches. Yeah, that's basically it....
Graham Wareham: Hello, I'm Graham Wareham from ATPCO. I'm head of partnerships and business development. Pretty clear what that means, what I do, it's in the title. For those of you who don't know ATPCO, we are support airlines through our data for dynamic pricing, pricing and modern retailing.
Paul Hohler: My name is Paul Hohler. I'm a senior product manager at PROS. I lead the RTDP team. And so that's really our venue for dynamic pricing and how we calculate it within the PROS software. So happy to be here.
Dimitar Kamenov: Thank you. So we have three different perspectives. So we have an airline perspective, we have ATPCO, which is kind of an enabler of the whole thing to happen, and we have a vendor perspective of creating, having a solution for dynamic pricing. So I hope it's going to be a good discussion. So before we jump into the questions, probably it'll be good if we define what dynamic pricing is, because I mean, it means different things for different airlines and even within the same airline, different people take it differently. So maybe we start with that. So Paul, how do you define dynamic pricing?
Paul Hohler: No, that's a great question because as Mitko said that you talk to 10 different people, you get 20 different answers on what dynamic pricing is. At PROS, we see that there are different types of dynamic pricing. Even today's dynamic availability where you're opening and closing classes is a form in some senses of dynamic pricing. However, most people sort of think of it as pricing in between different filed fares. And so for that we use terms such as continuous pricing that allow airlines to, again, price and figure out how to do things in between those different filed fares. But then we've also see I can expand upon that as well with things like what we call request-specific pricing, which is sort of a context-specific so that you're using extra information to sort of refine what that price is. So there's many different levels that we see it as types of, or layers of sophistication associated with dynamic pricing.
Dimitar Kamenov: Thanks. And Graham, what about ATPCO perspective on that?
Graham Wareham: I think you were lucky to go first.
Paul Hohler: Yes.
Graham Wareham: So I can say the same, but we kind of put it in three categories at ATPCO, the same thing. We do what we call optimized, which is really around filed fares along with static product definitions. And then we do adjusted would be our next layer, which is really around, again, filed fares and static product, but an adjustment on the price. And then as Paul said, continuous and just adjusted based on that thing. So we kind of look at it as a matrix. And what we do at ATPCO is we actually map out the carrier progression across that matrix. So similar.
Dimitar Kamenov: Yeah. Mario.
Mario Maier: Lufthansa Group is famous for being very complicated or complex sometimes. In this aspect we are pretty much straightforward, although we started quite some years ago with, we called it discounted pricing. Then we switched over to dynamic pricing. But in the end we found out that what we are doing is continuous pricing actually. And basically for the time being since five years, only for fares or seats, we don't do that for ancillaries for the time being. We have projects currently running to do some proof of concept, also price ancillaries dynamically. But in terms of fares or seats, actually we do that since five years and call it continuous pricing.
Dimitar Kamenov: Okay, thank you. I hope we now understand better what that thing is. So the session is called Unlocking Dynamic Pricing Strategies. How important is it to have a strategy related to dynamic pricing, and what does a strategy look like? So Mario, probably you can start us, doing something already.
Mario Maier: So basically it's important to have some sort of strategy when you implement these kind of things, a new solution. When we started, we had a first proof of concept in 2018 from very smart guys programmed on the fly actually from our revenue management colleagues. We called it a little bit, it was for us, more or less, a little bit like a black box. We didn't know what algorithms were there in the back. And as it was a small use case, a small proof of concept, and we did that starting with Swiss, we called it the Buxley. It's a very Swiss part. And with that proof of concept, we found out that you need to have some strategy for a whole customer journey. So when you do continuous pricing or discounted pricing, you also need to know what you do when you rebook those tickets, reconciliation, when you audit those tickets, fraud prevention and all those things. So you need to have a plan, actually what you do, a strategy, it's not only by which customer do I want to serve, in which channel do I want to have that continuous pricing, but you also need to have a strategy.
Mario Maier: What do I do when the ticket is issued, when the customer wants to rebook these kind of things. And therefore we came up with some processes, still very basic, I have to say. You have the fare based codes. We added some additional, let's say, indicators to our fare based codes indicating for our auditing people when a ticket, it was a continuous price ticket that this fare actually, which didn't match the filed fare, the ATPCO fare, it's still okay because we computed it. There's no need to write an ADM to the travel agent because there was no manual manipulation actually, these kind of things. Make sure that the re-booking works actually with all your systems in the background. So these kind of things and also then tracking those tickets in your reporting systems. You need to have some indicators there. And that's just a very high level glimpse of in terms of strategy.
Dimitar Kamenov: Yeah. So yeah, pretty much having covered the overall passenger ticket lifecycle in a way. And Graham, I know that during the years, ATPCO have been doing a lot of researches and even products being released around that. So what's your take on these different strategies? What should an airline look into?
Graham Wareham: Yeah. Well, dynamic is going to be a, like we described this, it's a matrix and it's not a knife edge cutover in any way. So you're going to live in dynamic and non-dynamic for a very well, not for... A time. Even the carrier such as yourself has dynamic and non-dynamic pricing in the marketplace. You have partners, we serve 450 carriers, but 95% of them don't have dynamic in any way. And those, some of them are your partners. So you're going to live in this world. And that's what makes it most complex, is having one foot in each world and rationalizing that. So having a strategy is critical. There's also some underlying things like dynamic only works on direct bookings, API, so you have to have an NDC or distribution strategy underlying that. So it's really critical that you think through the transition, how long it's going to take, and how you optimize as you pass through the transition. Once you get to the other side, it's easy. There's that middle ground.
Dimitar Kamenov: And Paul, what about a vendor that is doing like dynamic pricing solution? Is there any steps that you would recommend?
Paul Hohler: Yeah, for us it's also, it's important for the airline to have that strategy because it certainly involves many different teams in an airline. Mario talked about the different processes in the distribution channels, but that certainly is maybe different teams within the airline. And from a vendor perspective, at PROS, we tend to integrate and talk with the revenue management team, and that they may be really excited about some of the algorithms that we are bringing to bear on this. But a lot of the challenges really is the distribution side. And then it's about having that strategy that doesn't just fit revenue management, but it's also communicating with distribution, with pricing, with revenue accounting, all of these different teams that are touching the dynamic price. And it needs to be an airline goal to push this thing forward. Because again, just one team by itself is probably not enough to really see this to fruition.
Mario Maier: Maybe one thing to add, the complexity that we had in the beginning was being an airline group of, nowadays, eight different airlines, you should not start that from scratch with every single airline. So we start with one airline actually, and then ramp up to the other main carriers. In the beginning we said, okay, we're going to do that for, let's say the European point to point traffic and see how it goes, and then expanded it to transfer traffic. And in the end, then you also need to have a strategy if you're in joint ventures with other partners, actually, that those partners also some have the capabilities. And then that is one thing that you normally, you can't roll out from the first day actually. And that takes time actually. And that is a process over, in our case, it was a process including joint venture partners by four to five years actually.
Dimitar Kamenov: Okay. And we know that some airlines are using dynamic pricing today within the legacy systems like the Lufthansa Group. But there are others which are waiting for some new technology advancements within the industry to take over. And Graham, do you think an airline can actually get used to dynamic pricing benefits today within the legacy system of PNRs, tickets and existing PSS solutions?
Graham Wareham: Yeah, you need a methodology to adjust the price, so that aside, but you can definitely build your dynamic solution on top of legacy underpinnings. The filed fare, the filed rule data, all of that, it can be utilized in the creation of dynamic price, especially if you're doing adjusted. Even if you base your continuous pricing on filed fares as the base and you're just filling in the gaps in between, it's an easier, I would say, an easier place to go from than rather starting from scratch as well. You're still living in both worlds, so you still need some kind of methodology that leverages what you do today and pushes you forward.
Dimitar Kamenov: Yeah. So in a way, you don't have to wait really. Please go ahead and start looking into these new techniques. And then Paul, from your point of view, is legacy world more manageable with the AI algorithms and science of continuous pricing?
Paul Hohler: Absolutely. And this is something that as we... PROS sort of ventured into dynamic pricing several years ago, we took that into consideration. People get very enamored and about the sexiness of just offering prices, getting away from things like RBDs and things like that. And that is certainly a future goal that the airline can go towards. But there is still a lot of benefit of doing dynamic pricing today within the systems that are out there and there are airlines doing that and that proves that this can be done. Saying you need to have a perspective and a strategy for that. And as Mario mentioned, that you don't have to do it as a big bang. But the idea is that you don't have to wait either. Doing something can generate you some revenue even now, even within the current legacy systems.
Dimitar Kamenov: And we know that on some channels it is probably easier to start this dynamic pricing distribution on others might be a little bit more difficult. So, Mario, from your experience how did you tackle the channel when distributing these dynamic prices, continuous pricing on different channels?
Mario Maier: Own channels, only in our own channels actually. Because those channels you control actually for the whole customer journey. For us it was also some content differentiation to the, let's say the old GDS/EDIFACT legacy world. And therefore very important for us that first we started actually with a proof of concept in our NDC channel on a very small scale, and then proved that all the processes are really working well and then adopted it to the dot-com and then rolled it out basically on a broader scale. But maybe one word also again to the strategy. When we started in the beginning, we even had to write, we had to write some Q&A manuals for travel agencies because when we, in the beginning people in our proof of concept, people were a little bit unsecure. They booked a ticket on an NDC channel, and then they got a fare of 134.5 euros whatsoever, but the real fare for that booking class was 150. So they tried to rebook it.
Mario Maier: I said, oh, it can't be. That's an error. They rebooked it. They called our service centers and say, I want to avoid an ADM. I just wanted to say I didn't do anything wrong. That price was quoted actually. Can you confirm that to me that this is quoted? So these were the first steps, actually five, six years ago when introducing that continuous pricing or discounted pricing in the market. Now everybody's used to that more or less. But our main focus was really on our own direct distribution channels.
Graham Wareham: And we have, ATPCO has a number of products that help carriers move along the spectrum towards dynamic. You could go from single RBD to dual RBD, which would get you a lot more price points, and then you could fill in the gaps with your own engine. We also have positional match and other tools that we've built that help airlines move through to more advanced continuous.
Dimitar Kamenov: And if we look forward to the world of offers and orders, do you think any of those advances there, any of those changes within the industry will help the adoption of dynamic pricing or remove some of the constraints that we have today. Yeah, like Graham, I know that ATPCO are working on product catalog and this type of new solutions towards the offer and order world. So what's your point on that?
Graham Wareham: Yeah, I think product catalog is going to be super helpful. It's going to be a little ways off. It's still a work in progress. But I think once you get to, I mean, you would probably say yourself once you get to offer orders, the hard part's over. It completely is adjacent to dynamic pricing, total underpinning of the whole philosophy. If you have NDC and you have offer order, dynamic is easy. I think we're really then looking at the math around optimizing the offer, is really the biggest problem.
Dimitar Kamenov: Yeah. And Mario, what about your view on that will offer some orders and one order and all of these initiatives that are happening...
Mario Maier: Will solve everything.
Dimitar Kamenov: Yeah, of course.
Mario Maier: Everything's easier than...
Dimitar Kamenov: With an AI on top.
Mario Maier: Yeah, of course. In various other panel discussions or presentations already today that we as Lufthansa Group, yes, we have a strategy. We're going to 100%, that's our plan, offer and order. But it's a long way. It's the transition to offer and order, which also includes dynamic or continuous pricing. It's just a natural part also of that, is still a long way to go. Five to 10 years minimum actually. And it's not only a big, for us a big paradigm shift actually in reshaping hundreds of systems also has been set in various discussions. It's just to give you an idea, and we talked about that today in the morning is also our load sheet, our weight and balance system at the airport actually, where the pilot gets the load sheet, how many passengers are on board and these kind of things is based on PNRs. It's just as it is. This one also needs to be transformed into orders, actually. You might say, okay, it's just PNR. Now it's just an order number. But it's really a big, big change of hundreds of systems. One part and the other part is mindset shift also. You really need to think differently. There will be, yes, we are going for a world where we don't have any RBDs anymore in the future, but you still need some sort of stock keeper.
Mario Maier: You need some sort of inventory, but not in the way that we define inventories of PSS today actually. So, we know that it's a big, big step for us, Lufthansa Group, and it's not easy to move that big tanker ship. But we have a big, big commitment from our top management, executive management to go down that road and continuous pricing, discounted pricing is really an essential part of that. And the distribution strategy in which channels do I distribute, which offers or content at all is also a very central part of that.
Dimitar Kamenov: And so, Paul, I know that some of the sessions, our colleagues talked about how the readiness of our solution of our working in the new world without having fares and RBDs meant we, yeah, pretty much the products are ready to do so is that the case?
Paul Hohler: Yeah. I mean, we look forward to the world of offers and orders just because of the richness of data. I mean that we get bookings and PNRs today, we get some form of prices but having a sort of a source of truth that is as rich as the offer data sets linked with order data sets certainly allows us to introduce new algorithms and new approaches and be even more precise with our recommendations for it. And so we look forward to that sort of, that world and that sort of thing and unlocks for us in the future for it.
Dimitar Kamenov: Yeah, we were discussing this morning when we were preparing for the panel that there might be some changes within the organization, within the airline, within the people when they start adopting the dynamic pricing solutions and products. So Mario, probably you have the closest experience to such type of changes. Can you share some of your experience?
Mario Maier: I mean the changes are still ahead of us, so I don't have any, I mean, I have a lot of change experience over the last 26 years within Lufthansa Group, but yes, that's also one, you're right, that's also one essential part actually. Your organization also needs to change to a certain level. So you need to change processes when you go down that road. You need to change not only systems, but also adopt, let's call it like that organization, job profiles will change throughout that transition. And as I think Jost said it, one of my colleagues in with leading the one order program at Lufthansa Group, it's really, it's five to 10 years, you will still have the old legacy system in place and then already have the new system in place running in parallel. And as you said, there will be times when we are not completely in sync, but that is accepted actually. And how to tackle that transition phase, that's really the big, big challenge. It's the challenge, the big challenge when you really turn off the old system, it's just the end of the road, basically. That's not, maybe you can, the big thing is then having a party afterwards, but that transition phase, that five to 10 years, is really the big, big challenge actually.
Dimitar Kamenov: And Graham, I mean ATPCO working with many, many, many airlines around the world, probably you have, you're hearing from them firsthand, any implications or considerations they have when talking about dynamic pricing?
Graham Wareham: Yeah. Well, the two main initiatives that we have ongoing are the product catalog initiatives and what we call data lakes, which is really around the new data that's needed to optimize pricing. As we work through these things with the larger groups, you see that there's some significant change coming in the way that we have to think about things. You're thinking detaching price from product. So you're defining product now, which is a whole new mechanism than we did before and prices done separately. And then processing, not just computer processing, but people processing of the new information whether that's competitive insight, product insight data, events data, all of that kind of stuff that's going to go into you forming the optimal product and price. It's a whole new way of thinking. So I don't think it's to be underestimated. The amount of change that's on its way for the airlines.
Dimitar Kamenov: Yeah, absolutely. It is. Paul, anything that you can add on that topic, anything that you've seen?
Paul Hohler: Yeah, I would certainly second what Graham and Mario are saying, and it is a different paradigm. It's a different mindset. I mean, even from an analyst perspective that they may be for years been working with, again opening and closing classes, worrying about the availability at the class level. But now instead of that sort of really focused on what is the price that I'm offering into the marketplace. And that is a difference. I mean, we tried within our solutions to make that transition as easy as possible. Trying to give visualizations, trying to give insights into that. But that is a, it's a different process for the analysts to sort of think through and sort of consider things. And so there is some change management that as you're going through this transition you should consider for this. And I mean, that can be also sort of an important portion just to have adoption of your analysts as well. Because if they're not buying in, then maybe the project is not going to be as successful as otherwise.
Dimitar Kamenov: Yeah. So I remember Michael Wu in one of his sessions, probably not on our platform, but on some of the other conferences said that the biggest impact on the revenue is if you start changing the price. I mean, even one dollar change in the price has a huge impact on the revenue. And we know that dynamic pricing is that change. It's possible even with the legacy system. So we encourage all carriers to look into that and look into ways to implement. Any final notes from any of you and then we can close.
Graham Wareham: Along the lanes, get your people involved early. There's lots of design teams, ATPCO has a number of design teams. IATA has design teams. It's not too early to start listening and hearing about what's coming and processing that change for yourself on what's going to happen and how you have to think differently. So, if you see me around, I can give you information on how to join design teams.
Paul Hohler: I guess I don't think we want to make this sound impossible here. We were certainly bringing up a lot of the realities of going through this transition, but also it shouldn't be a roadblock. This should be a journey. And at least PROS is here to also to help you out along that journey as well. So it's doable, and it can really bring big benefits in the long run.
Mario Maier: If you involve all the stakeholders at a very early stage, if they have the right IT partner, just do it. It's really worth it. We've seen so many benefits, although in the beginning was a little bumpy road, but nowadays we could not think of doing not continuous pricing in our world, although we still have, we're not... 100% of our flights are on continuous pricing because that's still the, I call it the black box, the algorithms in our revenue management systems. But we have a very high, let's say level of how many flights or which flights are continuously priced. And yeah, it's really worth actually, it gives you additional revenue and it gives you additional customer control also.
Dimitar Kamenov: Well, thank you.