Service Marketing Strategy and the Customer Experience Revenue Management & Pricing in Travel USA 2007 9-10 October, Caesars Palace, Las Vegas

Introduction In this presentation I will focus on some key marketing components: Product elements Price and other user outlays Promotion and education

In this presentation I will focus on some key marketing components:

Product elements

Price and other user outlays

Promotion and education

Product, Pricing and Communication Decisions What price should we charge for our service? How should we communicate what our service has to offer? What should be the core and supplementary elements of our service product?

What price should we charge for our service?

How should we communicate what our service has to offer?

What should be the core and supplementary elements of our service product?

Core and Supplementary Elements The core addresses the customer’s need for a basic benefit – such as transportation to a desired location Supplementary services facilitate and enhance use of the core service In a mature industry with increased competition there is a risk of perceived commoditization

The core addresses the customer’s need for a basic benefit – such as transportation to a desired location

Supplementary services facilitate and enhance use of the core service

In a mature industry with increased competition there is a risk of perceived commoditization

What should be the elements of our service product? What are the characteristics of our core product? What supplementary service elements augment this core product? What product benefits create the most value for target customers? How can we differentiate our service product from the competition’s? How should we go about designing new services?

What are the characteristics of our core product?

What supplementary service elements augment this core product?

What product benefits create the most value for target customers?

How can we differentiate our service product from the competition’s?

How should we go about designing new services?

Augmented Product The core product (a good or a service) plus all supplementary elements that add value for customers Molecular model describes augmented products

The core product (a good or a service) plus all supplementary elements that add value for customers

Molecular model describes augmented products

Molecular Model Distribution Price Marketing Positioning Transport Aircraft In-flight Service Food and Drink Pre- and Post-flight service Service Frequency Intangible Elements Tangible Elements G. Lynn Shostack, “Breaking Free from Product Marketing”

The Flower of Service Pierre Eiglier and Eric Langeard, “Services as Systems: Marketing Implications” Information Consultation Order Taking Hospitality Safekeeping Exceptions Billing Payment Core

Identifying and Classifying Supplementary Services Facilitating supplementary services that aid in the use of the core product or are required for service delivery Information Order taking Billing Payment Enhancing supplementary services that may add extra value for customers Consultation Hospitality Safekeeping Exceptions

Facilitating supplementary services that aid in the use of the core product or are required for service delivery

Information

Order taking

Billing

Payment

Enhancing supplementary services that may add extra value for customers

Consultation

Hospitality

Safekeeping

Exceptions

The Customer Experience in Five Stages

Stage One – Discover

Brand Level Objectives Source: AirCanada.com

Stage Two – Evaluate Source: www.aircanada.com

Value Positioning

Multiple Value Propositions Multiple value propositions facilitate revenue optimization within and across brands

Customer Choice Source: www.aircanada.com     

Flight Change Functionality

Opt-in or Opt-out Source: www.aircanada.com

Up-Sell Proposition

Pay to use Airport Check-in

“ A-la-carte” Access to Lounge

Non-Ticket Revenues Ryanair’s non-ticket revenues were 18% of the total in 2006 Profit margins on ancillaries are much higher than on seats Very low selling costs – particularly if sold online Justifies management unit Measuring performance of ancillary product sales is still in its infancy

Ryanair’s non-ticket revenues were 18% of the total in 2006

Profit margins on ancillaries are much higher than on seats

Very low selling costs – particularly if sold online

Justifies management unit

Measuring performance of ancillary product sales is still in its infancy

Ancillary or Non-Ticket Revenue

Potential Revenues in IFE

New Ways to Charge Customers

A Captive Audience for Advertising

The Value Exchange

What Price Should we Charge? What costs do we have to recover? What prices are competitors charging? How sensitive are customers to variations in price? What out-of-pocket expenditures and non-financial outlays do customers incur beyond the price of our service? Can we charge different prices at different times or to different customers?

What costs do we have to recover?

What prices are competitors charging?

How sensitive are customers to variations in price?

What out-of-pocket expenditures and non-financial outlays do customers incur beyond the price of our service?

Can we charge different prices at different times or to different customers?

Pricing Strategy Cost-based pricing – the practice of relating the price to be charged to the costs associated with producing, delivering, and marketing a product Competition-based pricing – the practice of setting prices relative to those charged by competitors Value-based pricing – the practice of setting prices with reference to what customers are willing to pay for the value they believe they will receive Leonard L. Berry and Manjit S. Yadav, “Capture and Communicate Value in Pricing of Services”

Cost-based pricing – the practice of relating the price to be charged to the costs associated with producing, delivering, and marketing a product

Competition-based pricing – the practice of setting prices relative to those charged by competitors

Value-based pricing – the practice of setting prices with reference to what customers are willing to pay for the value they believe they will receive

Capturing and Communicating the Value of a Service Uncertainty reduction – If customers are unsure about how much value they will receive from a particular service, they may remain with a known supplier or not purchase at all Relationship enhancement – In general, discounting to win new business is not the best way to attract customers who will remain loyal over time, since those who are attracted by cut-rate pricing are easily enticed away by competing offers Cost leadership – This strategy is based on achieving the lowest costs in an industry

Uncertainty reduction – If customers are unsure about how much value they will receive from a particular service, they may remain with a known supplier or not purchase at all

Relationship enhancement – In general, discounting to win new business is not the best way to attract customers who will remain loyal over time, since those who are attracted by cut-rate pricing are easily enticed away by competing offers

Cost leadership – This strategy is based on achieving the lowest costs in an industry

The Basis for Pricing Price bundling – the practice of charging a base price for a core service plus additional fees for optional supplementary elements Discounting – a strategy of reducing the price of an item below the normal level

Price bundling – the practice of charging a base price for a core service plus additional fees for optional supplementary elements

Discounting – a strategy of reducing the price of an item below the normal level

New Customer Options Airline services are going a la carte Tools to price a la carte on website Seat location pricing United’s “Economy Plus Access” Special check-in and security lines Any reasonable proposition Ultimately individual customer pricing

Airline services are going a la carte

Tools to price a la carte on website

Seat location pricing

United’s “Economy Plus Access”

Special check-in and security lines

Any reasonable proposition

Ultimately individual customer pricing

Types of Customized Pricing Self selection Controlled availability Point of sale control Buyer characteristics Transaction characteristics

Self selection

Controlled availability

Point of sale control

Buyer characteristics

Transaction characteristics

How should we communicate what our service has to offer? What do customers need to know about our service, its benefits, and how best to use it? What communications methods and media will be most effective in reaching target audiences? What impressions can we convey through physical evidence? How well are our organization, its capabilities, and its brand names regarded?

What do customers need to know about our service, its benefits, and how best to use it?

What communications methods and media will be most effective in reaching target audiences?

What impressions can we convey through physical evidence?

How well are our organization, its capabilities, and its brand names regarded?

Communicating with Customers Communication efforts serve not only to attract new users but also to maintain contact with existing customers and build relationships with them Nurturing customer relationships depends on a comprehensive and up-to-date customer database, and the ability to make use of this in a personalized way

Communication efforts serve not only to attract new users but also to maintain contact with existing customers and build relationships with them

Nurturing customer relationships depends on a comprehensive and up-to-date customer database, and the ability to make use of this in a personalized way

Communication Strategies for Services Intangible nature of service performances Customer involvement in production Evaluating service offerings Supply-and-demand management Importance of contact personnel Reduced role of intermediaries Setting communication objectives

Intangible nature of service performances

Customer involvement in production

Evaluating service offerings

Supply-and-demand management

Importance of contact personnel

Reduced role of intermediaries

Setting communication objectives

Stage Three – Acquire

Credit Cards $3 billion spent worldwide each year on credit card merchant fees Credit card fees are trending higher (3%) Credit card companies are not negotiating

$3 billion spent worldwide each year on credit card merchant fees

Credit card fees are trending higher (3%)

Credit card companies are not negotiating

Lower-Cost Alternatives Having already cut labour, commissions and GDS costs, credit card fees are the next savings opportunity Find lower-cost alternatives to credit card payments or transfer fees to someone else Cash payments UATP cards PayPal service Western Union

Having already cut labour, commissions and GDS costs, credit card fees are the next savings opportunity

Find lower-cost alternatives to credit card payments or transfer fees to someone else

Cash payments

UATP cards

PayPal service

Western Union

Where Credit Cards Not the Norm

Stage Four – Integrate Source: Scandinavian Airlines Intercontinental passenger offerings

Service Delivery 40 percent of marketing investment is wasted, as ill-informed or de-motivated behaviour by staff unwittingly undermines the promotional promise The result is that 68 percent of those who do buy, go away because of how they were treated

40 percent of marketing investment is wasted, as ill-informed or de-motivated behaviour by staff unwittingly undermines the promotional promise

The result is that 68 percent of those who do buy, go away because of how they were treated

Stage Five – Extend From the highest life-time value, we can find groups that are represented by: Corporate customers Loyal customers Contracted customers Registered customers The all customers category that might not have any loyalty to our company

From the highest life-time value, we can find groups that are represented by:

Corporate customers

Loyal customers

Contracted customers

Registered customers

The all customers category that might not have any loyalty to our company

Frequent Flyer Programs Source: Marginal revenues. www.unige.ch

What Matters to Travellers? Flight problems 28.1% Baggage 26.7% Reservations, ticketing and boarding 11.7% Customer service 10.6% Fares 2.6% Source: The U.S. Department of Transportation’s Air Travel Consumer Reports.

Flight problems 28.1%

Baggage 26.7%

Reservations, ticketing and boarding 11.7%

Customer service 10.6%

Fares 2.6%

Consumer-Centric Strategies An optimized CRM strategy can really separate your travel company from the rest of the pack Online travel sales are still expanding, but at a diminished level 71% of Americans are currently online, by 2011 it will be 81% (Forrester Research) Companies must retain their customers by building loyalty and consistently providing an experience in line with their brand promise JetBlue and Southwest remain a firm favourite with customers

An optimized CRM strategy can really separate your travel company from the rest of the pack

Online travel sales are still expanding, but at a diminished level

71% of Americans are currently online, by 2011 it will be 81% (Forrester Research)

Companies must retain their customers by building loyalty and consistently providing an experience in line with their brand promise

JetBlue and Southwest remain a firm favourite with customers

JetBlue Customer Satisfaction JetBlue has managed to rank highest in customer satisfaction levels among low-cost carriers (JD Power and Associates) Vicky Stennes, VP Inflight Experience, JetBlue said “we built JetBlue as a customer service company – not just an airline. We desire to be compared to other best-in-class service companies, such as retail organizations like Neiman Marcus, and “experience” companies like Walt Disney”.

JetBlue has managed to rank highest in customer satisfaction levels among low-cost carriers (JD Power and Associates)

Vicky Stennes, VP Inflight Experience, JetBlue said “we built JetBlue as a customer service company – not just an airline. We desire to be compared to other best-in-class service companies, such as retail organizations like Neiman Marcus, and “experience” companies like Walt Disney”.

Southwest Rapid Rewards Program For 20 years Southwest’s loyalty program has proved profitable for them, with the credit card alone generating $50M of fees Their enviable loyalty scheme has been recognized by the industry and wins first place awards, year on year “ We are excited the flying public recognizes the value and simplicity of the Rapid Rewards program," said Debra Benton, Southwest's Director of Loyalty and Partnership Marketing. "We strive to make the program Customer friendly and easy to use."

For 20 years Southwest’s loyalty program has proved profitable for them, with the credit card alone generating $50M of fees

Their enviable loyalty scheme has been recognized by the industry and wins first place awards, year on year

“ We are excited the flying public recognizes the value and simplicity of the Rapid Rewards program," said Debra Benton, Southwest's Director of Loyalty and Partnership Marketing. "We strive to make the program Customer friendly and easy to use."

Service Marketing Strategy and the Customer Experience Revenue Management & Pricing in Travel USA 2007 9-10 October, Caesars Palace, Las Vegas