The Merchandising Evolution (and Why NDC Matters)
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The Merchandising Evolution (and Why NDC Matters)

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L.E.K.'s John Moran recently spoke at an NDC in Action conference hosted by Farelogix. He covered topics such as the evolution of consumer expectations, merchandising's potential, why NDC matters and ...

L.E.K.'s John Moran recently spoke at an NDC in Action conference hosted by Farelogix. He covered topics such as the evolution of consumer expectations, merchandising's potential, why NDC matters and 10 questions to ask about your ancillary strategy. Learn more in his presentation here.

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The Merchandising Evolution (and Why NDC Matters) The Merchandising Evolution (and Why NDC Matters) Presentation Transcript

  • John R. Moran The Merchandising Evolution (and why NDC Matters) L.E.K. Consulting © 2013 L.E.K. Consulting LLC. All rights reserved.
  • Topics NDC in Action The evolution of consumer expectations Merchandising’s potential Why does NDC matter? 10 questions to ask about your ancillary strategy © 2013 L.E.K. Consulting LLC. All rights reserved. 2
  • How have consumer expectations evolved? NDC in Action Let’s go back to 2007… © 2013 L.E.K. Consulting LLC. All rights reserved. 3
  • The customer experience just six years ago… NDC in Action Mobile looked like this (no iPhone/Android) Facebook had 12 million users (no mobile) Amazon revenue was $15 billion (no Kindle, no Prime in most countries) 23 airlines reported global ancillary revenue of $2.5 billion (no 1st/2nd checked bag fees) © 2013 L.E.K. Consulting LLC. All rights reserved. 4
  • Things have changed NDC in Action Global PC / mobile device unit sales Millions of units 750 Smartphones / tablets 500 PCs 250 0 2007 08 09 10 11 12 Information and purchasing capabilities are now personal and ubiquitous Source: IDC, Gartner © 2013 L.E.K. Consulting LLC. All rights reserved. 5
  • Things have changed NDC in Action Facebook active users Millions of people (beginning of year) 1,200 1,100 1,000 845 800 610 600 350 400 150 200 0 12 2007 60 08 09 10 11 12 13 People are getting information from peers and highly targeted ads Source: Facebook © 2013 L.E.K. Consulting LLC. All rights reserved. 6
  • Things have changed NDC in Action Amazon total revenue Billions of dollars 70 61 60 48 50 40 34 30 20 25 20 15 10 0 2007 08 09 10 11 12 E-commerce and personalized recommendations are mainstream Source: Amazon © 2013 L.E.K. Consulting LLC. All rights reserved. 7
  • Consumer expectations are changing too Yesterday NDC in Action Tomorrow Information opaque and inaccessible; “know what you want and go hunt for it” Too much information puts a premium on curation; offers come to me Single channel for discovery and purchase Omni-channel learning, trial, and purchase experiences Anonymity the norm Assume you’ll remember me Limited choices; accustomed to standard offers and a “one size fits all” experience Customization, menus, and targeted / personalized options and extras One price My price © 2013 L.E.K. Consulting LLC. All rights reserved. 8
  • Retailers are still way ahead of us NDC in Action © 2013 L.E.K. Consulting LLC. All rights reserved. 9
  • Meanwhile, ancillary revenue has grown… NDC in Action Global airline ancillary revenue (estimates based on reported) Billions of dollars 50 Global total net income is expected to be <$12 billion 40 43 36 33 FF / Commission 30 23 20 10 10 13 A La Carte 2 0 2007 08 09 10 11 12 13F Ancillary revenue isn’t optional, it’s oxygen Source: IdeaWorks, IATA © 2013 L.E.K. Consulting LLC. All rights reserved. 10
  • … and helped crown a new set of leaders NDC in Action Top 10 airlines by economic profit, 2008-12 Billions of dollars 2.5 2.2 Americas EMEA Asia-Pacific 2.0 1.5 1.5 1.1 1.0 0.9 0.5 0.5 0.4 0.4 0.4 0.3 0.3 0.0 #1 EP ranking ’03-12 #2 #3 #4 #5 #6 #7 #8 #9 #10 61 1 59 4 6 5 7 2 3 N/A © 2013 L.E.K. Consulting LLC. All rights reserved. Source: Capital IQ, Bloomberg, CompuStat, DOT Form 41, L.E.K. analysis 11
  • A vision of merchandised ancillaries NDC in Action Example Right person “John, a 35-year-old infrequent flier with us, visiting Disney World with his gluten-allergic infant” Right offer Discounted hotel room Gluten-free meal paired with empty adjacent seat, etc. Right time Room offered during initial comparison shopping Meal/seat offered during check-in Right place Room offered with OTA in booking flow Meal/seat sent to his mobile the day before / in airport Right price Room offered at a discount to drive ticket purchase Meal/seat offered at premium (unless inventory is high) We believe merchandising in this way can double ancillary revenue © 2013 L.E.K. Consulting LLC. All rights reserved. 12
  • Why does NDC matter? Historically, legacy technology dictated ancillary strategy “What should we do?” determined by “what can we do?” NDC in Action Future new standards and tools enable powerful new strategies The freedom and power to change the game What should you be asking yourself before implementing the technology? © 2013 L.E.K. Consulting LLC. All rights reserved. 13
  • NDC in Action Ten questions to ask about your strategy © 2013 L.E.K. Consulting LLC. All rights reserved. 14
  • 1) What is the overall strategic objective? NDC in Action Incremental revenue and profit? Customer experience enhancements? Rewarding and reinforcing loyalty? Reduction of core product cost through unbundling? Passenger behavioral changes? © 2013 L.E.K. Consulting LLC. All rights reserved. 15
  • 2) Who is your customer? Customer segments (historical) NDC in Action Customer segments (today) Road Warriors Business Travelers • Mostly male passengers, usually 34-55, who travel business itineraries • Mostly male passengers, usually 34-55, who travel 20+ business itineraries p.a. • Often business class passengers traveling alone Occasional Business • Mostly male passengers, usually 34-55, who travel <20 business itineraries p.a. • Economy class travelers more likely to travel with colleagues High-Income Leisure • High-income individuals, couples or families traveling for leisure • Travelers who value comfort, often on long haul flights Package Vacationers • Value-oriented travelers, particularly families traveling for entertainment or outdoor recreation • Primarily middle-income, economy class travelers Retirees • Male and female passengers over 55, who travel for leisure purposes exclusively • Value-oriented, economy class passengers VFR • Older individuals, couples or families traveling to visit friends and/or relatives • Primarily middle-income, economy class travelers Young Singles • Younger, tech savvy passengers under 30, traveling for pleasure, college, or job opportunities • Value-oriented, economy class passengers High-Income Leisure • High-income individuals, couples or families traveling for leisure Etc. © 2013 L.E.K. Consulting LLC. All rights reserved. 16
  • 3) Do you treat them as accounts? Do you understand their journey? Leisure passenger journey NDC in Action Need states Dreaming Destinationfocused Planning Booking Managing Airport Frugal Bored Practical Boarding / take-off Inflight Stressed Deplaning Transport Excited Hotel Return journey © 2013 L.E.K. Consulting LLC. All rights reserved. 17
  • 4) What does your brand stand for, and what experience should you aim to create? NDC in Action What do you aspire to mean to passengers? What do people associate with your brand today? What customer experience will fulfill your brand promise? © 2013 L.E.K. Consulting LLC. All rights reserved. 18
  • 5) What products and services should you offer? NDC in Action B2B Onvessel B2C Enhanced B2B Enhanced Mix of B2C & B2B 3 Enhanced Advertising 2 “Window Shopping” (On-line stores) 3 Consumer Trials 2 On-line Gambling Enhanced B2C 2 Internet On-Board 2 In-Flight Entertainment Food/Beverage OnBoard Core B2B 3 2 IFE/Web Advertising Repackaged B2C 2 Subscription Services for Amenities 2 FF Gaming Bundles 2 Entertainment Packages 2 Upscale Amenity Packs Core B2B Enhanced B2B 5 Vacation Packages 2.0 1 2 3 4 5 6 7 Offvessel Product Flight Experience B2B Airport Experience Experience Packages Mileage and Status Customer Service Core Product Core B2C Repackaged B2C 4 Airport Lounge Packages 4 Priority Baggage 5 Family Traveler Packages 1 Confirmed Seat 4 5 Child Traveler Packages 1 Fee to Stand by 1 Ticketing Fees 4 5 Business Traveler Packages 6 Miles Rationalization 7 Unaccompanied Minor 6 3 Traditional Advertising 1 Baggage Fees 3 Hotel Partnerships 1 Phone 6 Mileage Redemption 7 Rental Cars 7 Financial Services Enhanced B2C 1 Premium Seating Booking over the Assignment 4 Lounge Access Priority Security Priority Check In and Boarding 6 Elite Status a la carte Mileage Purchase Trip Protection 7 Insurance © 2013 L.E.K. Consulting LLC. All rights reserved. 19
  • 6) What costs a fee vs. what is free? What should you bundle together? NDC in Action Enhancements Offered High Bundle Optimization Unbundling Merchandising Enhancements Low Fully Bundled A la Carte Bundling of Ancillary Products / Services © 2013 L.E.K. Consulting LLC. All rights reserved. 20
  • 7) How do you target, personalize, and price dynamically? NDC in Action Merchandising engine © 2013 L.E.K. Consulting LLC. All rights reserved. 21
  • 8) How do you advertise and sell across channels? NDC in Action Have consistency across all channels, both direct and indirect Think outside the box online Advertise differently than you sell Use channels for different things (exploration vs. sharing vs. problem-solving vs. impulse-purchases vs... ) © 2013 L.E.K. Consulting LLC. All rights reserved. 22
  • 9) How do you deliver without operational compromise? NDC in Action Generally requires: Strong core operations to begin with (e.g., on-time performance) Simplicity through technology Training and tools for frontline staff A cultural shift and extensive communication The ability to measure and course-correct © 2013 L.E.K. Consulting LLC. All rights reserved. 23
  • 10) How do you turn product development into a core capability? NDC in Action To make this a competitive advantage, you need: A well-oiled new product development (NPD) process Measurement and metrics to conduct product portfolio optimization The structure, staff, and processes to manage the products Ongoing strategic investment in the technology © 2013 L.E.K. Consulting LLC. All rights reserved. 24
  • Thank you NDC in Action Website: www.lek.com Email: j.moran@lek.com LinkedIn: L.E.K. Consulting / John R. Moran Twitter: @JohnRMoran © 2013 L.E.K. Consulting LLC. All rights reserved. 25