Onboard retail – which should and can be a significant revenue source for airlines – has been on life support for years and shows few signs of revival.
Between 2015 and 2016, airline retail sales declined (-2.9%) even while airport retail sales increased significantly (+5.7). That’s a stark contrast and points to airports’ ability to think (and act) like retailers. Fortunately, airlines have become more comfortable as retailers as they increasingly engage passengers through the direct (i.e., mobile) channel, where they can personalize offers and extend their selling window to before and after the flight.
But reviving onboard retail – and increasing ancillary revenue overall across the day of journey – requires a fundamentally new approach to passenger experience. If airlines can approach passengers through the lens of behavioral economics – combining real-time data with human nature and passenger psychology – they can adapt their digital strategies to sell more merchandise before, during and after the flight, personalize the onboard experience and boost ancillary revenue.
Using Behavioral Economics to Personalize and Merchandize
Whatever passengers’ reasons for their ancillary purchases – cost, comfort or choice – they have rational and less rational (emotional) motivations which generally fall into two categories: deliberated decisions and impulse decisions.
As consumers, we all use different ‘mental accounts’ for money we obtain from different sources. Some of us are impulse spenders, some are cost-conscious budgeters, and most are probably somewhere in the middle. We spend windfall gains and pocket money easily. Income is less easy to relinquish. And savings the most difficult of all. (For more on the psychology behind passenger experience, download our whitepaper, authored by a prominent data scientist).
For most consumers, ticket prices are highly deliberated purchases paid for with savings and income. Asking travelers to purchase additional items like a meal during booking process, when they are relinquishing their hard-earned savings, may not be very effective. However, once in transit, the mental framework of spending changes.
If airlines can incent passengers to treat themselves to a quality onboard meal closer to their flight time (via mobile device), that purchase is going to come from their pocket money. People are more likely to spend their money at that time (it’s why they have pocket money in the first place). Airlines will see more conversion on the meal offer – and drive instant satisfaction for the passenger. Untethering a meal choice from a ticket choice also dismantles the notion that an economy ticket equates to an economy meal – a lesson that airlines can apply to other areas of revenue.
Personalization and Ancillary Merchandising on the Day of Journey
Airlines don’t need to psychoanalyze their passengers to be able to nudge them toward a decision. They just need to understand the different ‘accounts’ passengers are willing to spend from, at different stages of the journey, and offer the right merchandise in that context.
Really, that’s all it means for airlines to “do” personalization, at least in the beginning – there are always more sophisticated tactics, but airlines can build up to them gradually. What matters at the outset is understanding passengers in context – which airlines can do with data they already own – and using mobile devices to make stronger connections between passenger experience and ancillary revenue (for example, empowering passengers for self-service and mobile ordering).
Some passenger decisions are contextual because their needs change at different stages of the journey, but airlines can still anticipate them. For instance, most flights will have a few busy travelers who leave their phone chargers at home. Airlines can plan for this eventuality by stocking chargers onboard the flight and making it easy to order one via mobile device or seatback. These are impulse decisions made on-the-fly, by necessity or simply because an offer was made – airlines just need to be in position to make the sale with the right technology and inventory.
Passengers have many other “triggers” and personally-motivating incentives that are less predictable and can only be uncovered by analyzing data and leveraging those insights to create personalized offers. When airlines embrace this data, they can surprise and satisfy their passengers with offers they didn’t even realize they wanted.
Are you ready for an airline commerce platform that offers advanced retail analytics – using simple sales and product data that you already own – to better understand why passengers do (or don’t) purchase ancillaries, and to capitalize on more selling opportunities before, during and after the flight?