MultiChannel Revenue Management

1
Multi-Channel Revenue Management

• Shankar Mishra Vish Viswanathan

AGIFORS RYM Study Group Berlin, 16-19 April 2002
2
Outline

• Distribution Channels
• Channel Characteristics
• Demand Patterns
• Channel Profitability
• A Single Channel View
• Is Price the only Differentiator?
• How the solution might look like?
• Why a Bid Price based system is the first step?
• Convergence of Pricing, RM Distribution!!
• Moving towards Customer-Centric Revenue
  Management

3
Introduction

• The Proliferation and Diversification of
  Distribution Channels appear Irreversible

Sales 2.3B Visitors 47.5M
Online Travel Sites in U.S. January 2002
In 2001
Travelocity Expedia sold 3B worth of Travel
Products
4
Online Channel Growth
50B

• 50 of all travel sales will be from suppliers
  own website
• 13 of all U.S. travel in 2002 will be booked
  online

31B
29 Increase over 2001
2002
2005
5
Different Distribution Channels
Allotments
Airline Website
Online Travel Sites
Airline Inventory
Email Campaigns
Online Corporate Bookings
Airline Sales
Others
6
Channel Characteristics
Airline Website

• Emerged as most popular online travel channel
• Least Cost, High Visibility
• Majority of Demand (not all) coming through may
  be Price Sensitive
• Detailed Customer Information Available
• Reliable Customer Segmentation
• Targeted Campaigns in Practice

7
Channel Characteristics
Online Travel Sites

• Market Converging to few Dominant Players
• Travelocity, Expedia, Orbitz
• Includes Opaque Sites
• Priceline, Hotwire
• Published Opaque Fares
• Price Sensitive Demand

8
Channel Characteristics
Online Corporate

• Includes Special Negotiated Price
• Low Fare Search Engines
• May Include Last Seat Availability

Others

• Auction, Reverse Auction Sites
• Negotiated Availability Price

Email Campaigns

• Effective Demand Stimulation
• Low Cost Medium

9
Channel Characteristics
Airline Sales

• Dominance of this channel varies by region
• At times Inventory Controls are at odds with
  Sales Allocations
• Depending upon volume/quality, other channels may
  be preferred over sales allocations
• If Airline Sales is the only channel
• Maximizing revenue translates to inventory
  control of sales allocations
• If not
• Common view of inventory

10
Is Fare the Only Differentiator?
Airline Inventory
11
Common Inventory View

• Common Inventory with Price as only
  differentiator among channels
• Current OD Revenue Management Model should
  suffice
• Availability Decision will be independent of
  Channel
• Based on Bid Prices
• An extension would be to define product at ODF
  Channel level
• Still Current OD Revenue Management Models
  should suffice
• Problem size increases due to added dimension

A Bid Price based OD RM is the First Step
12
And the Solution

• Data Interface between distribution channels RM
  system
• Demand Value aggregation to appropriate level

OD Revenue Management System
Fare Management System
Physical Financial Inventory Controls
13
Common Inventory View
Differentiation beyond Price
Demand Stimulation Response to pricing changes
differ by distribution channel
Sell-up within across channel Effect of sell-up
strategies vary by distribution channel
14
Growing Complexity
Channel Analytics

• Promotions related Strategic Initiatives by
  Channel
• Channel importance for distressed inventory
• Using strategic data in forecasting
• Better passenger segmentation

Dynamic Pricing Module

• Ability to create fare promotions dynamically at
  the point of sale
• Minimize spoilage without diluting revenue
• Gain/Protect Market Share
• Personalized Product Definition

15
And the Solution
Dynamic Pricing Module
Channel Analytics
OD Revenue Management System
Fare Management System
Physical Financial Inventory Controls
16
Implications of Airline Sales Channel

• Initial Sales Allocations are set early in the
  booking process
• Closing availability with open allocation
• Not necessarily the preferred option for sales
• If Sales Allocation were to be protected?
• Only option may be to refine Allocation Mix on
  a periodic basis

Pax Valuation thru this channel
Needed Info
Channel Performance
17
Value of Growing Complexity
Valuation Module

• Valuation of a passenger thru a particular
  channel
• Channel profitability taken into account
• Availability Bias can be incorporated
• Protection for special offers, sales allocations
  etc.

Performance Measures

• A Feedback Loop to Revenue Management System
  Processes (Channel Analytics)
• Performance of promotional campaigns by channel
• Value creation linked to strategic initiatives
• Performance of Sales channel Observed Vs.
  Allocation

18
And the Solution
Dynamic Pricing Module
Channel Analytics
Fare Management System
OD Revenue Management System
Valuation Module
Performance Measures
Physical Financial Inventory Controls
19
So whatre we saying?

• At a macro level airlines should maintain a
  single view of supply and demand
• Forecast free value of inventory
• Financial Inventory Control, preferably at ODF
  level is the first step
• Exploiting channel characteristics further
• Maintain market response product control in
  each channel
• Linking Pricing Inventory to channel
  characteristics

• Merging Pricing, Revenue Management
  Distribution?

20
The Other Viewpoint

• All the channels will have extensive overlap in
  terms of Passenger Value
• Let us consider distribution channel as merely
  Inventory Access Medium for Passengers
• Understanding passengers with a preferred channel
  becomes important
• Passenger Value remains the most important
  decision criteria
• Importance of channels is limited to the related
  cost
• Promotions, Strategic Initiatives can be directly
  linked to passenger segment (broader definition
  than grouped by distribution channels)

21
The Other Viewpoint
Customer-Centric Revenue Management

• Promotions Strategic Initiatives based on
  Passenger Segmentation

Inventory Controls based on Passenger Value
Continuous Tracking of Passenger Profile
Behavior
22
Same Solution?
Dynamic Pricing Module
Pax Segment Analytics
OD Revenue Management System
Fare Management System
Valuation Module
Performance Measures
Physical Financial Inventory Controls
Distribution thru Preferred channels
23
System View
RM System must support Common View of Supply
Demand
Financial Inventory Controls should be the base
to build upon
Fare Management System is no less important than
RM System
Integration of Pricing, Revenue Management
Distribution Bound by limitations of CRS/GDS
Airline.com may be first step
24
Common Process View

• Migration of revenue management analysts
• Route Controllers
• Market Analysts
• Strategic/Tactical Analysts

• Planning
• Strategic Initiatives
• Campaigns Promotions
• Customer Segmentation

• Valuation
• Passenger Valuation
• Market/Flight Valuation
• Control over all Variables Affecting Valuation

• Operation
• Critical Flight Handling
• Tactical Planning
• Day of Departure Support

• Distribution
• Link between Passenger CCRM
• Communication Channel for other departments
  (Pricing, Scheduling, etc.)

25
Conclusion

• The Proliferation and Diversification of
  Distribution Channels appear Irreversible
• Can we afford to ignore alternate distribution
  channels in our RM perspective?
• A common look at all channels together may bring
  us closer to Utopia
• Integrated Pricing, RM, Distribution
• This common look must see both Supply Demand
  side
• Convergence of Systems Processes towards
  customer-centric environment seems to be the next
  step

You dont have to beat the bear!!!
26
Questions?