Identifying Those Added Services and Products Your Customers Place Value on
IN-DEPTH: Interview with Doug Hesley, corporate director of revenue management, Norwegian Cruise Lines
Ancillary revenue products vary by complexity, cost and their impact on consumers.
For example, monetising ad space in an airlines in-flight magazine is less complex than provision of in-flight catering or hotels to an airline’s consumers. The latter not only requires more expertise but is arguably more central to the consumer experience.
Ancillary performance is about identifying what added services and products your customers place value on and how much that value is worth to them, says Doug Hesley, corporate director of revenue management, Norwegian Cruise Lines.
Travel suppliers and intermediaries acknowledge that any single travel player cannot truly be a “one stop shop” for everything linked to travel. Offering ‘everything’ will dilute the travel provider’s brand equity, and ultimately their ability to deliver. It is important to underline that trying to meet a set of diverse customer needs requires considerable investment and expertise that invariably takes years to develop.
From the offerings perspective, according to Hesley, the best bundles are designed to package added value for the consumer, and all in all, it’s a balancing act.
Hesley, who is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October), spoke to EyeforTravel’s Ritesh Gupta about this balancing act when it comes to bundling, offering value, sustaining profitability and much more. Excerpts:
Tours, activities, restaurants, nightlife, events, and car parking are just some of the many ways that hotels and other travel companies can use to cross-sell to their customers, whilst providing the customer with inspirational and useful, detailed information about the destination as well as potentially boosting SEO results. Which is the best way to go about this?
The best bundles are designed to package added value for the consumer. Keep it simple – add something truly valuable to your core product and make it easy for your customers to find and purchase. Over-bundling confuses customers, and erodes profitability.
It’s a balancing act – if you bundle too much value, your profitability suffers; if you don’t bundle enough value, you find yourself further behind tomorrow and planning your next bundle.
From Norwegian Cruise Lines’ perspective, who should be responsible for managing a complete end-to-end ancillary strategy?
The cruise industry has been focused on ancillary revenue for years, understanding that a thorough end-to-end strategy requires many key players. The success depends upon the correct coordination of efforts along every step of the way, including evaluation of customer data, strategic planning, execution via operations and finally post formal analysis. Obviously, revenue management is the perfect group to lead these efforts.
How do you think RM professionals are currently looking at final Customer Life Time Value optimisation, which takes into account the potential total spend across all current and future properties of an organisation. How do you think the onus is on RM professionals to drive ancillary revenues?
Ancillary revenue exists today; for many organisations this is an untapped well. Similar to demand, considerable gains can be made simply by optimising the ancillary revenue that already exists just under the surface.
Once you’ve picked that fruit, higher up the tree likely exists greater long-term returns that help redefine organisations through better understanding and leveraging the total lifetime value and cycle of customers.
To reach those gains, Revenue Management must partner closely with other key players to develop and execute a comprehensive strategy.
When it comes to cannibalising core product, which is the best way to introduce new products and services to compliment main sales, not affect them?
Ideally your products will complement each other, whether they are multiple versions of a core product or different products altogether. Cruise lines offer hundreds of itineraries, knowing the plethora of options both increase volume and frequency from existing customers while simultaneously attracting new customers (additional volume) who may not have previously considered making a purchase.
One of the main reasons behind travel companies not tasting much of success in generating ancillary revenues is that they do not have a deep understanding of consumer retail behaviour. How much inroads have made into the same by the industry? How do you think hotels are going about understanding their customers, what they need, and how to go about up-selling and cross-selling to them throughout the booking path?
I believe considerable progress has been made by organisations focused on customer segmentation. A successful pricing strategy is one that caters to every customer segment; a successful ancillary strategy taps into the willingness of those customers to purchase beyond the core product.
Unfortunately, the industry has been required to spend a considerable amount of time navigating through the recession; as more time is shifted towards business after the recession we are seeing increased focus on every available means to recover lost revenue (ancillary revenue) through bundling (to increase volume) and unbundling (to tap into new or underutilised revenue streams).
What according to you are the do’s and don’ts in Ancillary Services Selling? For example, would you advise cruise lines to concentrate on the part of the business where they can add value and also to enter into commercial relationships with an array of partners?
Personally, I make every effort to avoid rewarding customers for purchases they would have made whether I rewarded them or not (unincented demand). The buyer is already standing at the register with cash in hand, why are you asking if they have today’s Wacky Wednesday coupon?
Ancillary performance is about identifying what added services and products your customers place value on and how much that value is worth to them, and then providing those services and products to them (for a fee).
When an airline offers me priority boarding and a complimentary beverage in exchange for $10, you’ll see me paying $10 with a smile on my face – I value early boarding and safely storing my carry-on. If your organisation doesn’t have the ability to successfully deliver those added products and services, partnering with someone who can is something I would recommend that – if you don’t do it, your competitor will.
Travel Distribution Summit North America 2010
Doug Hesley, corporate director of revenue management, Norwegian Cruise Lines, is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October). The two-day event will feature over 60 speakers, including the ones from Hilton, Wyndham, Travelport, Lufthansa, Expedia, Google and from many other such organisations of repute.
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