From the editor

According to research conducted by Skift, ancillary revenue has been anticipated to grow by 15% between 2017 and 2021, throughout the tourism industry. However, despite this projected success, it has been noted that the airline industry is at a crossroads.

The general approach by many airlines has been to “unbundle” products and services, as well as add new product concepts in an attempt to increase ancillary revenue. However, this approach, without the ability to refine product mix based on relevance and preference has often shown to negatively impact customer satisfaction and flight conversion.

The ability to track impact of product mix on flight conversion, compare the combined revenue of different mixes, as well as adapt the mix offered to different customer segments through automated means will be key to optimising ancillary revenue without the costs of maintaining large teams dedicated to managing this aspect.

Benefits of IOT Technology

When everything is connected to the internet, it has proven to streamline process and functionality dramatically. Within the travel industry, IOT (Internet of things) has supported personalised traveller experiences and has improved operational efficiency.

Baggage sensors for instance, easily detects luggage location which has been shown to decrease luggage loss in instances where your baggage is loaded onto the wrong plane or when the attendant captures the incorrect destination code etc. IOT mobile applications used in car rental companies are able to track different aspects of the car, such as the cars location, fuel and air pressure in tires supporting owners with the management of the customer relationship, as well as the car’s maintenance.

Perceived price fairness
of ancillary products

Executive summary:

As a society living through the height of consumerism, and when observing ‘fairness of price’ as a whole amongst consumers, it is understood that price increases generally have the potential to evoke negative psychological and/or behavioural reactions. For travellers there is nothing worse than getting to the checkout expecting to pay a specific amount, but realising you are having to spend way more than you had bargained for without choosing a value added product yourself. On the flip side, there is nothing greater than getting discounted on a massive purchase, or added value and quality for paying more. That is a BONUS.

There is a consensus in research, suggesting that from the consumer’s perspective, price is perceived as what is given up or sacrificed to gain the benefits of a product or service. Therefore, for the average consumer, it can be assumed that in order to increase the likelihood of an ancillary purchase, the product has to serve a greater purpose or use than what is being forfeited on cost.

Understanding travellers’ evolving expectations can help companies provide the correct product at the right time. The ‘perceived price quality and value framework’ first proposed by Ziethaml can assist with progressive decision-making around price points in order to satisfy their customers’ expectations within the consumer decision process. Perceived price fairness encompasses all three aspects of this model.

  1. Perceived quality refers to both intrinsic (eg.physical characteristics) and extrinsic attributes (brand name, price and packaging) of a product.
  2. Perceived value refers to the consumer’s overall assessment of the utility of a product based on what is received and what is given.

Studies show, the more fair passengers felt airfares were, the more likely they would be loyal to the airlines. It has also been suggested that when individuals evaluated the price to be much higher than expected, they perceived the price to be unfair. However, if people concluded that price changes were caused by situational factors, they were more likely to judge the price increase fair than unfair. In other words, fairness or unfairness judgments rely on buyers’ subjective perceptions based on cognitive reasoning.

Companies therefore need to learn how to tap into the traveller’s desire to save money and adhere to their budget as well as for opportunities to increase ancillary sales and increase customer loyalty. A study conducted around airlines discovered that people who felt that prices were fair were more likely to spread positive word of mouth and recommend the airline to their social networks, and they were willing to continue to use the airline even if their prices increased.

John Luth, chairman and CEO of Seabury Consulting and Corporate Advisory, pointed out that many of today’s most successful airline ancillary merchandising strategies depend on the concept of hyper-relevance, a practice where brands try to meet consumers on their own terms, using insights to deliver buying experiences that dynamically adapt to their changing needs.

Companies that prioritise consumer insights are likely to increase sales, not only on tickets and bookings, but ancillary sales too. This leads to an increase in profits without an increase in price, which benefits both the consumer and the company. In doing so, they need to look at the buying decision behaviour of their consumers and consider price fairness factors that come into play when consumers assess given products in the evaluation of alternatives amongst competing suppliers. Ancillaries essentially enhance the use of the main product purchased and provide an opportunity like no other for the generation of additional revenue.