There is increased need for travel merchandisers to “personalize” travel offers for their customers. However, “personalization” is a bit of a misnomer given that airlines have little information on most of their travelers. Thus, personalization must:
- Determine if there is enough consistent personal information to design a truly personal offer (“Segment of One”). For example, a frequent flyer who always checks a bag represents such an opportunity.
- If the personal data is incomplete or inconsistent, use what is known about the traveler to classify them into a larger customer segment. Identify core attributes that are robust enough to apply behavioral information from a larger segment to predict his behavior. Apply basic marketing segmentation to drive increased sales.
- If no information is available, rely on whatever data is available at the time of booking (destination, time of travel, time of booking, age of travelers) to identify logical behavioral traits/ancillary preferences, or provide a generic offer.
Segmentation in the Airline Industry
Airlines have a complex and granular segmentation in place already in the form of fares. Certain customer segments purchase the lowest fares available, and others pay increasingly more – up to the full fare. Fare-based segmentation is behavior-based, not based on demographics or purpose-of-trip or psychographics. All customers can purchase the lowest fare - if they agree to the restrictions - and all have the option of the full fare. Only their behavior separates them.
However, there are other segmentation structures used by airlines for different purposes. Of course, most airlines segment the market between frequent flyers and non-frequent flyers. Also, many airlines use demographics (traveler age, education, home city/country) or psychographics (“adventuresome” or “seeks certainty”). Current segmentation schemes have been useful for frequent flyer promotions, distribution strategies (channel preferences) and optimizing customer interaction, including the use of social media.
But do these segmentation approaches help airlines gain more ancillary revenue? Do they help identify who is most likely to value a checked bag at $25? Or who will pay $15 for an aisle seat?
For ancillary, these segmentation schemes are of limited utility.
Segmenting Customers for Ancillary Sell-Up
Delta Airlines created a segmentation that they argue has been useful for better personalizing ancillary offers. They believe Delta’s Economy Plus product is particularly well-suited for “Affluent Couples” - one of five different segments they identified. Conceptually, Economy Plus for Delta is a branded fare or bundle of ancillary features, targeting a very specific segment. Delta can merchandize this branded fare accordingly – with content, channel, and price focused on this customer segment. In this case, “personalization” is actually categorizing a set of customers into their appropriate segment and offering them a product designed to be attractive to that segment.
Behavior-Based Ancillary Segmentation
Potentially, rather than beginning with pre-determined segmentation – based on demographics or psychographics or channel usage – airlines should be studying actual ancillary behavior to develop new ancillary strategies. Like with fares themselves, ancillary-centered segmentation can revolve around behavior. There are clusters of customers who purchase checked bags and priority boarding, or big seat and an onboard meal. Merchandising can be developed around bundles of features – and as with fares, customers will self-select the bundles that are most valuable to them. Working back from actual ancillary behavior, new segments may appear that are not as focused on distribution channel or social media. For example, “vacationing families with small children” or “businesswoman on long-haul flight”. Ancillary-based segmentation is likely to be quite different from channel, or even fare-based segmentation.
In fact, this is part of the excitement of ancillary. With the rise in ancillary fees, the sheer volume of choice lends itself to highly granular segmentation and new behavioral insights. Since most customers will not offer all of the detailed travel history necessary to truly customize their travel experience, in the end, “personalization” will rely on new, creative approaches to segmentation.