By: Randy Smith, Allied NBTA Member
Vice President of Sales and Distribution
Midwest Airlines
“Mass customization,” may sound like an oxymoron, but it is one of the most sweeping and powerful trends in the marketplace. At its essence, it means providing each customer with flexibility and options such that he or she becomes an active participant in designing or modifying the product they purchase. It is quite different than personalization, in which a company knows a great deal about each customer and uses that data to offer them the product or service they are most likely to purchase.
When done right, mass customization drives true customer integration and a great opportunity to improve your bottom line. If you offer your customers the ability to assist in creating value as they define it, you will not only earn a premium, but those customers will also develop a stronger bond with your organization.
If you are a supplier and not yet active in this game, you may soon find that the body of customers who haven’t yet made a purchase from you are not neutral, waiting to be persuaded by your next sale or scintillating advertising, but are more likely to be increasingly loyal to your competitors.
What is most compelling about this shift toward mass customization is that we find it in diverse parts of the retail marketplace. By leveraging e-commerce and online capabilities, many companies allow customers to literally create their own products through a menu of options – from a Domino’s pizza to a personalized Bank of America credit card to Nike shoes or Oakley sunglasses.
Dell Computers is often credited for pioneering the concept through its “build-to-order” model, which enabled its rise to dominance in the PC direct-purchase industry. And today, for a slight price differential, the Hertz Corporation will allow renters to reserve the specific model of vehicle they prefer, rather than one from a generic category size. Internet powerhouses Google and Yahoo! offer customizable homepages, reflecting the content each user desires. Build-A-Bear has allowed even very young children to leave their stores with a stuffed animal unlike anyone else’s.
Now, mass customization is coming to the travel industry with increasing momentum and unlimited potential. It will provide an expanded opportunity to improve the experience for corporate travelers, the financial performance of suppliers and the value for corporate travel requirements.
Hotel companies have long understood that the best way to build loyalty is through customization, and as an industry they are constantly finding new and innovative ways to do just that. For example, Hyatt Hotels & Resorts offers guests’ friends and family the opportunity to record a customized wake-up call for them. And in 2007, Homewood Suites by Hilton® introduced ”Suite Selection,” the industry’s first interactive tool designed to give guests full control from viewing floor plans and specific room photos to booking specific suites.
So where does the airline industry fit in?
While new innovations for increasing customer choice are percolating in the airline industry, the question is: How can the industry keep pace with our customers’ changing needs? What features will most appeal to business travelers? And which service providers will lead the way?
As a whole, the airline industry is offering more alternatives in on-board entertainment and dining. But what about the notion of choice as it relates to the core product? Where is the innovation, the excitement?
The irony is that while technological advances have propelled almost all market segments forward, our nearly 100-year old industry is hampered from keeping up, precisely because of a technological barrier.
Sabre, Worldspan, Galileo and Amadeus, which still drive most bookings, are very good at creating and holding reservations and are responsible for coordinating more than 1 billion domestic air bookings per year. This in itself is no small feat, but they have not yet accommodated the complexity of customization so many business travelers want today. While airline web sites are making significant strides with innovations such as branded fares, the airline reservation and global distribution systems are still corralling customers into basic profiles: first, business or coach class. You may access them via the internet, an OTA or an attractive front-end interface, but underneath lurks 40-year-old architecture that is relatively unyielding when asked to adapt. It turns out that you can’t always teach an old dog new tricks, at least not easily.
The problem is not the people, it’s the computers. The airline reservations and global distribution system owners and managers do not lack for brainpower or initiative. They are quite aware of this significant short-coming and are just as anxious as suppliers, travel agents and corporate customers to provide state of the art solutions. In fact, Midwest Airlines has partnered with Sabre in an extensive effort to develop new marketing opportunities. In addition we are also part of a joint effort among many domestic airlines working with the Airline Tariff Publishing Company (ATPCO) to develop standards and processes that will enable the retailing of a variety of ancillary services. We expect that these efforts will completely revamp and expand travel booking options for travelers, corporate travel managers and travel agents alike.
There is clear evidence from multiple sources that travelers, especially those who spend the most time on airplanes, attach value to attributes such as seat comfort and are willing to pay for options to improve their on-board experience. The price they are willing to pay may be related to the price of their ticket, the distance they are flying or how full the plane is. Air Canada reports that as many as thirty percent of the people buying the lowest fare have paid just to have an advance seat assignment. Certainly that would indicate that there is a market for charging for additional width or pitch.
Director of airline distribution strategy for Amadeus in North America, Robert Buckman, said in an October 2007 interview, “Ordering à la carte is how the public likes to fly . . . That travelers want choices beyond just price and schedule is something the airlines have known for some time.”
Certainly our own experience, as well as research we have conducted at Midwest Airlines, has supported this trend. Customers, particularly frequent business travelers, have told us they want more choice and that they are willing to pay for it. They want to “control their experience” and they are looking for value and a differentiated product, which is more important than simply the lowest price.
But historically, the customer’s only choice was to move to a different cabin (e.g. business or first). Now carriers, including United, Northwest and Midwest, are offering variations of seating choice within the coach cabin. And the early data at Midwest from our recent addition of seat choice on long haul flights is more than encouraging.
Henry H. Harteveldt, a travel analyst with Forrester Research, noted during a New York Times interview “that airlines are finally realizing that not everybody sitting in the economy cabin wants or needs to have the same experience.”
So what does this mean for corporate travel managers? An increased awareness in the value of mass customization will lead to changes in the travel booking “thought process” moving forward. Though important, it’s not simply about just price and schedule anymore. The corporate traveler is astute and attuned to other factors that impact their experience – everything from on-time performance, dining options and the type of seat they sit in, to elapsed time and a la carte pricing for confirmed stand-by, or checking an additional bag. But more importantly, these choices also enable corporate travel managers to have options that they may control to improve traveler’s productivity and get the most from each precious travel dollar. There is no doubt that they are learning to adapt to this changing landscape.
As we’ve seen with everything from buying music to renting a car, the added element of choice can profoundly impact customer satisfaction. And involving the consumer in designing their travel experience will be both more common and more compelling in the next few years. Other industries have successfully adapted to the needs of the business traveler by emphasizing the value of customizable qualities in their products and services, while airlines have been at a disadvantage in following suit.
Airline reservation systems and other industry platforms must assist by providing technology tools that present a range of options that have heretofore been the exclusive province of the carrier’s direct distribution channels. And as enabling technology emerges, airlines must challenge themselves, create value-laden advantages and learn to market them effectively. Adapting and improving the business travel experience is imperative, particularly in the airline industry, where increased levels of customer dissatisfaction have dominated the headlines. Carriers must not be content with fiddling around the edges of the status quo. They must reinvent, retool and redesign their product or retire from the battlefield.
The airline industry has weathered its share of challenges in the past and continues to face turbulence in the air, but the best is yet to be with benefits for all. It’s a new playing field in the travel industry, but change is good, which challenges us all to reach new heights.
Return to Connecting News April 2008