Often for marketing purposes, travel merchandisers distinguish between “lookers”, customers who look at their product online, and “bookers”, those who actually end up purchasing the product. Such conversion rates might be between 1 and 5 percent, for example. One marketing goal is to decrease the ratio of lookers-to-bookers, driving more sales.
Perhaps this is too much of a simplification of the process. The travel purchase process has multiple steps; pricing – and all other aspects of merchandising - need to be targeted to each specific step in the process to increase conversion rates at each.
For airlines, steps associated with the “booking” could include:
- Review of a display on a third-party distributor that includes a specific airline flight
- Review of the airline’s own website for additional information or options
- Including a flight in a shopping cart either on the OTA or on the airline site
- Confirmation within 24 hours of the booking (bookings can be cancelled within 24 hours)
- Purchase of ancillary services along with, or after, the booking
Airlines need to disaggregate the process and monitor performance at each step, not just the “booking.” The basic steps in most online purchase decisions can be broken out broadly as follows:
Awareness is the first stage. Certainly, distribution and marketing play a much larger role than pricing in this stage, making sure customers know about the product and how it may be different from competitive alternatives. Mobile and social media can also help drive awareness. Pricing, of course, plays a leading role in promotions that are built around fares. In promotions, effectively, the product is the fare. In designing promotions, pricing needs to work closely with marketing to establish fares that are compelling, and restrictions that limit any possible dilution.
More generally, however, pricing should be considered in all awareness initiatives:
- Price-Oriented Branding: Southwest Airlines has chosen much more limited distribution (less exposure via third-party sites) so it must rely heavily on its own awareness projects. It spends more on traditional advertising than its competitors and it typically advertises price as a brand - no bag fees, no change fees, and more transparency. Spirit Airlines, even though it does participate more fully in third-party distribution, similarly promotes a price-oriented brand of “Bare Fares”.
- Non-Price Branding: When pricing isn’t a key component of branding, the airline seeks to achieve a broader notion of customer awareness. The airline specifically wishes to be known for its product features or a better, more reliable schedule. In fact, it is consciously trying to avoid price in the awareness stage.
Pricing becomes a much more critical factor during the consideration stage. Think of the many competitive options travelers see on a typical flight search, how the customer whittles down the choices. What flight options are seriously considered at this stage? Here, often low prices can help ensure your product is part of the consideration set. Allegiant talks of publishing prices excluding their convenience fee, and this is done specifically to insure their flights remain part of the consideration set. Spirit Airlines, likewise, has a fee that 99% of its passengers pay but which is not included in the published “base” fare. Also, most of their passengers are subject to various ancillary fees that could double what they ultimately pay. And American, Delta, and United are each offering, or planning to offer, new and highly restricted, “Basic Economy” fares as a way to keep them in the consideration set against low fare competition.
Intent is obviously a huge step – moving from the consideration set based on schedules and base pricing (fewer than ten choices?) to the designated optimal one. Intent may mean the customer chooses the product and places it in his/her shopping cart on a third-party site. Or it could mean the customer has moved to the airline’s website to book the chosen trip.
During this stage, the customer weighs his individual schedule flexibility, alternative pricing, and his/her sense of any product differences. This may be straightforward – he/she could select the best schedule option or the lowest fare, or it could involve considerable additional research by checking multiple websites, investigating a particular airline’s product features, or ancillary pricing differences across airlines. In fact, the intent phase implies a level of personalization – meeting an individual traveler’s needs, balancing schedule, product, and price.
Choice is critical in the intent stage. Airlines are offering more and more choice as they adopt various ancillary pricing strategies. Branded fares – with prices varying along with various bundles of amenities – are a creative step toward better meeting the needs of individual travelers.
Although choice is critical in the intent stage, too much choice can actually inhibit decision. With too many ancillary options, it may take multiple “clicks” to make a simple booking (Do you want insurance? Are you checking a bag? Do you want to reserve a seat?). Steve Jobs at Apple famously designed iTunes around a “three-click policy” (three clicks to play the desired music) but booking on most travel sites is far more complicated. Abandonment rates (the gap between intent and decision) will increase when, once the intent is clear, and the actual booking is too hard.
Once the initial booking is made, the funnel is not yet complete. Ancillary service offerings become part of the engagement stage and can contribute significantly to total passenger revenue – as well as help better meet individual passenger needs. Of course, true engagement depends upon value-added options, not nickel-and-diming fees.
Pricing needs to understand its role at various stages in the travel purchase funnel and position itself appropriately. Different pricing features move a product from awareness to consideration, to intent to decision, and ultimately, to engagement.