“Code Itineraries”: A roadmap for the travel industry to unlock one trillion dollars in value by 2025By Anand Medepalli - Chief Product Officer, Technology at RateGain
“Code Itineraries”: A roadmap for the travel industry to unlock one trillion dollars in value by 2025
“Code Itineraries”: A roadmap for the travel industry to unlock one trillion dollars in value by 2025
Back in 401BC, the classic Greek philosopher Plato famously said that "everything changes and nothing stands still." Travel company executives will be forgiven for thinking that he was talking about their businesses today. It is no exaggeration to say that the digital innovations of the recent past have caused more disruption for the Travel industry than anything else has. While the likes of Expedia and AirBnB certainly have leveraged digital technologies to disrupt this industry, none has done so more than the Connected Traveler with nothing but a smart phone in his hand.
Today's travelers have easy and complete access to all the information they need: TripAdvisor tells them best places to go to, their friends post photographs and reviews on Facebook, and an OTA tells them the best combination of flights, hotels and rental cars they should consider. All brought together into one seamless experience on their smart phone. Travel companies by contrast, have far less information than this when understanding their customers and deciding on their go to market strategy.
Every cloud though, has a silver lining. The same digital disruption that has given the traveler leverage, is also giving something significant back to the Travel businesses: Data. Every search, review, booking, complaint, swipe, "like," buy, comment produces a unique virtual identity – something we will refer to as a "code itinerary™," which can be harnessed to understand a traveler's persona and intent. This is powerful information in the hands of Travel companies who know they can only win by rewriting the rules of engagement with digitally savvy travelers. Not surprisingly, digital transformation has become a top priority in this industry, and according to World Economic Forum 2017, done right, has the potential to unlock $1 trillion of value for the industry by 2025. To get there, Travel companies need to focus on the following strategies.
Get a digital data foundation. Digitization starts with data and the Travel companies have an advantage here. For decades they have managed reservation systems that store bookings data, which together with their customer and market data, typically stored in CRM systems, have been the basis for commercial decisions for decades now. Travel companies have to augment this "internal" data with "external" data such as social, news, events, weather, competitive rates, etc. and store all these data into a data lake. With cheap data storage and ability to provision processing power on demand, the Cloud is the perfect place to store this vast amounts of data. Programs to extract, cleanse, transform and load the data into the lake and create an analytics-ready form run 24x7 enabled by streaming architectures. Machine learning frameworks on top of these data lakes continually analyze the data and provide key insights such as forecasts, price changes, promotion opportunities, customer alerts coming from social media etc. at all times. This data lake together with machine learning analytics represents the digital data foundation for an organization, and is the key first step towards a digital transformation.
Offer traveler personalization. As discussed above, the travelers today know what they want and are willing to let you know about them through their digital presence. Consequently, the data lake must have the legally allowed and anonymized the traveler code itineraries and organizations must mine that data for insights for personalization.
Personalization does not however mean that a travel company is able to generate an insight about every single traveler. This is because travel is not like grocery shopping where you are buying the same or similar thing every week. A lot of travelers take an occasional trip. Families take annual vacations. Business travelers by contrast are a lot more predictable but even there they are not traveling to the same place and at the same time all the time. However, travelers fill up planes and hotels, so it is possible to do deep analysis on bookings, search, social and other forms of data to determine traveler personas. Example personas are a business traveler that leaves Monday morning and returns Friday afternoon. Or a mother with five kids that travels during holidays to a resort south of Spain. We might be talking about the same physical person here, however their needs and persona changes when traveling for business vs leisure, and the data holds much information about these travels. How far ahead does one book business travel vs leisure travel? Does a business traveler care for breakfast being included in the hotel rate more than the family that is traveling on holiday? Is this a millennial who cares more about the services onboard a plane such as Wi-Fi or the entertainment, than say the parent of a 5-year-old on the same plane? These insights can be gleaned by curating both internal and external data and leveraging machine learning algorithms.
Personalization therefore refers to an organization's ability to create traveler personas by mining all code itineraries to understand who travels and why, what is the path to discovery and purchase, what their needs are and having an offer ready when needed. Someone browsing on your website may need that extra promotional offer to convert them. If you know there is a family of five who are likely to be delayed at the airport due to the late arrival of a flight, how about sending them an electronic voucher for a meal in the airport restaurant or even an offer to relax in your lounge while waiting?
Today's travelers are very clear about what they need and if a travel company cannot personalize travel for them, they will do it for themselves, or worse yet, go to someone who will. Digital organizations will get ahead in this challenge and will ensure customer delight and loyalty.
Plan, sense & respond. While digitization is on the march, let us not forget that Travel companies are asset intensive, operate on thin margins and offer a physical product, whether it is the seat on a plane, or a room in a hotel or the luxury car from a car rental agency. Looked at this from this very narrow angle, one can argue that these companies compete in a commodity market. Which means, when it comes to execution, it is all about having a keen sense of the market and pricing your product judiciously, and then tracking your performance continuously, and making corrections as necessary to win the market.
The digital data foundation will help an organization to ensure its product offering is in line with traveler expectation, thanks to the application that builds traveler personas. A demand forecasting application, enabled by machine learning algorithms, is able to process both internal and external data, and create demand for your products. Price optimization application then looks at your traveler personas, understand each of their likely response to prices, and balance expected demand with available capacity, competitor prices and recommend a price plan that maximizes your revenue or profits or both. With cloud computing and with all the data in hand, it is possible for an organization to make several iterations quickly and choose the best Plan to go to market with.
These days however, the cliché is that Plans change as soon as you launch them. In order to ensure your plans continue to be relevant, organizations need a mechanism by which they can Sense market dynamics. The digital data foundation is continuously listening through APIs for new information to arrive: competitor rate data, sentiment data, events that might be affecting demand at a certain destination, weather data that might suggest flights could be cancelled at an airport, etc. and as soon as the data comes in, subject to business rules at play, machine learning algorithms determine if an alert is warranted.
If an alert is indeed warranted, the organization must Respond. The response could be codified in the application through business rules, or the system could take an action on its own, or the alert can be routed to an analyst who takes the appropriate action quickly, and in the process teaches the system how to respond the next time. Recommender systems have been popularized by the likes of Amazon and Netflix, which rely on user input and past actions to reinforce their own learning and over time become smarter and smarter in their responses. This ability to respond quickly to a situation is critical, when you consider the hundreds of thousands of interactions travelers have with travel companies, and when a quick decision is what closes the traveler as opposed to losing their business.
This virtuous cycle of Plan – Sense – Respond, done continuously, is a key enabler of the digital transformation of a travel company. Erstwhile Revenue Management applications are rudimentary solutions for this requirement, and a paradigm shift towards Digital Revenue Management is critical for Travel companies to exploit every opportunity to win against competition.
Digitize or bust
Digitization as a technological innovation for Travel companies however, is just an enabler. True digitization that unlocks the "Trillion dollars in value" requires much more. It needs for a Travel company to bring about organizational changes to meet the needs of the digital world. As a first step it is important to raise the digital IQ in Travel companies. It means breaking down silos so that Marketing and Revenue Management are working hand in hand to meet the needs of the traveler. It means both Marketing and Operations working together to address the negative tweet from your guest. In other words, a complete alignment with the traveler who sees a Travel company as single brand, embracing an innovative mindset and creating a culture that is able to stay ahead of the digital traveler.
This is easier said than done. Culture and mindset changes are hard. While no employee will argue about aligning with a digital strategy, a legitimate question to address would be about legacy applications and processes that cannot be abandoned overnight. Travel companies will have to create roadmaps appropriate to their business. Perhaps start with getting all your data together in one place and then adopt the next-generation analytics. Or upgrade your revenue management solution with a dynamic one without affecting the upstream and downstream processes. Identify quick wins that will engender faith in employees. But most importantly, get employee buy in, provide training where necessary and hire the right talent to thrive in this exciting digital future.
Travel companies need a sense of urgency as they contemplate their digital journey and they will do well to pay heed to what Clayton M. Christensen says in his book The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. In it he argues that disruptive innovation usually starts at first in a small niche of an industry which established firms would typically ignore. But this disruption gradually matures, solutions that work in the niche area improve enough to start working with the mainstream, and suddenly established firms are disrupted or displaced. Airbnb is a case in point. Started as a home rental portal, they now are disrupting Expedia and Booking Holidays by offering themselves as a distribution channel for independent and boutique hotels on their site with a compelling commercial offer. How much longer do you think before the major hotels also start distributing their inventory on Airbnb?
For Travel companies the disruption is not just from new entrants or nimble competition, but also from the connected traveler who might take his business elsewhere. The hour is upon Travel organizations to start on this digital journey now – before the disruption wave becomes a tsunami. Early movers, with a clear understanding of Code Itineraries, stand to win a piece of the Trillion dollar prize!
Anand serves as EVP and Chief Product Officer at RateGain. Dr. Medepalli has almost 25 years of experience as a trusted advisor with leading companies in pricing and product strategies, commercial account strategies and asset planning decisions in such diverse industries as airlines, freight, hospitality, rail, retail, banking, insurance and manufacturing. With a solid background in pricing and revenue management, big data and data science, Dr. Medepalli has spent much of his career advising companies and defining innovative solutions to drive their growth. At RateGain, Dr. Medepalli is responsible for setting product & technology strategy for the Travel industry and disrupt the marketplace with leading solutions leveraging big data, machine learning and artificial intelligence. He is part of the executive leadership team. Dr. Medepalli holds a Ph.D. in Mathematics from Iowa State University and is a machine-learning enthusiast. He currently resides in London with his wife and three children. And in his spare time, he likes reading, running and traveling.