First Published on 10th July, 2018
Ai Editorial: Why selling via a digital retail platform is an attractive proposition? Airlines can learn from Amazon about how to leverage economies of scale and scope i. e. to expand the basket of retail offerings plus letting other sellers use the same digital retail platform, writes Ai’s Ritesh Gupta
The connotation of selling has evolved considerably.
Why would one airline agree upon selling another airline’s flight when for years the two entities have considered each other to be a competitor? If a traveller is fond of reading a book, can an airline include this is an offer for an itinerary which features a seven-hour halt starting from mid-night?
Selling today is about understanding one’s context, being aware of one’s preferences, and in case of leisure travel, it definitely has to offer a memorable experience. How can airlines get closer to selling this way?
To make it work, there are several areas that need to click. The industry on the whole has to evolve – not only airlines, but also the offerings of travel technology companies and even the industry processes – so that an airline operates as agile, data-driven and digital organization.
Following an ecosystem model
Outside of the travel industry, there are dynamics in the arena of today’s digital platform economy that demand attention from selling perspective. Selling as a single-sided market player is what airlines need to do away with. Rather there is a need to comprehend how digital economy works and this brings to the fore the significance of gearing up for a platform economy model.
“The traditional businesses (like airlines) are today disrupted by new players which are acting as digital platforms – two -sided marketplace. The nature of the business is so significantly different, that traditional players cannot compete directly in their current setup as single-sided market players,” said Marko Javornik, VP/ GM Mobility and Travel, Comtrade Digital Services. He added that these new players have taken a significant value away from the traditional players in all traditional industries.
The reason for this is that the digital platforms are commoditizing as well as bypassing the traditional players.
“Some airlines have finally understood that they can take the same tool and get their own share of the digital platform economy. Some will decide to go bold like Ryanair decided to go – trying to create a top level B2C platform and create an ecosystem of retailers around it. Some will go different route. There are different ways how airlines can create or join an open travel ecosystem. However, if airlines do not have a digital platform strategy on their own (even if it is a B2B only), then other players are taking away the advantages and slowly reducing the value that comes to the airline,” said Javornik.
“The essential idea is that airline uses it’s unique physical touchpoints, existing digital touchpoints and its brand to build a digital platform strategy. This will probably not be a direct competition to the winning platforms of today, but rather facilitating secondary marketplaces that will balance out the strong powers of the current winners,” he said.
The example of Ryanair
What airlines can learn from Amazon is how to leverage economies of scale and scope i. e. to expand the basket of retail offerings plus letting other sellers use the same digital retail platform. So why an airline would sell another travel company’s offering? Of course, for revenue generation, but also to bring into action a data-driven learning loop. “This way you know that customers like what you are offering them and you know that in the future, they will like it even more because you learn with each data point. It is a different thinking than it was used in building traditional IT systems,” said Javornik.
The journey of Ryanair, which started few years ago, is an example of how the airline is going strong with their digital platform economy through their “Amazon for Travel” program based on the MyRyanair platform.
“Ryanair was one of the first airlines that understood the power of digital technology to disrupt the existing business model. For airlines, the fundamental component of this is single view of customer, which is basically what MyRyanair is. This is modelled in a way that provides immediate benefit to end users, which is why the users like it and use it,” said Javornik, who added that the platform has over 43 million members and is proving to be an excellent foundation for Ryanair to start focusing on its digital assets.
“The platform provides an improvement to the user experience of the existing core services that Ryanair provides. However, the future potential of this platform is enormous and the value will grow with time,” he said.
“Ryanair understands that digital assets will count a lot in the future, maybe more than physical assets. Having a large number of active users is definitely one key metric. Lifetime value of users is another one. While at the beginning both numbers will look small compared to the winners of digital platform economy that really is misleading. Here we are talking about an additional business that brings new revenues and profits to the core business which is put under pressure. And the core business can uplift the digital platform with a pace that simply does not work for digital only players. You just cannot compare oranges and apples. In fact, you should look for the differences and then take advantage of them,” explained Javornik.
Citing an example, Javornik referred to digital advertising. “The profit garnered may be small in comparison to what Google and Facebook earn at this juncture. However, if an average airline can make additional €5m or €10m out of digital advertising on top of its core business as pure profit, this can be a very big thing for the airline.”
Traditional ways of selling are being challenged and displaced by ecosystem models in which organizations compete and collaborate across multiple fronts.
Hear from senior industry executives about the significance of running a digital platform at the upcoming #MegaAPAC - Mega Event Asia-Pacific (Ancillary, Loyalty and Co-Brand Conferences) to be held in Bangkok, Thailand (28-30 August, 2018).
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