Airline Merchandising, The WIIFM (What's In It For Me?) Series: Part 2 - Just The Facts Please!

Last week, I introduced a blog series on merchandising. The first installment focused on the fact that there is a wide range of opinions and emotions across the travel industry regarding this new phenomenon called merchandising. I also pointed out that there is a fair amount of misinformation and misunderstanding on the topic, and this often inhibits effective discussion and debate. So, in the hopes of leading to more fruitful and informed discussions for all of us, this second installment is a short primer on merchandising lingo. The intent here is to give us all a baseline understanding about this powerful movement that is unfolding in our industry.
Generally, merchandising means using certain methods, practices, and operations to promote and sustain certain categories of commercial activity. Or, in plain English, it's the attempt to get you to buy something.

But in the case of airline merchandising, what are the airlines trying to sell us? A seat, certainly, but much more. And the much more is defined by the airline industry as ancillary or optional services--two terms that are used interchangeably, but basically mean the same thing. Checking a bag, choosing a specific seat or meal, using in-flight internet, and selecting a priority boarding option are just a few examples of ancillary or optional services.

Unlike purchasing an airline ticket, which takes place at a defined point in the trip process, optional services can be offered to us at variable times during the trip. The airline may decide to offer you specific services or products at the time of your initial reservation, based upon criteria such as your frequent-flyer status, the fullness of the flight, and offers from competing airlines. If you book your tickets days or weeks in advance of your travel date, offers for ancillary services may come your way through your mobile device or on your social networking site, right up until your time of departure, or even in-flight. This opportunity to market and sell things to us virtually at any time in the trip process, including during our flight, introduces entirely new marketing and data analytics requirements for the airlines. Airlines are now challenged to identify each customer touchpoint and how to leverage customer profiles and preferences in order to optimize each individual's travel experience, likely product/service interests, and when they prefer to buy.

By the way, the airlines aren't the only ones having to embrace change. The rest of us will also, undoubtedly, start adapting our own behaviors to this new model. For example, when you find yourself thinking, "I'll decide whether to buy the kids the DVD package once we get to the airport, depending on how overtired they are," you know you've subconsciously started to embrace merchandising. In other words, you are identifying with the notion of having whatever optional service you choose, precisely at the most convenient point in your trip.

Now to be fair, there is a certain amount of complexity that comes with the merchandising model. For example, not all airlines will choose to sell you optional or ancillary services as separate items. In some cases, the airlines will elect to offer certain ancillary services bundled with an airfare. This means that certain ancillary services are part of a base package; for example, an airfare of $275 for a round-trip ticket would also include one free checked bag and an advance seat assignment. The bundled fare generally cannot be split into its separate components. This concept of bundled fares is of particular interest to corporations and some corporate travel managers, as it enables more control and predictability over the trip price--not to mention a new type of private fare negotiation. But the bundled fare is far from the "new normal." As merchandising evolves, we can expect to see a mix of bundled fares as well as unbundled fares where optional services are sold à la carte, as separate items in addition to the base airfare. Moving forward, travel agencies and corporations will need to support both bundled and unbundled models in terms of their planning, reconciliation and reporting.

Going a bit deeper into the merchandising nomenclature, it's worth pointing out that ancillary services can be either associated or stand-alone. An associated optional service--such as a checked bag or a meal--is tied to a specific flight and is used up when you take the flight. A stand-alone optional service--such as a day pass to an airline lounge or a booklet of drink coupons--is independent of any specific flight and can be used at any time.

Lastly, as if all this isn't enough to digest, if you are a travel agent, you will need to generate an electronic miscellaneous document (EMD) to manage, charge, audit, and report on the sale of ancillary services through ARC/BSP. The easiest way to understand the EMD is to think of it as an IATA standard ticket or coupon for the purchased service. Associated EMD coupons are used when you take the specific flight defined with the specific ancillary service. Obviously, having the ability to refund and/or exchange ancillary services increases the complexity of selling ancillary services, but this process is made significantly more manageable with the utilization of a standardized EMD.

So now that you are an expert on airline merchandising, should you embrace it or resist it? Comments welcome on this question! And, we'll come back to that question with the next installment, Airline Merchandising: Opportunity, Challenges, Threats, And Myths.

Thanks for reading.