'Merchandizing' Has Become Quite The Buzz Phrase In The Travel Space

Since I retired from my previous role (Sabre Travel Network president) in early 2008, I've watched with interest as "merchandizing" has become quite the buzz phrase in the travel space. In some ways, it seems it's the new slang term for airline "pay for seats" and other things that you might consider as ancillary sales items for a reservation.

This subject has been viewed as a "savior" for airlines in search of new revenues or much needed brand differentiation ... and viewed by some "industry experts" as the Achilles' heel of the global distribution systems that are often painted as not being able to accommodate "merchandizing."  [more]

This struck me as odd because I always thought of the GDSs as being an incredibly valuable, multi-channel merchandizing services provider for travel suppliers.

So, to clear up my confusion, I went to to see the definition of merchandizing and here's what I found: "The planning and promotion of sales by presenting a product to the right market at the proper time, by carrying out organized, skillful advertising, using attractive displays, etc."

So, let's break this down.

While merchandizing can encompass a number of factors, at the heart of it is presenting a product to the right market at the proper time. This sounds a lot like what a GDS helps airlines and other travel suppliers do, doesn't it?

So then I thought to myself, what if you took the services a GDS provides and applied that to another industry--would that make it sound more like merchandizing?

Imagine for a moment a manufacturer wanted to bring a new line of flat screen TVs and digital cameras to the market. They were having difficulty finding investors because they couldn't make the numbers work when they considered the tremendous marketing and distribution costs it would take to get their products on the shelves of retailers around the world.

Then this manufacturer was contacted by a services provider that said it could offer the necessary global distribution and merchandizing services at a price the company could afford. Here's what this company had to offer:

"I'll take your new line of cameras and flat screen TVs and put them on the shelves of over 55,000 retail stores in over 100 countries on 6 continents. You will receive real-time sales information so you'll know which models are selling at which price levels at which stores. You'll be able to take a product off the shelf or add product to the shelf as the market demands. In a period of slow demand, you can even add more low-price product. When traffic is up in stores you can take the low-price product off the shelf to capture higher margins. And you can adjust your entire base pricing structure or just certain components across any and all products multiple times per day." [Think brick and mortar agency and airline yield management--opening and closing inventory buckets.]

"I'll also place your product in front of millions of consumers by electronically linking inventory for your product lines to all major online electronics retailers--and through this channel you'll also have all the flexible inventory and pricing controls described above." [Think online agencies.]

"And, whether it's in the physical storefronts or through the online stores, our service also ensures your products are featured as part of bundled product packages these stores market (e.g. your flat screen TV as part of a total home theatre system, or your camera as part of a complete digital photo and printer package)." [Think vacation and dynamic travel packages.]

"On top of that, we'll place your product directly in front of the largest group of the most frequent, high-value electronics purchasers in the world. For this set of buyers, your products will be put into the physical stores and online sites that are frequently used by these high value customers." [Think corporate travelers and corporate booking tools.]
"And, because we know you have special pricing arrangements in place with many stores and buyers around the world, our system uses intelligence to ensure that only the appropriate stores or buyers see that special pricing." [Think defined viewership for private fares.]

"The price of our entire service is about 2 percent of the sticker price of the products sold. Furthermore, you'll only be charged that fee "when" your product sells." [Think GDS booking fee and value of ticket sold.]

What company, whether a start-up or established player, wouldn't think they'd died and gone to heaven with such a deal?

Now ... back to the wonderful world of travel. What I feel some people mistakenly do is over-simplify the manner in which a GDS makes all this complex distribution and merchandizing happen--in a manner that efficiently pairs buyers and sellers of travel product around the world, 24x7, up to 30k times per second at peak. This value is provided to established airlines, and it also enables a new start-up travel supplier to get its product in front of buyers around the world in an economic fashion. Take Virgin America, for example, a start up carrier that was able to have its product sold through thousands of agencies and corporate traveler desktops and through leading online sites around the world through GDS participation.

And, just so I'm not guilty of over-simplifying, let me be clear. The sale of ancillary items like preferred seats is clearly a growing trend and needs to be addressed, but not by developing a number of one-off solutions. The growth of this trend is obviously dependent upon customer acceptance, including acceptance by managed travel programs for which these items pose new complexities. Broader deployment and adoption is also dependent upon industry standards that will allow a critical mass of suppliers and buyers to efficiently and economically facilitate the sale of these items. [Think e-ticketing and how industry standards propelled global adoption.] The development of standards for ancillary sales is well underway; you need only to look at ATPCo and other industry working groups to see what's emerging.

Now, the last part of the definition of merchandizing is about "attractive displays." I hear some airlines talking about the desire to have their branded fares or other flight attributes displayed in a richer, graphical format at the agency desktop in a way that allows them to differentiate their product. I hear some people saying GDS systems must evolve to further address this need. What I don't hear anyone asking is: "Are airlines willing to pay to differentiate their product at the point of sale display--whether through preferred placement or special graphical displays?"

I know when I was running a GDS company, we regularly looked at evolving models. We looked at models like the paid placement models you see with Google or Yahoo. And we looked at models that would allow carriers to differentiate their product in the display.

We certainly found that many hoteliers were willing to pay for preferred placement, up-sell opportunities, graphical point of sale promotions, etc., and all GDS companies handle that routinely today. However, we didn't find that airlines were willing to pay for these services. It was just the opposite: airlines typically demanded the GDS be a neutral provider of travel information.

Clearly, airlines are in need of additional revenues and some are faced with brand issues. Could all this airline merchandizing talk be a sign that there's new thinking and that they're actually willing to embrace new promotional models through the GDS?

I don't know the answer, but it's a question I'd like to see asked.

~ John S. Stow, president, John S. Stow Consulting, LLC