Driving revenue

Vera (not her real name) is the marketing manager for the overseas station of a major international airline. While the plane loads are good - there is only one other airline flying the same sector - revenue did not reflect the volume. It was much less per passenger than other sectors, or indeed, than some other airlines. There was a need to get more out of each passenger who seem willing to pay more, but are somehow not charged more! She started with the question, "Should we charge credit card transaction fees?" because it is eating into her margins. But as it turns out, the decision is much more sophisticated than that!

 

Straight out of the starting block, she was already confronted with the strategic intent of her decision (Step 1). What was she trying to achieve? Initially, it was to increase margins. Next, it was to increase revenue. But when she applied the strategic thinking process, she realised that it was really about getting more revenue per passenger. The specificity of this definition is crucial. By focusing on the right thing, Vera can get at the right decision!

 

When she looked at her constraints and assumptions (Step 4), she uncovered some roadblocks to her decision. She shared that the ticket booking system was somewhat archaic and the pricing model was static. That means that she could not charge more when demand was high, and less when demand was low. This had been the way the station office worked for the past decade, and she assumed that this was the way all sectors operated.  You can imagine her surprise when she heard that another marketing manager in her group, who was stationed in another country, employed a dynamic pricing model! And all from the same system! Apparently, she had been shaped by her assumptions about how things were done, and were supposed to be, that she was not aware of the shifts in the system. This was a great revelation to her!

 

​Yet she was not done with her decision. When she identified the system drivers (Step 5) that determined the price of tickets that passengers were willing to spend, she uncovered elements which she didn't see before. Apparently, some events, some experiences, some services, can only be obtained through her airline and it was found that the demand for these are rather inelastic - meaning people will purchase them even if there was a of the price increase. 

 

These were the "Aha!" moments for her. She realised that she did not need to charge credit card fees (and attract the ire of customers) because she can more than make up for them in various ways. Those ways can contribute a much higher margin for her and help her meet her KPIs.

 

Lessons Learnt

 

​1. We see the impact of Thinking in Time here. By not realising that her operational procedures had changed, she didn't know she could move onto the dynamic pricing model which other sectors have been using for many years!  It really pays to look at all our processes from time to time to ensure that we are still best in class.

 

2. Assumptions has reared its ugly head again. She assumed that she could not have a dynamic pricing model and she did not go out of her way to question if it was possible. By working on limiting assumptions like these, we shackle ourselves to a suboptimal solution, when all the while, a more optimal one is available.

 

​3. Getting a laser-sharp focus on what she wanted to achieve with this situation is key. If she stayed only on the plane of credit card charges, she would simply do a cost-benefit analysis, and decide either "yes" or "no". Yet that was not the main intent of her decision and if she did not articulate it as well as Vera did, she would not have arrived at that superior solution.

 

 

 

 

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