Good profits vs. bad profits
Saturday, 01 Mar, 2010
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TravelMole guest comment by Janet Titterton, business planning director of incremental revenue specialists Collinson Latitude
The concept of ‘bad profit’ may seem like a contradiction in terms, however, as travel businesses continue to explore incremental revenue opportunities, brands could be at risk of damaging their positioning in the name of short-term profit.
2009 was a particularly hard year for the travel industry. Businesses slashed travel budgets and the public were more concerned with saving money by downsizing their annual holiday.
However, faced with an increasingly cost-conscious market, there was one aspect of commerce that showed considerable promise for the travel sector – incremental revenue.
The potential value of incremental revenue products – that is, income generated from products over and above a brands’ core offering is self evident.
Ryanair generated an additional €598 million from bolt on products in 2009 alone, almost 20% of its overall revenue. And the importance of and potential for incremental revenue products in the travel sector continues to gather pace.
Travel brands have clearly been able to generate incremental revenue from the sale of transfers, accommodation, check in and lounge access before flights, along with car hire and travel insurance for afterwards. It’s an encouraging tale of businesses remodelling to suit the climate.
However, there are threats as well as opportunities here. Brands such as Ryanair have seen a fair amount of negative media coverage, yet a huge number of people choose to travel with them, leading to its remarkable business performance.
The point here is that your incremental revenue strategy must be wholly integrated with your brand and what it stands for.
Ryanair has a brand that is built (more or less entirely) upon being the cheapest, even though its recent focus on punctuality is an interesting development.
This means its approach to incremental revenue that’s focused on ‘unbundling’ rather than adding value actually fits with the brand.
Were another brand (say British Airways) to use the same model, it may actually generate more profit in the short term but would damage its brand position in the long term, hence the potential of ‘bad profit’, if your brand and incremental revenue strategy are not aligned.
So how can travel brands ensure they develop good incremental revenue streams?
Firstly, focus on the customer not just the short term profit. Incremental revenue strategies drive good, sustainable long term profit only when you are offering additional products and services that the customer actually wants and that is relevant to your positioning.
In fact, you should use all the insight available from your customer data to produce an innovative and personalised offering that will not only meet, but surpass the expectations of your customer base.
Whilst some brands have a positioning that allows them to unbundle and charge additionally for things that people expect to be included, for most brands the opportunity is to actually expand their service offering into new, non-competing complimentary products.
This increases the level of touchpoints a brand has along the customer journey, it enhances the engagement a customer has with your brand and it adds value to their experience. All of which will lead to a commitment from customers to a brand.
All revenue can be considered beneficial, but sustainability is the key – although the temptation is always there, rather than travel brands pushing for short term gains that could threaten their positioning in the market, they should be looking for long term sustainable, recurring revenue that engenders loyalty, engages customers and can transform your business’ commercial performance.
Phil Davies
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