Despite their historical connections, partnership opportunities between travel and retail have largely been limited to loyalty rewards and affinity credit cards.
Digital changes all that. It brings the two sectors even closer, with potential benefits that prove the whole is greater than the sum of its parts. More specifically, cross-sector innovations are improving hyper-personalization, lifetime brand loyalty and immersive customer experiences for both industries.
Working Examples That Boost Ancillary Revenues by 10%
You’ve heard it before, but it remains true: The key competitive battleground is customer experience (CX) — specifically, the ability to influence and improve it.
In the travel industry, that kind of relentless customer focus is starting to take root. Given their proximity to consumer touchpoints, travel businesses are starting to see themselves as more than purveyors of airline seats or hotel rooms; they’re pursuing new avenues to transform into multidimensional retailers, selling products beyond their core business.
For some, it’s a small step. Lufthansa partners with Nespresso to sell premium coffee at its terminal gates. For others, improving CX is a much more expensive undertaking on the road to ancillary revenues. The Emirates Group is a leading example. The UAE-based company has diversified to provide an array of retail offerings that range from operating franchises such as Costa Coffee in the UAE to a fine wine and spirits store at Dubai International Airport.
Are such ambitious cross-sector ventures just the beginning? We think so. As are partnerships that aren’t directly interwoven but run on parallel tracks, such as Marks and Spencer catering British Airways’ onboard food.
We see an abundance of new technologies reenergizing travel’s focus on retail. Mobile, cloud computing, and artificial intelligence (AI) bring products to market in more meaningful ways. How? Mobile-centric strategies let companies push distribution to on-the-go travelers. Tech wearables further boost opportunities to connect. With digital, personalization gets real and incremental revenue among airlines can grow as much as 10%.
Of course, the greatest benefit is customer loyalty. After all, travelers who feel understood and valued are more receptive and enthusiastic to up-selling, cross-selling and repeat business.
Five Retail Synergies
As the above examples show, we see travel and retail synergies in three cross-sector mega-trends: hyper-personalization and lifetime brand loyalty, immersive shopping experiences, and use of mobile and wearable technologies to further delight customers.
The three trends are built on advances in data analytics and digital content platforms. Within both the travel and retail sectors, companies are at different levels of maturity. The common denominator among them? The drive for unique CX that creates competitive differentiation.
The benefits of synergy are two-way. Each sector can learn and profit from the other. From retail’s volume of repeat purchases and growing insight into consumer needs, travel and hospitality can learn to use data more effectively to shape unique CX. From the travel and hospitality network of global touchpoints, retail can learn about scale.
For its part, retail has had a head start in digital. Squeezed by online pure plays, the industry was “Amazoned.” To keep pace, smart retailers upped their game, carving out strategies that rethink CX. They dovetailed in-store and online shopping, reexamined the role of store associates, and launched new services. Luxury retailer Burberry has led the way. Supermarket chain Sainsbury has also found a winning strategy with its Argos venture.
Retail’s push to improve CX has driven its adoption of technologies that were once little more than buzzwords, namely:
IoT and intelligent spaces.
The Internet of Things (IoT) is upending CX and interaction with retail brands. Purchasing through mobile devices has gone mainstream. Voice channels are gaining traction. Retailers are exploring how to leverage smartphones and wearable devices to activate dynamic digital signage and location-based offers. Some of the most innovative advances are the result of smartphones equipped with augmented and virtual reality (AR/VR).
Chatbots, cognitive computing and conversational AI.
As voice-activated personal assistants transition to shopping platforms, retailers are also becoming adept at applying AI to personalized services. London start-up Thread uses algorithms and virtual stylists to create in-home personal-shopper experiences. In the U.S., Stitch Fix’s curated clothing service analyzes customers’ body shapes and Pinterest pages. And U.S. cosmetics company Estee Lauder’s voice-activated application for personalized skincare solutions and beauty techniques runs on Google Home devices.
Predictive analysis and data sciences.
To improve profit margins and their CX, retailers are increasingly turning to the data-driven science of predictive analysis. Data mining provides a clearer picture of customers and their spending power to enable smarter, more relevant promotions. At the heart of data science? The collection and secure sharing of personal data. While privacy regulations govern the new data businesses, customers are seemingly happy to swap their personal data for more relevant offers.
Squeezed by customer expectations and the rise of progressive digital retailers, established brick-and-mortar merchants are searching for new ways to provide seamless omnichannel experiences. They face conflicting technology priorities, however. Choosing areas of focus remains challenging, as their choices and investments determine whether they remain relevant.
Putting robotics and automation to work.
Retail margins are under pressure following a period of global political uncertainty and the growth of low-overhead online start-ups. Robotics and automation make for an intriguing future. The first cashier-less Amazon Go store opened in Seattle, WA, in January 2018. In the home-improvement sector, Lowe’s LoweBot helps customers find goods and also answers customer-service questions. As automation impacts the retail process from inventory to last-mile delivery and in-store replenishment, the challenge for retailers is to deliver it with a focus on improved, not diminished, experience (e.g., self-service checkout has been known to be frustrating for consumers when it decreases rather than enhances convenience.)
Five Travel Considerations
For its part, here are the key digital initiatives shaping improved travel experiences:
The drive for ancillary revenue. Many travel businesses struggle to maintain healthy profit margins amid high operating costs and price transparency. The result? A focus on ancillary revenue, with travel players adopting retail best practices and learning to excel at merchandising. The hotel and destination management sectors have been less successful in selling ancillary services due to fragmented IT systems and lack of industry standards. Until recently, few hotel websites offered flights, transfers or tours. But change is happening. Spanish newcomer Travel Compositor allows hotel groups to dynamically package their services. And Norwegian Cruise Line markets a variety of services and products to passengers before they embark, from spa appointments to diapers.
Rethinking loyalty and CRM. With frequent blackout dates and almost unattainable status levels, airline and hotel loyalty programs often fall flat. In the airline sector, 9.7 trillion unused journey miles sit idle as balance-sheet liabilities. In addition to traditional airline and hotel awards, many favor instant redemptions and perks that suit their lifestyle, such as redeeming points at retail outlets. What’s more, a growing number of travel companies are implementing customer relationship management (CRM) technologies to provide greater customer segmentation, personalization, customer intelligence, and relevant rewards and offers.
Preparing for the payment evolution via blockchain. Blockchain has the potential to break through the tedious multi-step, multi-party payment process with a more robust, secure and real-time structure. But when it comes to the enterprise, blockchain is still a work in progress. While it takes hold in banking and financial services (transcending cryptocurrency trading to other mainstream areas such as trade finance), blockchain’s widespread adoption in the travel sector remains to be seen. Moreover, concerns persist regarding security and ownership of private data. (For more on our take, visit the blockchain section of our website).
AI, predictive analytics, and coffee. In a burst of experimentation, airlines, hotels and cruise lines are engaging travelers through proactive, intelligent robotic live chat that relies on web analytics and machine learning algorithms. Through Facebook Messenger, Dutch airline Transavia creates flowing conversations that guide customers through ticket selection and purchase. Online travel agency Fareboom finds cheap flights by predicting future price movements based on factors such as seasonal trends and demand growth. Sometimes the technology payoff is a cup of coffee when you need it most. Air New Zealand passengers can order barista-made coffee via a smartphone app as they enter select airline lounges.
Behaving like tech companies. Travel businesses are preparing their organizations to fully embrace digital. Central to the change? An organization that’s aligned and focused. International Airlines Group (IAG) established a digital team and tasked it with identifying innovations and forwarding ideas to the board of directors. Emirates Airlines recently recruited its first-ever chief transformation officer. In late 2017, Ryanair opened its third digital and IT innovation hub. Digital investment is also a priority for Marriott International, which operates its own studio to develop digital products for long-term brand equity.
Clearly, opportunity abounds for both retail and travel to further partner to create even better customer experiences. With promising early gains and numerous areas for overlap, the good news is both industries have numerous options. In part two of this special report, we’ll examine five things that travel and retail must understand to ensure successful partnerships and ultimately improve customer experiences.