Tag Archives: Airlines

Consumer driven pricing and personalization in the airline industry

There are several ways for companies to distinguish themselves in the way they price their products and services. They can choose for group pricing, which segments customers in groups that tend to behave similarly towards prices. For example, customers can be grouped based on age (such as student discount), gender or living area. Another option is to use versioning: to offer a product line and let customers decide on the trade-off between quality and price. The last form of differential pricing is perceived as difficult to achieve, namely personalized pricing. This means each individual customer receives a personal price for a specific product or service (Schofield, 2018). You may think that, in an offline world, no customer would accept personalized pricing. Can you imagine buying bread and cheese at a grocery store, and the person in front of you pays less for the exact same groceries? However, in an online world, this method has become a lot more feasible. Actually, there is a large chance you have already experienced personalized pricing online. One of the most obvious examples is eBay: one of the first companies to implement personalized pricing with their worldwide market place platform. However, it is important not to interpret personalized pricing as dynamic pricing. The main difference between these two forms of pricing is the variables that determine the final price. In dynamic pricing, the variables that are taken into account are, for example, time of the day, available supply or competitors’ prices (Baird, 2017). Personalized pricing has a customer focus and is interested in a specific customers’ behavior. Companies use data analytics to identify characteristics of the purchase environment or the customer’s profile and behavior that impact their willingness to pay. Bertini and Kounigsberg (2014) argue that the success of personalized pricing depends on at least the following three factors. First, abundant, high-quality data is needed. Also, the companies need to overcome various organizational challenges that come hand in hand with dedication to advanced analytics. Last, companies should be prepared to deal with customers who claim that the pricing approach is not fair.

Airline industry

One of the largest industries that divides consumer groups and price accordingly, is the airline industry. Different fares are charged for the exact same product, based on a market segment’s perceived ability to pay. For example, business travelers tend to pay more for their ticket as compared to leisure travelers, even when they fly the exact same route (Sumers, 2017). The key success is working to learn what the customer needs. Lufthansa, the largest European airline in teams of fleet size and passengers carried in 2017, is testing various approaches to better understand their customers. For example, they have deployed Bluetooth beacons and sensors, to be able to send out real time messages to their customers. When a targeted customer goes through security and has Bluetooth enabled on their phone, the personalization process is started. Or as Lufthansa calls it, the “Big Data Engine”. This program checks a traveler’s mobile boarding pass and looks at how much time the traveler has left before departure. If it is more than a set amount of time, the system examines the traveler’s profile in order to determine whether the customer would be interested in the “Miles and More” program, a discount for access to the airport lounge. This information is combined with the data from the sensors in the lounge, that register whether and how much space is left in the lounge, in real time. This lounge promotion program is part of SMILE., a companywide program that is dedicated to personalizing travel (Lufthansa, 2018). Companies can also use traveler data to offer two or more products or services as a package, increasing profits as it allows companies to appropriate a larger share of customer surplus, known as bundling (Hinterhuber and Liozu, 2014).

Future chances

Although airlines have quite an advanced personalized pricing and recommendation system, there is more potential to be revealed in the future. Lufthansa is working on larger projects that try to develop a Netflix-style algorithm that seeks to guess where its most frequent flyers would like to go to next (Sumers, 2017). The airline then offers a personalized price and ticket to this customer, and further develops its algorithm using customer data. For airlines to stay competitive, they need to keep a close eye on the current and future changes in the market. First of all, airline companies should fully embrace innovation. Data should be used not only to cut costs and to be able to deliver the cheapest flight tickets, but also to facilitate new customer experiences and deliver more personalized services. This leads to an increase in importance of brand loyalty, as consumers are more closely connected to the airline that is best at personalizing their prices and services. Last, the mobile wallet should be seen as the central hub for the digital consumers. Mobile transactions are a lot richer in terms of data collection and analysis, and it provides access to end-consumers, which can drive more sales (Popova, 2016)



Baird, N. (2017) “Dynamic vs. Personalized Pricing”, https://www.rsrresearch.com/research/dynamic-vs-personalized-pricing, accessed at 13th of February 2018.

Bertini, M. and Koenigsberg, O. (2014) “When Customers Help Set Prices”, MITSloan Management Review, accessed at 14th of February 2018.

Hinterhuber, A. and Liozu, S. (2014) “Is innovation in pricing your next source of competitive advantage?” Elsevier Inc, accessed at 14th of February 2018.

Lufthansa (2018) “Official website”, http://www.lufthansa.com, accessed at 14th of February 2018.

Popova, N. (2016) “Has Personalization of Passenger Experience Entered a Critical Stage?”, https://skift.com/2016/12/29/has-personalization-of-passenger-experience-entered-a-critical-stage/, accessed at 14th of Febuary 2018.

Schofield, T. (2018) “Price discriminations: definition, types, and examples”, https://study.com/academy/lesson/price-discrimination-definition-types-examples.html, accessed at 13th of Febuary 2018.

Sumers, B. (2017) “Airlines Become More Sophisticated With Personalized Offers for Passengers”, https://skift.com/2017/02/03/airlines-become-more-sophisticated-with-personalized-offers-for-passengers/, accessed at 14th of February 2018.

Air France-KLM’s customer intimacy strategy

The Air France-KLM group has an great reputation when looking at customer experience and the usage of technology to enhance customer experience. Many innovations have led to this customer experience, such as Spencer the robot, the development of electronic bag tags and tracking devices, the use of artificial intelligence to provide customer service channels and the Happy Flow biometric token trails. These are a few examples of the innovation of the Air France-KLM group in the past years (Future Travel Experience, 2017).

What is customer intimacy?

Customer intimacy, means segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches. Companies that excel in customer intimacy combine detailed customer knowledge with operational flexibility so they can respond quickly to almost any need, from customizing a product to fulfilling special requests. As a consequence, these companies engender tremendous customer loyalty (Treacy and Wiersema, 1993).

Customer intimacy at Air France-KLM

Air France-KLM strives to be the leading airline in customer intimacy. To get there, technology has to play a critical role, but the group knows that the largest impact on the customers’ experience journey can be gathered by customer interaction.

The group is investing in a customer relationship system and customer care and recovery, as part of their strategy. The biggest challenge for the group is to gather all relevant data and make them instantly available, which is difficult with many online and offline touchpoints. The ultimate goal is to ensure that front-line staff have an accurate real-time view of their customers, and on any servicing needs or commercial opportunities (Future Travel Experience, 2017).

Pozas Lucic (VP of innovation) highlighted an example ow how the connected customer relationship management system will benefit the experience of passengers in the near future. Imagine a connecting passenger who is flying Delhi-Amsterdam-Chicago. The passenger is a vegetarian and ordered a vegetarian meal, but by mistake this meal is not on the flight. Currently, new vegetarian meals cannot be created during a flight. With the introduction of the new connected CRM system, crew members can put a message in their devices asking the ground staff to pick the passenger up at the gate and guide them to the lounge where they can provide a vegetarian meal. After that, an automated message will also be sent to adjust the booking details so that it doesn’t happen on the connecting flight and the return flight (Future Travel Experience, 2017).

The success of customer intimacy for Air France-KLM

Air France-KLM was not afraid to differentiate their products and simplify the travel experience. All the innovation led to a 4-star airline quality rating (4 out of 5 stars)(Airlinequality.com, 2017). In Air France-KLM, innovation is everywhere and not just in a single department, which is why the group became successful. The group scores particularly well on the airport service such as the arrival assistance (on the spot recovery), check-in service and transfer service (biometrics and robotics) and the baggage delivery (e-tag and baggage tracker solutions)(Airlinequality.com, 2017).

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Air France-KLM set the goal to become the leading airline in customer intimacy. The airline group is determined to simplify the journey, to offer passengers what they want when they need it, and to deliver personalised experiences. While neither the human interaction nor technology can achieve this alone, together they could well redefine the entire Air France-KLM experience (Future Travel Experience, 2017).


Airlinequality.com. (2017). Available at: http://www.airlinequality.com/ratings/klm-royal-dutch-airlines-star-rating/ [Accessed 9 Mar. 2017].

Airlinequality.com. (2017). Available at: http://www.airlinequality.com/ratings/4-star-airline-ratings/ [Accessed 9 Mar. 2017].

Future Travel Experience. (2017). Air France-KLM’s customer intimacy strategy: tech and human interaction. [online] Available at: http://www.futuretravelexperience.com/2017/02/air-france-klms-customer-intimacy-strategy/?utm_source=Future+Travel+Experience+Newsletter&utm_campaign=0d54fdd27d-fte_otg_100217&utm_medium=email&utm_term=0_c306aa3edf-0d54fdd27d-89986809 [Accessed 8 Mar. 2017].

Treacy, M. and Wiersema, F. (2017). Customer Intimacy and Other Value Disciplines. [online] Harvard Business Review. Available at: https://hbr.org/1993/01/customer-intimacy-and-other-value-disciplines [Accessed 8 Mar. 2017].

Customer-centric in the airline-industry? It’s possible!

Southwest Airlines is one of the most customer centric companies of 2016 per customerguru.in. If we look at their mission statement you could tell: “Dedication to highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and company spirit.” Southwest Airlines goal is to make every journey an unforgettable one and with this they have achieved a very loyal customer base. I will go through Southwest’s customer centric business model by emphasizing on the efficiency criteria joint profitability discussed in class. So, I will look through Southwest Airlines business model by finding out if the system design is maximizing the joint pay offs of the partners involved (CCDC, 2017).

Southwest Airlines understands that happy employees will guarantee happy customers. “Our people are our single greatest strength and most enduring long-term competitive advantage’’ (southwest.com).  So, it is not surprising that the employees stay with the airline even though they are paid less compared to other airlines. Before you can be customer centric you must be employee centric is what turns out here. Competitive prices, free checked luggage, and friendly employees are what they are also known for but Southwest reputation is at its best when things don’t go well. That’s when their good system is in place. An experience many Southwest Airlines passengers could recall is when the gate-agent of already book tickets for the next flight to their destination when the they were supposed to fly was grounded due to bad weather conditions. Even before you requested it. What was supposed to be an inconvenience turned out to be a moment of pleasant surprise for the customer. This is all the joint profitability is about: with emphasizing on customer happiness they create a loyal customer base which, in the end, will result in more revenue.

So, Southwest Airlines sees the importance of moving from a tactical to a more strategic approach of customer participation and this is critical for all their forms of social marketing. Southwest Airlines could embrace social business as a natural evolution of their business model, because they have always been customer-centric. Southwest Airlines, at least relative to their peers, have always viewed themselves as “agents of the customer,” focusing first on creating superior customer value, while understanding that profit is one outcome of successfully creating customer value. Companies that pursue any social business initiative as another tactic to improve shot-term profitability, are increasingly at risk, given the exponential increase in customers’ access to information. Southwest Airlines has done a great job with enhancing information and participation with their customers and, thus, creating a top of the bill customer centric business model.






A lesson of Southwest Airlines

It’s well known that the airline industry is a big business. From free soda, to airline services to baggage; the airline industry is an intensely competitive market. I assume that many of you have their own experiences with airlines and I totally agree if you have some bad experiences. Once I traveled to China and had a delay of more than 12 hours and guess what? No compensation. A lot of airlines are focused on euro’s and cents but fortunately some airlines do want to solve dissatisfaction by turning an ear to the voice of its customers. Southwest Airlines is an example of one of these airlines which has implemented customer experience programs to continually listen to its customers and show that they care.

Southwest Airlines is a big player in the US airline industry. This could be a result of its mission statement which is as follows: “Dedication to highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and company spirit(southwestairlinesinvestorrelations,2016). From napkins with ‘I’d happy to hold your drink’ to stocks which are named as “LUV”, everything is about the brand. But what’s in it for the customer?

Southwest airlines CEO Herb Kelleher has and still uses a couple of secrets which create an unforgettable experience for its customers. These key secrets lead to joint profitability as happy customers benefit the company. One of the key secrets and their long-term competitive advantage works as follows; an organization should be employee centric before it can be customer centric.

In this example, institutional arrangements are considered such as employees supporting each other internally so that they can take care of customers outside the company. Happy employees will try to make the right decision and are proud to work for your company. If you take care of your employees, they will take care of your customers and in turn, the customers will come back.

Another key secret is that Southwest airlines anticipates on customer needs. Let’s go back to the introduction of this blog and imagine that you have booked your ticket to China. Your flight departs early in the morning and the weather is stormy. You have checked the flight information a million times and as soon as you arrive at the airport the flight has been cancelled. In my experience, I had to wait for hours before the airline informed me about my options. Although legislation tries to protect flyers, the institutional environment had not been considered in my case… except for one free drink. Fortunately, the experience of many Southwest airline customers is much better. In the case of a cancelled flight due to stormy weather, a gate agent already booked tickets for the next flights before customers asked for it. In this case, a consideration of the legislation was not even necessary! Southwest airlines always try to anticipate on customers’ needs and be proactive in helping its customers.

The last key secret is to apologize sincerely. We are all just humans and we should accept that humans make mistakes and that we can’t control every situation. Sometimes, a sincere apology has more value than a monetary solution. This all started by Southwest airlines’ institutional arrangements as every employee knows that they should turn an ear to the voice of its customers. Southwest airlines then apologies. At this point, the institutional environment has been considered, as the company takes it responsibility so that both in the end the firm and customers are better off.

This all is almost too good to be true. I totally understand if you still don’t believe the things I’ve discussed above. Just relax, take a breath, and watch these little movies on Youtube to see and experience it yourself 😉

Used sources:
Hyken, S. (2014), Before you can be customer centric you must be employee centric [online] Available from:
https://hyken.com/internal-customers/before-you-can-be-customer-centric-you-must-be-employee-centric/ [Accessed 10 Feb. 2017]

Southwest Airlines Co. (2017) Company Overview [online] Available from:
[Accessed at 10 Feb. 2017]