L.E.K.'s John Moran recently spoke at an NDC in Action conference hosted by Farelogix. He covered topics such as the evolution of consumer expectations, merchandising's potential, why NDC matters and 10 questions to ask about your ancillary strategy. Learn more in his presentation here.

1. John R. Moran
The Merchandising Evolution
(and why NDC Matters)
L.E.K. Consulting
© 2013 L.E.K. Consulting LLC. All rights reserved.

2. Topics
NDC in Action
The evolution of consumer expectations
Merchandising’s potential
Why does NDC matter?
10 questions to ask about your ancillary strategy
© 2013 L.E.K. Consulting LLC. All rights reserved.
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3. How have consumer expectations evolved?
NDC in Action
Let’s go back to 2007…
© 2013 L.E.K. Consulting LLC. All rights reserved.
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4. The customer experience
just six years ago…
NDC in Action
Mobile looked like this
(no iPhone/Android)
Facebook had 12 million users
(no mobile)
Amazon revenue was $15 billion
(no Kindle, no Prime in most
countries)
23 airlines reported global
ancillary revenue of $2.5 billion
(no 1st/2nd checked bag fees)
© 2013 L.E.K. Consulting LLC. All rights reserved.
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5. Things have changed
NDC in Action
Global PC / mobile device unit sales
Millions of units
750
Smartphones /
tablets
500
PCs
250
0
2007
08
09
10
11
12
Information and purchasing capabilities are now personal and ubiquitous
Source: IDC, Gartner
© 2013 L.E.K. Consulting LLC. All rights reserved.
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6. Things have changed
NDC in Action
Facebook active users
Millions of people (beginning of year)
1,200
1,100
1,000
845
800
610
600
350
400
150
200
0
12
2007
60
08
09
10
11
12
13
People are getting information from peers and highly targeted ads
Source: Facebook
© 2013 L.E.K. Consulting LLC. All rights reserved.
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7. Things have changed
NDC in Action
Amazon total revenue
Billions of dollars
70
61
60
48
50
40
34
30
20
25
20
15
10
0
2007
08
09
10
11
12
E-commerce and personalized recommendations are mainstream
Source: Amazon
© 2013 L.E.K. Consulting LLC. All rights reserved.
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8. Consumer expectations are changing too
Yesterday
NDC in Action
Tomorrow
Information opaque and
inaccessible; “know what
you want and go hunt for it”
Too much information puts a
premium on curation; offers
come to me
Single channel for discovery
and purchase
Omni-channel learning, trial,
and purchase experiences
Anonymity the norm
Assume you’ll remember me
Limited choices; accustomed
to standard offers and a “one
size fits all” experience
Customization, menus, and
targeted / personalized options
and extras
One price
My price
© 2013 L.E.K. Consulting LLC. All rights reserved.
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9. Retailers are still way ahead of us
NDC in Action
© 2013 L.E.K. Consulting LLC. All rights reserved.
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10. Meanwhile, ancillary revenue
has grown…
NDC in Action
Global airline ancillary revenue (estimates based on reported)
Billions of dollars
50
Global total net
income is expected
to be <$12 billion
40
43
36
33
FF /
Commission
30
23
20
10
10
13
A La Carte
2
0
2007
08
09
10
11
12
13F
Ancillary revenue isn’t optional, it’s oxygen
Source: IdeaWorks, IATA
© 2013 L.E.K. Consulting LLC. All rights reserved.
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11. … and helped crown a new set of leaders
NDC in Action
Top 10 airlines by economic profit, 2008-12
Billions of dollars
2.5
2.2
Americas
EMEA
Asia-Pacific
2.0
1.5
1.5
1.1
1.0
0.9
0.5
0.5
0.4
0.4
0.4
0.3
0.3
0.0
#1
EP
ranking
’03-12
#2
#3
#4
#5
#6
#7
#8
#9
#10
61
1
59
4
6
5
7
2
3
N/A
© 2013 L.E.K. Consulting LLC. All rights reserved.
Source: Capital IQ, Bloomberg, CompuStat, DOT Form 41, L.E.K. analysis
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12. A vision of merchandised ancillaries
NDC in Action
Example
Right person
“John, a 35-year-old infrequent flier with us, visiting
Disney World with his gluten-allergic infant”
Right offer
Discounted hotel room
Gluten-free meal paired with empty adjacent seat, etc.
Right time
Room offered during initial comparison shopping
Meal/seat offered during check-in
Right place
Room offered with OTA in booking flow
Meal/seat sent to his mobile the day before / in airport
Right price
Room offered at a discount to drive ticket purchase
Meal/seat offered at premium (unless inventory is high)
We believe merchandising in this way can double ancillary revenue
© 2013 L.E.K. Consulting LLC. All rights reserved.
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13. Why does NDC matter?
Historically, legacy technology
dictated ancillary strategy
“What should we do?”
determined by
“what can we do?”
NDC in Action
Future new standards and tools
enable powerful new strategies
The freedom and power
to change the game
What should you be asking yourself before implementing the technology?
© 2013 L.E.K. Consulting LLC. All rights reserved.
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14. NDC in Action
Ten questions to ask about your strategy
© 2013 L.E.K. Consulting LLC. All rights reserved.
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15. 1) What is the overall strategic objective?
NDC in Action
Incremental revenue and profit?
Customer experience enhancements?
Rewarding and reinforcing loyalty?
Reduction of core product cost through unbundling?
Passenger behavioral changes?
© 2013 L.E.K. Consulting LLC. All rights reserved.
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16. 2) Who is your customer?
Customer segments
(historical)
NDC in Action
Customer segments
(today)
Road
Warriors
Business Travelers
• Mostly male
passengers,
usually 34-55,
who travel
business
itineraries
• Mostly male passengers, usually 34-55, who travel 20+ business
itineraries p.a.
• Often business class passengers traveling alone
Occasional
Business
• Mostly male passengers, usually 34-55, who travel <20 business
itineraries p.a.
• Economy class travelers more likely to travel with colleagues
High-Income
Leisure
• High-income individuals, couples or families traveling for leisure
• Travelers who value comfort, often on long haul flights
Package
Vacationers
• Value-oriented travelers, particularly families traveling for
entertainment or outdoor recreation
• Primarily middle-income, economy class travelers
Retirees
• Male and female passengers over 55, who travel for leisure
purposes exclusively
• Value-oriented, economy class passengers
VFR
• Older individuals, couples or families traveling to visit friends
and/or relatives
• Primarily middle-income, economy class travelers
Young
Singles
• Younger, tech savvy passengers under 30, traveling for
pleasure, college, or job opportunities
• Value-oriented, economy class passengers
High-Income Leisure
• High-income
individuals,
couples or
families
traveling for
leisure
Etc.
© 2013 L.E.K. Consulting LLC. All rights reserved.
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17. 3) Do you treat them as accounts?
Do you understand their journey?
Leisure passenger journey
NDC in Action
Need states
Dreaming
Destinationfocused
Planning
Booking
Managing
Airport
Frugal
Bored
Practical
Boarding /
take-off
Inflight
Stressed
Deplaning
Transport
Excited
Hotel
Return journey
© 2013 L.E.K. Consulting LLC. All rights reserved.
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18. 4) What does your brand stand for,
and what experience should you aim to create?
NDC in Action
What do you aspire to mean to passengers?
What do people associate with your brand today?
What customer experience will fulfill your brand promise?
© 2013 L.E.K. Consulting LLC. All rights reserved.
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19. 5) What products and services should you offer?
NDC in Action
B2B
Onvessel
B2C
Enhanced B2B
Enhanced Mix of B2C & B2B
3 Enhanced Advertising
2 “Window Shopping”
(On-line stores)
3 Consumer Trials
2 On-line Gambling
Enhanced B2C
2 Internet On-Board
2 In-Flight Entertainment
Food/Beverage OnBoard
Core B2B
3
2
IFE/Web Advertising
Repackaged B2C
2
Subscription Services for
Amenities
2
FF Gaming Bundles
2
Entertainment Packages
2 Upscale Amenity
Packs
Core B2B
Enhanced B2B
5 Vacation Packages 2.0
1
2
3
4
5
6
7
Offvessel
Product
Flight Experience
B2B
Airport Experience
Experience Packages
Mileage and Status
Customer Service
Core Product
Core B2C
Repackaged B2C
4
Airport Lounge Packages
4 Priority Baggage
5
Family Traveler Packages
1 Confirmed Seat
4
5
Child Traveler Packages
1 Fee to Stand by
1 Ticketing Fees
4
5
Business Traveler Packages
6 Miles Rationalization
7 Unaccompanied Minor
6
3 Traditional Advertising
1 Baggage Fees
3 Hotel Partnerships
1 Phone
6 Mileage Redemption
7 Rental Cars
7 Financial Services
Enhanced B2C
1 Premium Seating
Booking over the
Assignment
4 Lounge Access
Priority Security
Priority Check In and
Boarding
6 Elite Status a la carte
Mileage Purchase
Trip Protection
7 Insurance
© 2013 L.E.K. Consulting LLC. All rights reserved.
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20. 6) What costs a fee vs. what is free?
What should you bundle together?
NDC in Action
Enhancements Offered
High
Bundle Optimization
Unbundling
Merchandising
Enhancements
Low
Fully Bundled
A la Carte
Bundling of Ancillary Products / Services
© 2013 L.E.K. Consulting LLC. All rights reserved.
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21. 7) How do you target, personalize,
and price dynamically?
NDC in Action
Merchandising
engine
© 2013 L.E.K. Consulting LLC. All rights reserved.
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22. 8) How do you advertise
and sell across channels?
NDC in Action
Have consistency across all channels, both direct and indirect
Think outside the box online
Advertise differently than you sell
Use channels for different things (exploration vs. sharing vs.
problem-solving vs. impulse-purchases vs... )
© 2013 L.E.K. Consulting LLC. All rights reserved.
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23. 9) How do you deliver
without operational compromise?
NDC in Action
Generally requires:
Strong core operations to begin with (e.g., on-time performance)
Simplicity through technology
Training and tools for frontline staff
A cultural shift and extensive communication
The ability to measure and course-correct
© 2013 L.E.K. Consulting LLC. All rights reserved.
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24. 10) How do you turn product development
into a core capability?
NDC in Action
To make this a competitive advantage, you need:
A well-oiled new product development (NPD) process
Measurement and metrics to conduct product portfolio optimization
The structure, staff, and processes to manage the products
Ongoing strategic investment in the technology
© 2013 L.E.K. Consulting LLC. All rights reserved.
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25. Thank you
NDC in Action
Website: www.lek.com
Email: j.moran@lek.com
LinkedIn: L.E.K. Consulting / John R. Moran
Twitter: @JohnRMoran
© 2013 L.E.K. Consulting LLC. All rights reserved.
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