Innovation in Demand and Forecasting

Creating Demand to Revolutionize Forecasting
Growth Hacking your Way to Success in
airlines, #hospitality, and #travel

Daria Bekatova, Paul Campbell, John Lancaster
Paulo Ventures, LLC

With air traffic and hotel occupancy down more than 80% post-COVID, #revenuemanagement professionals have been scrambling to figure out how to restart their systems. The first step is jumpstarting demand forecasters. See the LinkedIn articles by Thomas Fiig and John Lancaster to see two recent discussions on the topic.

In this blog, we challenge the idea that a #forecasting jumpstart is possible with the available booking or reservation data in a time of COVID-19. We will show our forecast, #revenuemanagement, and #dynamicpricing models will not function in the COVID recovery environment using standard data and mathematical models. Then we propose an alternative suited to addressing the fundamental issue at hand: Lack of Demand.

The COVID Opportunity
Opportunity comes in many forms. In the travel and hospitality industries, it usually comes packaged in a near-death commercial experience. Such experiences force us to go back to the drawing board and rethink how we do business. Let’s look back at two moments that most influenced travel and hospitality distribution in the last four decades.

It’s 1978 and President Jimmy Carter deregulates the airline industry. With the freedom to set fares without government review innovative new airline models take root. New point-to-point, low-cost entrants quickly rip demand away from the network carriers with a higher cost basis. As demand shifted the large carriers see demise written in their balance sheets.

This is when Crandall and his team turn a pending disaster into opportunity. They invent yield management and the DYNAMO system using the best science and technology available in the early 1980s. Their innovative business practices realize hundreds of millions of dollars in incremental revenue and drive their chief low-cost carrier into bankruptcy in just 2 years. All major players in travel and hospitality rapidly adopted revenue management. By targeting micro-markets, revenue growth expands wildly. While this feat is impressive, the real impact is much more. With the ability to increase profitability while offering lower prices, travel becomes more affordable to a large cross-section of the population. The disaster turns into revenue management opportunity, which drives an enormous growth in traffic. Today twice as many people fly than did in 1980.

A second near-disaster happens less than a decade later. With greater revenue, intermediaries seek to take a piece of the pie. So, in the mid-90s, airlines find themselves again under pressure when travel agent commissions and GDS segment costs cause unsustainable distribution costs. Airlines flounder under the weight of upfront commission and raising segment fees. Again, by deploying the emerging internet technology, carriers turn this challenge into opportunity. Airlines, hotels, and rental car companies quickly embrace the internet. The introduction of online booking engines, website distribution, and online travel agencies (OTA) effectively eliminate agent commissions and lower the cost per booking. As the public usage of the world wide web explodes, the industry seizes the opportunity to book evermore customers at lower prices online. The new technology and the ability to follow the options and responses of online customers, make dynamic pricing viable by exposing demand elasticity. By embracing the opportunity of online distribution, airlines, hotels and rental car companies further increased their reach and profitability, rather than slide into nonprofitable.

These two examples illustrate this fact: pending disaster forces innovation thus creating new opportunities as new technologies are embraced and applied. The COVID pandemic presents us with such an event. COVID is a black swan that shows revenue management’s Achilles’ heel. Our commercial practices and mathematical models assume there is sufficient demand to be choosy. This makes our models unsuitable when demand collapses. In fact, the most insane thing we can do is keep doing what we have been doing. When the ratio of demand to supply is below 50%, there is no revenue management. Without the conditions needed for revenue management, our technical juggernauts will produce rubbish. Thus, traditional demand forecasting based on historical bookings becomes a useless exercise. Restarting our RMS and other commercial systems must wait until we have enough demand to justify their use.

Instead, COVID calls us to look for a new technology designed to generate demand. This is exactly the raison d’etre of the latest trending technology: social media marketing and growth hacking. Exploiting these technologies through frequent demand generation experimentations will yield valuable insights which need to be continuously integrated in real-time into the demand forecast methodology resulting. Only this will result in relevant forecasts.

What is Growth Hacking?

Nowadays, people have begun to realize traditional marketing systems and their tools do not work the same as it did a couple of years ago. The old strategies do not give the expected results. Consumers, especially Millennials and GenZ, have become more sophisticated and jaded toward corporate advertising. Consequently, marketing has become a bit old-fashioned. The new generation of consumers wants to be engaged in creating the real product, not lured by a marketeer’s imagined reality. This shift in consumer attitudes forces us to shift our approach to growing demand in the new online environment. Today we need to enter into conversations with those likely to purchase travel or hospitality and discover what they find appealing. This form of engagement calls for a new type of marketing called Growth Hacking.

Growth Hacking has only been around for less than 10 years, but it is already catching fire. Every start-up is looking for growth hackers. Growth hacking combines creativity, marketing, and data analytics into a unified drive to acquire online followers, who will help you design the product they want to purchase. Before you start using new marketing tools though, you should clearly distinguish the difference between the old and the new (traditional marketing and modern marketing’s growth hacking’).

First and foremost, in the old order of things, product development and marketing were two detached processes. The idea was you develop what you want to sell, then convince consumers to buy. Such marketing is no longer relevant. Growth hacker sees marketing not as an independent industry, but more as a function ‘embedded’ in the product itself during the development stage.

Social media focus exactly on the challenge of growth. This absolute focus on growth in followers requires you to use the best science and tools of social media. The new product development and pricing practices will use the Internet and social networks to study, test, process results, and improve travel products. The ultimate goal of growth hacking is to create a completely self-sufficient marketing mechanism that attracts audiences, that is Generate Viral Growth.

Why do we think this will be a success?

Today, your following is monetizable! Every growth hacker knows this. The future cash flow of an online following makes investors willing to invest millions in online start-ups before they have reliable revenue streams. Like growth hackers, travel and hospitality corporations need to build sufficient demand to support business and generate revenue.

But how do we monetize our followings? Convert social media followers into loyalty members! Afterward empower them to tell you what they want and like so much they start referring their friends.

Look at how United, Delta, Marriott, and other large brands have leveraged their loyalty programs with the banks and credit card companies. Like internet start-ups, airlines and hotels have convinced banks and credit card companies to bet their money on the fact that a loyalty program implies a healthy, future cash flow. Bankers and investors are savvy, they have noticed that growth hackers convert their followings into demand and revenue. Our challenge is to make sure growth post-COVID is large enough to make this happen. Then our revenue management systems will be relevant again.

But first, understanding growth in online presence needs to underpin every decision you make. Every strategy, every tactic, and every initiative must grow social media visibility, increase loyalty program numbers through conversion, and ultimately drive new sales. Growth is the sun COVID recovery revolves around. The power of growth hacking: its obsessive focus on what is most important to recover from COVID – Generating Demand.

Using Growth Hacking in the Travel and Hospitality

COVID has created opportunities for the fast and agile as much as it has stymied the big guys. But taking advantage of opportunity calls us to think hard and out-of-box. Unlike the past you are creating your future market, not slicing into an existing market. Growth hacking does just this. Growth hacking requires you to engage future travelers and take their needs and desires seriously. This is what is forcing us to adopt the new growth hacking technology. Moreover, it is cheap and available for all to use.

But how do we implement growth hacking in travel and hospitality?

Here is our Generate Demand – Modernize Forecasting program:

1. Create a Buzz on the Web

The field of Marketing is dynamic, and the requirements keep changing owing to the pace of advancements in technology. Creating a ‘buzz of bees’ around the new product is a significant idea. For instance, growth hackers create word of mouth marketing with buzz. This is different from traditional marketing? The goal of buzz marketing is to get people talking about your brand – not just to make people aware that your brand exists.

Generating buzz isn’t completely random in business. There are techniques for attracting attention. These are part behavioral economics, part creativity, and part data analytics. You must try to create new ideas that attract online followers, get them talking, then spreading your message. You must measure the effectiveness of each idea tested and be willing to discard the unsuccessful. Then you must engineer ways to automate the growth process.

When a modern innovation comes, first-movers capitalize on it exponentially more than late comers. As time goes by, it becomes successively harder to be successful. Thus, there exists a significant amount of pressure to rapidly identify new and novel ways to get to the customers and be the first to create buzz in the market. This is a place to be a little crazy, a little predator and a lot analytic.
Go on, be creative in hooking people and converting them into followers. You might try two-fers, lotteries, and travel influencers. Discuss new product ideas with your followers, understand what motivates them to follow you and to ultimately find what gets them traveling. Is it discounts, travel packages to special events, on-board concerts, free drinks or a combination of these? Anything and everything are on the table, if you are truly focused on creating a buzz and sparking growth in your social media following.

2. Leverage Your Loyalty Program

If you have a loyalty program, you already have a base which can springboard your growth hack. Email campaigns with special offers for bringing in new members or additional benefits for recommendations, ratings, and “likes” at travel advise sites like TripAdvisor and Yelp, or in Twitter discussion groups like Condé Nast–Twitter or positive reactions on your Facebook page. Perhaps your growth hack will be special gifts for engaging in new product discussion at your website, competitions for trips or stays when they visit your website or earning miles or points in online games. It could be crowd-casting gambling, like DARPA does with US presidential elections, or installment plans, like one Mexican airline does. Who knows? The possibilities are only limited by your imagination and willingness to experiment. Since these are already loyal customers, rewarding them or inviting them to dialogue has lots of upside and not much downside.

You should also attempt to piggyback on others’ loyalty programs by offering status matching and other incentives for joining your program seamlessly. Alliances present a field day for this kind of activity. Make this a win-win for both you and your newly acquired members. You can data mine tons of information on loyalty members from your data base and your alliance’s data base to understand purchasing behavior, preferred payment methods, needs and desires, mileage usage and other information useful for better serving your most loyal base of demand.

3. Get to the First Line

Remember the bad old days, when screen position on the reservation system green screen dominated the schedule planning cycle because 80% of bookings went to the top line? Well, what was true then is still true today – VISIBILITY DRIVES DEMAND. Though it is not clear how to do it when bookings are internet powered. Remember Millennials and GenZ spend hundreds of hours a year on social media channels and have limited attention spans. This makes being first vital to success.

A growth hacking tool is search engine optimization (SEO). We usually think this means manipulating the order of search engines like Google, Facebook, and Twitter. These are important, but not your principal focus, nor is your website. We need to strive to dominate the top lines of OTAs and our backlinks, websites scrapping your site then presenting your product for purchase. In the OTA space, think Expedia, Opodo, Orbitz, and Travelocity. In the backlink space, we mean Kayak, eSky, eDreams, Kayak, and others. Since these online marketers borrow from each other, optimizing your online presence cannot be overstated.

Like Google, the ordering rules for screen position are not transparent. Sometimes top lines are sold, as done at SABRE, WORLDSPAN, and the other GDS. At other times, a hidden set of ordering rules determines who sits at the top of the page. Typical items considered are price, popularity as measured by links, and departure times, or property location. To optimize your demand generation efforts requires discovering those rules, and that takes experimentation. By creating a regiment of experiments with your offering, a data scientist can isolate those qualities then optimize your screen position across the most significant sites.

The Future is Here

As you can see, COVID is a blessing in disguise. If we choose to accept the challenge. Start talking to our young analysts, who grew up on social media, and forget our old way of product development, forecasting, pricing, then revenue management. We are very fortunate in that IATA’s New Distribution Capability (NDC) is ideal for the emerging online reality. From our newfound followers and loyalty program members, we will develop the next generation travel products and cross-industry bundling designed to grow demand virally.

Once we do that, we can restart our pricing and revenue management systems.