Ticketing & Revenue Management: when bad timing gets expensive
Plummeting prices, empty stadiums, ticketing panic… What if the real problem was timing? At Revbell,...
See moreAi is driving extreme personalization in aviation: What challenges does this pose for revenue managers and their pricing models?
It’s with this rather alarming headline that Hugo Pellegrin from Tom Travel signs his article. He relays the news that Delta Airlines plans to expand the deployment of its new AI algorithm, which combines a « Large Market Model (LLM) » , a « Generative Pricing Engine (GPE) » and a « Generative Inventory Engine (GIE) ».
Two U.S. Democratic senators have raised concerns, calling the initiative an « abusive practice » : « Individualized pricing, or surveillance-based pricing, replaces a fixed or static price with prices tailored to each consumer’s willingness to pay. Delta’s current and planned practices of individualized pricing raise not only data privacy concerns but are also likely to lead to price increases (…) ».
The topic is also worrying because the details of this individualized pricing have not been disclosed, particularly regarding the degree and nature of personalization. So, what should we make of this?
The issue is complex, and the challenges are of various kinds:
The key question here is about discrimination. Differentiating prices based on past purchasing behavior or web browsing – does that fall under segmentation or discrimination? Until now, demand has been analyzed by homogeneous customer groups: Early bookers vs. Late bookers, Leisure vs. Business, Groups vs. Individuals, One-Way vs. Round-Trip, Point-to-Point vs. Connecting flights, Domestic market vs. “End-of-line” markets, etc.
Price differentiation among these groups, without distinctions of nationality or gender of course, is considered valid segmentation. The legal question that will arise is whether Pierre and Aurélie, for the same round-trip, at the same time, on the same flights, can have different prices.
For example, Pierre might book on his PC after much hesitation and multiple website visits, first clicking on the Promo tab. Meanwhile, Aurélie books on her tablet, entering her dates right away without apparent flexibility, as if she had a constraint making her trip non-negotiable. Pierre might be considered, rightly or wrongly, more price-sensitive than Aurélie. But is that a legitimate argument for differentiating their prices? Lawmakers will have to decide. But at first glance, this looks a lot like discrimination.
Companies will need to justify offering a higher price to one customer over another, while looking them straight in the eye and saying: « We believe you are less price-sensitive based on your browsing history and past purchases. So, for you, it’s €1,200. Thank you.»
Or they’ll have to lie to the customer. Good luck to the Marketing teams, especially the Customer Relations teams.
Beyond the legal aspect, ethics matter in our profession. A simple, common-sense rule should apply to all: be able to explain to a customer, face to face, how the price was determined without trembling in your voice. If you can’t, you need to reconsider your approach.
The effectiveness seems proven on Delta’s side since they plan to expand their algorithm’s deployment to 20% of their scope, up from 3%. Nevertheless, this raises several questions:
It’s likely that, knowing such algorithms exist, some clever folks will find loopholes and exploit them: creating fake profiles and purchase histories, publishing browsing guides guaranteeing eligibility for lower fares, etc. Startups have always emerged to exploit the gaps and excesses of RM & Pricing strategies. This will happen here too, inevitably. An Aurélie hiding behind a Pierre.
Beyond the legal aspects, this practice, whose efficiency seems questionable or at least fragile, relies on a shaky foundation: the belief that customers are absolutely unique and therefore deserve a different price each. A price per head. Or rather, a price based on the customer’s face. Marketing teams will tear their hair out. And algorithms will take control.
There’s no human left. Only customers and machines. It doesn’t exactly make us dream…
Plummeting prices, empty stadiums, ticketing panic… What if the real problem was timing? At Revbell,...
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