2008 » Page 3 of 3 » Food for Thought

Winners and Loosers

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

Russians outnumber German visitors in Antalya. Russians invest in TUI, Air Berlin, Öger Tours and other travel companies being “unsexy” to “traditional”, “Western” investors… Oh god, the Russians are coming…

Eyes on Russia… Lately (as usual: Thanks to a beautiful woman) I learn a lot about Russia. The image shown mostly on TV is misleading. That is an emerging country! Do not look at the old Russians. Look at the young generation, the students! Oh yes, they have a long way to go. But they prosper, figures show a clear trend.

A luxury hotel chain did a check recently, their receptions noting down, which age group visitors mostly belong to. The boom market China was a niche… Germans and British were +90% in the age group 60+, where the Russians were 90% in the age group -40. And they spend four to five times as much “aside” than the good old Europeans.

Shift happens. Are we ready for it?

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Low Cost 2009

Is low cost at its end? Lately Ryanair sued a German tour operator for combining Ryanair product with hotel, etc. for a travel package. Concern was posted, if that was an intelligent move, though I did reply that it was in line with O’Leary’s public known strategy.

But now Ryanair grounds aircraft, stating it would be more expensive to fly them. Just two years ago, talking about the need to turn around aircraft faster, O’Leary assaulted all other airlines, stating an aircraft needs to fly, time on the ground loosing the company”s money. 180° turn…

Ryan Air now tests “hand luggage only”. That’s a niche of the niche. With a body diameter of about 3,6m and no cargo hold, how about a “Mini-A380”-design with two levels, adding passenger capacity in what was the cargo hold? “Sub-Economy”? Who needs seats? I used the above image in this year”s ASRA-presentation, I didn”t know, how advanced my thinking was.

Now Ryanair reports an 85% drop in net results for the first quarter, a net loss of 60 Mio. Euro being a serious possibility. Just two weeks ago, I just mentioned the joke here about the guy purchasing the screws for 1 $/€, selling it for 99c. No Mr. O”Leary, selling your seats for 99c does not improve your revenue…

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Banking Mafia

I don”t know if this is a specific German issue, but lately a lot of deals become public, where banks and analysts are found to abuse their power to increase the IPO-value of startups or systematic damaging of reputation and corporate value i.e. by publishing misleading information or cancelling given credits without cause, just to take over control of dependent companies. So Joachim Hunold now filing official protest against Dresdner Kleinwort is sure an overdue step. Even German national television (ARD) named that lately in a report “Mafia-methods”.

So with my respect: Good luck Mr. Hunold!

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Do you eat insects?

No? I couldn”t make you consider eating that scorpion? Hmm… How about Lobster? Shrimp? That is something different? Okay. They live in the sea, they are larger. But matter of fact, they both are crustaceans! ^[1]

So what are cultural differences all about? I was asked lately – by a beautiful lady I must admit – if I wouldn”t have problems the different culture and mentality…? From what I learned doing international sales and projects: Sales as well as friendship are based on mutual respect. That includes to (temporarily) accept local customs and traditions, as well as those of your guest. To be friendly, honest and trustworthy are keys to success. Lies have an extremely low half-time and they tend to hit you in the back at the most awkward of times.

^[1] Based on a comparison by Gordon Ramsay
^[2] Image Ron Harris

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The Fairy Tale Of The Best Available Rate

This represents the core of a quite lengthy and detailed discussion.

A hotel manager regretted the change from the RAC-Rate to the BAR (Best Available Rate) and compared it to Yield Management in Aviation.
Three misinterpretations in one sentence…

The rack-rate (off the Rack) has always been – and is – the rate, anyone “selling” a room was allowed to book at. Unconditional. That rate – in that definition – exists until today and must exist.
Many hotels fixed a rate and called it “rack rate”, published on the indoor or in the locker… But the rack rate is as variable through the year(s) as is any other “rate”. So there seems to be a misinterpretation of a definition by some…

What is the Best Available Rate? It”s one of these meaningless phrases, these politicians manqué in Marketing love. See next.

Third misunderstanding: Yield Management.
I experienced the development of yield management in American Airlines, who made this an art first (late 1980s). And it is an art! The definition for yield management was explained to us at an employee conference with Bob Crandall himself (to date a model “airline manager” to me). In short: They are there to optimize the own pricing structure to achieve the “best available selling rate”. To do that, they got tools to monitor the prices of competition, they took into account long term developments, including public holidays, regional vacation periods, congresses, events, … And they talked to the local sales teams to assure to be aware of trends – something you cannot do to date with technology only! Within two years after launching the department, it employed more than 3.000 of the best people American could find or hire and had achieved a revenue increase making that effort very valuable. I do recommend to have a look at the Wikipedia article on Yield Management.
Today, most managers believe, Yield Management is purely technical. But it is a predictive art. Many managers only look at a single puzzle piece: A good yield manager can be worth an entire sales team. But that does not say you can replace it. In most airlines, the yield management rarely speaks to sales, they stick to the “electronic reports and figures”. Stupid, they miss an essential “early warning system”…

Best Available Rate… The boss of my business training (whole sale) emphasized two rules I found invaluable:

Don”t bleed out your supplier. He has to live. If he lives safely, it”s also to your own benefit.
Price dumping is a Pandora”s Box. They undermine the trust in your products.

And there was a joke that at the time was historic already: “You purchase a box of these screws for 1 Dollar, you sell them for 99 cent, how could you?!” Answer: “You stupid don”t understand that. It”s the quantity that counts!”

Our industry (aviation and hotels alike) have paniked themselfes into price dumping. To date, I question the competencies of any manager, blindly following that path. In 1997, a senior airline manager (unquestioned by his peers) alleged that brand has no value any more. Customers would only purchase by price. I did argue strongly against it. And today argue no less for brand. Everyone can sell cheap. But you get no cheap loyalty with customers, you need brand loyalty!

So what is the Best Available Rate? Can that be the dumped price? Is it the best selling rate? How does it link to the Rack Rate? I don”t blame the pricing managers, they only do what their senior managements ask them and express as expectations. But maybe you should reconsider your pricing “policy”? Create one…?

Food For Thought…
Your comments sure welcome!

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There are no strangers! Just friends, I haven’t (yet) met…

The past weeks were very difficult to me. I have been asked for expert opinion on the impact of the crude oil price explosion and potential counter measures. With my background on technical projects, there seems an expectation, that I”d support the idea of tweaking cost by reducing staff further and adding technology as the panacea. In my eyes, that is short-sighted and simply stupid. As are airlines cheating the passenger …

1st semester in Marketing: It is far more expensive acquiring new customers than keeping existing ones. And far more expensive to recover a lost one. Customers selecting your product only because of the bargain price have no loyalty. Reliable business? Only if you use the opportunity to make them a loyal customer!

This is what the subject of this post is all about: Sale is personal. Service is personal. IT solutions can support staff by handling (a lot) routine work, mass mailings, etc. IT must be part of the distribution portfolio. But it can only handle the “bread and butter business”. Business development?
Addressing angry, mishandled customers with a friendly face or a personal phone call, I learned to be far more effective. Make them your friend…

And with travel becoming more expensive, the product becomes “luxury” again. Luxury usually implies a more personal sale and service! You better be ready…

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CRM… Say what???

What is “CRM” all about? Mostly, it”s a hype word, used by IT-companies to sell you (their) “off the shelf”-software, forcing you to their ways to qualify a customer. Back in 2000 at ITB congress, I was asked to address ad hoc CRM taking over a slot from a noshow-speaker. My question was – and is: What is CRM? It”s Customer Relationship Management. It”s about how to manage your relation to your customers. So what”s new?

But with all such hypes and other fairy tales, there”s a true core in them. A good CRM-software must support your existing processes. If it does that, it usually is a valuable tool! Off the shelf does usually not meet that criteria. The smaller your company, the more individual your (personal) relationship management with your customer. The only solutions I saw succeed where custom build or implemented in large, multinational corporations where individuality is not that much the issue any more.

So CRM-software is not the panacea for bad customer relations, it is a tool to enable access to your information. As such, it”s a good way to integrate information from the different departments communicating with the customer: Everbody knows at all times what is going on.
But that can be achieved very often by simply changing your existing address book and calender software to a centralized storage, i.e. with Linux, Exchange, …

Two side notes:
1. Don”t underestimate the work to “normalize” your data. Each and every data source that you must convert from it”s “native” or “export” file format to an “import format” usable for the CRM adds to the complexity of this vital job. And automatic matching is faulty (details on request). That”s a one time job, but a mission critical issue.
2. Don”t forget your customer. With travel increasingly becoming a luxury again, personal sales and support becomes a necessity again. Software may support the sales process, but (to date) that”s it!

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Revolution arising?

Taxes are not levied for the benefit of the taxed [L. Long]

Richard Eastman lately forwarded a mail to me: What is a Billion

It started to trigger a thought. I started to discuss with friends. I got … frustrated.

Having started with “a clean account” after World War II, Germany is now Third globally in state indebtedness. Paying off 1 Billion a year and no interest on the debt, it would take Germany 130 years to pay off. It took the politicians only some 55 years to reach that point.

Okay. So our national debt is unmanagable (or so the politics tell us), but instead of consolidating our national household, we spend +12 billion for development aid in other countries? That is a +140% increase compared to 2003 and is more than 50% of what the (somewhat larger) U.S. spend. If we keep the pace, we surpass them in 3-4 years… Austria and Switzerland together spend about 3,5 billion. China or Russia do not even show up on the chart. So we have the luxury to further increase taxes (Germany”s tax rules exceed the tax rules of all other worldwide countries together), add on to bureaucracy – but we have no money to provide child day care centers?

With the WIG-project, I also learned that such development could not be financed in Germany. Sure, I did not believe it – all basic technology has been developed and brought to prototype, aside the know-how, there are funds available. What a shock to learn (from DLR!), that these funds are “meant for basic research, not for R&D to convert existing technologies to products”…

Germans emigrate. We become an emmigration country – while Ireland or Portugal, the former poorhouses in Europe convert to immigrant countries.
An “unword” in Germany is the “migrator”, people trying to come to Germany. No, they are not immigrants in the eyes of the politicians – they are neither integrated.

I saw a report lately on the Weimar Republic (the one that lead to the Third Reich). I don”t know, if I was the only one, striken by the similarities. Oscar Lafontaine is called a demagogue even by the respected press and he mentioned on TV lately he feels that to be a compliment (I compare to Weimar Republic!). People vote for extremist parties – because the Grand Coalition in power today fails to address any of the peoples needs. Polititicans wonder, why the voters get tired of voting? Extreme parties increase their influence. From what I hear on the streets:

We are sitting on a tinderbox … with a short and already burning fuse.

Footnotes:
¹ I am a fan of space travel, get this right. I doubt, NASA being very effective, so I love commercial projects, such as Mars Direct or SpaceShipTwo. I believe NASA has become a bureaucratic dinosaur needing commercial competition.
² Humantiarian Aid is not in question. What I question is “monetary aid”, known to end up anywhere but where it”s needed. And to increase the amount spent (by +140% in five years) when consolidating the national household is said to be a top priority.

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Alternatives in Aviation – Cheating the Passenger?

The Cassandra-effect: When I addressed the situation on the crude oil market to airline managers earlier this year, looking back I feel like 1994, addressing the Internet: I was “the freak”.

The kerosine price explosion sped up the szenarios I did address. Just a brief recap of my theses: Flying will become a luxury again. How much longer until the low-cost-airlines need to update their models? The cost of operations exploding, airline managers become “creative” (the current FVW special addresses their dilemma). In order not to increase the visible price, airlines charge extra for each and every “standard” service. Kerosine charge, taxes, airport, credit card and even invented fees, a (increasing) fee for each and every bag, for the meal, the inflight entertainment, excessive passenger weight. This “procedure” is extremely short-sighted with a negative repercussion: The travelers feel cheated, the “public opinion” strikes back.
Airlines (not only the low cost) reduce frequencies, park aircraft. No longer records in aircraft orders, options are being returned to Airbus, Boeing, etc.. Am I the only one to see these facts? Kerosine-powered travel is doomed, new solutions will now be developed, tried – and succeed!

Some years ago, Jürgen Weber, at the time the boss of Lufthansa, questioned that the use of light crude oil may need to be confined to the aviation industry as all other industries would have possible replacements. So it is not the question that airline travel will become expensive again. Who in his right mind believes the crude oil will become cheaper again? Evolving into a luxury product, I question the “cost reduction” on staff and services. A friend lately compared it: They try to sell a Rolls Royce with wooden benches.

What now these weeks to me came nevertheless as a big surprise. In some of my presentations, I used this idea of a WIG powered with a hydrogen-engine as an example alternative to the fuel-consuming aircraft.
Meanwhile, I received a serious inquiry, asking if this is realistically possible. Research confirmed the feasability of the idea, so now the idea is being addressed with investors. Can it be true that I may become an “aircraft maker”???

While discussing this szenario ideas suddenly are being considered that have been Science Fiction from the 60s until today. Surprisingly even for me, who these people are, asking me for my ideas and opinions. Obviously, the prices finally exceeded the point, where such “Science Fiction” leaves the fiction and becomes a viable concept and a commercial possibility.

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Shift Happens (narrated)

I lately refer frequently to the video Shift Happens, giving in roughly six minutes a summary, what, how and why our time seems to be increasingly an issue and how the world around us is reshaped by globalization and Internet.

The source has been a small presentation (Powerpoint) done in fall 2006 for 150 teachers and parents. The presentation and it”s variants (such as the Youtube-video) have meanwhile been downloaded more than 5 million times!

The follow up video Vision 2020 in fact is meanwhile exceeded in expert discussions, expecting an “intelligent agent” to support automatic, qualified searches within a year – a change which impact is compared to the one when Google revolutionized the web search. Nevertheless, I do recommend also the 18 minute follow up video after you have watched “Shift Happens” (the video above) first.

If you wish to learn more, here is the site where it all began.

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Year: 2008