Taking Flight: How Customer Segmentation is Transforming the Airline Industry

Taking Flight: How Customer Segmentation is Transforming the Airline Industry

Customer segmentation is a key strategy in the airline industry that enables airlines to target their marketing efforts and deliver personalised services to every passenger, to improve customer experiences, and increase loyalty, leading to increased revenue and profitability.

There has been a lot of talk about customer segmentation and personalisation in the last few years – following the question, “What is the best way to segment my customers for marketing purposes?” It’s a question that doesn’t necessarily have one right answer, but there is an untapped opportunity for the airline industry to mature to customer expectations – offering greater choice, and the ability to experiment with offers, and is essential in meeting expectations for affordability, speed and quality.

But as markets have evolved, so do customers who have these expectations from airlines. Demographic segmentation may not fully identify passenger needs and motivations for travelling, nor does it reflect the changed travel behaviours, or even willingness to pay behaviour.

Segmentation had been solely limited to two demographics: business and leisure travellers. This was controlled through characteristics e.g., weekend stays, destination and duration, and flight class. But this collection of insights may not be able to customise product offerings sufficiently. Today, customers expect tailored content – with McKinsey’s report, Next in Personalization, identifying 71% of customers are more likely to buy from a brand that provides such tailored experiences. More worryingly for airlines McKinsey also evidence 76% of passengers get frustrated when they are not offered personalised interactions – passengers know it is possible and see the failure to do so as disrespect.

Customer segmentation in the airline industry that’s been based on dividing passengers by the purpose of the trip is no longer sufficient as airlines need to shift their attention to newer, alternative ways to create better segmentation to increase ancillary revenue for every seat sold. Adapting to a volatile environment requires the airline industry to redefine their customer segmentation approach, shifting to a more complex behavioural approach.

Why is Customer Segmentation important in the Airline Industry?

Travellers today are not choosing an airline based on only the price, but rather based on their intensive experience in terms of travelling and loyalty.

Airlines must think like retailers, and just like retail, airlines need to use data to lift morale for all passengers. Airlines already hold access to a great deal of data that’s enriched with purchasing decisions from everyone, and by prioritising data collection and analysis – ClarityIFR’s solution enables airlines to align segmentation to today’s conditions and purchasing behaviours in real-time by constructing relevant and target-group specific offers. As a result of doing so they shall unlock:

  • Greater relevant offers driven by continuous customer searches, purchasing history and pricing algorithms that will significantly improve customer engagement and satisfaction.
  • Customers will benefit from attractive, tailored offers that creates better conversion rates for airlines.
  • Improving product availability relative to predicted customer demand will optimise sell-through rate, reduce costs, and increase supply chain efficiency.

The value of this new segmentation lies in both potential dynamic pricing and merchandising: Read more.  

A key facilitator for tailoring and personalising engagement activity to specific customers drives acquisition and retention. This topic has emerged as a significant area of interest and development, and it will aid airlines in moving closer to being retailers within the travel industry.

How can Airlines Segment Smarter?

People travel for many different reasons, but airlines often don’t go far enough in meeting their specific needs. As highlighted, leveraging useful customer metrics like behavioural data can help you identify how your customers interact with your business.

Every customer has unique needs and different perception of products and service values. Airlines need to grow value in segmentation by identifying alternative, new opportunities. Finding different ways to segment can offer increased opportunities for pricing differences and form the basis of effective e-merchandising for ancillary services.

At the very least, behavioural segmentation offers airlines a more complete understanding of their audience, enabling them to tailor products or services to specific customer needs. Besides, behavioural differentiation as a form of customer segmentation delivers insights to airlines of behaviour patterns of the passengers who interact with airline e-commerce stores, order selection and purchase fulfilment, and divide those passengers into different groups based upon:

  • Their use of a product/service.
  • Their purchasing tendencies, such as buying frequency, or special occasions.
  • Their overall knowledge of the brand/brand’s products.

Ultimately, this objective for airlines is to identify those segments that can help them understand how to address different needs of different groups, uncover optimisation enhancement of the passenger journeys and to assess the potential it will have on increasing revenue and improving brand loyalty.