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RETAIL/F&B Last modified on April 5, 2019

The digital marketplace

AOE’s Kian Gould provides his thoughts on how the key players can thrive in a changing travel retail world.

Travel retail today is a vastly different industry than it was five years ago, let alone ten or twenty.

Changing demographics; the ubiquity of low-cost carriers; declining per passenger spend, despite steadily increasing passenger numbers; changed purchasing behaviour; and the omnipresence of smartphones are just a few factors that are forcing airports, airlines, travel retailers and brands to rethink their business models.

On a global basis, approximately 50% of all revenues at airports is from non-aviation sources, making non-aeronautical revenue the most important single source of income for airports today.

Non-aviation revenues thus represent one of the most important strategic areas for the future of the industry.

But, what does that future look like? How can airports, airlines and retailers meet the manifold challenges they face? And, how can they tap into the vast potential that new non-aviation revenue streams represent?

The digital arport commerce ecosystem as a foundation for growth

Airports need to be innovative and creative in rethinking their business models. Travellers are spending more and more of their money online, thereby leaving less for airport shopping.

Airports and airlines need to be present on those digital channels if they wish to stand a chance at improving retail revenues and winning back the business of digital passengers.

At the same time, passengers are increasingly planning their purchases, rather than shopping on impulse. Current figures indicated that more than 70% of all purchases are pre-planned. In other words, travel retail disruption, digital and otherwise, is well underway; major airports and airlines have already begun to digitalise their businesses dramatically.

The problem is that many efforts to date have been standalone solutions, based on Reserve & Collect systems that are outdated, with low conversion rates and little focused communication with the target audiences.

To meet customer expectations, tailor-made product promotions and communication must be offered on a smart platform that enables cross-selling and upselling of products and services of all integrated shops and service providers.

If airlines, airports and retailers want to engage travellers digitally and convert them into shoppers directly at the airport, they will need to build a more holistic, end-to-end solution – the digital airport commerce ecosystem.

The travel retail ‘quaternity’: Collaboration of all key players

To achieve this ecosystem, the key players of the aviation industry need to redefine their business model along the lines of what can be called ‘the new quaternity of travel retail’, comprising the four major groups of stakeholders – airports, airlines, retailers (duty free) and brands.

Although the players pursue different, and sometimes competing interests, they need to collaborate to be successful. The overall goal for everyone is to create a truly seamless customer experience within the ecosystem.

Each stakeholder contributes his or her core strengths to this joint proposal. In this model, the airport evolves into the (digital) marketplace provider, bringing everyone together and providing the required services such as logistics, wayfinding, real-time delivery, real-time flight information, etc – services that only airports have the facilities to provide.

Retailers and brands can provide a fitting and compelling product offerings, both digital and physical. Collaborating with airlines, retailers and brands allows airports to engage with the passenger from the very beginning, even before the passenger starts his or her journey.

In this model, airlines play a special and vital role as many have realised that pure inflight shopping from the cart is no longer a viable business case, as it almost 100% relies on impulse purchasing.

Cost of transport for goods is high, while range is extremely limited. In addition, luxury products often remove themselves from this equation as they fear damaging the premium image of the brand.

Nevertheless, the airlines possess a treasure trove of passenger data that in theory could enable all stakeholders in the quaternity to sell products and services of the airport with a high degree of personalisation and accuracy.

Unfortunately, in today’s travel retail industry, airports and airlines still tend to work against each other rather than co-operate; it will require a significant change of perspective to realise that, together, everyone can increase the size of the pie – and corresponding revenues and customer loyalty – significantly.

Obviously, this is far more preferable than each side continuing to cannibalise the other stakeholders’ shrinking piece of the total, smaller, pie.

Benefits for airports, airlines, retailers and passengers

Beyond such overarching benefits such as customer loyalty, increased revenues and expanding one’s target audience, there are benefits that are specific to each stakeholder group.

For example, the digital airport commerce ecosystem provides airports with their own digital marketplace, which offers a wide range of products. Other benefits, especially for airports, include additional generation of traffic and revenue, use of additional sales channels via API commerce and – above all – a seamless digital customer experience.

Airlines, on the other hand, can offer a larger product range in channels they control. By offering goods through an omnichannel platform, they can sell products without having to have them on-board, as in a traditional in-flight sales model.

In addition, such a platform provides airlines with the possibility of focusing their marketing on very specific target audiences, even down to the individual passenger level.

The ecosystem also provides airport services, thus providing airlines with additional ways to generate revenue. Or, to put it in another way, the digital airport commerce ecosystem is a way for airlines to monetise customer data, which, until now, was primarily used for flight-related information.

Brands and retailers also stand to benefit considerably from the ecosystem. Some of the benefits include the creation of an additional sales channel beyond the actual store as well as any existing digital channels.

Through access to valuable customer information, retailers can provide personalised shopping offers to suitable target groups, offer premium products, generate more traffic and increase their conversion rates.

In addition, the digital airport commerce ecosystem also provides retailers with numerous opportunities for cross- and upselling.

Finally, there also many benefits to passengers within the ecosystem. One of the most important of these is immediate product availability – passengers can look at and examine products in the store before purchasing.

Shopping within the ecosystem, be it online or offline, leads to higher conversion rates and a more satisfying customer experience. In addition, it provides a number of delivery and pick up options such as pick up in stores, collection points or at lockers as well as home, lounge or gate delivery.

Building the ecosystem: Necessary building blocks and success factors

An end-to-end digital airport commerce ecosystem cannot be built with out-of-the-box software. Such a set-up requires an API-based, digital solution that can be integrated into any IT environment and can deliver on a number of fronts.

Not only must such an ecosystem be capable of providing omnichannel e-commerce, it must also be connected to all available airport services such as parking, fast track, lounge access or loyalty programmes.

In addition, it must also support the integration of numerous products and data formats as well as different software solutions such as business intelligence, ERP, PIM, CRM, order management, fulfilment, logistics, etc.

To be successful, the ecosystem must offer passengers multiple touchpoints before, during and after their journey as well as an attractive premium product range that goes beyond the model of traditional, impulse-driven duty-free shopping.

Other success factors include sufficient customer traffic in relevant channels, personalised communications and promotions across multiple channels and features that support planned shopping, cross and upselling.

Building a digital airport commerce ecosystem is a daunting task for any airport. It requires a change in mindset as well as changes in business models, processes and sometimes, organisations. It is, however, the only viable option in the face of manifold challenges faced by travel retail.

About the author

Kian Gould is the CEO and founder of AOE, a leading global omnichannel e-commerce and digital transformation experts within the open source space. He is a regular speaker at global conferences and a well-known expert in airport digitalisation.

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