Thursday, July 12, 2007

Take my money...please

If a firm has a great, great product but payment options are a hindrance then customers won't put up with the hassle of buying. Cash is a great liquid payment option, but it sure doesn't work online, and that is how the majority of travelers purchase airline tickets today, either through an airline's own website, a consolidator (i.e. Orbitz), or a travel agent. Cash payments tend to also raise a red flag in today's security-hyped times. That is where airlines have to find some other distribution and payment options. We have seen some creative solutions by airlines that adapt to the local culture. Air Asia and other Asian LCCs allow customers to buy tickets at 7-11s, ATMs, and video stores. Why? Because these are institutions that locals use a great deal and trust, and their tickets are priced such that customers of these institutions are the ones that airlines want to get a hold of. In Europe we have heard of Air Berlin and SAS discuss distributing their tickets via supermarkets. Research indicates that the woman in the house holds a great deal of sway in deciding where the family will go on vacation, and the woman tends to be the lead shopper for food; so placement of travel products in their location is ideal. Make it available and some may come.

It looks like Southwest has introduced a new payment option for its patrons, Paypal. Click here. Paypal is in essence an electronic bank account that can be used to make purchases online and does not require customers to enter sensitive information on a slew of websites. Rather, customers can link their bank account to their Paypal account, which instills trust in online purchasing. Northwest Airlines recently made the same option available to their customers. This a great way for these airlines to expand their reach by making payment for their services simple and inviting. As with all innovators, this is something new that maybe only tech-freaks will utilize in the beginning, but as online retailing expands more and more these airlines will be well positioned to benefit.

Paypal was purchased by online auction house, Ebay, in 2002 and offers travel solutions on its site. I was unable to determine if genuine travel auctions are offered by Ebay, but this may be a natural transition for airlines like Southwest and Northwest. However, this distribution method has contributed to the commodization of the airline industry and I would imagine that airlines would be hesitant to going down that path after their experiences with Priceline. That may be a future topic for this blog. However, if these airlines strike a deal by distributing their seats via Ebay, bypassing the auction function, may be an interesting distribution method. Definitely something to keep an eye on.

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