Getting the price right

IBM Business Analytics provides the technological foundation for building customer-focused pricing

Published on 31-Oct-2011

Validated on 12 Feb 2014

"With the help of the new Business Analytics solution from IBM, TUI Deutschland GmbH has exceeded the goals it set for itself. Pricing is much faster and less complex, brochure prices are consistent and the innovative, customer-focused approach to pricing will ensure increased profits." - Matthias Wunderlich, Head of Business Intelligence, TUI Deutschland GmbH

Customer:
TUI Deutschland

Industry:
Travel & Transportation

Deployment country:
Germany

Solution:
BA - Business Analytics, BA - Business Intelligence, Big Data, Big Data & Analytics, Big Data & Analytics: Customers, Big Data & Analytics: Operations/Fraud/Threats, Smarter Computing, Smarter Planet, Optimizing IT

Smarter Planet:
Smarter Transportation

Overview

With a market share of over 20 percent, TUI Deutschland GmbH is Germany’s leading tour operator. In Germany, the TUI Group comprises not only the core TUI brand, but also a number of other well-known brands such as 1-2-FLY, Airtours and the TUIfly airline, as well as specialist providers Gebeco and L’TUR. This enables TUI to cover the entire range of holidays, from premium to budget.

Business need:
TUI Deutschland GmbH wanted to make pricing less labour-intensive and set prices that were more appropriate to the market and its customers, so it decided to automate the pricing process and integrate it into a single centralised solution.

Solution:
TUI Deutschland has created a pricing system based on IBM Business Analytics technology that speeds up the pricing process considerably, while ensuring it is precisely tailored to customer behaviour.

Benefits:
Information from all the company’s existing systems is combined, adjusted and processed according to mathematical logic in the Business Analytics solution. The pricing process is unified in a single application. Pricing specialists can process relevant data at the touch of a button and define optimum price offers for each destination very rapidly. The solution accelerates the pricing process by automatically calculating all the factors relevant to pricing. Pricing specialists simply set the required parameters and margins in order to determine the optimum prices for the season in question.

Case Study

To read a German version of this case study, click here.

With a market share of over 20 percent, TUI Deutschland GmbH is Germany’s leading tour operator. In Germany, the TUI Group comprises not only the core TUI brand, but also a number of other well-known brands such as 1-2-FLY, Airtours and the TUIfly airline, as well as specialist providers Gebeco and L’TUR. This enables TUI to cover the entire range of holidays, from premium to budget. TUI Deutschland is a wholly-owned subsidiary of TUI Travel PLC, the world’s largest travel and tourism company. Listed on the London Stock Exchange, it has a presence in 180 countries and serves more than 30 million customers.

Agility is the key
Now more than ever, the volatile travel and tourism market calls for agility, as customers demand better service and competition intensifies. Only those who precisely tailor their service offering to market demands will succeed in achieving a competitive edge. TUI Deutschland GmbH faces major challenges in this regard, due to the size of the company and the complexity of the market. A wide variety of system landscapes produce huge volumes of data, while thousands of employees and partners, not to mention millions of customers and products, have to be coordinated and integrated into a smooth-running whole that can respond flexibly to market demands. This was why TUI Deutschland renewed its business intelligence solution in 2009, implementing an architecture based on IBM technology. This cross-system and cross-departmental solution enables heterogeneous data to be turned into reliable business information, available on demand, to help in making operational, tactical and strategic decisions.

Another factor that is vital for success in the market is targeted pricing: the company that accommodates customers’ preferences and habits when setting its prices will create a competitive advantage for itself. But for a large tour operator like TUI, this is no mean feat. Each season, the employee who is responsible for a particular product is faced with the challenge of setting around 100,000 prices for each destination region within his or her brand portfolio. The factors that affect the final price of accommodation services, for example, are many, and include room facilities, occupancy options, arrival dates and expected demand.

“In the past, decision-making processes were not clear, nor were they transparent for all those involved,” explains Matthias Wunderlich, Head of Business Intelligence at TUI Deutschland GmbH. “What’s more, there were too many gaps in the system, since the information needed to make pricing decisions was hidden in different places. The result was a pricing process that was complex, laborious, time-consuming and occasionally inconsistent.”

Consistency and customer focus are the order of the day
In mid-2009, TUI Deutschland chose to expand its BI landscape and automate the pricing process. The idea was to ensure that all pricing-relevant information was always available to those who needed it by holding all the data in a single centralised solution. By taking this step, the company wanted to speed up the pricing process, keep prices consistent, better coordinate the product range with market demands and, finally, become more customer-friendly in order to stand out from the competition. The crucial question was one of perspective: pricing would no longer be product-driven, but would focus instead on the customer’s buying habits – helping to meet their requirements even more precisely.

Combined expertise
At the end of 2009, Matthias Wunderlich’s project team developed a specialised concept, with the support of the IBM Analytics Solution Center (ASC) in Berlin.

“The IBM ASC offered us the combined specialist expertise that was needed for this project – not only from a technological, but also from a sector-specific point of view,” says Wunderlich. “The local consultants from IBM Global Business Services also got to grips with our particular issues quickly, helping to further develop the specialised concept and integrate it into our business workflows.”

Working together with representatives of TUI Deutschland’s 18 pricing specialists, the team defined a new pricing model to serve as the basis for the new software solution. Augsburg University’s Chair of Mathematical Models in Economic Sciences had a major role to play in developing the new, customer-focused pricing concept: the institute created a mathematical algorithm that represented the previously specified pricing rules and automated some of the decisions that have to be made.

Finally, the detailed concept and the mathematical logic reached the IT implementation phase. The TUI project team, together with IBM consultants, developed a model and a user interface based on IBM technology that reproduced every single aspect of the specialised concept.

“The decision to go with IBM quickly paid off. The Business Analytics and Optimization approach followed by ASC Berlin is perfectly aligned with the needs of modern companies. The same goes for the consultants at Global Business Services. Since they do not restrict their thinking to one division or product, they understand the particular features of our sector and they are always 100 percent focused on finding the right solutions,” says Wunderlich.

Pricing made easy
The newly developed solution was used for the first time in early 2010, with the prototype being trialled for the sample destination region of Tenerife. The Business Analytics software automatically structures and clusters historical booking data, and all pricing-relevant information is made continually available to the pricing specialists via an intuitive user interface. The pricing specialist defines the desired margin for a particular destination region and specifies the corresponding parameters for calculating results. The solution then automatically calculates all the possible combinations and dependencies until the optimum result is achieved. It automatically forecasts which group of customers will drive demand for particular accommodation services at each point of the season to be priced, from coastal hotels for families during the school holidays to luxury hotels with first-class amenities for premium customers during the low season.

The combination of purchase prices, desired margins, occupancy rates, historical revenues, defined auxiliary conditions and competitor offerings results in optimised approximate prices that are automatically checked for consistency and corrected if necessary. At the end of the procedure, the pricing specialist adopts the final prices directly for use in subsequent processes such as brochure production.

Less work, more profit
The new solution, based on IBM Cognos, has drastically speeded up the pricing process at TUI Deutschland. Previously, pricing specialists needed around two hours to set the seasonal prices for a single hotel in a particular destination region. Now, the entire destination region (of approximately 100 to 150 hotels) can be priced within four working days at the very most. Additionally, pricing is now 100 percent consistent all of the time.

“We have to ensure that a four-star hotel, for example, is always cheaper on any given date than a five-star hotel in the same customer segment where there is demand for both,” explains Matthias Wunderlich. “With the new solution, this is automatically guaranteed, and there is no need to perform a time-consuming manual procedure to ensure it is done correctly.”

At the same time, the new pricing process is precisely focused on the needs and habits of customers, based as it is on certain customer clusters. The pricing specialist is thus able to set prices that are more attractive to customers, while still achieving the desired margins.

“Traditional pricing methods are no longer appropriate for today’s travel and tourism market,” says Wunderlich. “The countless factors that must be taken into account meant that in the past it was practically impossible to set prices in a way that was flexible and customer-focused. This has all changed with the new IBM solution. The pricing specialist in effect becomes an expert in a particular customer group and knows exactly what a certain customer is prepared to pay for a certain travel service. This increases profits, but not at the expense of our customers.”

Smart pricing – for today and tomorrow
The new solution proved its worth during the initial test phase and TUI Deutschland has been working on its full implementation since February 2011. The solution has already shown itself to be extremely valuable in the field of flat-fee products. It links the company’s individual systems, combines information in digital format and automatically aids the pricing process by providing intelligent calculations.

In future, the pricing system will be further expanded, integrating more complex product lines into the pricing process. The adaptation is being tested for long-haul trips, premium trips and self-made bookings. Furthermore, the new solution creates the perfect basis for flexibly readjusting prices even within the same season, enabling the company to act with more agility and customer focus in the volatile travel and tourism market.


About IBM Business Analytics
IBM Business Analytics software delivers complete, consistent and accurate information that decision-makers trust to improve business performance. A comprehensive portfolio of business intelligence, predictive analytics, financial performance and strategy management, and analytic applications provides clear, immediate and actionable insights into current performance and the ability to predict future outcomes.

Combined with rich industry solutions, proven practices and professional services, organisations of every size can drive the highest productivity, confidently automate decisions and deliver better results.

Products and services used

IBM products and services that were used in this case study.

Hardware:
System p

Software:
InfoSphere Warehouse, Cognos Business Intelligence, IBM ILOG CP Optimizer, WebSphere Portal

Service:
GBS BAO: Business Analytics and Optimization Strategy, IBM Global Business Services, Information Agenda Engagement

Legal Information

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