The Activ8 team are experimenting with some new analytical blogging tools [watch this space for news on HIIDRA]. So as part of the “dog fooding” process Activ8’s Peter Burton has been generating some additional content for the Activ8 Blog.
Mephisto is the third generation adserving platform that Activ8 have been developing in the background over the last 3 years. It brings together a lot of the founding teams learning from SPACEAsia, from being part of CMGI media company engage and most recently acting as a publisher for the Outblaze media properties.
Mephisto’s yield management methodology borrows elements from the airline, supermarket and the express distribution industries. The common thread is yield maximisation and the associated decision tools used.
Sir Colin Marshall’s when he was CEO of BA in the 1990’s would describe an airline seat as “the ultimate perishable item” and that once an aircraft had taken off with an empty seat, how, the airline had lost the opportunity to earn revenue.
A banner on a website can be viewed similarly. Selling an ad on a website is not much different from filling an airline seat with a fee paying passenger.
With the reduction in hardware costs, the increase in raw computing power, the use of CRM and data-mining techniques; this “black art”; of yield management is becoming more and more affordable and is helping drive ROI by allowing trends to be spotted in near real time as massive amounts of data are processed and analysed.
Airlines work on the yield management equation across a number of hard and soft areas within their business, linked by their Yield Management and CRM systems.
On the hard side they look at how at any point in time an aircraft is filling up. Based on real data built up over the years they look to maximise the yield from each seat:
- on each and every aircraft
- on each and every route
- from each and every destination and
- from each currency unit at any point in time.
The above dictates how the tickets are sold and the management of over booking.
Yield management one might say is the alchemist stone of airline profitability. Correctly handled it can yield gold for the shareholders. Badly handled it can yield disaster, for a failure in yield management amounts to a failure to make the most of a hugely expensive aircraft.
The leading full service carriers like Cathy Pacific and the new low cost carriers like JetBlue, easyJet, Ryan Air are now taking this to the next stage incorporating sophisticated online demand based pricing too into their e-marketing tool sets.
On the softer side airlines also manage very carefully their loyalty programmes. Gone are the days when you could flirt with the check-in clerk and hope to get an upgrade. Today any upgrade is directly linked to your personal value to the airline. In a vastly competitive market airlines are continually looking at ways of retaining existing customer and rewarding their best and most loyal customers. What’s sometimes called “differential servicing”. With the data that is available from their loyalty programmes they are continually looking to WOW their members, reinforce their brand and keep you, the passenger, flying with them.
I came back from ad:tech in Hamburg last year on my birthday on Cathy Pacific. I was greeted when I arrived at check-in, and automatically upgraded to the next class. On the flight at breakfast I had a birthday card and a little present from the crew. WOW. This was something that cost Cathy next to nothing, except in the organisation and execution of the back-end processes to make this WOW a reality (something not to be underestimated).
So we have dealt with Mephisto and Airlines, now to the final part Mathematics. In maximising the return on selling airline seats or selling ads within a websites requires the application of mathematics in various guises.
I thought to end I would leave you with a quote from Prof. Michael Guillen PhD of Harvard University. In the Introduction to his book “Five equations that changed the world” (Abacus Books, 2000) he has this quote :
“In the language of mathematics, equations are like poetry. They state truth with a unique precision, convey volumes of information in rather brief terms, and often are difficult for the uninitiated to comprehend. And, just as conventional poetry helps us to see deep within ourselves, mathematical poetry helps us to see far beyond ourselves – if not all the way up to heaven, then at least out to the brink of the visible universe”.
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