Brand Pariah: Supply chain lessons from the United Airlines Disaster
The current viral fury over the way United Airlines “re-accommodated” an unlucky passenger from Chicago to Louisville offers one massively obvious lesson for anyone with a brand name in today’s digital fishbowl: don’t be the pariah.
The CEO’s initial retort that the passenger had been “disruptive” was insulting and pathetic. The reaction of investors who quickly wiped $1B off the company’s market cap was a lot more disruptive. Anyone accountable for the value of a brand must see how important it is to avoid tainting the name in any way, especially if the story has social media edge, like this one did.
The second lesson is far less obvious, but potentially much more important.
As a very frequent flyer myself I understand the dynamic behind this incident. United needed the seats and was offering deals up to $1,000 for any volunteers. The fact that there were no takers, however, should never lead to the next step, which was to randomly (we are told) select passengers to bump involuntarily. The next move should simply be a higher bid for volunteers.
I wrote an article a while back asserting that flying was too cheap and a good number of comments came in hot complaining that I wanted to see air travel restricted to the rich. Nonsense. I want to see sustainable business economics reflected in prices. This not only includes higher ticket prices to better reflect the full cost of flying, but also higher bids from airlines looking to free up oversold seats.
In terms of supply-demand balancing this has to be where airlines go since United’s mess could easily have happened to any of the big names.
Pricing is one area of business where supply chain thinking still hasn’t worked its way deeply enough into business strategy. Dynamic pricing, which procurement people not only understand, but routinely exploit to mutual gain, is too little known downstream at the point of consumer sales. Done effectively, it could unleash huge power to improve everything from customer satisfaction through corporate earnings and ultimately even social and environmental impact.
Let’s assume the legal and cultural barriers to widespread dynamic pricing fall. The only serious hurdle to negotiated prices for every transaction is having complete visibility to the supply chain story for each item/location/time combination. Business needs to know the total cost to serve. Customers need to know exactly what they’re buying. Providing both sides with complete information surely improves the odds of a mutually agreeable deal being struck.
Today, this is accomplished very clumsily with markdowns and promotions as pricing levers and labeling disclosures on packaging as declarations of value. CPG, apparel and even durables manufacturers get squeezed on this by retailers, who in turn are getting killed by shoppers. The problem is that old-fashioned, shelf-oriented supply chains are suddenly unbalanced by Google, Amazon and an endless array of free information sources over-empowering the consumer.
Digital pricing includes not only the technology to change prices electronically, but also the ability to plumb operational data to fully understand costs. This certainly requires precise cost-to-serve analytics on materials, logistics and inventory, but also opportunity costs like being out of stock at the wrong time when demand peaks. Technology now emerging – including things like Blockchain, artificial intelligence and Uberization – can be purposely combined to feed the analytical engine that sits behind the price display. E-commerce leaders already understand and exploit this, even if their systems are still nascent.
More than just Fair, Dynamic Pricing is Better
People sometimes fret that this kind of thinking is divisive and unfair. I argue that different prices for the same thing at different times, or even different prices for people who can afford to pay more is just common sense. We all understand that hotel rooms, tickets to sporting events and other routinely negotiated prices vary. I believe we’ll gradually come to not only accept, but appreciate dynamic pricing.
It can be used to reward sustainably sourced products. It can be used to ensure front-of-the-line service. It can help clear loser products while accelerating development of winner products.
It also would have kept United Airlines from becoming a brand pariah.