The encyclopedia · Strategy & Leadership · Strategic decision · 2002–2006
Travelocity modeled the traveler's choice and added $54M to earnings
Facing share losses in 2002, Travelocity and Sabre built an enterprise network model of customer choice; optimization added over $54M to earnings.
Travelocity
the move
In 2002 Travelocity was losing revenue and market share as the online travel business changed around it.
Travelocity and Sabre developed the enterprise network model (ENM), combining discrete-choice customer modeling with simulation and large-scale optimization.
The ENM improved management of supplier agreements, customer marketing, and product pricing. It contributed over $54 million to Travelocity earnings, at a current rate of $43 million per year.
why it works
- Discrete-choice modeling explained how travelers pick offers
- Simulation handled uncertainty in demand and competition
- Optimization aligned deals, marketing, and pricing with one model
- Retailer behavior beat agency behavior in a changing market
what transfers
When a marketplace middleman loses share, the fix is to know how customers choose: a demand model lets supplier deals, marketing, and pricing be optimized against one coherent view of the customer.
what came after
INFORMS cited Travelocity's Enterprise Network Model as yielding over $40 million in connection with its travel website when naming past finalists in 2007. The Interfaces paper reported the $54 million earnings contribution and the $43 million annual run rate.
references
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