Think about not having to switch between suppliers to book a flight, a room, and local activities. Imagine a trip-booking solution that lets you change tour content easily.
Choose a platform that aligns your budget with your entire trip, including accommodations and activities. Well, dynamic packaging systems have been around for a while. Some key players in the travel industry have taken this approach.
Our blog focuses on dynamic packaging solutions: “the future of selling experiences”, its types, its impact on travel businesses, its benefits, and how it works.
Table of Contents
What is dynamic packaging?
Using travel dynamic packaging software, travelers can create customized tour packages of hotels, flights, car rentals, attractions, and events. Dynamic packaging engine solutions allow customers to take control over their trip and vacation planning thanks to their inbuilt flexibility.
This is one of the main differences between traditional packaged tours and dynamic packages. Dynamically generated tours allow users to configure their trips using a single interface and receive a fee estimate based on individual pricing and availability.
In dynamic packaging tools, flight packages, hotels, car rentals and other travel components can be dynamically purchased in real-time. Package dynamism is also defined by price quotations in addition to travel content customization.
Types of dynamic packaging
Dynamic packaging mechanisms can be classified into the following types based on how the pricing models are built:
1. Semi-dynamic packaging
Package prices change based on selected components, while inventory prices remain static. In systems with legacy revenue management modules, this approach is more common. It is rare for prices to change since they are centralized. However, if something needs to be changed, it has to be done manually.
2. Dynamic pricing
A package’s cost is the sum of variable inventory prices. Variability in prices depends on factors specific to each inventory. Among these factors are the type of customer, the supplier of inventory, the availability of services, or the demand for the service.
3. Full dynamic packaging
A yield management approach is applied here based on the value for the customer, inventory combinations, etc. For example, a user can increase the price of a hotel if he or she chooses more expensive flights.
It’s a win-win for both sides when it comes to dynamic packaging. Buying travel-related products on different platforms is no longer a hassle for customers. Furthermore, a packaged deal is cheaper than purchasing each component separately. The suppliers can, in turn, hide their discount rates and gain a higher profit margin.
The impact of dynamic packaging on travel businesses
Many online travel agencies are still in the process of adopting dynamic packaging, which is not new to the travel industry. It’s good news that the approach is becoming more popular as consumers demand a one-stop shopping experience – where they can book multiple services through one search.
What are the potential benefits?
1. Marketing cost reduction
After the pandemic, many travel companies spent a lot of money on advertising and marketing to win back their customers.
Although dynamic packaging will not eliminate the need for third parties entirely, it can help attract more customers who would prefer to book directly.
2. No need for discounts everywhere
It’s very attractive for travelers to get discounts, but OTAs(online travel agency) lose a lot of money when they apply them to all aspects of tours to attract more customers. Dynamic and semi-dynamic pricing allows you to keep your customers while growing your profits. Why? A bundled offering saves travelers money while not cutting the price of separate tour items.
3. Reduce the risk of unsold inventory
For example, some hotels may find it difficult to sell all of their rooms at their usual rates, so they have to lower their prices. You can minimize the risk of unsold inventory by bundling them with popular deals like attractions, airport transfers, or additional room services.
4. Flexibility with operations
A key advantage of building your own holiday is its flexibility. There are no such restrictions when it comes to designing and building your own holiday when compared with traditional package holidays with set durations and set departure dates.
By booking separate travel components (flights, accommodation, transfers, car rental and excursions), travelers are able to allocate their travel budgets accordingly, for instance between flights and accommodations.
5. Integrated with inventory management
An inventory management system, a markup engine with business rules, and a ticket issuing and resolution system are all included in travel software that dynamically packages flights and hotels.
This software allows you to offer dynamic packages to your customers directly from your website. Travel retailers can benefit from a dynamic package solution designed by a travel technology company.
6. Real-time operation management
Travel retailers can package several travel products in real-time and sell them through multiple distribution channels in one transaction with travel agency software that offers a dynamic packaging of flights and hotels. A travel agent can package both internal and externally sourced products (air, hotel, activities, transfers, cruises, etc) with such sophisticated software.
7. Customized Over-the-air (OTA) packaging
Currently, most tour operators offer a total price for a tour, whereas OTAs offer a component-by-component price. By automating dynamic pricing, both types of businesses can provide a holistic booking experience that defines their core values.
The tour operator automates their existing processes, while the OTA introduces packages with inventory properly timed and aligned to the preferences of the user.
Airlines and hotels can also use dynamic packaging. Booking external services, such as car rentals and attractions, can increase direct bookings and simplify travel shopping for hotels and airlines. There is no need for customers to switch providers.
8. Budget-friendly solutions
Despite dynamic packaging’s goal of cutting costs for tour operators and increasing conversions for OTAs, it has one significant disadvantage. Customer support efforts must be re-evaluated and additional investments made as a result of the distribution of travel packages.
A personalized customer experience also contributes to the interest in packaged tour solutions: Let’s see how dynamic packaging software works.
The process of dynamic packaging
There are three main layers to a typical system: supplier integrations, business logic, and user interfaces.
1. Supplier integrations
In a packaging engine, supplier integration plays a crucial role as the foundation layer. The availability of inventory for booking is based on the integration with different suppliers. Supplier selection depends on several factors, including target markets, inventory availability, and API support.
There are two main engineering challenges here: inventory search consolidation and system integration. Consolidating inventory search involves aggregating information from various APIs, each with its own inventory and technology. Dynamic pricing systems typically use the following sources of inventory:
- Global Distribution Systems (GDSs)
GDSs provide travel retailers with information about airlines, hotels, and ground transfers. In addition to providing basic data, such as availability rates, they also offer booking opportunities. There is a significant share of the market that is covered by GDSs at present.
- Central Reservation Systems and Computer Reservation Systems (CRS) of hotels and airlines
Suppliers use these systems to consolidate information about inventories. Suppliers can directly supply inventories to an OTA or tour operator. CRS has the following main drawbacks:
- Legacy systems,
- APIs aren’t available, and
- To achieve decent coverage, it is necessary to connect with many suppliers.
- Bed banks and wholesalers
Most of these providers are involved in the accommodation industry. Travel wholesalers and bed banks provide detailed information on travel inventories and modern API support. Even though they consolidate fewer suppliers than GDSs, the integration does not require additional certification.
- Events and attraction providers
OTAs, local providers, and B2B wholesalers provide information and booking capabilities for museums, attractions, and events within this category.
- Car rental suppliers
A smart move would be to consider local rental car companies. Through their APIs, they provide both information and booking capabilities.
2. Dynamic packaging software’s business logic layer
The tour packaging engine comprises an inventory delivery engine and a presentation layer, which serve as the middle ground for the system. What are the software solutions for dynamic packaging?
The following are typical functional modules of dynamic packaging software.
- Integrated inventory management system tracks and manages everything related to inventory, from production to availability.
- A travel booking engine that allows customers to make all their reservations online.
- An integrated payment system that automates the payment acceptance process by integrating with your customer relationship management system.
- A multilingual and multicurrency support module will enable you to reach a global audience.
- A revenue management system or yield management system helps predict customer demand and determine the best price for a product.
- An automated workflow management tool that coordinates and organizes tasks.
- Data import/export and reporting (business intelligence or BI) help you get valuable insights and make data-driven decisions by providing you with a 360° view of your business.
All of these components must be cross-integrated with efficient data flow between them to enable dynamic packaging. Due to the lack of consistency in the data collected and the slow exchange of information, dynamic packaging is difficult to integrate into existing booking systems.
Legacy systems require staff to switch between different software environments, using separate software for booking, payments, content management, and workflow. Operations become time-consuming and inaccurate.
Data transitions are also incomplete and delayed. Travel agents and customers are frustrated by outdated prices and a lack of information about travel content.
Dynamic packaging should also include revenue management systems and AI-based recommendation engines.
3. Customer facing layer
Modern online distribution requires a user-friendly travel portal. Travel retailers who sell dynamic packages and OTAs with a common booking UX don’t have much in common. However, it must be intuitive and user-friendly.
There are some basic approaches to making package creation smooth and intuitive for users:
- Modular design
Using an existing interface flow, you can break the package down into logical sections (for example, Hotel > Flight > Transfer).
- Price and schedule visibility
Make sure travelers can see how their choices impact the final price by listing multiple flights, ground transportation, and accommodation options per step. Furthermore, you need to include upsell price adjustments if an opaque price isn’t applicable.
- Collecting explicit data
It’s always a good idea to ask users directly about their trip specifics, regardless of whether you have a personalization engine under the hood. Enhance the search and simplify booking by adding fields such as “business traveler,” “need a hotel for part of my stay,” “driver’s age,” and “flexible dates.”
- Activities and tours based on user preferences
With location, time, and accommodation data, you can use a simple rule-based recommendation engine to suggest relevant attractions. Upselling T&A is a good way to increase sales.
- Customer care chatbots
The chatbots cannot handle all customer issues, but they can assist in the booking process, particularly for older users.
Dynamic packaging: disruptive technology opportunities
To enhance functionality and modernize a dynamic packaging system, incorporating technology solutions can bring significant benefits. Here are some key solutions to consider:
- Package recommendation engine
Recommendation engines play a critical role in eCommerce solutions. A recommender engine can transform dynamic packaging into a full-fledged vacation planning platform since its goal is to create a personalized end-to-end travel solution. In the travel industry, personalization engines can be built in three ways.
- Classification and scoring
Using this technique, users are grouped by travel type, location, budget, and destination. Regardless of the packaging solution, it provides a basic level of personalization.
- Personalization content
It is also possible to build a recommendation system by applying a content-based approach. The method compares a traveler’s previous choices with predicted options. When a traveler opts for a low-cost flight, the system recommends a three-star hotel.
- Collaborative filtering
Collaborative filtering is a powerful technique that recommends personalized travel products based on the preferences and choices of other users with similar features. This method is particularly useful when explicit attributes like price and amenities don’t provide a comprehensive understanding of the desired travel experience. Most personalization engines have a cold start problem. If the system doesn’t know a user well, it will take some time to gather relevant data to provide meaningful recommendations.
As scoring and classification methods can work with initial traveler data, they partly circumvent this issue. For the other two to work properly, more time and user action tracking will be required.
- Package revenue management
Dynamic packaging engines are more competitive when they include a revenue management module. Customer segmentation, supply and demand insights, yield, and pricing data are used to achieve optimal sales.
Yield management can generate the most value for the system. For travel resellers, this functionality is crucial. Since tour providers don’t control inventories, they have to deal with a lot of uncertainty. This makes mediators’ tasks more complex than those of hotels and airlines. A recent trend here is to use machine learning strategies for
- dynamic pricing.
- yield optimization,
- demand forecasting, and
- customer segmentation
Implementing dynamic packaging
Dynamic packaging involves not only technical expertise but also reaching new markets. For building and integrating a dynamic packaging engine, consider these steps:
- Evaluation and research
Identify the business need. Identify the company’s goals for integrating dynamic packaging and why you need it. Identify and document the system’s requirements. Analyze the project’s return on investment.
- Choose inventory suppliers
Matches will vary depending on scale, types of inventory, and destinations. You can either use GDSs, inventory wholesalers, affiliate programs of large OTAs, or get directly in touch with suppliers.
There are three options: in-house development, engagement with a travel technology consultant, or integration with an existing software system. We recommend consulting involvement before building an innovative solution with an AI-based recommendation engine and advanced yield management functionality.
- Process reshaping
Travel organizations can boost efficiency and optimize performance with the new system. Examine the areas affected by integration and the changes that are needed to train staff.
- Analyze project results
It is necessary to evaluate the results of implementation both in terms of financial changes and customer feedback. This information can be used to enhance the development pipeline further.
Dynamic packaging offers travelers a one-stop travel experience. Dynamic packaging is an effective marketing strategy for single-segment OTAs. As a result, it is an excellent opportunity for startups. As an alternative, tour operators can tailor packages based on precise knowledge of customer preferences to make the customer experience more flexible.