Executive Summary
Unlocking growth from business travelers, through loyalty
programs and seamless connectivity
- business travel can set off DSB on a sustainable growth path towards 2030
After a turnaround, DSB is ready to pursue topline growth
After a series of troubled years, DSB is now firmly back on track, ready to
transport Danes to and from their jobs, families and friends. Despite
internationally high punctuality, DSB still hold an unfavorable reputation in
the Danish population. Nevertheless, the ambition is to grow the total
number of traveled km by 7.5 % in three years.
While the needed growth is not far from what has been seen in recent
years, DSB has a unique opportunity to explore new sources of growth,
helping them reach the ambitious 2030 target, while satisfying their social
and political obligations. However, for the next few years, no major
improvements in infrastructure can be expected, so growth must come
from better utilization of idle capacity.
While business travel is currently a small area, it holds the most
promising, unexploited growth opportunities of the segments
Although commuters have previously driven growth, rush-hour travels
have reached the capacity limit, and improvements can not be
expected within the next three years.
Extra travelers needed to
reach growth goal
Leisure
While DSB launched a business travel offering, WorkPlus, in 2009, it has not
realized its growth potential yet. Crucially, to attract larger firms, the
reputation and status of business travelling has to increase.
We propose to let WorkPlus be inspired by the business airline industry,
and introduce a loyalty program for business travelers. Together with
complementary initiatives, it will create stronger brand affiliation, and
foster an employee-driven push to convert business car trips towards rails.
The strategy will put DSB on a sustainable growth towards 2030
The plan for capturing a larger share of business travelers, will shine on
each of DSB’s three bottom lines. Economically, the segment is highly
profitable. Reputationally, large fossil fuel emissions can be avoided by
bringing single car travelers aboard trains. Politically, DSB will set off on its
ambitious growth path, without compromising its societal obligations.
Team PowerPoint Rangers – Mail: [email protected]
Ask Nørgaard Heje, Economics and Management, Aarhus University
Thyge Ryom Enggaard, Quantitative Economics, Aarhus University
Oskar Harmsen, Economics, University of Copenhagen
Peter Aagaard Nielsen, Finance, Aarhus University
102.408
Commuters
The most promising opportunity is therefore to focus on an underserved
segment, in the form of business travelers. While today, they make up
only a small share of total travels, there is considerable potential in brining
more car travelers aboard the trains.
Business growth can be unlocked by improving customer
experiences through a loyalty program and seamless
connectivity
81.579
Business
44.566
Forecasted impact
bn km/year
4,0%
2,4%
6,2
6,3
6,5
7,9
0,5
11,4
0,8
6,7
2013 2014 2015 2016 2020 2030
Gain
Base
Unlocking growth from business travelers, through
loyalty programs and seamless connectivity
PowerPoint Rangers – [email protected]
Ask Nørgaard Heje, Economics and Management, Aarhus University
Thyge Ryom Enggaard, Quantitative Economics, Aarhus University
Oskar Harmsen, Economics, University of Copenhagen
Peter Aagaard Nielsen, Finance, Aarhus University
Executive Summary
By improving high-end customer experiences, DSB can penetrate
the business travel market to initiate a new growth path
Situation
•
•
Goal
DSB is through a turnaround and ready to
focus on topline
Reputation in DK
population is less
than perfect
•
Complications
Increase total
passenger km by 7.5%
over three years by
improving customer
experiences
While business travel is currently a small area, it holds the most
promising, unexploited growth opportunities of the segments…
Extra travelers needed to
reach growth goal
Business
Excess
capacity
•
DSB should unlock a new
source of growth in the
business segment, by
improving customer
experiences through
seamless connectivity
and a loyalty program
Capacity is severely
constrained and
growth in coming
years will have to
come with existing
infrastructure
… which DSB can unlock through focus on high-end
customer experiences and a loyalty program…
Potential
demand
81.579
… putting DSB on a sustainable growth towards 2030.
Leisure
bn km/year
102.408
Gain
11,4
4,0%
Commuters
2,4%
Summary
Analysis
6,3
6,5
6,7
2013
2014
2015
2016
Recommendation
0,8
7,9
0,5
44.566
6,2
Base
2020
Impact
2030
What are segment potentials?
The key challenge is to get more heavy users – for each
segment, both capacity and demand should be evaluated
Only heavy users are relevant for growing
the annual number of kilometres
Yearly transport*, (km / person / year)
Heavy users
Business
Leisure
Commuters
Share of
total km
traveled
6.409
5.105
11.731
75%
Medium users Light users
652
429
891
342
2.048
12%
786
Question is whether each segment has sufficient growth possibilities
Average trip,
km / trip
Required CAGR,
to reach growth goal
15%
54
Extra heavy travelers needed
to reach growth goal**
81.579
5%
43
25
6%
102.408
44.566
13%
Key questions for each segment:
a) Is there sufficient demand?
b) Is there idle capacity?
Source: Case material, team analysis, *average across motivation groups, **if average trip length is held constant
Summary
Analysis
Recommendation
Impact
Why can we not grow with commuters?
Commuter segment growth is constrained by limited capacity in
the short term, but promises long-term potential towards 2030
Is there sufficient demand?
While segment has grown during last years, and
demand may continue to grow…
Is there available capacity?
… commuters typically travel in rush hours, where
trains have reached maximum capacity
Why can’t the growth barriers be broken short term?
What will be done long term?
No possibility of buying more trains
• Existing trains have already reached maximum capacity
Future investments will increase network capacity
• The Danish parliament has agreed to invest more than
100 billion DKK in the rail infrastructure
More frequent departures are not possible
• Network capacity is limited by a number of traffic
bottlenecks and old technology
A new signaling program will make the track-usage more
efficient.
• DSB and BaneDanmark have scheduled a new
signaling program, but work is not to start soon
Travelers can not be spread during work day
• Commuters are limited to certain travel times due to
work
• Price discrimination is restricted by the government
More use of price differentiation will be permitted.
• Making price incentives for people to travel in non-rush
hours will smoothen out utilization during rush hours,
making room for more commuters
Source: DSB Case Material
Summary
Analysis
Recommendation
Impact
Why can we not grow in leisure segment?
Leisure segment has available capacity, but is currently
unattractive due to increasing competition and rigid demand
Is there sufficient demand?
Is there available capacity?
… even though we have available capacity, as
most travels are outside of rush hours.
There is a high competition within the segment
based on the demands of the customers…
…. making competitors better aligned with leisure
travelers’ preferences …
New competitors are simultaneously threatening
DSB on price and flexibility…
Leisure passengers are particularly price sensitive
since:
• They travel longer distances, making the trip
more expensive
• They don’t travel because of urgency, and
thus have the opportunity to cancel if
traveling becomes to expensive
•
Flexibility
High
… and drivers for demand are exogenously given…
> New competitive
landscape
Low
•
Drivers for leisure travel demand is to a large
extend given by external factors as:
• Family members and close friends living in
other parts of the country
• # of leisure events e.g. concerts and sports
events
Price
High
Low
….making it difficult for DSB to impact short term
demand
Source: Team analysis
Summary
Analysis
Recommendation
Impact
How large a market share should be captured?
Only a minor share of the total business travels by car have to
be won over in order to reach the growth goals
Is there sufficient demand?
Is there available capacity?
High demand for business travels - already
accounting for ~1/3 of all cross belt travels by car…
Business travelers by segment (%)
… business travels are independent of rush-hours
and thus create a natural daily smoothing
Increase in customer kilometres per route (m. km)
488 (target)
100
75
16
4
54
15% >
279
74
80
6
Business
Travels
Train
Flight
Car
Other
Aalborg
-CPH
Aarhus
-CPH
Vejle
-CPH
Odense
-CPH
Total
• Travellers by car accounts for approximately
74% of all business travellers ~ 600.000 business
people.
• Targeting ~15% of car business customers
travelling between key hubs reaches target of
488 m. customer kilometres
• DSB offers clear value adds to this segment
including +time and WorkPlus
• Long distance business travellers are more likely
to appreciate DSB value propositions as +time,
WorkPlus and enjoying refreshments while
travelling
Source: Case material, Transportministeriet
Summary
Analysis
Recommendation
Impact
What does it take to grow in business travels?
DSB already has a business travel offering, WorkPlus, but an
unfavorable perception of DSB inhibits further growth
The current offering is inadequate
Growth should come through improved customer experiences
New offerings should focus on perception and travel information & ease...
Current status of business offering
Launched in 2009
•
Offers company deals with ticket
price reductions and possibly tax
advantages to travelers
•
•
2
Impact of marginal
improvement
•
Provides simple and central
administration of travel expenses
5
1
3
6
Ease of marginal improvement
1
Comfort
2
Total travel time
3
Punctuality & Frequency
4
Perception
5
Travel information & ease
6
Work possibility
See next slide…
Around 8,000 customers with
average customer per company
of 8 (2012).
… but also requires a stronger sales efforts focused on large accounts
•
•
•
4
Little focus on customer
experiences has limited the
service to mostly smaller public
offices
Decision to use WorkPlus rests at least partially with corporate
controllers.
The bottom-up approach has proven unsuccessful to penetration.
Penetration should be supported through focused sales effort
1. Put together a team of experienced key account managers
2. Map highest value potential customers (location, #traveling, etc)
3. Approach key decision makers with tailored offerings, after
customer experiences initiatives have been set in place
Source: DSB, Bates Y&R (ad agency who worked on WorkPlus)
Summary
Analysis
Recommendation
Impact
What changes are needed to grow the business segment?
Through initatives on improving both perception and customer
experience, DSB can attract more business travelers
Objective: Creating a flight
experience for business
travellers
The growth engine for
the business segment
should be a focus on
improving customer
experiences through
strengthening the sense
of exclusivity
Remodel DSB ‘1 and
WorkPlus around a
more exclusive flight
concept
Elements
Catering options
Integrated planning
Preventive action on
delays
Loyalty Program
Summary
Analysis
How it works
Intended impact
• Free beverages and, on
longer term, lunch
possibilities on board
• Extra advantage
relative to car travel
will help customer
acquisition
• New part of DSB app, will
enable taxi ordering, and
live travel information
• Increased ease of
use ensures
seamless
connectivity
• Scheduled delays are
informed on favorite routes
• Unscheduled delays will
resolve a free ticket
voucher
• Employee-driven
push for rail
transportation
• Points are earned by
kilometres with bonus for
cross-Belt-travels
Recommendation
see next slide
Impact
What will the loyalty program be?
With the loyalty program for business travelers, DSB can create
an employee-driven push for more rail travel
Elements
Points earned by kilometres
Points can be exchanged for;
How it works
Intended impact
• Points are earned by
kilometres with bonus
for cross-Belt-travels
• Extra points are earned
on off-peak hours
• Employee-driven
push for rail
transportation
• Push for better
capacity utilisation
• Taxa service (limited km)
• Seasonal trips with ‘bringyour-family’
• Special events (e.g.
Tivoli-access) through
points
• Push to give teasers
of DSB products
• Stimulate brand
affiliation
Membership levels
Member
Gold
Km/year: No restriction
• Free coffee, snacks, Wifi
• Access to taxi services
• Invitation to special
cultural events
Will help create basic
brand affiliation
Summary
Analysis
Diamond
Km/year, > 8,000
• Free upgrade to DSB 1’ on
leisure travels
• Free seat reservation
Km/year, > 20,000
• ‘Bring a companion’
• Free lunch on long
distance (>200 km)
travels
Cutoff slightly above avg.
heavy users to boost travels
Only for the most frequent
travellers
Recommendation
Impact
What is the impact of the strategy?
DSB will reach the growth target while securing performance
on both political, reputational and economic bottom-line
1
Political bottom-line
2
bn. km.
Reputational bottom-line
CO2 emission in kg. (example: one trip from
Aalborg to CPH)
Effect from proposal
Base case
-75,6%
3,9%
11,4
45.0
0.8
7,9
2,4%
3
0.5
6,7
6,2
6,3
6,5
0,3
2013
2014
2015
11.0
0.5
2016
2020
2030
Bil
Economic/financial bottom-line
m. DKK
•
468
Profit
141
Cost
75
-28
52
50
2014
185
328
30
2015
Relatively high profit margins caused by
utilization of unused capacity lead to positive
incremental profit
Assumptions
• Marginal profit margin ~ 30%
• Investment break down:
• 40 m. in development of customer
loyalty program
• 10 m. in enhancement of equipment
• 30 m. in implementation of IT-system
underlying loyalty program
• Revenue per km. ~ 1 DKK
265
49
Inv
Tog
Source: DSB.dk
2016
Source: Team analysis
Summary
Analysis
Recommendation
Impact