In recent years, the passenger railway industry has seen a large-scale wave of liberalization, especially across Europe. The new entrants are threatening the existing businesses of incumbent rail operators. For instance, asset light entrants like FlixMobility have eaten into the market share of rail operators by offering cheaper services and better customer experience. Launched in 2013, FlixMobility achieved 37% increase in passenger numbers in 2019. The success is attracting new entrants like French operator SNCF, Italy's high-speed Italo and Thello further increasing the competitive intensity in the liberalized European passenger rail market.
Moreover, as rail operators look to improve their customer experience, they face an unlikely competition in banks and fintechs. The first couple of steps in any passenger journey value chain begins with planning the journey and buying the tickets. If the passenger buys the tickets from a third party, like a bank, then the bank holds all the personal information about the passenger such as where all he/she travels; how often he/she travels and also their personal preferences.
As banks hold all the key information, the ticket sale for the rail operator is an anonymous one with no information about the passenger. Rail operators need to own the data value chain themselves so that they do not get commoditized in the highly competitive multi-modal transport market. They need to focus on offering a digital customer journey which includes personalized end-to-end seamless travel experience and encompasses every aspect of the journey planned.
Offering a holistic travel experience requires changing the traditional ways of working. It requires connecting stakeholders from different industries in a way that creates exponential value for all ecosystem participants. Here are four steps to create efficient ecosystems:
Collaborate: A good ecosystem will not just include mobility providers as participants but will also have participation from different industries. For example, partnerships with a payment provider can help with seamless ticketing; a telecom operator can provide value added 5G services onboard on trains and at stations; an insurance company for travel insurance options; a hotel/ Airbnb can aid a seamless travel experience; and an utility service provider can facilitate EV charging at station parking.
Facilitate: Rail operators can earn additional sources of revenue as facilitators. One great example of creating new sources of revenue is the Lawson chain of convenience stores in Japan. It has turned its shops into ecosystems that facilitate transactions between its customers and its ecosystem partners. Lawson's customers can pay utility bills, and insurance premiums, ship and pick up parcels through postal service providers, and claim items ordered from e-commerce platforms by just visiting their store. MIT Sloan Management Review’s research found out that companies whose dominant business model is facilitating ecosystems, in both B2B and B2C domains, experienced revenue growth of about 27% higher than average for their industries and had profit margins 20% above the average for their industries.
Create Value: Railway operators need to build an end-to-end solution for passengers that is backed by a robust digital platform. The digital platform needs to be architected in such a way that railway operators get access to all the data from the customers. The proprietary data must be used to provide a superior service that is hard to replicate. This includes providing a superior customer experience as well as creating value for partners. Railway operators can also lower operational cost by optimizing their existing technology and offering services to other companies. For instance, Amazon’ AWS created value for Amazon by extending its internal capabilities to external parties and is now its biggest source of operating profit.
Harness Technology: AI can be used by railway operators to derive meaningful insights for competitive advantage regardless of the role they play in the ecosystem. It can be used to share personalized information with the passenger at the right time, via the passenger’s channel of choice. AI can also help railway operators get a 360-degree view of the passenger and aid customization of their services. AI can also be used by railway track operators to improve the punctuality of trains by real-time monitoring of track infrastructure and instantaneous optimization of train schedules. AI in railways can also take the form of virtual assistants and chat bots to be a passenger’s travel companion helping them keep track of their travel itineraries, train schedules, arrivals, departures and weather updates.
In today's digitally connected economy, the long-term success of any product or service depends upon the dominance of the ecosystem in which it operates. It is not being suggested that every company should try and emulate Facebook, Amazon, or Netflix. But for competitive advantage, it is inevitable for most companies, including rail operators to ensure a digital customer experience which is intuitive, personalized and holistic.