Travel Providers: Pump Some Bucks Into Your Brand

By Diane Merlino

IBM’s deep-dive investigation of online travel distribution revealed a complicated, disconnected collection of systems that are limping along, falling far short of customer expectations, and ripe for a single-category intrusion.

“In many respects, travel distribution is not working for customers, its not working for the travel distribution community, and its often not working for the providers of travel,” says Steven Peterson, global travel and transportation leader with the IBM Institute of Business Value and author of “Travel 2020: The Distribution Dilemma.” 

The conclusions in the IBM report are based on extensive research into the consumer dynamics shaping travel over the next decade, including IBM surveys conducted by outside partners and covering more than 1,000 business travelers and 1,000 leisure travelers from both developed and emerging economies. Secondary research brought in interpretive input from IBM subject-matter experts and interviews with travel company leaders to verify research findings and solicit perspective.

A key cause of the online distribution problem is that travel providers, focused on short-term challenges and competitive pressures, chronically underfund brand development.

“They often find themselves looking to the next quarter or, at most, to the next fiscal year,” Peterson told Travel Weekly PLUS. “Its often difficult to justify large-scale investments that are sometimes required to revolutionize the customer experience.” The process of travel distribution has evolved with a focus on price, he added, “and what we've not seen is a consequent or resultant focus on brand.”

This is the second excerpt of a dialogue between Peterson and Travel Weekly PLUS Editor in Chief Diane Merlino.

Merlino: Steve, you’ve described how the travel industry’s lack of investment in brand building is a major cause of the current online distribution dilemma. How does travel compare with other industries in this regard?
Peterson:
I did some research a while ago on the specific investments that were made across different industries, and on average, the travel industry in general and the airline industry in particular is significantly under-spending on marketing compared to consumer packaged-goods companies, retail companies, electronics companies, and the like. The spending was generally two or three times less than what brands in these spaces spent, and in many cases there was a 10-times differential. 

The easy place to cut when times get tough — as they have often been in my tenure in the travel industry — is brand building. And that does the companies a disservice over the long haul, which goes back to the point about the limited time horizons that often guide decision-making in the travel space. 

Q: Fill that out for us, Steve.
A:
When you think about the base of what is being sold by travel companies, it's often slightly more complicated than a seat or a bed, but there are companies out there who sell exactly that — seats and beds. Taking a brief example in that area from a study we did, the price dispersion between what some people sell chairs for online goes from about a $7 chair all the way up to a $2,700 chair, or a bed that sells online for $150 versus a bed for $3,500.

A lot of that difference is often in the product itself, but there are also very important brand-driven differences in price. These also exist in travel, but to a much less significant degree. And the specific degree of brand-driven price is influenced by the overall trajectory of brand investments in the travel space. 

Q. Is this general propensity of the travel industry to underspend on brand development on the marketing side when times get tough across all provider verticals? You mentioned airlines in particular.
A.
My insights are largely anecdotal.  I don't have data to support that conclusion, but I have done work for both /uploadedImages/TW_Plus/xTW_Plus_Images_ONLY/Steve Peterson.jpgairlines and hotels in very challenging economic times, and I've seen both of them look to marketing budgets as a source of cost reduction, often as a means of survival.

Q. Why is that? Is there an understanding gap in the travel space about the need to invest in brand development?
A.
I wouldn't say it's a lack of understanding. I think it's sort of a forced prioritization caused by the competitive environment and by the economic realities that govern the space. When you're faced with liquidation, for example, you are forced to make a set of decisions about where to invest, and anything that doesn't have an immediate — or, at the very longest, quarterly — payout is often deprioritized.

The primary difference between, for example, the airline industry and the consumer packaged goods industry is that there haven't been as many life events for consumer packaged goods companies as for airlines — defining economic events like bankruptcies or buyouts. Again, that goes to the basic economics of the industry as defined by margin performance. I'm sure you've heard the statistic for airlines that when you sum up profits and losses over the history of the industry as of 2010, the net gain was flat, or there was a slight loss, for the entire industry. I don’t think that same truism holds for the other industries we've mentioned.

Q. Besides providers underfunding brand development, what other causes have led to the problems with online travel distribution?
A.
Let’s briefly look at the evolution of travel distribution online. If you wind the clock back to the late ’90s, many travel companies viewed the Internet as a way to market their product. Then it became a mechanism by which they could distribute their product, and now it's truly a very important distribution channel. 

In the early days of the Internet we saw large investments by travel providers as they set up their online distribution channel. And as they put their product online, they began to measure the look-to-book ratio; how many people hit the website shopping for a hotel or an airline versus how many actually complete the transaction.

We’ve seen a pretty dramatic increase in the look-to-book ratio over time. And that actually costs companies quite a bit of money, because they need a robust infrastructure to support the rapidly increasing number of searches that don't result in increases to revenue or the bottom line.  In large part that’s a function of the fact that there are many travel intermediaries hitting these provider websites and searching, but then going to their own site to fulfill a transaction. In that regard, the travel industry is facing a bit of a dilemma; other intermediaries are using a very important distribution channel in the process of booking travel.

What we haven't seen is a prioritization that would bespeak the importance airlines and hotels should give this very important channel. Especially in lean times, websites were seen as a very low-cost distribution channel, so investments were not made to increase the level of service or dramatically improve the experience for the customer.

While that may have made sense in the early days, now it's such a dominant channel that we as an industry need to recognize that there is a gap between the volume of customers coming to the website and the diversity of experiences that those customers want to have on the website.  So, it's time for another investment in improving the customer experience online.

Q. You brought up the dilemma of intermediaries hitting travel provider websites to search, then completing the transactions on their own sites. Is this prevalent in other industries?
A.
In the retail space screen-scraping technologies which enable an intermediary to essentially post a product and a price on their website has been well covered. That’s certainly a challenge for retail, and that's why you often see retailers working hard to get sticky with their customers and create reasons to come back to their own websites, or reasons to fulfill a transaction in-store.

These are the kinds of challenges that retail is dealing with to find ways to engage the customer and make the online experience very personal. It’s a shift from focusing on price to understanding and even predicting customers’ needs as much as possible, then fulfilling those preferences in a proactive way.

There are many examples within the retail sector where this is in evidence.  In fact, I don't know that there are any specific sub-segments of retail that are immune to these phenomena. The leading e-tailers are the ones who have probably come the furthest and set the highest bar for travel companies to try to clear.

Q. Thats an interesting point about e-tailers in other industries setting the bar. The unsatisfactory customer experience with online travel distribution isn’t happening in a vacuum.
A.
That’s a very important insight, as a matter of fact. Your expectations as a customer of a hotel or an airline or an online travel agency are very much set by your experiences in other online forums, whether it’s a social media forum or shopping with a large e-tailer, or even, as with a large electronics distributor, where your experiences are both online and offline, as is the case for many travel providers.

The opportunity to satisfy a customer is defined by what that customer has in the way of expectations. The travel industry doesn’t have a lot of leeway here. Customer expectations are set by the industry that fulfills their highest expectations, and it’s only natural for consumers to extend those expectations into travel, and other industries that aren't making the grade.

COMING UP:IBM’s Steve Peterson on how the drive by travel providers to reduce distribution costs has eroded customer satisfaction, as well as practical pointers on what the travel industry needs to do to create an online distribution ecosystem that satisfies customers. Also see: Online Travel Distribution: It’s Ripe for a Big Fix.

 

This page is protected by Copyright laws. Do Not Copy. Purchase Reprint
blog comments powered by Disqus

View Comment Guidelines

Please upgrade your Flash Player.
Please upgrade your Flash Player.

Travel Weekly Poll

Voices

  • Consumer media discover that travel agents do exist

    "Contrary to some thoughts, travel agents do exist ... We are usually able to get clients better prices, and we know we can see that clients have better experiences. And as our personal motto is: Our Service Travels With You."

    More»

TW Index: Most Active Stocks

Latest Top News:
Caribbean
Europe
Travel Weekly is on Facebook
Viewpoints For Travel Agents
Travel Weekly Topics