For Online Success, Take a Page from Netflix

Personalize the product and the interaction to increase customer satisfaction

By Diane Merlino

Travel providers should take a page from Netflix if they want to kick up customer satisfaction with the online experience. 

It’s all about personalization, says Steven Peterson, global travel and transportation leader with the IBM Institute of Business Value and author of “Travel 2020: The Distribution Dilemma.” Personalizing the travel product for a specific customer segment or individual, and personalizing online interactions a la Netflix, could go a long way toward improving an online travel ecosystem that is fractured and, for the most part, low on customer — and provider — satisfaction.

More than 2,000 business and leisure travelers were included in research by outside partners for the IBM study into the customer dynamics and desires that will shape online travel over the next decade.

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

Merlino: In the Travel 2020 Report you posit that the drive by travel executives to reduce distribution costs has diminished customer service.
Peterson:
Yes, that’s very much the case. There's been a continual push in travel distribution to migrate customers to the lowest-cost channel. There haven't been many examples, in my experience or in the research we've seen, where companies are trying to migrate their customers to the highest service channel or the most segment-appropriate channel.  These sorts of notions need to become part of the lexicon of senior leaders so we can have each individual customer segment's needs met in unique ways across travel distribution.

Q: Are we specifically talking about the hospitality and airline industries here? Or does the drive to reduce distribution costs at the expense of customer satisfaction run across all verticals — the tour segment for example?
A:
I think that's a great question.  It brings up the role of the travel agent, the purveyor of the tour, if you will.  In many cases, they bring together many aspects of travel — not just air and hotel, but on-the-ground experiences as well. And that is the space that offers the greatest opportunity for a very customer-specific, personalized experience IBMTravel2020to be delivered, be it via online mechanisms or via the phone. 

That’s essentially what we're suggesting is needed in other areas of travel distribution as well. In order to achieve that, we make a suggestion in the recommendation section of our study about the need for travel companies to share data across and beyond the four walls of their own organizations.

It's important to understand the customer's needs across more than just one segment. No individual chooses to take a trip from one airport to another, and then gets to the airport of their destination and comes right back home. They are all making journeys. To the extent the travel community focuses on segments of those journeys, and not the integrated journey as a whole, we think they're doing customers a disservice.

Q: A little later in this discussion I want to take a deeper dive into the recommendation that travel providers share customer data. Steve, did the IBM research identify a direct, measureable relationship between reduced distribution costs and lower customer satisfaction levels?
A:
No, we didn't collect data that would enable us to reach that conclusion.

Q: OK, as an ace analyst and intelligent interpreter of data and the industry, what’s your take on that? Is there a direct relationship?
A
: I would certainly suggest that it merits further study, because it's the crux of the issue. My gut tells me yes, there is a strong correlation between reducing travel distribution costs and customer dissatisfaction online. Which anecdotally would suggest why we see so many new entries into the distribution space, so many companies starting up and entering the market. 

Travel distribution is awash in many, many intermediaries who spot this problem and in their own unique way try to solve it. The most efficient way is to try to meet the needs of very narrowly defined customer segments. To the /uploadedImages/TW_Plus/xTW_Plus_Images_ONLY/Steve Peterson.jpgextent that there's a gap between the specific and unique needs of a customer segment and the offerings that are made online, there will probably be room for dissatisfaction to grow.

Q: Speaking of dissatisfaction, in the survey you talk about discord between online distributors and major travel providers seeking to lower their distribution fees or bypass these distribution systems altogether. Has IBM research identified a similar kind of discord between the distribution side of the ecosystem and the provider side of the ecosystem in other industries? Are there any similarities, or hopeful stories of change?
A:
There are stories of change; some of them provide hope, depending on your perspective. Retail is a good example of a sector that has dealt well with the sort of breakdown of the wholesale model in general. The opportunity presented by the ability of an e-tailer to go direct to consumers is broadly analogous to the challenge that is currently playing out in the travel distribution space. The base challenge in travel is very similar to wholesale versus direct-to-consumer retailing.

Q: What would be the takeaway there for the travel industry?
A:
The successful model is the one in which you as a company are able to attract the customers whose needs you can fulfill in a unique way. At the end of the day, if there are other companies that provide very similar services or products it will often become a price-focused, commodity-based interaction. If you're going to drive a price premium into the market, it will be on the basis of brand or unique service.

It’s a perpetual challenge to meet unique needs, often facilitated by technologies that enable personalization and more intimate customer interactions and attempts to build loyalty. These sorts of things are exactly what will help travel companies surmount some of these barriers.

Q: Steve, one of the report’s findings is that while technology has increased convenience for customers it’s also resulted in a loss of customer intimacy and personalized merchandising opportunities.
A:
The loss of intimacy is a direct function of the fact that what is offered online is not driven by specific customer segment needs, or specific search history and patterns. The personalization opportunity in travel is exactly what we see in retail, where those two aspects of interaction have been brought to bear very effectively.

The example that comes to mind is an online movie site which has a very robust history about what I've watched in the past, what I've searched for, and what I've almost watched, and they use that to generate very helpful recommendations for me about what I might enjoy, which is maybe similar or maybe slightly out of my comfort zone. 

Q: Are you talking about Netflix?
A:
A company like that is exactly the kind of model that airlines and hotels and online travel agencies need to consider, because that is more emblematic of the way customers prefer to interact online. We talked earlier about the bar being set by other industries. That's an example of a company that is setting the bar for customer expectations very high.

Q: Can you talk a little more about personalization online? What's possible?
A:
Personalization can be thought of in terms of specific products that are offered to a specific customer segment or individual, as well as personalization in terms of interaction, as defined by what you suggest. Your example of Netflix is exactly what we’re talking about: to be predictive, to be able to be suggestive in a way that's useful based on other shopping patterns, prior transactions, experiences on other websites or across the travel domain. This is very important, and it is a great opportunity to improve personalization in travel distribution. 

Also see: Travel Providers: Pump Some Bucks Into Your Brand 

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