Online Travel Distribution: It’s Ripe for a Big Fix By Diane Merlino / December 04, 2012 Share 1 -- A Bit about the Study“Travel 2020: The Distribution Dilemma” draws from extensive research into the issues and consumer dynamics shaping travel over the next decade. Primary research includes a 2010 survey by IBM research partner Frost & Sullivan covering a mix of 1,020 business and 1,030 leisure travelers from both developed and emerging economies.“We started the initial survey in 2010 with a clean slate,” rather than a particular hypothesis, said Steven Peterson, the report’s author. “It was the conclusions that we reached in that survey — specifically the conclusions around how much time and frustration was involved in the travel search process — that led us to execute the survey in 2011 (conducted by Oxford Economics). In that survey, we tried to understand what was going on, what people were actually spending their time searching for, and where their moments of frustration were in the process.”Secondary research included general online search efforts and interpretive input from IBM subject matter experts. IBM also leveraged key findings about the travel sector from its Airline 2020 study and Hotel 2020 study, which were completed in 2010 and 2011, respectively.“And then, as is always the case in our studies, we get client reaction to the findings,” Petersen said. “So we’re making sure we've understood the results and the interpretation we've put on the data is consistent with what the market is seeing.”Travel Weekly PLUS readers can download the full report at Travel 2020: The Distribution Dilemma. Online travel distribution is glaringly out of sync with customers, providers and distributors, and that poses a dilemma. The causes and contours of the situation — as well as some revolutionary remedies — are covered in a report based on an exhaustively researched IBM study titled “Travel 2020: The Distribution Dilemma”. The heart of the matter is that customers’ expectations regarding the online travel process, shaped by their experiences with other industries, are not being met by the travel ecosystem, says Steven Peterson, IBM global travel and transportation leader with the IBM Institute of Business Value, and the author of “Travel 2020.” Causes include providers’ strategies to reduce distribution costs, a lack of investment in brand development, and price-focused product commoditization that has resulted in a depersonalization of the relationship and a “loss of intimacy” with customers.The solutions proposed in “Travel 2020” are ambitious and far-reaching but not impossible, says Peterson. All are based on a simple, time-honored schoolyard axiom to play well with others. Peterson says that includes fierce competitors learning how to cooperate to share information about customers.The most challenging of the impediments to change is in the minds of travel industry executives. “It’s the will of the leadership to recognize the gap between customer expectations and what is offered by the online community for travel distribution, and proactively take action to change the trajectory,” Peterson says. This is the first article in a series by Travel Weekly PLUS based on a dialogue between Peterson and Editor in Chief Diane Merlino. Following is the first excerpt of that conversation.Merlino: Give us a bird’s eye view of the distribution dilemma identified by the IBM research.Peterson: In many respects, travel distribution is not working for customers, it's not working for the travel distribution community, and it's often not working for the providers of travel. Customer dissatisfaction is quite apparent in the process, evidenced by the frustration and time that is represented in travel search. When an individual goes to search for travel online, they spend a lot of time searching, and they're often not satisfied with what they've found. And, in our view, online travel distribution is fueling product commoditization. Oftentimes the search process focuses the consumer exclusively on price, and that is obviously to the detriment of travel providers like airlines and hotels. Finally, distribution intermediaries are not generating sufficient return in many cases, and that is why we see so much frothiness in that space.Q: That's a fairly grim picture, Steve.A: I think it’s fair to say the travel distribution process is not unlike the consumer-facing processes online in other industries, which is to say that consumers do spend a lot of time searching for other things in the retail space, and other spaces as well. I think it's also fair to say that retailers and the like are continually improving that experience, and that's true for travel as well. Butthe travel search process can still take a lot of time. While it can be satisfying for some customers, by and large it's not a completely delightful experience for many customers. That’s the evidence and general sentiment we collected in 2010 around how consumers feel about travel search.Q: You mentioned other industries. How is the travel industry doing compared with other industries? Is customer dissatisfaction with the search process as prevalent?A: Some retailers are at the leading edge of improving the search process, others are not. And the same is true within the travel space. But as industry goes, travel is not often at the leading edge of consumer interactions online. The evidence I would cite is e-tailers that have very robust understandings of preferences and transaction histories and create an almost predictive experience. When you're online searching for a video or a book or a sweater, it often feels that the retail community knows what you're looking for before you've even decided. In the travel space, while there may be examples of that in small part, I've not found many of them. It’s not as widespread in travel — that predictive capability — as we see in the retail space.Q: So the basic finding in IBM’s very extensive research is that online travel distribution, for the most part, is out of sync with customers. Is that a fair assessment?A: I don't want to overstate the case, but I do think it's fair to say there are many aspects of the search process that are out of sync with many customer segments. There are some customer segments that really appreciate the process the way it's set up. If you are a bargain hunter and you focus exclusively on price, then much of what has been built for travel distribution is absolutely what you're looking for. To the extent that there is a gap between what customers want or expect and what the travel community provides, that gap is in evidence in the customer segments that value things other than just price.Q: What portion of online travel customers consists of these bargain hunters who are happy with the online distribution process as it is now?A: That's a great question, and not one that our data would allow us to answer accurately. That’s why in our recommendations we encourage each individual company, be it a travel provider or a travel distributor, to conduct a full segmentation of their customer base. There will be a unique answer to that question based on the specific customers targeted. Some OTAs primarily target the low-cost bargain buyer. Those companies have done a little bit better in the recession period than have the companies that focus a little bit more on the higher-end consumer. So I wouldn't want to hazard a guess as to where those numbers shake out for the overall travel market. But I would encourage travel companies of every stripe to conduct a thorough segmentation so that they can understand how their model fits their customers.Q: The IBM report contains some pretty dramatic statements and statistics. One that particularly stood out for me was this: In the eyes of many consumers, travel has become a burden, as evidenced by the fact that four of the top eight words most associated with travel were negative, including “frustrating,” “unreliable,” “infuriating” and “broken.” That seems pretty extreme to me, and quite telling.A: That’s exactly the type of sentiment that made it clear to us that further study was needed in this area, because while you often hear those sorts of sentiments expressed by travelers online, we also see continued growth globally in travel demand. So, despite the fact that folks are not as happy as they could be with online travel distribution, people are still traveling. And that exactly defines the opportunity set for companies that want to re-tack and come up with a different model that meets the needs of specific and unique customer segments. Q: Is that traveler sentiment prevalent everywhere? Across different countries and economies?A: That specific finding comes from a study by Hart Research Associates, part of The Winston Group. I think their sample size was a little over a thousand consumers, so I don’t think it’s fair to say that it encapsulates the entire global trend. But it is consistent with focus groups that we've run and with general findings that are reported in other sources around consumer frustration with the online process. More importantly, it's very much consistent with what we found in our 2010 survey about how much time it takes for consumers to complete travel searching and booking from end to end.Q: What was the average amount of time from searching to booking?A: Well, the answer is dependent on what type of traveler you are. Leisure travelers and business travelers have different levels of efficiency in their search processes. In general, we found that while the majority of folks are able to complete searching and booking in less than two hours, there are some consumers — specifically leisure travelers — who spend more than eight hours searching. In fact, just a little less than 10% of leisure consumers report that's how much time they spend in the search process. Q: Eight hours just on search?A: Now, it's certainly plausible that some people enjoy the search process, and that in part explains why they're spending so much time. But others are continually frustrated by a feeling that they're not finding the very best deal. In a consumer focus group, we found that continued search was often explained by the fact that someone felt a better deal was out there; they saw an advertisement or an email indicating that a very low fare was available, and despite continual searching they were not able to find that exact low fare. So they were often frustrated by a seemingly fruitless search. Q: A related statistic in the IBM report is that only 47% of survey respondents said their travel expenditures were well spent. That’s another pretty dismal finding regarding online travel search. A: That was our study, and that was very interesting, because across the various segments that we chose to break our consumer responses into [five separate segments], almost every single segment stressed the importance of getting value for the dollar. There was one segment that value was less important for, but all five segments were above 60% in terms of wanting to get good value for the dollar in their travel expenditures. But almost half of the total respondents claimed that their money was not, in their minds, well spent. That underlines that gap between what is being delivered and what is desired in many consumer segments. Q: Steve, how did the travel industry get here? Would you attribute it to competitive dynamics in the industry? Or is there a certain conservatism or reticence to change in the travel industry? Or is it the difficulty and expense of keeping up with the rapid introduction of new and transformative technologies? A: It’s a great question, and I don't think it’s one for which a simple answer exists. But I will posit a couple of possible explanations, one of which, as you suggest in your question, has to do with the time horizon, the decision time horizon in particular. When you think of a global airline, with the intense challenges and competitive pressures they face, they often find themselves looking to the next quarter or, at most, to the next fiscal year. And it's often difficult to justify large-scale investments that are sometimes required to revolutionize the customer experience. That's one sort of competitive market force that is a perpetual challenge in low-margin industries like ours. The other explanation I would suggest is that the process has evolved. The process of travel distribution has evolved in a way that helps consumers focus on price, and what we've not seen is a consequent or resultant focus on brand in the travel space. There are certainly notable exceptions to that general trend. But in a highly commoditized industry, where the products are very similar to one another and where consumers are focused on price, you would expect the response from companies to be an intense investment in brand development and differentiation in experience or product, or in the marketing that supports them. You see that in consumer packaged goods, for example. In travel we haven't seen parallel levels of investment in brand building or brand development, and I think that goes a long way to explaining the dilemma that we now face.COMING UP: IBM’s Steve Peterson on the impact of under-investing in brand development; how travel providers’ drive to reduce distribution costs erodes customer satisfaction, and; what the travel industry needs to do to create an online distribution ecosystem that satisfies customers.