Suppliers Can Fix Online Distribution By Playing Nice with Each Other

By Diane Merlino

Play nice with others.

That simple axiom, according to IBM, is at the heart of curing all the ills in an online travel distribution system that is overly complicated, disconnected, and maddeningly out of sync with customers, suppliers and distributors. 

Travel suppliers need to do a couple of things that the mere thought of gives most executives hives: share customer information and partner with rivals. If not, according to IBM’s Steven Peterson, as the gap between what customers expect and what they actually get from the online travel experience continues to widen, many travel companies are likely to experience an erosion in demand. 

Peterson is a researcher and author of an exhaustively researched IBM study titled “Travel 2020: The Distribution Dilemma”. This is the fourth and final excerpt of a dialogue with Travel Weekly PLUS Editor in Chief Diane Merlino.    

Merlino: Let’s round out our discussion by focusing on the solutions you propose to solve the distribution dilemma. In the report you outline that the travel ecosystem must learn to ‘play well with others’, with competing travel providers and distributors coordinating and sharing information about traveler preferences. You also say travel providers need to upgrade their financial performance by teaming with current rivals. Dare I say, Steve, these solutions sound somewhat utopian in light of the highly competitive nature of the industry.
Peterson:
Let me first concede that I think it is an ambitious set of goals. It’s an ambitious set of goals without a specific time horizon attached to them, or a specific deadline; these are directional aspirations. And, even small steps in the direction of these recommendations would make a big impact on the customer experience overall.  

That said, I also believe that much of this is achievable, even with the constraints in the travel space. Because ultimately, if we’re right and the disconnect between customer expectations and the way they interact with travel suppliers online continues to widen, we may not see a continued increase in travel demand.  

If that shift were to take place, I think we would definitely have sufficient impetus for the industry to change and do the three things that we’re recommending: aligning the selling model to the buying behavior; working across the ecosystem to form a more comprehensive view of customers; and finally, collaborating across the ecosystem of companies to satisfy traveler demands.  

The other ray of hope in this very lofty set of goals is that there are pieces of technology coming into place that make this a more achievable set of objectives. Technology will soon make this seem a little bit less ambitious and it will become more achievable.

Q. This overall approach and the three recommendations they include involve a significantly different way of doing business for most suppliers and distributors in the travel space. But the IBM research also seems to indicate that moving in this direction is not an option. You say in the study that interactions that are not informed by rich information about customers, their preferences and the context, could be damaging. Are you referring to the potential erosion in continuing demand for travel?
A.
The gap between customer expectations and what’s being offered by the travel distribution community online is significant. If it does continue to widen, then the companies that are at the lowest end of the performance spectrum in terms of satisfying those expectations will face at least as significant a set of struggles as they’ve faced in the past. One need only look to the airline industry to see the results for companies that consistently underperform in terms of satisfying customers. 

So yes, I think the situation is dire. But there are reasons to believe that the trajectory can be made to change as an industry. Specific companies will certainly take up that mantle more quickly and more effectively than others by following some of the prescriptions we’ve set forth.

Q. You say in the report that the opportunity exists for antagonists to reach common ground, and that the main obstacles to doing so are sharing data with partners and cooperating with rivals to augment capabilities. Is it realistic to expect this? Do you see it happening anywhere in the travel industry right now?
A.
I do think it’s possible, realistic, and, in part, in evidence in the industry. 

For example, when you think of a large credit card company that also has a travel distribution arm with deep links to the airline and hotel communities — a player like that is in a very unique position to compile a much more comprehensive understanding of me as a traveler. They see what I spend my money on via my credit card. They see where I shop for travel. They see what I’ve purchased in the travel space, beyond the borders of an airline or a hotel. That puts them in a very unique position. So there are small examples of companies that are well positioned to bring this to bear without assistance, without really breaking the boundaries of their own organization.  

The broader question about where the future lies vis-à-vis cooperation is going to be borne out by incentives. This is going to be driven by the extent of the gap between customer expectations and what’s delivered. As that gap widens, the incentives for a hotel to share information with an airline, and in return get valuable information related to the customer’s experience and their whole journey, will increase tremendously.

The technological development that is worth considering when you think about how long it might take for all this to fall into place is that a completely unique third-party could, in theory, be well positioned to service an entire journey for a customer.   

Q. Are you talking about Google?
A.
No, I’m not. I’m actually thinking of any company that chose to develop a technology that could be delivered via a mobile platform, that would tie together an entire journey and enable a consumer to truly service that journey while they are mobile, while they’re in the middle of travel and in the middle of an event that may change their travel itinerary in some way. A company that can service those needs in a personal way, in an integrated way across multiple and different segments of providers, would definitely disrupt the space and would create further incentive for an individual airline or an individual hotel, or even an OTA, to match that experience with competing products that do the same sorts of things.  

I’m not thinking of any one company necessarily, because I think that mantle could be taken up by almost any player from the space if they chose to make that kind of investment and commitment to customer satisfaction and personalization.

Q. Back to the cooperative data-sharing scenario. Were you speaking of American Express as the example of a credit card company with a retail distribution arm?
A.
I think that’s an example of a company that does have many of the aspects needed to service a customer across various segments of their travel.   

Q. There aren’t many companies out there that have the unique structure and business divisions of American Express. Is cooperative relationship building and data sharing possible between different companies on a smaller level, for example a regional airline and a smaller hotel chain?
A.
The best way to answer that question is by way of example. I took a trip recently to the Middle East to work with a client. An airline I was flying on that had a strike, and that strike changed my travel itinerary because one of the legs of my journey got cancelled and I had to take a different route home. All of this was taken care of by the airline, and I was rebooked. But what they didn’t do was coordinate with the travel provider, because I had an overnight layover on my way home, so the hotel component of my journey was not cancelled and then rebooked. 

I think it’s fair to say that the airline would have probably benefited from cooperation with the hotel provider, and it’s certainly the case that the hotel provider in that example would have benefited from coordination with the airline, because they didn’t get my revenue.  I ended up sleeping in the lounge, which probably significantly contributed to my dissatisfaction with the airline experience, and also left money on the table for a hotel that would have gladly put me up for the night in the city where I ended up staying over.  

That’s a small-scale example of the type of coordination and the type of incentives that are there and are not being satisfied consistently across travel segments. That’s why in the paper we really stress the need to break beyond the four walls of your organization and think about customer journeys. Very few customers go to a hotel in the city they live in and spend the night. They get there via a plane or a train or an automobile, and the same is true in reverse with airlines. 

The opportunity to coordinate is there; the incentives to communicate across companies are there; and it’s really just a matter of solving the technical challenges around that cooperation and coordination.

Q. Well, Steve, if you had used a travel agent, could you not have just had them rebook you and solve your problem?
A.
Certainly the opportunity exists for travel agents to solve that kind of problem. Had I booked with a travel agency, maybe in that case I wouldn’t have faced the same constraint. But I think it’s fair to say that the hotel I worked with and the airline I worked with would gladly fulfill that need for me, and would gladly fulfill that need without going to a travel agent, if they saw that opportunity and were well positioned with technology to satisfy that need. 

You’re right: there are many ways to solve these problems and there are probably online intermediaries who could in part help me with this kind of problem. But it would fall to me as the consumer to find that solution, and that in its very definition is not very personalized service.

Q. Got it. Did we cover the technology developments and the time horizon for them that could facilitate this further cooperation and information exchange to your satisfaction?
A.
I think so. The broad point I would make is that many pieces of the puzzle, in terms of the technology, are there. The challenge is stitching them together and, more importantly, making the strategic choices of building to go after the overall journey needs of a customer rather than the segment-specific needs of a customer.

Q. Do you have any particular advice or recommendations for travel suppliers?
A.
I do, actually. The most specific advice I have is to make as efficient use of advanced analytics as possible. It’s clearly obvious to members of the community, and clearly in evidence in the retail space, that advanced analytics that help predict customer demands and customer preferences can be brought to bear in ways that meaningfully impact the bottom line.  

As you’ve probably noticed, I’ve not mentioned specific companies in the report. But there are examples of companies that are well positioned to pull aspects of the consumer experience together. They’re well positioned to bring to bear the data they have within their own four walls and share it with their close partners to increase the understanding they have of the consumer. And, through the use and application of advanced analytics, to better predict — and in the future, maybe re-architect — their business model to meet those more specific, more profitable customer needs, if they choose to do so.

Q. Steve, you know the travel industry extremely well. If the technology is available to share data, and the incentives to do so are there from the standpoint of customer dissatisfaction with the online travel experience, what is preventing it from happening? What would you say is the single biggest and most challenging impediment for this to happen in the travel industry?
A.
I would say it’s the will of the leadership to recognize the gap between customer expectations and what the online community offers for travel distribution. It’s a nontrivial exercise to steer the ship of state in this direction.

These are not necessarily big changes at the margin — none of these technologies are brand new or high risk or bleeding edge. But the decision to stitch them all together in a way that transforms the customer experience could be revolutionary and could really change that experience. The first step is for a company, or a leader within a company, to have the will to recognize this trend that we’re picking up on and to make a decision to proactively change that trajectory.

To access other installments in the Travel Weekly PLUS dialogue with IBM’s Steve Peterson:
Online Travel Distribution: It’s Ripe for a Big Fix
Travel Providers: Pump Some Bucks Into Your Brand
For Online Success, Take a Page from Netflix 

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