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Owning the consumer: Online travel agencies vs service providers.

March 04, 2012

Online Travel Agencies like Expedia and Orbitz have roiled the hotel and, to a considerably lesser degree, the airline industry since they appeared over a decade ago. The hospitality industry has made several attempts at asserting a degree of control over distribution channels but  has, thus far, come up short. The latest foray led by the industry's national organization, AH&LA  and STR (the industry's leading supplier of benchmarking reports) is in the form of an extensive report entitled "Distribution Channel Analysis". 

The much publicized 200+ page document quite obviously has much to say that is truly meaningful with regard to the dramatic changes in distribution channels that have severely affected profitablity for all offering specific pointers that range from the economics of pricing, the advent of "soft brands" that mimick many of the features of traditional hotel brands to the pitfalls of "rate parity" wherein all distribution channels have the room rate. Also elaborated upon is the arrival of a new set of third party intermediaries like Google, Apple and Facebook and attendant meta-search and their implications for additional cost. 

The  Distribution Channel report is a welcome attempt at alerting a largely fragemented and generally technologically somnolent industry.  Interestingly and almost on cue consulting giant McKinsey and Company's Quarterly magazine's February issue has a report that offers a slightly different lens with which to look at the industry's bete noire.

The Quarterly's report begins with a somewhat damning noting of a "myopic focus on costs rather than returns" and suggests that "incumbents move away from a model focused almost exclusively on reducing channel costs and toward one that seeks to maximize returns by best serving customer needs." That, per the magazine, has led to a missing out on the continuum of the customer experience from before the time of search to "well after purchase and travel". The Quarterly suggests four "imperatives" for travel organizations:

  1. Focus on customers, not channels:  While, ideally, suppliers would tailor services to each individual, organizations, companies should "craft focused solutions for a range of broad customers segments. Since price driven leisure travelers are drawn to transparency and comparability above all else, shopping at an average of three to four web sites before making a purchase they suggest that airlines, hotels, and car-rental companies bring price comparability to their own sites.
  2. Win in the era of 'big data": The industry is urged to develop detailed "pictures" from the reams of data at its disposal with a view to driving marketing initiatives that "more deeply engage customers". The report acknowledges that IT required to "deliver on data’s promises is daunting. But there’s equally no doubt that companies from outside the travel sector specifically tooled to make the most of data are going to figure things out, enter the market, and try to steal customers."  Visually enabling this aspect is now more possible thanks to a website called MetaLayer. The startup's CEO notes that they "make data so intuitive that anyone can gather insights from tons of data."
  3. Unlock the power of partnerships: Thinking broadly about the kinds of solutons that really engage and stimulate customers instead of merely undertaking discrete tasks well requires greater integration of lateral and vertical partnerships. The example of consumer packaged goods where manufacturers and retailers have brought about "far more effective merchandising decisions and physical-distribution and logistics outcomes" is suggested. This would require "identifying companies with similar interests and synergistic capabilities (rather) than about throwing new money and new technology after problems rooted in structural issues of coordination."
  4. Master the entire customer experience: The main thrust of McKinsey's advice is the notion of understanding and mastering and catering to all aspects of customer experience continuum. That includes the "dissolution of organizational barriers—not only budgets and planning processes but also ownership of information—to gain a comprehensive view of the customer journey."

The Quarterly's article ends by noting that the "digital revolution has upended business as usual in almost all industries, and travel is no exception. Consumers are empowered by information: they have near-instant access to their flight, hotel, and car-rental options; virtual price transparency; and the ability to play suppliers off against one another. The game is now about delivering a superior customer experience. If players can do that, the investment returns will follow."  Perhaps a reasonable playbook for effecting a win for the real stakeholders.

 

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