Revenue Management @en

Next Stop: SoLoMo Street

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21 May 2012 at 10:00, by


Social Media, Location, Mobile

In the late 90s there was a strategic planning meeting at the highest level in the TUI headquarters in Hannover. The Steering Committee presented an interpretation of the dynamics affecting tourism distribution and thereby deduced the role that TUI would play over the next few years. The findings were clear: the sector’s continued concentration in Europe would result in no more than two major distribution groups in 2 or 3 years, and it only remained to be seen if TUI’s companion would be German (Neckermann, today Thomas Cook) or English (Thomson). The possibility that the incipient online phenomenon might have even the slightest success was something that did not deserve the slightest consideration.

In those same moments at various points in Europe and the United States, the largest paradigm shift in the history of tourism distribution started to gestate. The redesign of business models based on the new possibilities offered by the Internet gave rise to the Online Travel Agencies (OTAs), low-cost carriers (LCCs) and even to new models of receiver-consolidator such as that which Peter Long and his team of managers from Barcelo Incoming were developing at that time, later becoming Hotelbeds. (It is interesting to note that both Peter Long and Hotelbeds are part of the TUI Travel Group today).

The fact that the projections of TUI’s strategic analysts underestimated the online factor and its consequences resulted in the loss of 6 or 7 key years of leadership and opened the door to hundreds of new players that have revolutionized the sale of travel, contributing to a permanent change in customer consumption habits.

In 2012, with the convergence of three factors, we see signs of the perfect breeding ground for a new jump forward in distribution and an even more radical paradigm change than the one experienced in the early years of the new millennium.

Social Media, Localization and Mobile (SoLoMo) have all the ingredients to generate new business models, new forms of access to both clients and product and the emergence of new actors that in a relatively short time will end up capturing a large part of the market.

In two or three years the volatility and flexibility of these factors will change the searches, comparisons, buying decisions and reservation processes for the tourist product.

Over the course of recent months, we have seen all kinds of speculations over the possible strategies of Google, Apple or Facebook.

Google Hotels or Google Flight search, Apple’s iTravel or the more or less subtle messages from Facebook do nothing to calm the current players and reactions were not long in coming. Google has accumulated an avalanche of lawsuits since its purchase of ITA, the leader in advanced technology solutions for the tourism industry. Those pursuing these claims are mostly tourist companies with less than 10 years of existence who see that their business model may be obsolete in a very short time.

The debate is not if Google or Apple will enter tourist distribution. The question is exactly with what business model(s).

The more diverse the user access to the many sites that allow access to the tourism product, on multiple platforms, the clearer will be the tendency towards concentration in a small group of companies which, thanks to their mastery of technology, enormous financial resources, marketing capabilities and global reach, are in an excellent position to control much of the traffic that is generated toward the tourism product.

These dynamics will pose a new challenge both to intermediaries and tourism providers to attract, convert and retain demand at a reasonable cost. At the same time, it is a key moment for providers – the product owners! – to curb the unstoppable inflationary escalation of customer acquisition costs, mainly due to competition for search-engine clics, so that the new distribution map significantly reduces the commissions to distributors to levels below 15%.

SoLoMo… The user has new weapons of  “massive information” and will use them abundantly. The big distributors have neither the flexibility nor the financial capacity to exploit them. Who will emerge victorious from the new wave of changes already knocking at the door?

In the next installment for we will analyze in greater detail the implications, opportunities and challenges for travel suppliers.

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