In this week's final blog of this three-part series, we look at creating demand, group buying, the value of non-cash markets, disruptors and future trends for the tourism industry.
Since 2006, award winning Ignite Travel Group has provided operators with an alternative distribution channel by implementing a unique advertising and business model that meets otherwise unsatisfied customer needs. Ignite has developed an intimate knowledge of the travel industry and boasts a staggering 35% repeat business ratio, which they maintain by offering strategic benefits for operator partners. Ignite provides operators with impressive volumes of direct business and delivers surprise and delight experiences to traveling customers at an unparalleled value. Mr Randall Deer, Managing Director of Ignite Travel Group, provides some insights into Ignite’s innovative approach to selling travel product: “Traditional travel channels focus on the customer position, that people want as much choice as possible and assume that the customer is a destination expert. In reality, more often than not, customers are looking for inspiration for their next holiday, something new, with emphasis placed on quality of experience, which has meant they want holidays to be great. Customers have infinite research at their disposal and with new destinations, the customer is not yet an expert. Traditional travel is prefaced with having everything available in advertising, just in case the customer wanted it. We have taken a different approach by curating the experience right down to what customers should do in a destination, and just sell ‘best of breed’ three, four- and fivestar international experiences, rather than having a giant shopping list of everything available in a destination. Why stock everything when not everything is good?”
Based on the success of their demand creation models, Ignite has partnered with Flight Centre Travel Group, Australia’s largest retailer, to launch a brand that is driving incremental sales for Ignite’s key partners through exclusive new holiday deals. Together, these companies offer operators unmatched distribution that reaches 15 million Australians through Flight Centre stores and select partnerships with Flybuys Travel, RACQ, and other leading national membership brands. Mr. Deer recently offered insight into how Ignite helps operators avoid some of the negative consequences associated with traditional distribution channels: “Traditional channels work on the basis of presenting the best resort they can at lowest price point possible. Over-promotion of leadin rooms at premium resorts to present as low a price as possible meant quite often higher room categories have lower occupancy. To provide most value as a distribution partner to operators, we decided to offer mid to top tier room categories versus lead-in, as it enabled us to target their excess capacity as well as attract the customers aligned to the brand’s target demographic. Premium resorts are more expensive because they provide better facilities and service and we’ve taken the opportunity to present these resorts for the quality of experience they represent as opposed to simply price on a page. Being more focussed on demand facilitation than demand creation, the traditional distribution channels focus their advertising on what’s already popular. Ignite’s unique advertising model focussed on one incredible ‘holiday-in-a-box’ per full page (versus 100 lead-in offers), promotes and drives customers to buy great holidays even though they may not be popular. This dedicated, non-price focussed advertising highlighting benefits of staying with the brand multiply their advertising budget exponentially, drives significant volumes of the right demographic into the right rooms, and indexes that resort’s share of voice in marketing resulting in significant halo effect of demand for that resort from both direct and traditional channels."
The recent development of Group-buying e-Commerce companies has provided yet another
distribution channel for accommodation operators. Group-buying companies such as American giant Groupon provide large databases of consumer products and services at significantly reduced prices on the condition that a minimum number of buyers would make the purchase. Typically, these websites feature a “deal of the day”, which is activated when a set number of people agree to buy a product or service. Group-buying distributors have proven to be able to generate huge numbers of room nights for accommodation operators from single tactical campaigns that are offered in market for limited time periods such as 48 or 72 hours before the offer is pulled from market. Australian group-buying platforms have recently consolidated into a few major players, many of whom have adapted the traditional group-buying model to aid in the distribution of travel industry product. For example, Luxury Escapes has experienced enormous growth since its inception in late 2013, quickly becoming one of the biggest online travel companies in Australia. With the acquisition of Bon Voyage
and Scoopon Travel in late 2017, Luxury Escapes now has a consumer base approaching three million people. With an estimated AUD300 million in turnover, Luxury Escapes sends approximately 500,000 customers around the world each year, creating hundreds of thousands of room nights in base business bookings for accommodation operators world-wide. While the group-buying distribution model is flexible enough to work for a wide range of operators of varying sizes, it is most effective for large accommodation operators who can maintain huge room inventories for travel periods of lower occupancy outside peak demand. Group-buying distributors can generate large numbers of room nights for accommodation operators, however operators using a group-buying model will typically need to provide heavy discounts to the open market rate, which can risk the adjustment of market expectations in terms of rate integrity if an offer is campaigned too long or too often. This can also upset relationships with other distributors such as OTAs and traditional wholesalers in terms of price parity. In this system, operators typically bear most of the cost of an offer and depending on the database of consumers and the group-buying platform, operators risk attracting customers who are only shopping for the cheapest deal with little interest in providing repeat business.
Creating value in non-cash markets
Independent operators dealing with truly distressed inventory (rooms or seats that cannot be
sold via any other distribution channel) can access non-cash markets through distributors such as Bartercard and exchange that inventory for digital ‘Trade Credits’ which can be used to purchase goods and services required to operate their business, eliminating the need for cash. Bartercard Tourism recognises that if the sun sets on an empty room in a hotel or resort, the operator can never realise any value for that room, as rooms are a finite commodity of time-sensitive expiring stock. The operator would assumedly prefer to get some cash for that room, but if that is impossible they will want to get some value for the room rather than nothing at all. Bartering then becomes a viable option, as it generates purchasing power which can be used to help with business cashflow and allows the operator to generate incremental cash revenue when guests stay at the property. Commenting on non-cash markets, Tata Crocombe adds: “….the role for us in non-cash markets is primarily in Bartercard selling rooms that would otherwise not be sold through any other channel by way of their closed-user group of business members. We target Bartercard sales into specific need
periods i.e. shoulder and low season and combined with stringent scrutiny of purchasing, Bartercard plays a very important role in converting empty rooms into some form of value. Our target is a maximum of 10% of bookings in the non-cash Bartercard and contra market….” Using trade exchanges, tourism operators have been able to trade their distressed inventory to offset consumable business expenses typically paid for with cash. Operators can also fund refurbishment, renovations or redevelopment of their property and market their unsold rooms to direct cash market consumers. Bartercard has also assisted Pacific Island accommodation operators recover from emergencies such as natural disasters by facilitating the purchase of re-building materials with trade credits generated by empty rooms.
Current disruptors and future trends
The entry of disruptive platforms such as Airbnb have changed the face of the travel and tourism industry as accommodation operators grapple with the reality of competing with ‘hosts’ of residential properties in their locality. Airbnb provides a cost-effective stay or experience as an alternative to traditional accommodation options by allowing individuals to act as ‘hosts’ or merchants in the tourism sector, supplementing existing income streams or creating new ones. Through Airbnb’s platform, individuals can turn investment properties, holiday homes, and even spare rooms in their everyday dwellings into rentable space for domestic and international tourists. Governmental bodies are still struggling to adjust as these platforms create immediate, extreme changes in the regulated travel and tourism industry. The emergence of these disruptive platforms has impacted environmental sustainability, health and safety policies, rental markets and the consistency of local tourism marketing. Anyone hoping to predict future fluctuations in travel and tourism must account for the possibility of a technology behemoth like Google or Amazon entering the market, an event that would cause drastic and instantaneous changes in the market landscape. While a tech giant would face the challenge of adapting their online commodity-selling platform to account for the nuances of selling a hotel room or experience, tech platforms have successfully impacted the travel market in the past. OTAs, Airbnb and other industry players have developed platforms that transformed the industry and will likely continue to change the way travel product is distributed. Operators and industry stakeholders should be prepared for the potential entry of a large technology-based company into the travel market.
Artificial Intelligence (AI) may also play a part in the travel and tourism industry in the near future. AI could automatise the personalisation and customisation of travel products, and streamline delivery of hotel and resort operator systems. AI may play a valuable role in the future of travel and tourism by providing cost-savings that would ultimately contribute to operators’ profitability. If properly harnessed, newly developed block-chain technology may have a significant impact on tourism product distribution. Future tourism industry stakeholders may use block-chain technology to reduce distribution platform commissions, allowing the operator to retain significant portions of profitability.
Accommodation and tourism operators can now distribute their product through more channels than ever before. While it is likely that many operators will continue to seek direct business and use traditional wholesalers and OTA platforms to generate revenue, there are a wide range of innovative alternative travel distribution channels currently available that provide incremental sales, distressed inventory solutions and access to new groups of consumers not captured by major distributors. Ultimately, until travel and tourism operators are at full capacity year-round, travel distributors of all types can rely on an increasing reservoir of consumer business.
About the Author - Mark Ferszt LLB BA
Mark has been involved in the travel and leisure industry for over 20 years in hotels, resorts, casinos and travel distribution. He’s rapidly grown Bartercard’s Tourism & Leisure Division in the Pacific region for 10 years.
Bartercard Tourism has hundreds of resort and accommodation members at destinations worldwide that welcome visitors on Bartercard and accept a cash-alternative currency of Trade Dollars. By spending Bartercard Trade Dollars instead of cash, hotels and resorts have saved millions on expenses from renovations to maintenance and equipment.
ACKNOWLEDGEMENTS & SOURCES:
The World Travel & Tourism Council
- Travel Weekly (Australia)
- Mr. Tata Crocombe – owner & Managing Director – The Rarotongan Beach Resort & Spa, Sanctuary
Rarotonga, Aitutaki Lagoon Resort & Spa
- Mr. Randall Deer – owner & Managing Director – Ignite Travel Group
- Mr. David Schlottman – Product Director – ubookdirect
- Mr. Andreas S. Philkan – Managing Director-CEO – Humus Hospitality Management
- PATA Asia Pacific Visitor Forecasts 2018-2022