Running the MyTravel retail and tour operations in 2003, I saw a big opportunity to exploit the fledgling Dynamic Packaging sector by creating a bed bank and building Dynamic Packaging (DP) technology via my technology business CWT Digital. Therefore, I jumped and have been deeply immersed in the Dynamic Packaging sector for the last 11 years.
Some of my investments such Holiday Taxis, CWT Digital, Rock Insurance and Internet Traveller have prospered and been extremely successful, however as widely reported the On Holiday Group’s bed bank operations collapsed in March 2014, under the weight of a £4.5m dispute with HMRC. Fortunately, my good friend Manny managed to pick up the assets and staff for virtually nothing, in order to create Magic Rooms, so not was the effort was wasted. However, even Manny has not been brave enough to venture into the B2C Consumer direct world yet. Why not you may ask?
The key problem with Dynamic packaging is that it’s a “Commodity” market, where each retailer has access to the same basic ingredients, in terms of flights, hotels and transfers. Unique, product is virtually unheard of.
The 1.0 DP battle involved taking the commodity holiday sector away from the then fat and inefficient traditional tour operators and forcing them to move their focus to “Differentiated” holidays. The internal DP battle between the first “On line Travel Agents” (OTA’s), revolved around who had the fastest and best web sites. Quickly a relatively level playing field was achieved and technology stopped being a key differentiator, with everybody expanding fast.
The 2.0 battle was focused on PPC and SEO spend within Google. Here, the Google algorithm around click history, created a massive barrier to new entrants and saw companies such as Travel Republic and On the Beach, given a major early mover advantage, as their PPC history protected their top positions within most destination, resort and hotel search results.
However, even these brands are now being strangled by the perfect nature of the Google advertising model. Given the complete measurability of PPC advertising within a commodity market, its not really surprising that click costs have risen so high, that they match or even exceed the commissions built into the holiday prices.
The recent rapid migration away from desktop (now 48% of Google clicks) to the newer tablets and mobile phones has also created massive issues for the On Line Travel Agent community (OTA’s). This is because cross platform tracking is hard and although mobile conversions are lower, OTA’s dare not be present in this growing sector. Hence, PPC performance has declined markedly on the last 18 months eroding profits.
In my view we are now entering the 3.0 stage of the Dynamic Packaging evolution. This stage will be the “Age of the Brand” with strong brands evolving and moving ahead of the pack.
My logic is hopefully relatively simple to follow.
• Brand traffic cost pence, compared to pounds for most other PPC traffic sources.
• Brands can afford to advertise across all platforms; since even brand clicks on mobiles lasting minutes can be cost effective in the booking funnel.
• Companies with high brand traffic have markedly lower advertising cost.
• Lower advertising costs allow lower prices, which in turn drive more sales in a price sensitive commodity market place, creating a virtuous circle of growth.
This is exactly why the aggressive Low Cost Holidays management team have invested around £6m this year in “Above the line advertising” (ABL) to try to build their brand and direct brand traffic. Theoretically, over time this brand traffic will reduce their average Google costs enough to balance this massive investment.
However, its no longer practical to just spend millions on traditional interruption based marketing such as TV, Radio or outdoor media to create a brand. Social Media and in particular Consumer Reviews are having a massive impact on brand. The first thing consumer do when researching holidays is to look for pier-to-pier reviews on sites such as Feefo, Review Centre and Tripadvisor. If companies do not respond virtually instantly to complaints received via Face book or Twitter, whole streams of uncontrolled criticism can kick off. The bottom line is that if you do not offer a great booking experience and a great holiday you heading for trouble.
The sector is therefore faced with some massive challenges that need to be addressed to allow sustainable brands to be developed.
• Lack of inspiration. Most online sites insist the customers know exactly what they want before they can make a search and quickly try to force customers down a relatively inflexible booking funnel e.g. here are results for Majorca for 7 nights from Gatwick on date X. With an emotive product like travel, customers need to be inspired and explore in a much more flexible way. At the moment homeworkers and shop staff are much better positioned to perform this role, with most OTA’s just competing on price.
• Offer over load. Customers visit 23 online sites before booking and spend 24 hours researching holiday options. A key reason for this is that DP sites offer millions of options and do not in my opinion, have enough focus on making recommendations.
• Little product control. Few DP agents even know what is pulling through into their sites, as they have 20 plus XML bed suppliers, 49 airlines and multiple transfer providers. I am not convinced that they effectively control product quality, let alone Health and Safety compliance.
• Suppliers judged on price. Agents complain to suppliers about over bookings, customer complaints and general service levels, but still sale on solely based on price and do not effectively reward suppliers focused on quality. Hence, suppliers now focus on price and little else.
• In-Resort infrastructure. Few agents operate 24-hour duty offices or have local ground handling agents providing reps in resort to look after clients. Therefore, they are relatively ineffective in dealing with issues in resort and have to wait for written complaints upon the customers return. In general these customers are unrecoverable and likely to share their reviews using social media.
All of the above issues do have solutions, but most cost money, which historically companies have hesitated to spend whilst competing in such a low margin price competitive sector.
However, there is no point spending millions on advertising, if it’s all undone via poor service levels, which are shouted about via social media by unhappy customers. The benefits of repeat traffic are becoming so great and the damage social media can do to brands offering poor quality service or holidays, that change is inevitable.
Exploiting the 3.0 evolution is obviously going to be easier if you already have a brand. This does make successful entrepreneurial start ups in the DP sector look unlikely moving forward, unless they are exploiting specific niches and are focused on high quality differentiated holidays.
Given this I personally intend to keep my recent pledge to focus my start up energies outside of travel.
Within travel I will obviously continue working on my existing interests, but will focus more on consultancy work. There are still some very interesting travel brands capable of dealing with all the above issues and surging to the top of the pack. Sadly, its unlikely I will be own one unless somebody is willing to loan me a large check book, as the days of pure start ups appear to be over in travel.