- Email: [email protected]
UK travel agencies — future marketing strategies
UKtravel agencies - future marketing strategies
JohnMcEwan The UK travel agency business is going through a period of adjustment. The old service values have been found to be incompatible with the cut-price tactics of the larger tour operators seeking to drive out smaller operators and dominate the market. The tourist of the 1990s is looking for value for money and agencies will have to be discerning in which products they choose to supply. Marketing in the 1990s will become highly sophisticated, incorporating technological advances. Clients will become loyal to those agents best capable of supplying products tailored to their specific requirements. Keywords:
travel
agencies;
tour operators;
UK tourism
The UK travel agency business has traditionally been compared to a millpond whose surface is occasionally disturbed by the fickleness of the public, the unpredictability of the exchange rate, the vagaries of politics and the anarchy of terrorism. Classing itself firmly as a ‘service’ industry somewhere between the professionalism of the optician and the commercialism of the estate agent, it has espoused the values of fraternity, and used its trade association, the Association of British Travel Agents, to engender a spirit of mutual cooperation and support against any external influence which threatened to disturb its tranquil existence. The result has been a relatively low-cost entry market, proliferation of independents and a sense of fair play that has rendered agents incapable of exercising the kind of competitive spirit normally associated with retailing, and the emergence of the corner shop his clearly style of trading, with each agent operating defined territory, client base and local influence. The competitive spirit has been entirely abdicated in favour of the tour operators who have maintained a surprising level of control over ‘their’ agents with common merchandizing, brochure supply, etc, to the extent that a merchandizing blitz in a particular town would have, until recently, left every agent, large or small, bedecked in identical window displays and offering identical products at identical prices.
John McEwan is Managing Director of Thomas Cook Ltd, UK.
0261-5177/87/020171-03$03.00
0
1987
Butterworth
& Co (Publishers)
Larger operators, emboldened by their power, and seeking the profits that flow from increased market share and productivity, have sought to drive out the weaker operators through drastic price cutting strategies that have threatened the existence of some operators and drawn the fire of the rest. Traditional product or brand values have been tampered with in order to match price for price. Brochures have been relaunched, reissued and reworked, launch dates postponed and advertising cut back, all in the interests of survival. The price war has been so fierce that the operators have been forced to turn their backs on the very agents who have provided their mainstay for so many years, and to cut the service to the independents to release vital funds. Even brochure supply - the most vital of tools in selling holidays - has been cut back in the hope of saving costs. The net result has been to change the basic productclient relationship to such an extent that traditional brand loyalties have diminished and the new sophisticated young traveller prides himself on getting the ‘best deal’.
Retail agent competition With the erosion of traditional product values, and the lack of presence of tour operators in the consumer media, the way has been opened for a new approach by the multiple retail agents, many of whom have their origin outside conventional travel, and are less inhibited by old loyalties. Thomas Cook and Amex are owned by financial institutions, Hogg Robinson by an insurance broking company, Pickfords by National Freight and Lunn Poly, by the tour operator, Thomson; W H Smith Travel is obviously owned by the stationery business. For these multiple agents, the science of retailing is viewed as equally important to that of travel information expertise, and they believe the ‘High Street’, with its high rents and high expectations in terms of shop layout, and design, deserves special attention and treatment. The emphasis has not so much been on the branded products themselves, as on the method of selling, competing effectively for the
Ltd
171
G&I travel agents -future
marketing
strategies
public’s money against the tempting array of leisure hi-fi and audio, computers, cameras, high fashion or even the more conventional purchases of car, home, deep freeze or three piece suite that usurp the holiday cash. While holiday prices have dropped as a percentage of real income, more people view taking a holiday as a necessity, ie only to be traded off against products with equal need or pleasure scores - but there are plenty of such products around for the retailer. Low price has been a double edged sword, a highly favourable initiative to drive public demand, but in reality, a reduction in margins which has brought suffering for those agents on fixed commissions. The recent ruling by the UK Monopolies and Mergers Commission, that agents should be actively encouraged to compete in order to give clients access to ‘better deals’, has opened the way to new initiatives, spurred on by the deep pocketed multiples that threaten to drive up the entry cost of the market and force the smaller independents to trade unprofitably and ultimately give up. For the multiple agents, already insulated by their backers, the opportunity to increase awareness through their own advertising, own label and special deals or offers, means that the multiple is edging into the driving seat in the agent-operator relationship and seeking to extract additional commissions, special offers and even advertising funds to achieve popularity with the travelling public. In the 1990s more differences between agents will emerge, technology at the point of sale, payment systems, self-selection - even direct booking technology - will become more prominent. High Street sites will become more specific in terms of ‘earnings per linear foot’ and agents will be studying much more closely the relationship between product range and profitability of ancillary products, eg insurance, profit potential and even the relative merits between competing tour operators’ programmes of altering the number of facings or the position of brochures on the rack to achieve increased sales among segmented key target audiences. Direct sell will become more evident, both as a threat to conventional agencies and as a by-product of unused space and more sophisticated telesales facilities. Central warehouse distribution will ensure that the valuable brochure is not supplied according to the financial whims of the operator and that ‘own label‘ product versions fill the void in any tour operator programmes to guarantee client satisfaction. Agents will take more responsibility with the clients on servicing the products, or working on behalf of the client in sorting out problems with the tour operator, while choosing between programmes to decide which would be most value in attracting the largest audience. Agents are already in the position of being able to tell tour operators the level of loyalty their products retain among clients from year to year, and it is only a short step to being able to judge and comment on the effectiveness of operators’ marketing initiatives on the broad spectrum of the client base, and to deciding whether or not a particular promotion sounds worth participating in or not. Dif-
172
ferentiation between agents will be the norm. Tailor-made proposals will be the only operator activities tolerated in retail outlets and increasing demand for technological advantage, or specific product formats. will gradually erode the traditional tour operator brand confidence and build new loyalties in the client. New retailing formats, video catalogues. etc, mean that the new travel retailers will be far less constrained than their predecessors and will seek alternative sites, trading formats and product mix. The Thomas Cook Group’s ‘lifestyle’ retailing experiments in Tesco supermarkets and Top Shop have proved the value of reaching the client with the products relevant to his or her needs early on in the buying decision. and of being available alongside other leisure products rather than isolated in a dedicated agency. Investment in joint programmes, with tour operators, will see much more often a Marks and Spencer type approach to retailing travel, with the agent instructing the operator on which products to make and what standards to produce to. In this way the agent will build its reputation with the client and develop its own justifiable ‘loyalties’.
Future issues In the 1990s profitability and productivity will be essential measures in determining location, product mix and pricing strategy. Improving earnings through more control over the product will be vital, since the holiday expenditure, like a car, is a high value/single purchase. Achieving adequate returns from each transaction will be increasingly important, while transaction time, processing costs and complexity of tour operator products will need to be weighed carefully against the value of the booking. Achieving stability in the market will also be a matter of great concern. The 1985 rejection of Spain, coupled with the 1986 Libyan crisis have done little to build trade confidence in either the UK government or the public’s stability. Travel is a risky business when such factors can distract clients or even put their personal safety at risk. Which operators give the retail agent’s clients the best service, and to what extent can this service be improved through the agent’s intervention? Giving the client a good experience is implicit in the role of the agent, but vital in the role of travel retailer seeking to build brand loyalty in his own company’s expertise. Which destinations will be appropriate for clients to visit in the 1990s and how far can the destinations afford to support an influx of tourism? Will some countries continue to tolerate a four-fold increase in leisure traffic during peak periods without local back-lash and resentment? Will we find in some parts of the world that clients are only safe so long as they do not go into the local markets or off the holiday hotel complexes that mask the coastline? Will disease and poverty in Africa put clients at risk if they seek to widen their experience beyond the escorted tours and excursions on offer, etc? If airlines find their margins eroded, as for example in Europe, will they too decide to simplify their travel
TOURISM
MANAGEMENT
June 1987
L’K rrauel agents - fhdre
operations - to cut out the retailer and encourage clients to travel independently, booking directly with the airline at the airport. Will they do away with tickets per se? Finally, will the economic battle between unemployment and inflation in the UK finally result in a market of ‘haves’ or ‘have-riots’’ with regional earnings polarised between north and south? Will the increased leisure time
TOURISM
MANAGEMENT
June 1987
markering
srraregres
be accompanied bl; adequate earnings to support it’? Or will low price travel become so much a matter of routine that it becomes a commodity rather than a luxury’? The Thomas Cook Group is watching such economic indicators with great interest and planning their strategies accordingly to make the most of the potential sources of revenue for the travel agency business.
173
JohnMcEwan The UK travel agency business is going through a period of adjustment. The old service values have been found to be incompatible with the cut-price tactics of the larger tour operators seeking to drive out smaller operators and dominate the market. The tourist of the 1990s is looking for value for money and agencies will have to be discerning in which products they choose to supply. Marketing in the 1990s will become highly sophisticated, incorporating technological advances. Clients will become loyal to those agents best capable of supplying products tailored to their specific requirements. Keywords:
travel
agencies;
tour operators;
UK tourism
The UK travel agency business has traditionally been compared to a millpond whose surface is occasionally disturbed by the fickleness of the public, the unpredictability of the exchange rate, the vagaries of politics and the anarchy of terrorism. Classing itself firmly as a ‘service’ industry somewhere between the professionalism of the optician and the commercialism of the estate agent, it has espoused the values of fraternity, and used its trade association, the Association of British Travel Agents, to engender a spirit of mutual cooperation and support against any external influence which threatened to disturb its tranquil existence. The result has been a relatively low-cost entry market, proliferation of independents and a sense of fair play that has rendered agents incapable of exercising the kind of competitive spirit normally associated with retailing, and the emergence of the corner shop his clearly style of trading, with each agent operating defined territory, client base and local influence. The competitive spirit has been entirely abdicated in favour of the tour operators who have maintained a surprising level of control over ‘their’ agents with common merchandizing, brochure supply, etc, to the extent that a merchandizing blitz in a particular town would have, until recently, left every agent, large or small, bedecked in identical window displays and offering identical products at identical prices.
John McEwan is Managing Director of Thomas Cook Ltd, UK.
0261-5177/87/020171-03$03.00
0
1987
Butterworth
& Co (Publishers)
Larger operators, emboldened by their power, and seeking the profits that flow from increased market share and productivity, have sought to drive out the weaker operators through drastic price cutting strategies that have threatened the existence of some operators and drawn the fire of the rest. Traditional product or brand values have been tampered with in order to match price for price. Brochures have been relaunched, reissued and reworked, launch dates postponed and advertising cut back, all in the interests of survival. The price war has been so fierce that the operators have been forced to turn their backs on the very agents who have provided their mainstay for so many years, and to cut the service to the independents to release vital funds. Even brochure supply - the most vital of tools in selling holidays - has been cut back in the hope of saving costs. The net result has been to change the basic productclient relationship to such an extent that traditional brand loyalties have diminished and the new sophisticated young traveller prides himself on getting the ‘best deal’.
Retail agent competition With the erosion of traditional product values, and the lack of presence of tour operators in the consumer media, the way has been opened for a new approach by the multiple retail agents, many of whom have their origin outside conventional travel, and are less inhibited by old loyalties. Thomas Cook and Amex are owned by financial institutions, Hogg Robinson by an insurance broking company, Pickfords by National Freight and Lunn Poly, by the tour operator, Thomson; W H Smith Travel is obviously owned by the stationery business. For these multiple agents, the science of retailing is viewed as equally important to that of travel information expertise, and they believe the ‘High Street’, with its high rents and high expectations in terms of shop layout, and design, deserves special attention and treatment. The emphasis has not so much been on the branded products themselves, as on the method of selling, competing effectively for the
Ltd
171
G&I travel agents -future
marketing
strategies
public’s money against the tempting array of leisure hi-fi and audio, computers, cameras, high fashion or even the more conventional purchases of car, home, deep freeze or three piece suite that usurp the holiday cash. While holiday prices have dropped as a percentage of real income, more people view taking a holiday as a necessity, ie only to be traded off against products with equal need or pleasure scores - but there are plenty of such products around for the retailer. Low price has been a double edged sword, a highly favourable initiative to drive public demand, but in reality, a reduction in margins which has brought suffering for those agents on fixed commissions. The recent ruling by the UK Monopolies and Mergers Commission, that agents should be actively encouraged to compete in order to give clients access to ‘better deals’, has opened the way to new initiatives, spurred on by the deep pocketed multiples that threaten to drive up the entry cost of the market and force the smaller independents to trade unprofitably and ultimately give up. For the multiple agents, already insulated by their backers, the opportunity to increase awareness through their own advertising, own label and special deals or offers, means that the multiple is edging into the driving seat in the agent-operator relationship and seeking to extract additional commissions, special offers and even advertising funds to achieve popularity with the travelling public. In the 1990s more differences between agents will emerge, technology at the point of sale, payment systems, self-selection - even direct booking technology - will become more prominent. High Street sites will become more specific in terms of ‘earnings per linear foot’ and agents will be studying much more closely the relationship between product range and profitability of ancillary products, eg insurance, profit potential and even the relative merits between competing tour operators’ programmes of altering the number of facings or the position of brochures on the rack to achieve increased sales among segmented key target audiences. Direct sell will become more evident, both as a threat to conventional agencies and as a by-product of unused space and more sophisticated telesales facilities. Central warehouse distribution will ensure that the valuable brochure is not supplied according to the financial whims of the operator and that ‘own label‘ product versions fill the void in any tour operator programmes to guarantee client satisfaction. Agents will take more responsibility with the clients on servicing the products, or working on behalf of the client in sorting out problems with the tour operator, while choosing between programmes to decide which would be most value in attracting the largest audience. Agents are already in the position of being able to tell tour operators the level of loyalty their products retain among clients from year to year, and it is only a short step to being able to judge and comment on the effectiveness of operators’ marketing initiatives on the broad spectrum of the client base, and to deciding whether or not a particular promotion sounds worth participating in or not. Dif-
172
ferentiation between agents will be the norm. Tailor-made proposals will be the only operator activities tolerated in retail outlets and increasing demand for technological advantage, or specific product formats. will gradually erode the traditional tour operator brand confidence and build new loyalties in the client. New retailing formats, video catalogues. etc, mean that the new travel retailers will be far less constrained than their predecessors and will seek alternative sites, trading formats and product mix. The Thomas Cook Group’s ‘lifestyle’ retailing experiments in Tesco supermarkets and Top Shop have proved the value of reaching the client with the products relevant to his or her needs early on in the buying decision. and of being available alongside other leisure products rather than isolated in a dedicated agency. Investment in joint programmes, with tour operators, will see much more often a Marks and Spencer type approach to retailing travel, with the agent instructing the operator on which products to make and what standards to produce to. In this way the agent will build its reputation with the client and develop its own justifiable ‘loyalties’.
Future issues In the 1990s profitability and productivity will be essential measures in determining location, product mix and pricing strategy. Improving earnings through more control over the product will be vital, since the holiday expenditure, like a car, is a high value/single purchase. Achieving adequate returns from each transaction will be increasingly important, while transaction time, processing costs and complexity of tour operator products will need to be weighed carefully against the value of the booking. Achieving stability in the market will also be a matter of great concern. The 1985 rejection of Spain, coupled with the 1986 Libyan crisis have done little to build trade confidence in either the UK government or the public’s stability. Travel is a risky business when such factors can distract clients or even put their personal safety at risk. Which operators give the retail agent’s clients the best service, and to what extent can this service be improved through the agent’s intervention? Giving the client a good experience is implicit in the role of the agent, but vital in the role of travel retailer seeking to build brand loyalty in his own company’s expertise. Which destinations will be appropriate for clients to visit in the 1990s and how far can the destinations afford to support an influx of tourism? Will some countries continue to tolerate a four-fold increase in leisure traffic during peak periods without local back-lash and resentment? Will we find in some parts of the world that clients are only safe so long as they do not go into the local markets or off the holiday hotel complexes that mask the coastline? Will disease and poverty in Africa put clients at risk if they seek to widen their experience beyond the escorted tours and excursions on offer, etc? If airlines find their margins eroded, as for example in Europe, will they too decide to simplify their travel
TOURISM
MANAGEMENT
June 1987
L’K rrauel agents - fhdre
operations - to cut out the retailer and encourage clients to travel independently, booking directly with the airline at the airport. Will they do away with tickets per se? Finally, will the economic battle between unemployment and inflation in the UK finally result in a market of ‘haves’ or ‘have-riots’’ with regional earnings polarised between north and south? Will the increased leisure time
TOURISM
MANAGEMENT
June 1987
markering
srraregres
be accompanied bl; adequate earnings to support it’? Or will low price travel become so much a matter of routine that it becomes a commodity rather than a luxury’? The Thomas Cook Group is watching such economic indicators with great interest and planning their strategies accordingly to make the most of the potential sources of revenue for the travel agency business.
173