Both the challenge and the opportunity have never been greater in the travel industry than right now. A recent report from Deloitte highlighted how travel is one of the fastest growing economic sectors in 2018 and now accounts for over 10% of global GDP.
This growth has been driven by two factors:
The increasing number of travellers worldwide as consumers in developing economies begin to travel beyond their home nation for the first time
The measurable shift in spend from products to experiences – data shows personal consumption spending is shifting from cars, home appliances and even clothes to spend on experiences – travel, activities and eating out. And this isn’t confined to so-called millennials – the shift is being seen across many age demographics
This points to a very positive future for travel companies with growing demand for their offering. But it’s not all good news for existing operators. This growth attracts new entrants too.
Since 2016, a staggering USD30 billion has been invested in travel start-ups; almost as much as the total for the previous 10 years. Whilst many may fail, some will change the very way consumers purchase travel products as has been the case in other industries such as retail. Add to that the ongoing challenges from weather-related events, global terrorism, shifting geopolitics with Brexit and other legislative changes, the need for any existing travel business to stay vigilant and agile in the face of some many threats is paramount.
In addition, those same consumers whose appetite and spend on travel-related products and experiences are becoming ever more discerning and their choices have never been greater. As technology enlarges the potential customer base for any company, many travel businesses can now count their competitors in the hundreds rather than tens. In many cases, those competitors didn’t exist ten years ago and bring with them an arsenal of marketing knowledge and tactics to reach customers in ever more ways.
So, what should an established travel operator be doing to take advantage of these new opportunities and protect against growing threats? The answer is not to embrace artificial intelligence or some other emerging technology. In fact, it’s much more prosaic. Focus on profits first.
Focus on profits
Profits are the life-blood of any business but the travel industry faces particular challenges when building a profitable business. Margins can be low, marketing costs can be high in very competitive sectors, and there are great fluctuations in exchange rates. Consider the magnified and direct impact on travel when world events occur such as terror attacks, environmental or economically related issues and it’s no wonder many otherwise great travel companies struggle with making the sustainable profits they seek.
Focusing on profits allows for experimentation and innovation
Many travel companies are founded to serve an otherwise ignored niche or to spread the passion of the company founder, however, without sustainable profits, the business will begin to stagnate or possibly fail. It almost certainly won’t be able to grow and have the impact it wants of more customers, serving more destinations, adding amazing products and becoming a true leader in its field.
Whilst it may at first seem a focus on profits constricts diversity and experimentation, in fact, strong profits form the foundation that allows for experimentation and risk-taking. If the core of the company is strong, the business can explore new opportunities and areas, with careful research, without risking the entire entity.
Profits offer protection
Higher profits also protect against the ‘black swan’ events that may or may not be foreseeable. Whether it be the sudden emergence of a new competitor, a rapid shift in exchange rates or a weather-related event, higher profits allow for options to adapt the business quickly, drive more volume with increased marketing or simply wait it out for better conditions. Companies that run with low profits often don’t survive these events.
In addition, there are many longer-term threats to travel businesses from the relentless pace of technological change to disruptive new market entrants and continued uncertainty over legislative changes and costs, and not least fast-changing consumer wants and behaviour. Travel companies today need to be agile, responsive, technologically savvy and adept at changing their approach and even business models over relatively short time frames.
Strong profits underpin all of this, allowing options to be pursued where others have no choice but to continue or blindly follow a new strategy without sufficient data or consideration.
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How to grow profits in an ever more competitive market
Growing gross profit margins
So, if gross margin is largely fixed, where are the opportunities to increase profit? In our view, the key is in maximising efficiencies and minimising waste.
Every company, whether they realise it or not, has a ‘funnel’ – a process by which consumers become aware of the business and move through a series of stages to purchasing, and then recommending and/or purchasing again in the future. Every time a potential customer drops out of the funnel, that’s wasted spend.
Here’s an example of a typical funnel in travel:
Customer A is looking for a holiday to Italy. She begins with a google search around her needs – and receives a SERP (search engine results page) with a list of both organic and paid ads.
She clicks on a paid ad from your company. Rather than taking her to a specific landing page about your offering in Italy that is of interest to her, she ends up on a generic Italy page on your site, or worse still on the homepage. Time poor, she returns to her search page and clicks again.
Waste? You’ve spent money and time on that ad, and failed to convert her interest into any further action. Wasted spend.
Alternatively, she clicks on one if the organic search results for your company. This time the page she reaches is specific to her enquiry but she’s short of time and can’t find all the information she needs immediately. She doesn’t have time to call, and there’s no live chat or obvious enquiry form, so again she returns to search.
You have wasted spend on all the content and work put into achieving that SERP result.
And of course, there are numerous other ways a potential customer can enter your funnel at awareness, and all can potentially lead to a leak before the customer moves on to the next step.
This is just the start. Further down the funnel awareness moves into consideration as the consumer begins to engage with you and considers you for their holiday purchase. At this point, a whole series of leaks can occur.
She sends you an enquiry that isn’t picked up quickly, her first-choice destination isn’t available and there isn’t a simple way for her to find an alternative to suit her needs.
There are hundreds of ways to lose a customer at this point. If their chosen path doesn’t move them along in their purchasing journey, they’re gone.
Let’s move to the end of the funnel where all the hard work has been done and the customer has parted with their credit card and hopefully enjoyed a great holiday with.
No. The funnel ‘ends’ with repeat and referral mechanisms.
How do you delight that customer on their return so they book again and/or recommend you to others? Research shows that recommendation from friends and family is still by far the most important influence overall in how consumers book travel. This is closely followed by review sites. So, get this part wrong and your customer acquisition costs will quickly mount as you enter a continuous cycle of winning new customers with considerable spend.
3 steps to improving profits through minimising waste and maximising conversion
Here’s a simple 3-step model any travel business can implement to grow their profits through minimising waste and maximising conversion.
Understand your customers
Firstly, define who your customers are through a market survey and segmentation analysis to define who you serve and how. Going after too wide a market is the route to wasted time and spend as your offering simply won’t resonate with much of the market. Be specific. Don’t be afraid to ignore market segments which don’t perfectly suit your offering. Instead, focus on really understanding the customers that do.
Customers expect a personalised service, and not just at the point of enquiry. Delivering this service requires you to understand who your customers are and what is most important to them. Spend the time to research and refine your target market, and shape your products, price and communications to fit. If you don’t, there are plenty of others that will.
Find and promote your point of difference
As competitors increase, standing out becomes ever more important. Find your voice and what makes your business stand out and ensure it is communicated properly. In a crowded market, consumers become quicker and quicker to dismiss options that don’t stand out. Making a connection early on will give you that opportunity to communicate further. Become part of the crowd and you’ll lose the chance to show them what makes you different. You’ve worked hard and spent money to get their attention with a paid ad, a piece of content or PR driven article, don’t waste it by losing their interest just when you’ve gained it.
Understand your funnel and work to fix the leaks, including the end where customers flood out
This is where the battle for business can be won or lost. As the right customers enter your funnel in the consideration stage you still have an awful lot of work to do and there are a huge number of areas where you can lose their business. This starts with identifying the key stages in your funnel where leaks can occur and ensuring measurement tools are in place at each of these points. Only then can you start to identify whether measures you implement are fixing the leaks. Defining both where and why they occur is paramount to achieving a successful outcome of a sale and beyond that a referral, recommendation or repeat purchase.
How Duplare can help you win more clients and make higher profits.
Duplare work across all 3 of these areas by helping you to understand your customers, find and promote your point of difference and communicate it fully across all your activities. We also help you to understand your sales funnel, identify and measure leaks and put the plans and processes in place to fix them and move your customers seamlessly toward a purchase and beyond.
If you’re interested in winning more customers and growing your profits book a free strategy session with Duplare today. We will help you identify where your greatest challenges and opportunities lie, and how to reach your travel businesses full potential.
Duplare was born of two seasoned travel industry professionals who strive to help travel companies build sustainable, profitable and adaptable businesses.
Having worked with many travel companies over the years, we saw a need to help them make the step change required to realise their potential.