Don't Just Relate -- Advocate: A Blueprint for Profit in the Era of Customer Power
Chapter 3: The Balance of Push and Trust Is Shifting
The Balance is Shifting in the Travel Industry
In the 1960s and 1970s, airline services were of high quality and were often differentiated. Travelers were largely businessmen, and they were very informed. Airlines had a long-term perspective and invested in customer satisfaction and loyalty. These factors pushed the balance toward the trust side of the scale. But in the 1980s and 1990s, the markets shifted. Price-sensitive leisure travelers entered the market, and capacity grew faster than demand. In order to fill those seats, airlines resorted to "load management" pricing and discriminated heavily between business travelers and vacationers, as well as between last-minute travelers and those who planned ahead. Rates became complex, and price became the dominant factor. Cyclical fluctuations, combined with high fixed investment, increased the pressure to cover short-term costs and make the quarterly numbers the stock market expected. Prices declined, and costs were cut, resulting in lower service quality and higher customer dissatisfaction. These trends intensified in the 1990s as discount airlines (like Southwest Air and Virgin Airlines) entered the market and capacity increased more while prices eroded even more. By the 2000s, price wars were common. With the drop in travel due to the events of September 11, 2001, airlines faced a tougher environment. Dissatisfied customers were dealprone and had little loyalty. Big airlines like Pan Am and TWA disappeared, and giant United Airlines and USAIR have been operating under direction from the bankruptcy court. Thus, the airline industry slipped from trust and quality differentiation to price competition and push strategies over a period of 20 years.
On the other hand, the reservation and ticketing industry developed high levels of trust as third-party services (Orbitz, Expedia, and Travelocity) help customers find the best flights and prices for the customer by using full, honest information and acting to maximize the customer's interest, not the airlines. Buyers became informed and found reliable, high-quality ticketing and reservations for airlines and then for hotels. New services reduced the risk of having a poor flight or paying too much. These new companies became profitable, and some now have market capitalizations greater than many airlines. The Internet and electronic tickets enabled trust to be built as customers increased market influence and could exercise more decision options (e.g., using alternate third-party sites, going to the airlines directly, or using the traditional travel agent).
Customer Power Means Lower Rates
For most consumers, a key benefit of the shift in balance toward trust and the newfound power in ticketing is the ability to save money as well as the ability to easily make reservations and get tickets. Online price quotes allow consumers to price-shop when it comes to travel planning. Travel sites let consumers go beyond the price quotes from a travel agent and instead explore thousands of possible flights almost instantly. What's more, the cost of obtaining information is virtually zero for consumers with Internet access, and only a small charge is added for the ticketing services ($6–$11 typically, but as high as $15 for some international airlines). Finally, the abundance of online information provides consumers with reviews of airlines, hotels, and other travel amenities that they may not have had access to in the past. This enables informed tradeoffs between price and quality. In addition to saving money, customer power raises the importance of service quality. Tourist information sites provide consumers with destination information on restaurants, sightseeing tours, and tickets to local events. With the development of online travel sites, consumers now have the ability to plan their travel any time, day or night. More travel sites are offering one-stop shopping. With a few clicks, a consumer can do everything, from purchasing airline tickets to shopping for concert tickets, renting a car, and planning a complete vacation with overnights at small bed and breakfasts.
Growth in power is not restricted to final consumers; it also affects business customers. Before the Internet, small businesses relied on travel agents for their business travel needs, paying a combination of management and transaction fees. Unless they spent millions a year on travel, suppliers would not offer them discounted fares. Furthermore, small-sized businesses typically did not have dedicated travel managers to keep track of travel expenses.
With the advent of B2B online travel agents that target small and mid-size companies, such as GetThere.com, Yatra.net, Delta's MYOBTravel.com, and Continental's RewardOne program, these smaller businesses can now have more control than ever over one of their biggest expenses. The B2B online agencies not only provide standard travel management tools, such as customer profiles and real-time tracking reports, but they also aggregate purchasing power of multiple customers to negotiate deals with suppliers. As competition heats up in this historically underserved B2B travel market, suppliers are providing additional incentives for these small businesses to book directly through them. For example, MYOBTravel.com customers receive a discount on the first, fifth, and tenth bookings through the site, representing 10%, 20%, and 30%, respectively, off the published fares. The percentage of business air travel transactions conducted online increased from 9.5% in 2001 to 34% in 2003.