Written By: Scott Koepf MCC, CTC, V.P. of Strategic Development – Cruise Planners
If there is one thing that everyone in the travel industry agrees on, it is that change is not only inevitable, but also occurring more rapidly than ever. For the travel agent, it is difficult to know where the next significant impact on their business might come from. Everyone seems to have a different prediction depending on the latest series of events.
Over the years industry “experts” have predicted everything from mass closures to complete elimination of the travel agency community. Most predictions seem to be based on fear more than on any specific model or basis of experience. So where does one look to attempt to predict the future of the travel agencies of today?
What business are travel agencies in?
It is not my intent to provide a history of the travel agency business, however a quick review may establish a starting point for looking forward. Much has been written on the evolution of travel agencies and the challenges they have had to overcome. Learning from the past is invaluable and by looking back the conclusion would be that travel agencies are extremely resilient to change. Most people point to the time of deregulation of the airline industry as a historical turning point. It certainly was the beginning of the most rapid changes for travel agencies. However, the fundamental change with much larger implications seems to have happened somewhat slower and indeed is still not fully embraced by the travel agency community. Throughout the last twenty years, the travel agency has transformed into a completely different business and therefore the rules have and will change dramatically.
Quite simply, the travel agency has changed from a transaction handling service to retail sales. The difference is immense and the strategies for success are nowhere near the same. It should be noted that some corporate based agencies still are and should be in the transaction handling business. Corporate travel is a completely different business than leisure travel, as it is a business to business arrangement and therefore not retail. This may be an indication as to why it has historically proven so difficult to increase leisure business in a corporate agency. In most cases where an agency has been successful in building their leisure sales, it has literally been because they have built a completely different and separate business. New staff, resources and sometimes even new physical locations have been required. The point is that although we lump leisure and corporate business into the “travel” category, the fact is that they couldn’t be more different!
It is important then to give an exact definition of what business leisure selling travel agencies are in. By using standard business definitions, it is retail sales. Retail because it serves the end-user consumer, and sales because if the agency doesn’t sell something it is out of business.
As mentioned earlier, many travel agency owners still do not understand (or do not want to understand) that they are in the retail sales business. Many years ago, a consultant at a travel industry event asked a room full of agents what business they were in. The majority immediately decided they were in the travel business. Yes, but so are airline pilots and baggage handlers. The consultant pressed for a more specific answer, so many agents decided that they were in the service business. This made everyone feel good, but if they only provided service, how did they make money? Finally a few (and they probably were the ones with fancy cars in the parking lot) said boldly that they were in sales. Most of the agents in the room shuddered at the thought of sharing a title with Insurance and Used Car Salesmen. A business cannot service anything until something is sold or it will soon be out of business. This industry event occurred more than twenty years ago and now many more travel professionals realize that a travel agency is a retail sales operation.
If the travel agency community embraces the idea that they are in the retail sales business, then there is good news and bad news. First the bad news: by looking historically it is obvious that the trends of general retail are exactly the same in the travel agency business except travel is about five to ten years behind. This will be validated by examples through the following section which highlights retail trends. But, the good news is that by being behind the trend is like having a crystal ball to tell the future! Now agencies can see the trends that will affect them before they happen and if they react fast enough they can be on the cutting edge!
There are five specific retail trends that have influenced retail sales and for each trend I will provide examples from the world of general retail and note how these trends may be emerging in the travel industry.
Going back only thirty years, the retail leisure travel business was fairly homogenous. Most travel agencies looked alike, were run alike and offered the same full array of products. Some concentrated on leisure, some on corporate but almost all handled at least a little of both. Certainly, there were big and small agencies and chains, but from a consumer’s perception, there was not much differentiation. In essence, travel agencies were operated like the General Store of olden days.
So, just like the General Stores of old, a trend (which is literally a hundred years old but has just exploded in the last forty years) began to undermine their business: Specialists. A store just selling Levi’s or just selling groceries suddenly led to a dramatic change in fortunes for the general store owners of old.
This same scenario was repeated for the travel agency community many years ago. A new and laughable idea was launched called a “Cruise-Only Agency”. However, within a few years it went from laughable to despised by ‘full-service’ agencies and finally to reluctantly accepted. The specialization trend in general retailing had finally reached retail travel and changed the business. The cruise-only concept was only the beginning as Caribbean-only, ski-only, spa-only and other specializations were created. To compete as a “jack of all trades” (and usually master of none) the general store travel agency was forever going to be challenged.
Unlike the specialization trend which started years ago and grew relatively slowly, the other trends have begun to explode over the last few years. The first of these trends seems to be totally in contrast to the trend of specialization. General stores had taken on another name that we are now more familiar with: Department Stores. In general, retail department stores weathered the storms of specialization, but the next trend almost (and in some cases did) bankrupt them.
Wal-Mart, COSTCO, Home Depot and other stores known as Big Box Retailers or Category killers, are just a general store, except they have the size and scope to truly have a huge inventory and for select products, lower prices. Buying power and economies of scale allow them to sell more products, primarily via pervasive marketing as much as pricing. When looking at the Hardware store industry as an example, the corner hardware store panicked when Home Depot opened and then quietly closed except a few who survived because they saw it coming and were prepared .
In travel, the mergers and acquisitions game has now reached the retail level instead of just airlines and cruise lines consolidating. Companies are merging to form incredible retail marketing giants, and are following a general retail trend. Unfortunately, most travel agencies have simply complained about these companies because they sell vacations for less, and rebate commissions. These warehouses can and will sell for less. This is the American way that our society loves until it adversely affects us personally. Most agents who complain about a warehouse rebating commission will, at the end of the day, drive thirty miles to buy eight bottles of ketchup at COSTCO to save two dollars. Once again, leisure travel sales is no different than the retail business and therefore these new rules apply.
This word describes one of the latest trends in retailing which has also just begun to enter the travel business. Because of television and so many other choices for entertainment, retailers have to work much harder to capture the consumers’ interest. Simply opening in a decent location with plenty of good products will not work. To some extent, this trend started with malls themselves. Consumers would go simply because it was a nice comfortable environment (made up primarily of specialists by the way), but with competition between malls and within them getting intense, the Retailtainment store was created. One of the first was Sharper Image which invited hands on experimenting with it’s products. Then, of course, the most renowned retailtainment environment stores were the Disney stores. They first sell you fun and the right attitude, then the products. There are a few travel retailers who have embraced this trend and they taking full advantage of their brick and motor location. Business theorist Barry Sheehy says “Consumers are going to malls to get an experience”. So, what kind of experience is the consumer getting at a typical travel agency?
4. Home Based Distribution
This trend has recently hit travel retailers in a significant way. It is apparent that travel can be sold from the home and in many ways more efficiently than through a typical travel agency.
Network marketing or Multi Level Marketing has grown dramatically and industries such as vitamins, cosmetics and household disposables have felt their impact. Travel is an appealing product to these organizations due to the lack of inventory. Unfortunately, because of lack of exclusivity of product and low margins (10-15% vs. 50-90% in cosmetics) most efforts by these companies failed. In some cases their come-on pitches were fraudulent, but the obvious implication is the desire and ability to sell travel from home is enormous.
“I see a lot of changes in the workplace” says Seth Perelman, President and CEO of New York City based Automated Travel Systems. “Companies are looking at an increase in employees’ ability to work from home [with centralized] large travel reservation centers.” A group of people focused on nothing but selling (instead of paperwork and bookkeeping) with no fixed cost is a dream that can, and will for some travel agencies, come true.
5. Direct Distribution
The airlines have been doing it for years, and it is an accepted fact of life. Yet when a cruise line or Tour Operator goes direct, it is considered a betrayal to the agent community.
For this trend, we can look at our own industry for proof that going direct won’t eliminate travel agencies. The airlines have not only been going direct but have seemingly invested millions of dollars to entice consumers away from travel agencies. However, through this adversity, travel agencies still are a top distribution channel for sales of airline tickets.
As an example, the Internet might be considered by some as a retail trend; however it is not retailing or a trend of retailing as it is a media choice as newspaper, radio or yellow pages are media choices. Like all media, the more invested the more returned. However, like all media, it is competitive and the larger companies have the resources to create more impact. What is unique about the Internet is its ability to complete the transaction without any human contact. Therefore the only factors a consumer will use in determining where to buy a product, are the sizzle of the website and price of the product. Once again the warehouses who can sell over the Internet with lower prices and have the resources to produce the most sizzle will eventually win online.
Letting the cruise lines and tour operators take those bookings direct may eliminate some of the cut-throat pricing and may make available direct booked consumers for future marketing to show them the benefits of using a travel agency.
Finally as a last example of direct distribution in general retail, look at the proliferation of outlet stores where companies have completely by-passed their distributors. As if the bypass wasn’t enough, they offer their products direct at cheaper prices. Although the distribution channels were upset, the fact is that the majority of the clothing, shoe and luggage stores did not go out of business because of the outlet stores. Like every trend, it simply meant that to survive, a store had to adapt.
How Should Agencies Adapt to These Trends?
There are two ways a travel agency can learn from these trends and position themselves to compete effectively in the future.
The first is to totally embrace one of the trends. In some cases, the trend may be too entrenched already to give the competitive advantage desired. Opening a brick and motor cruise-only agency as an example, was cutting edge in 1990 and now it may not be the best strategy.
Becoming a warehouse is an option only available to those with large amounts of capital. Retailtainment also requires a large investment. Taking advantage of the home-based phenomenon is still available to the average agency, but it takes a real commitment of time and a fully developed training and support program. Finally, the trend of suppliers going direct should only make agencies realize how important it is to develop personal client relationships which will not be undermined by direct selling through any media.
It may seem futile to the average agency to try to survive against these trends as it is costly and difficult to take the approach of complete focus on one specific trend.
Thankfully, there is another way a typical agency can learn from the trends and become an extremely competitive retail travel seller. This solution requires looking at each trend and taking the philosophy of the trend to heart without embracing it exclusively. This way the agency can take the best of each trend to make their agency more successful. The following might serve as an example of how a typical full service agency could benefit from all of the trends simultaneously:
1. Specialization: Within the agency or in conjunction with other agents in your franchise or consortium, incentivize all of the sales people to become specialists. Have a Cruise Expert, a Europe Expert, an Asia expert, etc. This provides specialization for the consumer yet the convenience of choices at one location.
2. Warehouses: One of the greatest advantages warehouses have is the division of labor. They have a sales department, a document department, an accounting department, and a customer service department. The agency should endeavor to let sales people sell and delegate all non-sales related activities to other personnel. Database marketing and the importance of client retention programs should be emphasized due to the warehouse’s ability to control marketing media. In addition, just as hardware stores joined TruValue or Ace to compete against Home-Depot stores, travel agencies must join forces for support and competitive reasons. Franchises and Consortiums provide not only buying power, but marketing programs that are of a large enough scale to make an impact against the warehouse marketing.
3. Retailtainment: Most agencies can’t afford a Disney style store, but with a smaller investment they can stylize their agency. The agency should determine what feeling they want their clients to have, and design their agency accordingly. If the agency sells relaxation, luxury and pampering, then those words should resonate in the physical surrounding. Or, if fun, adventure and excitement are the focus, then those emotions should be felt the moment a client enters the store. As an aside, it is key to train the employees to embody that attitude much like Disney stores have greeters with a huge smile!
4. Home Based Distribution: If the Agency is home-based then the ‘entertainment’ aspect has to come through to the consumer via the services and communications you provide. A much better term for this approach to running an agency would be ‘mobile travel agent’ then use that mobility to your advantage. If a home-based agent stays home, there potential is severely limited. Instead go see your clients, your suppliers and go be seen!
5. Direct Distribution: The selection and strong relationship with preferred suppliers is the first line of defense as your relationship with your existing clients will prevail. Although the use of any media (including online) to communicate with your clients is advantageous, it is still personal relationships that will ensure loyalty. Therefore, an in-depth customer service and retention program needs to be in place in the agency.
This is not an exhaustive list, but just some ways that agencies can adjust their operations to compete. These and other new trends will constantly change the face of retail travel sales. By pinpointing new trends in general retail, travel agencies who implement elements of these trends can be in an excellent position to have a significant advantage in the future.