I have often been surprised to what extent travel companies still look upon each sale as a conquest rather than the next transaction in a customer relationship. I am referring specifically to what, in the United Kingdom, are called package tour operators: companies that create packages of transportation, lodging and, often, meals to destinations around the world, which they offer through catalogs or web sites. The trend has moved from selling through retail travel agents to direct selling off the page or via the web, but the benefits of this direct relationship are not being maximized.
I find this to be one of the last bastions of product-oriented business, where the products are created and then customers are found for them, rather than, in a customer-focused business, identifying the customers, establishing their needs and finding the right products for them. It may be a function of the selling process, with the sales agents purely performing on numbers of passengers so that sales are taken wherever they can be found.
Whatever the reason, it is a major task to establish this culture change, to have them grasp the impact of creating a relationship with customers, retaining their business and leveraging the acquisition costs across a number of years’ worth of travel.
This was no more clearly demonstrated than with one of my own clients, a medium-size tour operator in London who maintained extensive direct response advertising in the travel pages of the popular press and a comprehensive web site with pay-per-click links and wide-reaching investment in search-engine optimization. All this was aimed at generating new business, but far less was done to nurture the relationship with existing customers.
Once a customer had been sold a vacation, he or she was (metaphorically) put in a file and left there until the time for the vacation came round.
A simple exercise in customer lifetime value demonstrated the lost opportunity. Taking a contingent made up of the customers acquired through press or web in 2002, we tracked year on year how many of these individuals remained and did business with the company in subsequent years and how much they spent. The drop-off each year was substantial. By applying a discounted cash-flow factor, we were able to model the lifetime value to the business of the customers acquired in that year. The model could then be manipulated and amendments made to numbers of customers retained and value of sales to create the “what-if.”
What hit home to the CEO of the company was the fact that retaining just an additional 5 percent of his customers year on year and having them spend an additional 5 percent per year would have generated in excess of $1 million in revenue, from customers whose cost of acquisition had already been written off. When one took the customers acquired in 2002 and 2003 and earlier and did the same exercise with them, the total grew rapidly.
Immediately the company started a “welcome home” mailing strategy, sending a card to customers coinciding with their return from vacation aimed at generating feedback and setting a new proposition in front of the customers for their next trip.
But it went further than just selling a vacation.
In the company’s “silo” view of the world, once a customer had been sold a vacation, he or she was (metaphorically) put in a file and left there until the time for the vacation came round and tickets, itineraries and the final bill had to be sent out. Many customers would make reservations several months in advance, sometimes as long as a year, to benefit from early booking discounts or to be sure of a date for the more expensive, long-haul trips. Once such a reservation had been made, the company saw no reason to be in contact.
We suggested the company test sending a relevant offer for a less expensive trip that the customer could enjoy in the interim. To support this recommendation, we ran analysis to understand the purchase behavior of such customers. We found that about 15 percent of the business’s long-haul customers who purchased up to a year out from the departure date were actually already making reservations for short breaks or beach vacations to be taken prior to their big trip, without any contact from the company. Subsequently, a simple flier sent along with the confirmation of the long-haul trip proved a cheap and effective method of maximizing on this cross-sell opportunity.
The next step will be to apply a greater level of personalization to the communications and the web site pages browsed by customers. Customer profiles and travel preferences and interests gathered either through feedback or survey or through analysis of web site usage or telephone enquiries will be used to drive the content, the propositions and special offers presented to customers any time there was contact. Any touch-point between customer and company is an opportunity both for the company to deliver a relevant message but also for the customers to test the relationship and satisfy themselves that their business is valued and their needs are met.
© Michael Collins 2007