White label social media marketing: Impact on Travel Suppliers

Recent Developments in the Travel Distribution System The travel distribution system has evolved over the last few years, especially bec...

Recent Developments in the Travel Distribution System

The travel distribution system has evolved over the last few years, especially because of the advancements in information technology. Changes have regarded both structural and functional aspects with the development of different connection paths between suppliers and consumers, the decline of some traditional types of operators, and the compelling entrance of new players with the use of new communicative and selling tools. Consequently, the sectorial outlook has become more
complex and characterized by new dynamics.

As a matter of fact, technology improvements have affected significantly the travel distribution system also in previous decades. In particular, we can identify different development stages of digital travel distribution. A first step consisted in the birth of Global Distribution Systems (GDS) during the 1960s. They linked the Central Reservation Systems (CRS) of each travel operator and made information about travel services and reservations available for travel agents.

Later, in the 1990s the development of the Internet determined a new change in the travel distribution system. Travel suppliers started to develop their own websites in order to create direct connections with travelers and, in turn, new online intermediaries entered the market.

More recently, travel distribution evolution has been affected by the spread of social media, capable to influence the purchasing behavior of travelers and the way they communicate with suppliers and with other consumers. New players like virtual communities and meta-search websites have now the power to mediate the travel distribution process, directing consumers’ choices toward travel suppliers or intermediaries.

This section has the objective to describe the evolution of digital travel distribution, analyzing new players and ongoing dynamics. In particular, above image shows a possible current configuration of the travel distribution structure.

Travelers employ direct and indirect distribution channels to book tourism services. Direct bookings entail a direct relationship between tourists and travel suppliers. This relationship can occur by means of simpler and traditional methods (i.e., telephone, “walk-in clients,” e-mails) or through property computer reservation systems (i.e., hotel central reservation systems of hotel chains, call centers). On the contrary, indirect distribution channels are characterized by one or more intermediaries that sell the travel services in return for fees. Indirect distribution can be short or long depending on the number of intermediaries involved in the process. Short distribution channels include only one retailer while long ones generally involve several interconnected intermediaries (i.e., travel agents, Global Distribution Systems, and tour operators).

As previously mentioned, the evolution of digital distribution started in the 1960s with the development of Global Distribution Systems (GDS). They are fundamental travel reservation systems that provide information about travel services’ (hotels/flights) prices and availability in return for fees. The GDS collect information by Central Reservation Systems (CRS) of each travel supplier (airlines, hotels, etc.) and make them available for travel agents to make bookings and sales.

In this stage, intermediaries like travel agents and GDS grew very fast and the power shifted from travel suppliers to distribution channels (Thakran and Verma 2013).

In the 1990s information technology progress produced a second step of development of travel digital distribution. The Internet increased the opportunity to reach customers and prospects directly by means of a cost-effective tool. This enabled travel companies of all size (both large and small-medium size firms) to create a direct connection with consumers overcoming tourism intermediaries (GDS and travel agents) and caused the so-called process of disintermediation (Kracht and Wang 2010; Thakran and Verma 2013). As a consequence, travel suppliers started to invest on their websites in order to offer information about prices and availability and sell their services.

However, the reaction to this change was not the same for all the travel suppliers. Some of them, especially airlines and major hotel chains, caught the opportunity of the new tool by means of the development of their own online reservation systems and websites. Other operators, especially small chains and single-unit hotels, had a slower reaction. Therefore, the popularity of the Internet, the spread of booking engines (i.e., Google, Yahoo), as well as the slow reaction of some tourism operators, allowed new intermediaries to enter the market. This created a parallel process of reintermediation that produced a proliferation of new distribution channels (Toh et al. 2011; Mauri 2014). In this stage, online travel agencies (OTAs) (e.g., Expedia.com, Booking.com, etc.) developed quickly and very successfully. These operators are aggregators of travel services that allow consumers to compare prices across multiple suppliers (Venkateshwara Rao and Smith 2006) and to book directly via the Internet. They offer various alternatives to travelers who can combine their own tourism package but, at the same time, they can also propose bundles of different services (e.g., flight, accommodation, car rental, attractions) (Toh et al. 2011).

Also existing intermediaries like GDS were able to adopt and to exploit the opportunities offered by the Internet through the creation of their own OTAs. For example, Sabre controls Travelocity and Lastminute.com, while Travelport manages Orbitz. On the contrary, offline travel agents suffered the spread of new competitors and had to reconsider their role focusing more on specialization and differentiation rather than on mere retail.

The raise in popularity and power of OTAs generated positive effects on brand awareness for some operators but produced also negative effects on price margins due to high commissions to be paid to OTAs and an increase of price competition. More recently new operators have arisen and contributed to enlarge these effects.

They are called flash sales or social couponing and are websites that enable travel companies to promote unsold inventory at large discounts for a restricted period of time with a deadline. Travel companies find these new intermediaries very appealing for attracting new customers, increasing sales, brand recognition, and encouraging repeat business (Dev 2012). However, in order to be selected to promote the offer in flash sales, travel suppliers have to sell at very convenient rates and have to pay high commissions (from 20 to 50 %) (Dev et al. 2011). The aforementioned reasons create concern about the use of Flash sales operators.

OTAs have been attracted by this selling model and developed additional deals of the day on their websites. For example Hotels.com provides a specific section called “deals of the day” that offers discounted hotel rooms (up to 50 %) of some selected cities; Orbitz provide “weekly deals” for hotels, flights, cruises, and car rentals.

Therefore, in the light of these evolutions, travel suppliers contend with a progressive significant reduction of their margins (Thakran and Verma 2013). However, more recent changes in IT and especially the development of Web 2.0 have created new opportunities for travel suppliers. An increasing connection of customers to a multitude of devices, real-time booking, personal clouds, ubiquitous communication, and peer-to peer market places are changing again the travel distribution
structure. This new step of digital distribution is deeply connected with customer engagement technology and the so-called “Social, Context, Mobile-So-CoMo”

Therefore, social web generates new ways to interact directly with consumers. On the one hand, travel suppliers are becoming more familiar with new Internet technologies and are aware of the importance of, at least, having a basic “social presence”. They increasingly have their own website and start to consider seriously the importance of social media. Travel suppliers awareness about IT tools, along with the increasing adoption of social media by travelers during the purchase decision process, produces a growth of direct bookings.

On the other hand, new operators enter the travel distribution system. They can be called “mediators” because they do not sell the products but generally the transaction is completed on another website (of the travel supplier or of intermediaries) or offline. These kinds of websites allow travelers to get more information about tourism services: compare prices, read recommendations of other customers, consult the rating and the ranking, learn more about the product, etc. Besides, the chance to go over professional and travelers photos is provided.6 Travel “mediators” create additional value for customer, helping them to find the right service and to compare alternatives. Furthermore, even though they are connected with main OTAs, they give additional opportunities to create a direct connection with travelers because they have the power to drive the customer to a specific corporate website.

Specific categories of “mediators” among social media are travel review websites (i.e., TripAdvisor) and virtual communities (Lonely Planet). Here travelers can share user-generated content and compare rankings and ratings about a travel company or a destination. We have already examined the increasing influence of these online operators on travel decision making and sales. Aware of this role,
TripAdvisor has recently launched new services that allow hotel companies to invest in marketing strategies on the websites. Business listings and TripConnect allow companies to sell directly to TripAdvisor users competing with OTAs.

Another case of third-party websites that increasingly mediate the travel behavior process is that of meta-search websites (e.g., Skyscanner, Trivago, Kayak). They allow web surfers to look for and compare various tourism services (Kracht and Wang 2010): flights, hotels, car rentals, etc. Meta-search websites are operators that enable travelers to compare services provided by both online travel agencies and travel suppliers (airlines, hotels). Travelers can examine ratings, rankings, consult reviews, user-generated content, and most convenient prices published on the web. This step is very helpful considered the large amount of data available on the Net and the need to reduce the number of alternatives in order to reach final decisions.

Another way travel suppliers can employ to establish a direct relationship with consumers and prospects is the use of social media such as Facebook, Twitter, Youtube, corporate blogs, etc. Main objectives companies can achieve are: enrich traveling planning; generate relationships among travelers and between travelers and companies; and stimulate direct sales (Pan et al. 2007; Jansen et al. 2009; Xiang and Gretzel 2010).

Furthermore, travel companies that decide to improve a direct relationship with the consumer by means of corporate websites, and social media should be aware of the importance and the role of search engine optimization (SEO). In fact, travelers increasingly use search engines (e.g., Google, Yahoo, Bing) in order to look for and compare tourism services (Kracht and Wang 2010). Therefore, the company position in the search engine results has become a key strategic element. A survey of PhocusWright conducted in 2013 found that 49 % travelers use search engines to travel planning. Therefore, the travel company should optimize strategic search engine marketing (SEM) transforming search engines in actual hotel distribution systems (Paraskevas et al. 2011).

In this context, the role of intermediaries is becoming even more complex. The development of “social commerce” has generated for OTAs the risk of commoditization (Carroll and Siguaw 2003). Therefore, the mere fact of aggregating travel services might be not enough for the future.

According to a recent report of PhocusWright (2013) travel agencies are approaching slowly to social media if compared with travel suppliers (hotels, airlines, etc.). A survey by the American Society of Travel Agents (2012) pointed out that just 39 % of travel agents employ social media in their business processes. Only 15 % of them consider social media essential to their business and a large part are still learning how to use social media (29 %) or have not proven yet to use social media as a marketing channel.

In the light of the previous analysis, new actors that intermediate the travel reservation process can represent a threat for OTAs and an opportunity for travel suppliers. Future developments will probably allow the consolidation of existing actors and new entrants (Christodoulidou et al. 2010). A possible way for OTAs to deal with this changing environment could be to move the focus of their strategy from just selling the best fare or rate to providing the best travel experience thanks to social media and CRM.

Actually, leading OTAs are aware of these trends and are investing in creating large groups covering different businesses of travel distribution by means of acquisitions and alliances. For example, in 2012 Expedia Inc. acquired Trivago, the meta-search website specialized in hotel search, being now composed by twelve companies in various travel businesses.8 In the same way, Priceline group, acquired Kayak in 2013 to enhance its brand portfolio.These business operations demonstrate the interest of OTAs to have some form of control of meta-search business. Moreover, to face the competition of Flash sales operators, OTAs are improving discounted deals of the day and working on opaque pricing (i.e., Lastminute.com, Priceline, Hotwire). Expedia, for example, launched in 2012 “Expedia coupon club” a service that allows all registered customers to the usual newsletter to access special discounts. The difference with other clubs is represented by the main focus on price rather than on other rewards.

However, it is important to underline that travel suppliers opportunities to develop direct connections with customers and to increase direct sales depend strongly on the features of different travel businesses and suppliers. For example, large international hotel chains and groups are moving in this direction but we have to consider that, in some countries, the hotel sector is mainly composed by smallmedium size companies that struggle to adopt new technologies and do not have the financial dimensions to make the related investments.

The Role of Social Media in Travel Distribution

In the light of the complex travel distribution system examined in the previous section, it is useful to identify possible actions that both travel suppliers and OTAs, as well as Flash sales operators can employ to exploit the opportunities offered by social media.

Concerning travel suppliers, IT and social media can represent a way to create direct relationships with customers and prospects by means of corporate websites (of the company and/or of the group) and through social media pages (i.e., Facebook, Twitter, Pinterest). Specific actions can be operated to manage customer relationships and to attract prospects to corporate websites, overcoming intermediaries.

An interesting case is that of the hospitality industry. In particular, strategic alliances among hotel companies are producing large multi-branding groups that are investing in Customer Relationship Management (CRM) actions and developing reservation systems to reach directly customers and prospects. For what concerns CRM practices, they are integrating their loyalty schemes (as previously made by airlines) in order to promote and facilitate direct bookings.

For example, the “Starwood Preferred Guest” (loyalty program of the Starwood Group) rewards customers with the lowest available rate only for direct bookings made on the group website. Furthermore, hotel groups and chains are creating their own hotel reservation systems. This is the case of Room Key, a hotel booking engine developed in 2012 by Choice Hotels, Hilton, Hyatt, InterContinental, Marriott, and Wyndham. This reservation system enables travelers to easily compare rates, hotel features, and reviews of all the properties involved. Reward points are earned only in case of direct bookings on the Room Key website. Different loyalty schemes have been integrated in order to allow travelers to redeem points from all the hotels’ members of the Room Key partnership. The objective is clearly to establish a direct relationship with travelers through a specific focus on service personalization and rewarding schemes.

Apart from being mediators that influence travelers’ choices, social media represent also an actual distribution channel if properly connected to the corporate website. For example, hotels and airlines can upgrade their Facebook pages with a specific plug-in that allow users to check availability and prices directly on Facebook.

Social media can influence also travel intermediaries: OTAs and Flash sales operators. In these cases, social media represent both a threat and an opportunity: a threat because they can mediate the travel purchase process directing travelers to suppliers (corporate website, social media page, etc.). At the same time, social media constitute also an opportunity to engage travelers.

We can identify some possible actions that Flash sales and OTAs can practice. Flash sales, the most recent players of the travel distribution system, are very heavy users of social media; they are able to make deals visually appealing and to encourage conversations amongmembers by means of viral marketing strategies. In fact, sharing functions and incentives are particularly used by these operators. A more in-depth analysis of flash sales features, classification, and strategies will be discussed in next section.

On the contrary, generally speaking, OTAs are adopting more slowly social media practices. These operators could take advantage of social media and improve their ability to value-creation and personalization. The development of CRM practices could be useful to create long-term relationships with customers, and stimulate sales. Moreover, these actions can be useful also in order to compete with new online intermediaries and to avoid being bypassed by travel supplier, that are increasingly aware of social media opportunities.

Among various OTAs, interesting example in this direction are those of Expedia and Hotels.com (brands of Expedia, Inc.). They both have loyalty programs: “Expedia Rewards” and “Welcome rewards.” In practice, Expedia Rewards enables travelers to earn points for all bookings (hotel, flight, package and activities) made on Expedia.com. In the case of Hotel.com, Welcome Rewards members are awarded one free hotel room night10 after having booked 10 overnights. Hotels.com has been recognized by eDigitalReaserch as the 1st website with a score of good/excellent in four out of six customer journey stages.11 Furthermore, Expedia is very active also in developing online customer relationships and customer care by means of a multiple customer support composed by: a toll-free number, an e-mail service, an online chat and, finally, the opportunity to have a call at a number provided by the customer.

A Focus on Flash Sales and Social Couponing

Flash sales emerged in the early 2000s and spread over with the development of social media. Over the last few years travel organizations, mainly hotels, restaurants, and resorts, have started to find flash sales attractive and have incorporated the new channel in their distribution strategy.

The business of flash sales started with “generalist” websites that offered a variety of products and services, included tourism services. Groupon can be considered the leader in this business and contributed to the popularity of the model. A study of Piccoli and Dev (2012) found that, even if travel and tourism account only 3 % of total number of deals, it represents the third largest category, that produced (in 2011) 11 % of overall daily deal industry revenues. The increasing revenues offered by the travel industry obviously create a great interest on the topic. As a result, over years flash sales operators have decided to invest more in travel services and new operators specialized in tourism and hospitality have arisen. For example, in 2011 Groupon created a specific section on travel named “Gateways,” in partnership with Expedia for North-America. Another similar case is that of Living
Social with “Escapes” section. Moreover, since 2009 many of well-known specialized travel flash sales have started their activity. Some examples are Jetsetter, Vacationist, SniqueAway.

Flash sales business is in constant evolution. Different operators and business models are emerging. The core idea is to offer customers various promotions of short duration (deals-of-the-day) providing a substantial discount (generally 40–60 %) to the official price (Byers et al. 2012).

Flash sales operators in the travel sector can be classified in two categories: daily-deal websites (i.e., Groupon, LivingSocial) and private sales websites (i.e., Vacationist, VoyagePrivé). In the past, a main difference between these two kinds of models was the subscription policy: daily-deal websites required only a free subscription while private sales required some form of membership or invitation. Over the years, this difference has progressively diminished due to an increasing possibility to free register on the website.14 For example, VoyagePrivè and Vacationist have recently switched from a model based on invitation requirements to free online registration. This obviously had an impact also on the perspective of highquality level companies (i.e., luxury hotels and resorts) that in the past have preferred to use private sales rather than daily-deal websites to avoid exposing their brands to mass market (Piccoli and Dev 2012; Dev 2012).

Therefore, which are the main differences between daily-deal websites and private sales? Daily-deal websites are based essentially on the model of groupbuying. This means that a minimum number of buyers is necessary to activate a specific promotion/deal. The deals cover a variety of goods and services such as restaurants, salons, fitness centers, electronic devices, etc. (Park and Chung 2012). They vary according to geographic markets, or cities. During the subscription the user is asked to specify one or more cities. Actually, this feature is useful especially for local services such as restaurants, wellness centers, beauty services, housekeeping, medical services, etc. Therefore, companies that sell by means of dailydeal websites can differentiate their strategies according to the macro-area (North America, Germany, France, Italy, etc.) and on the basis of the location indicated by the subscriber (micro-area).

In practice, daily deals subscribers and past customers receive everyday an email about the deals of the day. Many flash sales websites are expert promoters of the deals also through social media (especially social networks) with the clear intent of encouraging customers to activate word-of-mouth. For example, LivingSocial offers the deal for free to customers who share it with friends; Vacationist encourages members to invite friends rewarding them with 25 dollars after the
friend’s first purchase.

The offer is activated when the minimum number of people required joins the deal (what Groupon calls “tipping point”). Sellers may set a maximum threshold size to limit the number of coupons that can be purchased (Ye et al. 2011). When the tipping point is reached, the customer’ credit card is charged and the electronic voucher (coupon) is sent to the purchaser. At the same time, the travel supplier will receive the agreed revenue and will redeem the vouchers according to the terms of the deal.

If daily-deal websites are generalist operators that sell also travel, private sales offer some examples of specialized travel operators. Generally speaking, private sales include (Piccoli and Dev 2012): retail-oriented sites, travel-only sites, online travel agents sites. In the first case, travel is only a category among others, in the second, operators are specialized in travel (i.e., hotels, resorts, etc.), and in the third OTAs launch their own flash sales on the official website.

Private sales business model is mainly based on a user registration that can be on invitation or free. After the subscription, users receive periodic e-mails that notify the discounted time-limit offers. The discount usually starts from 30 % and the range of time is generally one week. Moreover, differently from daily-deal websites, the deals do not have generally a minimum activation level.

Due to the various operators that belong to private sales, the business models can be slightly different (Piccoli and Dev 2012; Dev 2012). Some deals can refer to fixed dates while others can let the purchaser choose dates in a period of time that can cover several months. Sometimes deals are nonrefundable while in other cases cancelation policies are offered. An interesting example is that of TripAlertz, a hybrid model between private sales and group buying that focuses on dynamic pricing: the discount on hotel rooms increases according to the number of customers that sign up the deal.18 The more the travelers book the rooms, the lower the price goes. This mechanism increases also the use of social media by users to promote the deals to friends because more friends one gets to sign up, the more money he or she can save (Mauri 2012).

We can identify various motivations that drive travel suppliers to employ Flash sales sites. They are generally used by hotels to reach a higher number of customers, increasing occupancy, revenue and profit, and to enhance customer awareness (Kimes and Dholakia 2011). Piccoli and Dev (2012) investigated some experts from five continents and found that branding and customer acquisition are
the main reasons to use flash sales as distribution channel in tourism followed by profits and revenue optimization. The cited study of Piccoli and Dev (2012) pointed out that costs (high commissions) are one of the main reasons of not using flash sales operators. Other motivations are: negative brands effects, misalignment with target segments, and ignorance about how they work.

Other authors studied the case of Groupon and found some critics on the effectiveness of daily-deal websites mainly related to unprofitability, unsure customer loyalty, and attractiveness for actual target markets (Dholakia 2010; Edelman et al. 2011).

Concluding, despite the criticism about flash sales, they are increasingly considered by travel suppliers to sell their products, especially to increase occupancy, brand awareness, and to allocate unsold inventory. Even though commissions are particularly high, they represent an alternative model to OTAs. In addition, the proliferation of new flash sales websites and business models gives tourism operators the opportunity to differentiate the deals offered. The ability to choose the right operator for the right customer can give more opportunities to reach specific target segments rather than the mass market. For example, a hotel chain could create a deal for a romantic weekend in a European city to be sold on Groupon Gateways and a longer holiday in a resort for Voyage Privé. Moreover, the ability of flash sales in activating sharing and viral marketing by means of social media is for sure a useful issue especially when the objective is brand awareness.

What emerges from the literature cited before is the necessity to manage flash sales as another distribution channel of the mix. Therefore, companies should have clear in mind the objectives of selling on flash sales, and consequently analyze the different models to understand which one suit with them. Other important decisions to be taken are: the kind of offer (features, price, etc.), the quantity of rooms (hotel)/ seats (restaurant)/tickets (museum, amusing park, etc.), and the time window (a few days, a week, etc.). In particular, concerning the first aspect, the uniqueness of the offer is designed in order to protect the company from cannibalization of existing customers.  However, the medium-term effect of the recurring use of these tools might be examined by ad hoc further research.