Striking the right balance

Graham DonoghueOne word constantly crops up when discussion turns to TUI UK’s e-commerce strategy. Balance.

With online sales showing inexorable growth, Thomson, along with every travel company, is investing heavily in its web presence. But there remain other considerations for an organisation that has travel agents as its bedrock.

“It’s a balancing act for us,” stressed head of new media Graham Donoghue. “We want to drive business online because people are demanding it, but we also have to be mindful that we have a retail estate and call centres.”

Yet the balance Thomson executives are at pains to emphasise appears to be shifting. Last April, the operator issued its first online booking report which studied client behaviour, technological advancements and the general growth of web bookings.

The report reiterated what TUI northern Europe chief executive Peter Rothwell stated at the ABTA Travel Convention in Orlando last year – that more than 50% of Thomson’s mainstream package business, something Donoghue describes as “manufactured product”, will be booked online by 2008.

Currently, 25% of this “manufactured” business is generated online, with overall sales rising to 38% including Thomsonfly, which itself attracts 95% of sales through the web.

With this figure in mind, Thomson’s e-commerce strategy is now inextricably tied in to the overall group strategy.

“Two years ago you would throw up a website and hope it worked,” said Donoghue. “Now, it’s an integral part of our business. Call centres, web and retail all come together and exchange data and we decide how we are going to trade for the rest of the week. We have 700 shops and many call centres and websites. We want to do business with clients across all those channels.”

But with plans to double the mainstream online business in three years, the future for many of its shops surely looks bleak. Not so, said Donoghue, who describes that belief as a perennial misconception.

“Our shop reduction programme is not aggressive,” he said. “We are closing shops that are inefficient as opposed to simply closing shops and ploughing more money into e-commerce. For a start, it costs a lot of money to close shops as some are on long leases.”

In addition, Donoghue said 35% of the population will not book online, at least for the foreseeable future, necessitating the need for high-street agents and call centres.

Thomson sales and marketing director Miles Morgan said: “The web will be the area of growth. There will be a role for agents in five years’ time, but they will need to create an interactive experience in convenient locations and become experts.”

While more than one third of the population will continue to shy away from e-commerce, that still leaves 65% who are prepared to book online.

“There is a core percentage which uses the web and makes transactions and another group that is undecided. They may book a flight online but are not quite ready to book their £2,000 holiday,” said Donoghue.

Part of Thomson’s online growth will be driven by the expanding market. The number of Britons travelling overseas for holidays is expected to hit 49 million in 2010, 16 million more than in 2000. Much of this growth will derive from modular-based product.

This month the operator is launching its own dynamic packaging system, featuring carriers such as British Airways, Bmibaby, EasyJet and Monarch.

But Donoghue stressed Thomson is not about to cannibalise its core package market, it just needs to offer increased flexibility. He said: “We are known as a package operator but we sell cruise, accommodation-only, mobile homes and we need to make online customers aware of that by coming up with new PR and branding exercises.”

Looking to the future, Donoghue can see a time when four or five online brands will control the vast majority of the market – and it doesn’t take a wizard to work out who they will be.

But it’s the power of Google, and the possibility of it launching its own travel portal, that could shape the future more than anything else.

“That would be a threat to us all,” warned Donoghue. “It has a lot of power in the market place. Google is used for 60% of searches and if it de-lists you, which it has done to companies in France, it can wipe you out.”

So what can Thomson do to ensure it successfully exploits the e-commerce revolution? According to Donoghue, content is a critical factor.

He said Thomson’s e-commerce strategy will focus on delivering rich and interactive content.

“I’m finding that 60% of clients who are interacting with us have a high-speed broadband connection, so you can no longer design websites for the lowest common denominator,” he said. “They want rich media, interaction and videos. A core part of our strategy is creating content that is exclusive to Thomson.”

Obtaining this exclusivity involves the risk of committed stock but it’s something Donoghue believes his rivals in the online arena will have to explore.

“Brands will have to take on more risk and commitment and effectively become mini-tour operators,” he said. “You can only grow so much as a retailer. We’re already seeing Opodo do it with its acquisitions in France and Expedia has a small degree of commitment, but it will have to increase.”

By the end of the year, the main website will have 1,300 resort and destination broadband videos with the 200 top sellers also featuring a voiceover. Donoghue said 40,000 site visitors a month download a video, underlining the importance and selling power of quality images. Customer reviews will also feature.

Yet, however good a site may be, if no-one can find it, rich content is worthless. Which is why greater emphasis will be placed on search engine optimisation.

“To be honest, Thomson didn’t really understand search optimisation in the past. It was treated as an afterthought,” said Donoghue. But now, a staggering £15,000 to £20,000 each day is spent on Thomson’s 650,000 key search words, such is the number of companies bidding for the same words. “There are words I used to pay 10p for. The average is now 30p. It’s getting harder,” he said.

Donoghue’s department is now working with optimisation specialists to make the sites more friendly for the Internet ‘spiders’ that search the sites.

“There are ways you can do it – making sure all the pages are titled, using more text than graphics and naming all the graphics. It’s a black art but it’s what we need to do. Google is used for 60% of searches and 70% of those users click on a natural listing.”

But what of the return on this considerable investment?

A while back, Donoghue revealed the online conversion rate was 1.5% – quite unexceptional. But that, he said, is an almost irrelevant number as it relates only to unique users, visitors best described as “passing through”.

The important figure, he insists, is the conversion rate on visitors who actively search for a holiday by selecting dates and destinations. “And I’m not going to give you that figure,” he said. But it’s the next generation of technology that excites Donoghue and he sees enormous potential for the travel industry.

Internet Protocol Television – a multi-channel TV and video-on-demand service delivered over a broadband Internet connection to your TV – provides possibly the biggest opportunity. While the technology is already here, IPTV remains in its infancy as far as take-up is concerned, but Donoghue predicts that will change.

“We’ll reach the stage where families will be able to sit and watch a holiday video of their choice through the Internet into the television,” he said. “It will be more engaging and lean-forward than the PC. In the next three or four years this will be quite common. We need to develop our business with this type of technology in mind.”

Another development is mobile TV, which will have the potential for the streaming of Thomson TV, while digital displays in agents’ windows, with bookable functionality, are also being considered. “These developments will happen, there’s no doubt. And we must be ready when they do,” he said.

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