Win the Big Data war to fend off rivals, says McKinsey

Travel firms risk missing out on the next wave of digital advances because of a “myopic focus on costs rather than returns”, according to the latest assessment from business consultancy McKinsey and Company.

Travel firms risk missing out on the next wave of digital advances because of a “myopic focus on costs rather than returns”, according to the latest assessment from business consultancy McKinsey and Company.

In a quarterly review entitled “The trouble with travel distribution” McKinsey says firms that win in the era of big data to personalise and hone their offering to customer needs will flourish.

It identifies four areas in which it says it is imperative travel companies address to plug what it believes is a growing gap between what the consumer demands and what is being offered.

Diagnosing the problem the travel sector faces, the report says the underlying problem is that the traditional model is fracturing as various interests vie for dominance, while new rivals like Google with its ITA software risk “blazing the trail for them”.

“Traditional travel agencies now tend to tailor their services to business travellers, rather than provide options and products for a broad set of customer segments.

“Suppliers are making huge investments to lure customers to their direct channels, inadvertently reducing return on investment by lifting costs with little immediate increase in revenue.

“Online aggregators are not only pushing suppliers out and undermining their one-stop-shop proposition, but also digging their heels into a format that emphasises price as a primary product differentiator.

“Fundamentally, and most damagingly, consumers increasingly find that they don’t have what they really want: all travel options at their disposal in one place. If this problem persists, they will become more willing to consider superior alternatives.”

The four “imperatives” travel companies need to address are:

– Focus on customers, not channels – McKinsey believes the approach, for two decades, to push customer towards lower-cost yet more uniform distribution channels is wrong. It states suppliers should stop trying to fight zero-sum game with intermediaries. It suggests leisure websites should earn customer trust by bringing price comparison to their own websites as the insurance companies in the US have done.

– Win in the era of ‘big data’ – The report warns that if travel companies fail to implement the necessary technology to better manage the “mind-boggling” amount of data they have about their customers rivals from outside the industry will. It says “companies from outside the travel sector specifically tooled to make the most of data are going to figure things out, enter the market, and try to steal customers.

– Unlock the power of partnerships – The report cites hotel search and book website RoomKey.com, a collaboration between Marriott International, Hilton Worldwide, Hyatt Corporation, InterContinental Hotels Group, Choice Hotels International and Wyndham Hotel Group as a case in point. It urges travel companies to think more broadly to meet the requirements of the customer more creatively and this may require working with, as well as against, competitors.

– Master the entire customer experience – “…every interaction with customers is an opportunity to foster their loyalty or lose their future business”, the report says. McKinsey believes firms should have a single customer information databank rather than information silos in areas like loyalty, transactions and pricing. There also need to be “unprecedented levels of coordination between business units”.

The quarterly concludes that those companies that deliver a superior customer experience will be able to ride the next digital wave and attract the investment necessary to achieve that.