Patrik Oqvist – The past can’t predict the future

In economic science there is a concept called the Lucas Critique. Essentially, the economist Robert Lucas said it is naïve to assume that you estimate an outcome of a change in economic policy by looking at past results.


In other words, just because something reacted a certain way last time you changed something, say you lowered interest rates and investments increased, there is no guarantee that will happen again. Partly this is because people aren’t machines. Rather, they are clever things that predict the future based on many factors, not just past events.


Why am I talking about this in relation to online travel? Well, I believe the travel industry is due for bit of Lucas Critique itself. Many companies continue to base their decisions on analysis of the past. In fact, I believe the rate of change in consumer attitudes to travel has never been faster than now.


So, while travel companies are burying themselves in data trying to understand travel trends of the past couple of years, travellers are busy changing the way they think about, and buy, travel.


Let me give a few examples. The other day I spent a couple of hours in the company of a group of pretty advanced users of online travel. These were people of mixed ages and family stages. What they had in common was a love of travel with the Internet playing a large part in their lives.


It struck me how little we truly understand their intentions and motivations. We typically think about travel either being business or leisure and we segment our customers and services accordingly. You can be one or the other, but never both. It turns out the people who take medium and long-haul business trips often tag on a couple of extra days in the location to explore and discover. Is that then a business or leisure trip? And how do you market your services to them?


Another example is the category the industry calls ‘visiting friends and family’. Typically, we view this as a fairly poor source of business as trips are often done by car and the chance of selling accommodation is slim. But again travellers are dodging our neat segmentation.


Many of these people add on a few extra days in a hotel somewhere convenient but interesting, near to where the relatives live. The reason? As one lady put it: “It takes the pain out of visiting family”. There is a business opportunity right there.


Also interesting are their attitudes to pricing. Perceptions vary wildly between trip components. Transport is now mostly seen as inexpensive; although everyone is aware you can’t necessarily get the special rates when you want them. With hotels and accommodation there is much more of a trade off between price and quality. Car hire is mostly seen as too expensive. Partly this is because the car-hire companies have struggled to differentiate themselves. Overall, we need to be careful when making any assumptions about people’s attitude to price.


One final example: consumers are fully aware that promotional pricing is just that. It is designed to get their attention and they know it. They say the special rates are often difficult to obtain for when they want. In fact, it can have the opposite effect of infuriating shoppers who go looking for them but can’t find them.


So how are we doing at avoiding Lucas Critique at Expedia and Hotels.com? Well, for a start we know what people are looking for in real time, and can respond accordingly. Of course we look at trends, but understanding what the future holds is even more important. Secondly, having no legacy offline business means we can be focused on delivering a better online experience.


Companies that look backwards and don’t learn to respond faster won’t be around for long.


Patrik Oqvist is marketing director for Hotels.com

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