With rising disposable incomes and societal changes, travel is diversifying and moving away from the mass market. Nishma Robb reports
If you’d asked me 18 months ago what the link was between LEGO and a naturist holiday company, I’d have been guessing for a long time.
In fact I’m fairly confident I’d never have come up with anything even close to an answer. But in recent years I’ve come to understand the huge opportunity in selling niche products online and the potential for the travel industry in the Long Tail business model.
When Travelzest bought Peng Travel, the leading naturist holiday company, in May 2006 it created widespread news coverage. Nearly every national newspaper featured the story of owner Peter Englert selling his business for £1.8 million (cash and shares).
Suddenly Travelzest, a newly formed and little-known travel group was rocketed into the spotlight. Peng Travel was Travelzest’s third acquisition. It followed the purchase of Holiday Express, which owned the Holiday.co.uk and Flight.co.uk domain names. Observers in the travel industry began watching with interest.
But what’s the connection with LEGO? In his book The Long Tail Chris Anderson uses LEGO as an example to show how the boxes on display in a high-street toy store are only a fraction of the company’s overall product range.
The whole business is increasingly being organised around the company’s website, which offers almost 1,000 different bits and pieces, the vast majority of which will never be seen on a shop shelf.
But the margins on these products are higher than on the kits sold through high-street toy shops, thanks to not having to share the revenues with retailers. LEGO also uses clever online marketing tools to segment its customers and therefore move away from the one-size-fits-all market of the retail shelf.
Anderson argues that products that are in low demand or have low sales volumes can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough.
His ideas have created a real buzz in the travel industry. It’s a fascinating debate because so much of it mirrors what’s happening in travel right now and how Travelzest is evolving as a genuine competitor to some of the more established travel organisations.
It’s well documented that the package holiday market is in decline. The mergers between Thomson and First Choice and Thomas Cook and MyTravel prove that there is not enough volume in the ‘one size fits all’ travel market to sustain four big players. Certainly the two newly formed businesses will need to change shape significantly to stay ahead of the game.
The traditional ‘short head’ of the travel industry, when the big four reigned supreme is rapidly lengthening. There’s no doubt that we are moving away from a mass market culture towards an à la carte menu of unlimited choice.
Looking at the latest marketing campaign from Thomson, a focus on the Long Tail principle is evident. It’s spending a huge amount of money on high-profile advertising online and offline and attempting to move its image away from its core sun, fun, beach market.
It is pushing the innovation on its website and promoting the individual components, such as villas, car hire, hotels, cruise and flights. Interestingly, a lot of the offline marketing spend appears to be trying to attract a more affluent customer base, with high-profile coverage in the quality papers.
But, ultimately, the consolidation of the big four shows that the traditional vertically integrated travel model isn’t viable any more. Their core package holiday market is shrinking more rapidly than anyone predicted. They are looking for ways to reinvent themselves.
In the last edition of Travolution and in the blog discussion there is debate about how the length of the tail will vary depending on consumer confidence and the strength of the economy.
I think it’s essential when considering the potential of the Long Tail in travel to consider societal conditions and people’s changing attitudes towards travel. We’ve recently done some research with the Centre for Future Studies to look at how the shifting social landscape is impacting on travel trends.
According to Dr Frank Shaw, the centre’s foresight director, people are spending more money than ever before on life-enriching experiences, such as luxury ‘small indulgencies’ and travel trends reflect this. He says that we are seeing much more sophisticated and confident travellers who care about the world around them and want authentic travel experiences. Both men and women are putting a high emphasis on ‘me time’ and are looking to blend hobbies with their holidaymaking.
That might mean arranging a trip to Verona and booking tickets to an opera at the same time. Or booking a fortnight in France with two days spent at a gourmet cookery school. The fit and active baby boomers who have time and money to enrich their lives present a huge opportunity to the travel industry. Also, with fewer married couples and a rise in people choosing to live alone, there is an opportunity to create tailored trips for successful, single women who have high incomes, no family and see holidays as a fashion accessory.
Dr Shaw is convinced that the future for travel is niche, so niche that in the future markets of just one consumer are economically viable. As technology advances, customer relationship marketing will become much more sophisticated with companies being able to talk to and know their customers in a much more individual way.
Mintel’s latest British Lifestyle survey is also very revealing. It claims that a ‘live now pay later’ attitude means even your average Joe is enjoying a luxury lifestyle. Champagne sales are on the up as are designer handbags, clothes and shoes and meals out. Overall consumer spending hit £1.09 trillion last year, up 9% on 2005 figures. Holidays and short breaks are identified as a spending priority over the next 12 months. The high life is only getting higher and all this indulgence is in spite of rising interest rates, higher fuel costs and an uncertain housing market.
Neil Mason, senior retail analyst at Mintel, says: “Rising disposable income has lead to higher expectations about the quality of life. As a result we are increasingly trading up and spending more on better quality, premium products and services.”
The results are interesting, particularly as many in the mainstream travel trade pinpointed last year’s trading as the most difficult they had ever seen in terms of sales. With more focus on individualism and different ways to travel the dependence on high-volume, low-margin holidays is too risky for many travel organisations. While flights and hotels may be commoditised, it’s the luxury experiences, tailor-made trips and specialist knowledge that offer higher margins and greater potential.
Cash-rich, time-poor holidaymakers who feel they deserve to indulge are using the Internet and specialist travel companies to satisfy their demands.
All the evidence shows that, even in times of economic uncertainty, travel has become an integral part of modern life. I see no signs of the potential ‘Tail’ shrinking. Quite the opposite.
In his summing up Chris Anderson suggests that the explosion of variety we’ve seen in our culture thanks to digital efficiencies will extend to every part of our lives. The Long Tail of Travel is only just beginning.