Travel & Tourism Technology Trends

I was writing a post for the The Savvy Operator recently about how to market your on-line booking website, specifically targeting in-destination tours and activities, and it occurred to me that there is of confusion about the benefits of marketing versus distribution of long tail products.  What I mean by distribution is the resale of tours and activities through third parties like travel agents, aggregators, or tour operators.  In order to distribute, there is still some level of marketing required to get your products known by these potential partners, but obviously the marketing is different (ie. B2B vs. B2C).

Traditional Supply chain applies to both
physical goods and travel products/services.

When you market your own tours you are driving customers to do business directly with you, which means that you have the opportunity to up sell them, build loyalty, and benefit from word of mouth marketing.  In addition, there is generally very little cost in having them use your service again in the future.  In the travel space this can be difficult however, since a traveler is not likely to come back to a destination and use your service again.  The benefit however is that they may tell friends or family who are planning to go to the destination about your service and this cost of acquisition will be greatly reduced.  If you are a tour operator that specializes in custom built tours or one of a kind experiences,  then you may need to drive customers directly to you because there is no way to provide net pricing for tours where the costs are unknown until the package is created.

In the case of distribution, a tour or activity supplier provides a set block or freesale of their tours to a third party at a reduced (or net) rate.  Essentially, the supplier acts as a manufacturer and sells the tour to an agent who acts as a retailer, adds a retail mark-up and sells the item to the customer.  The difference between the physical goods supply chain and the tour product supply chain however, is that generally speaking, the retailer gets paid before the supplier does.  What I mean by this is that when a retailer buys inventory from a manufacturer, they pay for the goods upfront, ship them to their store, and sell the items until there are none left.  In this physical goods supply chain, the retailer holds the risk which is equivalent (to a certain degree) to the mark-up they charge for the goods (usually in the range of 40%).  In the travel product supply chain, the retailer agrees to sell the tour, charges the customer, keeps the funds until the tour is redeemed and then remits the funds to the supplier only after they prove they have delivered the tour to the customer.  In this scenario, the retailer holds very little risk financially while the supplier is on the hook for providing the service and, if something goes wrong, not getting the funds.  The retail mark-ups on distribution are less than physical goods, on average about 20-30% but still quite high given the reduced risk. That said, there are some important benefits to distribution.  If you offer a product that is likely to be purchased through a distribution channel, for example an impulse purchase item that has broad appeal, then distribution can be quite lucrative.  Some suppliers for example rely heavily on the bookings supplied through their distribution partners.

Like all things in the travel business, I believe you have to look at both marketing and distribution as ways of driving revenues for your business.  If you are offering a service that simply cannot be distributed through electronic means, then don’t worry about it.  There is nothing that says you have to distribute.  With new technologies, websites, and business models developing all the time, I have no doubt that new opportunities will emerge that will blur the line between distribution and marketing even further.

You can always read more how tos and tips on marketing and reselling your tour and activity products over at The Savvy Operator.