IT’S ALL ABOUT BIGGER MARGINS
In the recent years, there has been dramatic swing towards tour operators in the UK and Ireland targeting higher spending customers. The reason for this move, is because they are struggling to compete with the pricing and availability of online agents (OTAs) like Agoda, Expedia and Booking.com. The powerful OTA’s generally sell large volumes with ridiculously low mark ups. It’s all about who can offer the lowest price rather than the quality of service and security offered.
As a result, many tour operators have reviewed their business strategy. Why try to compete against the high volume and low margin business model? Why not focus on lower volumes with a higher yield to ensure a decent return on investment?
We at Select Representation have seen a significant number of travel companies ditch their strong selling ‘lead in’ 3* and 4* product, in favour of selling 4+* and 5*. The trend is to sell less holidays, of a higher quality, rather than sell lots of cheap holidays with minimal profit per booking.
By changing tact, many feel that they could potentially reduce the size of the sales team, provide better customer service and ultimately gain improved margins. The argument from those going ‘up market’ is having the ability to focus on package customisation, value adds, pre / post customer service and customer loyalty.
Despite all, research shows that mid-range holidays sell best. It’s about value for money. Interestingly this category has a far bigger audience than the higher end. We at Select Representation still feel that there is a market for 3* and 4* product, even if it’s just to draw customers in and then be upsold. Not everyone can afford 4+* or 5* holidays. Yes, margins are lower but why give away this category to the OTA’s who are also gunning for the higher end consumer? The fact that most tour operators are now trying to up sell means even more competition within the same zone.
Only the fittest …..will survive!