Have you booked a hotel online? Bought an airline ticket? You're certainly not alone; you'd be hard-pressed to find many professionals who haven't made some vacation arrangements on the Internet. With the ease of booking online and the ability to search through competing fares, the Web has become a very popular destination for Americans' leisure travel needs. However, judging by marketing strategies, the travel industry has been slow to respond to the huge impact of online travelers.
"They don't really segment based on the most important thing the travel industry has to deal with right now. That is the channel that people want to use: online versus offline," notes Henry Harteveldt, a Forrester analyst who authored a recent report calling for the travel industry to better segment travelers. The report, titled "How to Segment Leisure Travelers in a Multichannel World," recommends taking a one-to-some approach to marketing leisure travel, breaking the market into eight segments based on income, trip frequency and preferred booking method.
"For the travel industry, which is a thin market industry, if you're an airliner, travel agency or a cruise liner and you are better able to understand how consumers break out, it can help with budgeting, staffing, forecasting and understanding where the ROI is," Harteveldt explains. While loyalty programs are a good way to understand a certain subset of customers, it doesn't paint the whole picture. There are the other customers and then there are competitors' customers, both of which are important groups to understand. "So if you can refine your marketing strategy and if you understand that of the eight segments your brands are strongest with four of them, for example, then you really want to focus on those segments," Harteveldt says. All eight of these segments have unique demographics and habits. The top-tier online segment, for example, named 'Sky Kings' have an annual income of more than $108,000, a household size of nearly 3 and are more online-inclined. They are some of the most brand loyal travel consumers and are best to target with frequency-based offers. These 'Sky Kings' do most of their booking online, but prefer Web agencies to going directly through the supplier's Web site.
While 49 percent of travelers, 'Sky Kings' included, prefer the Web, they account for over 55 percent of American leisure travel spending. Harteveldt expects this to increase as broadband continues to saturate the market in the coming years. "I expect, as more people get comfortable with the Web, these four online segments will grow. By the time they get to 62 percent of the population in the online segments, we'll see them account for between two thirds and 70 percent. I think that's between 2006 or 2007."
Better understanding these segments is integral in the travel industry because a one-to-one strategy would never work for marketing to the general travel consumer; it would simply be too expensive. One-to-some strategies provide a good alternative. "It allows you to have the relevance of one-to-one marketing, because you're marketing to homogeneous groups of households and you can tailor the message and version the offer," explains Scott Schroeder, president and CEO of Cohorts, a company who helps its clients incorporate one-to-some marketing strategies. "It reduces the operational complexity [of one-to-one] dramatically because you're sending the same message to a whole bunch of the same households. Therefore it's lower cost." The travel industry will certainly not be alone in its need to rethink segmentation strategies in the coming years, as the Internet continues to provide American consumers with new options for an increasingly diverse number of purchases.