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 / Fourth Quarter 2001 / Issue 25(originally published by Booz & Company)


Catching Travelers on the Fly

Occasion-based segmentation online is the travel industry’s ticket to success.

Dan Koeppel is the kind of person travel marketers love to hate. He knows precisely where to trawl on the Internet to extract the lowest possible fare to Denver or Cancún. He’ll push his online advantage so far, in fact, as to book a fare in pesos to save a few bucks on the exchange rate against the dollar.

A founder of the extreme-sports Web site, Mr. Koeppel has developed online booking skills that admittedly are better than most. But savvy surfers like him are a harbinger of the future for travel suppliers across the world. He and his kin are “digital travelers,” possibly the most powerful force in the broad travel market today.

In fact, digital travel is changing the shape of, and shifting the balance of power in, the travel marketplace so profoundly that travel marketers — from airlines to hotel chains, from catering companies to cruise lines — must dramatically rethink their strategies, especially regarding branding and information. The best tool, we believe, is a form of usage-based segmentation we call occasionalization.

Travel established its position on the Web faster than any other industry. While the terrorist incidents in New York and Washington, D.C., have forever changed priorities for the travel industry, optimizing the search for customers will remain an important issue. Moreover, the use of occasionalization to improve customer retention can be applied well beyond the travel industry to virtually every consumer-based business.

Our proprietary analysis of Nielsen//NetRatings click-stream data from 2,489 users in 1,024 households shows that almost 50 percent of Internet users and 80 percent of households visit travel sites. The travel industry now accounts for nearly one-third of all online transactions, reaching $1.6 billion in sales in July 2001 — a 54 percent increase over the previous year, according to research by Nielsen//NetRatings Inc. and Harris Interactive.

The Web’s increasing popularity among travelers is a double-edged sword for travel marketers. Implicitly or explicitly, most booking sites focus the consumer’s choice on price, undermining the suppliers’ attempts to build brands and secure loyalty. Indeed, the Internet has the power to commoditize nearly everything, including the commoditizers themselves — Priceline, Travelocity, Expedia, Cheap Tickets, and the newest competitor in the online travel agency space, Orbitz.

At the same time, the Web presents an extraordinary opportunity to strengthen distribution, lower costs, expand reach, and improve targeting. In fact, the Internet may offer the only solution to travel companies caught in the commodity spiral. Conventional targeting schemes segment users by demographic or psychographic criteria and then try to reach them by using such inflexible instruments as media advertising and direct mail. They are less effective, we believe, than mechanisms that segment the audience by the online activity — or usage occasion — in which they are engaged at a particular time. (See “Seize the Occasion! The Seven-Segment System for Online Marketing,” by Horacio D. Rozanski, Gerry Bollman, and Martin Lipman, s+b, Third Quarter 2001.) Knowing when users are most likely to respond to specific messages will better enable marketers to secure the interests, and ultimately the loyalty, of consumers.

The potential for usage occasion–based targeting in travel is particularly attractive. Our research indicates the existence of five distinct forms of behavior, detailed below, in which digital travelers engage. By recognizing the patterns and implications of each such usage occasion, travel marketers can more effectively reach, serve, and retain customers online — and gain an understanding of their customers that will aid their offline marketing efforts as well.

The Commoditization Trap
Our research on digital travel was conducted by the Digital Consumer Project, an alliance between Booz Allen Hamilton and Nielsen//NetRatings that tracks the online activities of 50,000 Internet users. A click-by-click record of their Web behavior shows which pages they visit, in which order, for how long, providing deep insight into consumers’ online conduct. To understand digital travelers, we reviewed six months of usage, identifying and classifying the travel sites they
visited and analyzing their patterns of behavior.

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