Slowing economy: what you can learn from Expedia
Expedia had their earnings conference call for the 3rd quarter of 2008 call on Monday and provided some very interesting insights.
Most questions on the call revolved around the weakening economy and what Expedia is doing as a reaction. Expedia is a truly global travel company and because they are in the online space they can see trends much faster. So I think there is a lot to learn from Expedia for everybody in travel and tourism.
Expedia sees softness in almost all global markets and across all product lines (air, car, hotel) as well as the media side (e.g. Tripadvisor). Expedia also expects 2009 to be a very difficult year in travel on a global level
What is Expedia doing?
1. Be more efficient in marketing
Apparently Expedia felt that paid search was getting more and more expensive for some keywords so they moved more in to the long tail of SEM. Meaning that they do more keywords that individually have a lot less traffic and are therefore cheaper. Of course this makes managing paid search a lot more complex and requires a lot more sophisticated tools to run campaigns.
Expedia will do more targeted emails (as they lead to up to 30% better conversion rates) as well as more data mining to deliver more relevant offers and content.
What does it mean for you?
Are you seeing the same trend of keywords getting more expensive? Do you have the tools to do more long tail search? Do you have your email database set up to handle targeted emails? How do you segment customers so you can have a relevant call to action for each segment? What is your call to action for the different segments? Are you offering differentiated, relevant content or is your content “one size fits all”?
2. Improve conversion ratios
Expedia apparently has been successful with lowering or dropping fees and they will continue to use these tools in a softer economy to drive transaction volume. They will also push their loyalty programs more and reward their most loyal customers.
What does it mean for you?
Very interesting to see a business that sells a commodity (online transaction) focus more on repeat customers and customer loyalty. Do you know who your repeat customers are (e.g. who visits your destination every year)? How are you talking to and rewarding these customers? Once you have identified who these consumers are, marketing to them is a lot cheaper than chasing new customers.
3. Get better supply
Expedia feels that as occupancy has dropped already significantly, average daily rates (ADRs) for hotels will now start to drop. This should lead to great offers for consumers, which should help Expedia do more transactions.
What does it mean for you?
This was a very interesting point. The hotel industry over the last weeks (e.g. at TIA Marketing Outlook Forum in Portland) has said over and over again that it does not want to repeat the mistake it made after 9/11 when hotels dropped rates significantly and then could not raise them again. Expedia says rates will drop and I think they are right. Hotels will not have the willpower to watch occupancy drop further and not play with rates.
So let’s assume hotel rates will drop. This will create problems for those organizations that sell hotels online as a “side business” (like some DMOs) as well as organizations (like DMOs) that have income that is based on room tax. Lower hotel rates = less commission and lower tax revenues.
4. Grow non-transaction revenue
Expedia plans to grow ad revenues on its sites to offset drops in transaction revenue. The challenge is to find the right mix, so that ads do not drive potential transaction revenue off the site. Expedia also plans to sell more high margin products like insurance and co-branded credit cards.
What does it mean for you?
Obviously a company like Expedia is set up perfectly to offset a drop in transactional revenue with other sources like advertising. But how are you monetizing the eyeballs you are getting? Are you selling ads? Do you have value-ad components you can monetize? How will you offset possible budget cuts with new revenue streams?
5. Lower costs
And finally the company plans to lower cost in the fulfillment area any by making shifts within the marketing budget. Expedia explained in the call the higher return on investment for spending money on SEO and getting more natural search than spending money on paid search, especially as the price for popular keywords has gone up.
So what does it mean for you?
Expedia did say that they currently do not plan to lay off staff or cut marketing expenses. They however plan to spend their money more wisely, utilize the investments they made in the past like setting up more sophisticated keywords or segmenting their email databases. The most important insight (although not a new one): in general money is better spend on SEO than SEM.
Summary:
- The slowdown in the economy will continue to affect travel worldwide
- Do not cut your marketing budgets but spend them smarter
- Consumers react to relevant messages so you need to be highly targeted
- Think about new sources of revenue, especially if you depend on room taxes
- You should do a lot of experiments on a smaller scale to quickly learn what works and then apply the learnings to your overall business