Étiquette : purchase behavior

Catégories
Sustainable tourism

Younger, Less Affluent Travellers Willing to Pay More for Sustainable Tourism

Although there has been a continuous increase in global tourism despite the economic recession (902 million international travelers in 2008 – a 4% increase over 2007), negative effects are also being identified by businesses and governments alike. One of the ways to counter detrimental effects is for tourists and locals to engage in sustainable tourism practices. The demand for sustainable tourism is difficult to assess, however, as most figures are anecdotal and reflect a willingness to participate rather than pay.

Although multiple studies have been conducted by organizations such as Lonely Planet, National Geographic and others, there is little research data about visitors to Canada, let alone Canada’s biggest city – Toronto. A 2007 study conducted by Arente and Ennamorato on Canadian tourists’ awareness and perceptions of sustainable tourism found that only 12% of Canadians are ‘somewhat’ familiar with the concept of sustainable tourism while 31% had never even heard of it. As for participation in sustainable tourism practices, 49% would choose to participate in activities that have sustainable benefits while travelling and 42% would use travel agencies that follow sustainable tourism guidelines. Over 75% of respondents believe that businesses that market and sell tourism as well as mass media should take on the responsibility of distributing information on sustainable tourism.

To augment this data, a recent study of 400 visitors to Toronto was conducted by Dodds, Antonov, Babkina & Gordon (2008). The purpose of the study was to determine the level of demand for and use of sustainable tourism products (e.g., choosing responsible tour operators, carbon offsetting flights and car rentals, purchasing green products and services such as hotels who showcased environmental policies,  and organic and fair trade food/products).

Findings

The study found that young and not necessarily affluent respondents were willing to pay for sustainable products. Of the respondents, 46% were between the ages of 19- 29 and had a relatively low household income (48% with an income of $24-59,000). Results showed that 11% were willing to pay 11-25% more and 59% of respondents were willing to pay 1-10% more.

Although there is often confusion over the term ‘sustainable tourism’ (45% had never heard of sustainable tourism or were not familiar with it as a form of tourism), 72% of respondents said they were likely to use sustainable tourism products in the future.

The study also found that the more respondents were likely to consider buying sustainable tourism products in the future (77%), the more likely they would pay a premium for them.

In terms of motivation or choice, 44% of respondents said they participated in sustainable tourism practices because they did not want to harm the environment. Although this number is not the majority, many people were also concerned that it corresponded with their moral values (38%) and understood the importance of doing so (39%).

Conclusions

Many sceptics maintain that there is not outstanding participation in or widespread demand for more responsible tourism products. This, however, may be due to limited awareness (33% of the travellers who had never purchased sustainable tourism products said that this was because they were not aware of them).

Canadian travellers are also comparable to international travellers. In a 2007 TripAdvisor ecotourism survey of 1,000 travelers worldwide, 38% responded that environmentally-friendly tourism is a consideration when travelling. This finding is similar to the Toronto study. Only 4% of respondents were ‘not at all’ likely to participate in sustainable tourism practices while travelling in the future, while 44% were ‘somewhat’ likely to consider purchasing sustainable tourism products.

References :

Arente, H. & Ennamorato, M. (2007). Sustainable Tourism: Travel Like You Mean It!  Toronto: TNS Canadian Facts. Retrieved Dec 16, 2008, from http://www.tns-cf.com/conferences/ttra/ttra-2007.pdf

Dodds, R., Antonov, Y., Babkina, I., & Gordon, S. (2008). Travellers’ Demand For and Participation in Sustainable Tourism Practices in Canada. Toronto: Ryerson University.

TripAdvisor. (2007). TripAdvisor Travelers Keen on Going Green. Press release. Retrieved Dec 16, 2008, from http://www.tripadvisor.co.uk/PressCenter-i120-c1-Press_Releases.html

Catégories
Accommodation Sustainable tourism

Tendency of adherence to green labels in hotels across Canada

Improvements of environmental performance by the accommodation sector are not measured systematically and this makes it hard to estimate the extent of real change. In Canada it is certainly not uniform according to adherence to the programs detailed in Table 1. Although some hotels continue greening their performance, the sector is only at the beginning of reducing its ecological footprint. For example, if we compare the results of Table 1 to the number officially registered accommodation establishments in Quebec by the Corporation de l’industrie touristique du Québec, less than 2 % of the sector participates in any of these programs.

analyse_green_certification_JP

Green-Keys Eco-Rating Program

analyse_green_certification1_JPThe Green Key Eco-Rating Program was launched in 1997 and it is administered by the Hotel Association of Canada (HAC). The number of green keys recognizes participating establishments and more keys mean more « green » measures implemented. Although any establishment can apply for the label, the program is still designed for large hotels. Participation is comprised of a self-administered on-line audit that consists of 140 questions across 5 categories of operation. Since 2007 the HAC performs random on-site audits.

At present about 600 properties are registered with the program across Canada (Table 1). The aim is to reach 1000 by the end of 2008, which would represent 30 to 40 % of all hotels in Canada with 50 rooms or more. In March 2008 Ontario and British Columbia had the most hotels participating in the program (Table 1) and most were part of a chain and had a 3 key rating . Hotels with a five key rating are considered to have the highest standards in environmental management and social responsibility throughout all areas of operations set at an international standard for sustainable hotel operations (refer to list at the end for examples).

In Quebec labeled establishments are unevenly distributed on the basis of official tourist regions. Montreal has the highest number of establishments followed by Quebec and Montéregie, but some regions have no participants at all. 

Eco-rating programacross different tourism regions of Quebec.

Greenleaf Audubon

analyse_green_certification2_JPAudubon International’s eco-rating program is offered jointly with TerraChoice Environmental Marketing, Inc. and exists since 2000. Participating establishments are recognized by the number of green leaves (1 to 5) and more leaves imply more environmental measures implemented. Participants conduct a self-evaluation covering six key areas of operation that are analyzed by TerraChoice Environmental Services, who also direct the independent verification process and conduct random on-site spot checks of establishments.

Although any type of accommodation facility can join the program, in March 2008 only 44 were members in Canada and mainly in Manitoba, Nova Scotia and Ontario (Table 1). Most Canadian participating establishments had 3 leaves. The only two establishments in Quebec were in Montreal and each had two leaves. The low number of participants in a Canadian context is due to the popularity of the HAC’s green-key program although some hotels participate in both.

Réser-vert

analyse_green_certification3_JPIn November 2007, l’Association des hôteliers du Québec with its private and public sector partners announced its own program to recognize establishments who have implemented sustainable development principles. Participating establishments receive the logo of Thuya occidentalis, whose different colors represent the 3 pillars of sustainable development. Similar to the other programs, this one also involves an initial self-assessment of 140 specific operations in 10 categories. Any, accommodation establishment is eligible to apply. Given the program’s recent creation, statistics are not yet available to show participation rate.

 

 

LEED

analyse_green_certification4_JPThe most rigorous program for the built environment is LEED, administered by the Canadian Green Building Council. It is applicable to newly constructed and establishments in renovation and participants conduct an assessment of performance measures. Once registered, participants conduct an evaluation across various operational categories to obtain silver, gold and platinum certificates. In March 2008 there were six hotels registered in Canada, half of which were in Ontario (Table 1) and the highest-level of certification was gold.

Does the market care?

There is proof (at least suggested by large hotel chains) that being green means a good image, savings and net improvements of economic performance. As the market is starting to adjust to the « green revolution », being green will continue being important. Most studies also suggest a rising demand for green accommodation although how this translates in real figures in different destinations is not yet ascertained. However, it appears that the eco-coconscious traveler is no longer satisfied by symbolic environmental efforts such as opting to reuse towels.

European reports indicate that corporate social responsibility will become an even more important factor for the meetings and events sector over the next years and this trend appears to be the same in North America. Based on the 2008 Hotel Association of Canada / Fleishman Hillard Travel International Travel Intention Survey, greenlodgingnews.com reported that 29 % of business travelers compared to 21% of leisure travelers were prepared to pay 5 % more for a more eco-friendly stay. The same study also showed that 52 % of all travelers surveyed sought hotels with strong green practices « occasionally » or « as much as possible » compared to 46 % who said « rarely or never ». Interestingly 91 % of all respondents were not familiar with Canada’s Green Key Eco-Rating program. When asked if their organization had a green travel policy 60 % said no, 8 % said yes and 32 % did not know.

In the meantime the hotel industry needs to do what makes business sense. An establishment that is weak on both values and commercial competence will mean bad business in the future. The snapshot of adherence to green certification programs suggests that small hotels are laggards in environmental responsibility given that most of the hotels labeled today belong to chains, even if in reality many small establishments are actually improving their sustainability performance. The challenge to translate environmentalism into profits may be much higher for them. Given that tourists are not yet green enough means time is in their favor. There might be other forces at play that will push them in the « green » direction such as the prediction that energy prices could be 70 % higher in some Canadian provinces and landfills fees over the next five years.

All hotels must change their practices to move towards sustainable operations and there are literally hundreds of resources to help with the process today, including many examples of good practice.

Best practice hotels according to labels mentioned in this analysis:

Siwash Lake Ranch

The Fairmont Chateau Lake Louise

Hospitality Inns & Suites, Lloydminster

Monterey Inn Resort & Conference Centre

Trout Point Lodge

Aurum Lodge

E’Terra Inn

Endnotes:

Participation costs in programs is variable. For members to an organization, the costs are as follows to the aforementioned programs:

Green Keys of Hotel Association of Canada: CAD 350 (+ GST) annually per property.

Audobon’s Green Leaf: CAD 500 (+ GST) plus $ 1/room, for establishments with less than 50 rooms and CAD 800 (+ GST) plus $ 1/room for establishments for those with more than 50 rooms.

Reser-vert: Hotel Association of Quebec: For members it CAD 150 to enter the program and subsequently the program costs CAD 350 (+GST) annually.

Leedership in Energy and Environmental Design: The cost of participation is dependent on the size of establishment. For a hotel with less than 500 m2 surface area in Quebec certification would be around CAD 4200 (+ tax) plus registration cost CAD 1000 + GST). For establishments that are in renovation the fee is about 50 % less, including registration fee.

Sources:

– Audubon Green Leaf Eco-rating Program: [http://www.terrachoice.ca/hotelwebsite/indexcanada.htm], last accessed March 30 2008.

– Buckley, R. (2002) Tourism Ecolabels. Annals of Tourism Research, 29(1) p.183-208.

– Canadian Green Building Council: [http://www.cagbc.org], last accessed March 30 2008.

– Corporation de l’industrie touristique du Québec (CITQ) (2008): [http://www.citq.info/nouvelles/statistiques.asp] last accessed March 30 2008.

– Font, X. and Harris, C. (2004) Rethinking Standards from Green to Sustainable. Annals of Tourism Research, 31(4) p.986-1007.

– Hasek, G. (2008 a) Leed Gold-Certified E’Terra Inn is Natural Fit for Niagara Reserve. Green Lodging News, 02-06-2008. [www.traveldailynews.com], last accessed March 30 2008.

– Hasek, G. (2008 b) Canada’s Hoteliers Gather to Explore Green Trends, Best Practices. Green Lodging News, 02-26-2008. [www.traveldailynews.com], last accessed March 30 2008.

– Hospitality and Sales Association International Summer 2007 edition. Resources for Resourceful Hospitality Firms. p. 28-30.

– Hotel Association of Canada: [http://www.hacgreenhotels.com/index.htm], last accessed March 30 2008.

– Hotel Association of Quebec: [http://www.hoteliers-quebec.org/fr/accueil.php], last accessed March 30 2008.

– McDonald-Gibson, C. (2008) Des hotels écolos tendent la main aux voyageurs. Agence France-Presse, le jeudi 3 avril 2008.

– Reiser, A. and Simmons, D. G. (2005) A Quasi-experimental Method for Testing the Effectiveness of Ecolabel Promotion. Journal of Sustainable Tourism, 13(6) p.590-616.

– Terra Choice Environmental Marketing (2008): [http://www.terrachoice.com], last accessed March 30 2008.

– Verikios, M. (2007) CSR Higher on the business agenda. Travel Daily News, 19-10-2007. [www.traveldailynews.com], last accessed 19 October, 2007.

– Verikios, M. (2008) Focus on environmental responsibility within meetings industry. Travel Daily News, 09-04-2008. [www.traveldailynews.com], last accessed April 10, 2008.

Catégories
Sustainable tourism

Assessing the Demand for Sustainable Tourism

Rachel Dodds, Director, Sustaining Tourism, & Assistant Professor, Ryerson University and Marion Joppe, President, Tourism Environment, & University Research Chair in Tourism, University of Guelph are assessing the demand for sustainable tourism in this article.

Although there is no question that tourism needs to be sustainable, the actual demand for sustainable tourism is difficult to assess as most figures reflect anecdotal evidence of market share. In recent years, a number of surveys have assessed the demand for more sustainable forms of travel and, in some instances, a willingness to pay and/or financially offset the impact of respondents’ travel.

A number of studies have shown that consumers are becoming more interested in sustainable forms of tourism. In Europe, 95% of Swiss tourists consider respect for local culture to be highly important when choosing a holiday(1) and approximately 87% of respondents in a 2004 responsibletravel.com survey indicated they were also interested in locally produced food, local culture and using local guides when on holiday. A 2002 survey commissioned by the Association of British Travel Agents(2) found that, for 87% of respondents, it was very important that their holiday not damage the environment and, for 76%, that it benefit the people of the destination they were travelling to (for example, through jobs and business opportunities). According to National Geographic Traveller(3), there are 55 million Geotourists in the United States who are environmentally and socially responsible. Geotourists are defined as having “ceaseless expectations for unique and culturally authentic travel experiences that protect and preserve the ecological and cultural environment.” Of these travellers, 38% would be willing to pay a premium to patronize travel companies that use sustainable environmental practices (although it should be noted that only 6% of US travellers take holidays overseas).

It would seem that 2007 was the year when everyone jumped on the “environment bandwagon,” with contradictory results. Most optimistic, a Lonely Planet poll of 24,500 consumers from 144 countries stated that 93% of people said they would or might purposefully partake in environmentally-friendly travel in the future(4). Travellers who consult Lonely Planet are already likely to be much more sensitive to sustainability issues, which accounts for this high percentage that is not supported by other research. For instance, in April 2007, the online travel community, TripAdvisor(5), surveyed 1000 travellers worldwide. Of these, 38% said that environmentally-friendly tourism is a consideration when travelling, 38% had stayed at an environmentally-friendly hotel, 9% specifically seek out such hotels, 34% are willing to pay more to stay in environmentally-friendly hotels and 37% are willing to pay a premium of at least 5-10%. Perhaps of greater long-term concern to the travel industry was the finding that 24% believe air travel should be avoided.

An October 2007 study by TNS Travel & Tourism of over 6,000 people in Great Britain, France, Germany, Italy, Spain and North America(6) concluded that the willingness to pay to offset the environmental costs of their holiday ranged from a low of 2% for Germans, to a high of 12% for Spaniards. With regard to taking steps to reduce their environmental impact, the Italians lead all countries with 32% willing to switch to greener plans, while the United States lag well behind other countries with only 16% expressing such a willingness.

In an American STI survey(7), 75.4% of respondents who are self-declared environmentally-oriented consumers indicated that they were willing to pay $1-20 extra per ticket to mitigate the greenhouse gas effects of their travel and 76.7% said they would switch online travel sites to one that made contributions on their behalf to offset the portion of their emissions. The TNS Travel and Tourism survey was thus less optimistic about the attitude of Americans than the earlier STI study and the survey undertaken by the Travel Industry Association of America (TIA) in 2003(8). The TIA study suggested that more than half of all US adults would be more likely to select an airline, rental car or hotel that uses more environmentally-friendly products and processes. Yet only 14% said their actual selection of a supplier would be influenced by the supplier’s efforts to preserve the environment. In terms of products, 13% would be willing to pay more to use green products – although fully 56% said they might. The amount or rate of the fare premium seems to be the source of their hesitation: 76% would pay less than 10% more per usage, with the majority indicating they would pay less than 5% more.

Compared to their American neighbours, Canadian “travellers express a willingness to take personal action. One-third say that they would switch from a preferred holiday destination to another that supported sustainable tourism, while four in 10 would try to find and use a travel agency that adheres to environmentally sensitive guidelines. And over one-quarter (28%) say they would pay a premium for an ethical and sustainable holiday.”(9) Research conducted by Dodds & Leung(10) suggests that 25% expect travel agents to provide information on climate change and carbon-offsetting options.

While it has been suggested that 44% of British travellers would likely choose an airline with a reputation for fuel-efficient planes(11), Tiscali(12) found that 67% would not even be thinking about the impact their summer holidays could have on the environment. Although consumers may indicate that they expect environmental and social issues to be taken into consideration on their holidays, they do not take it upon themselves to ensure these criteria are being met. Responsibility for ensuring that tourism is more sustainable falls into the hands of the operator. In the UK, over 80% say tour operators should be responsible for preserving the local environment and culture and ensuring that local people benefit from tourism, and the same percentage is more likely to book a holiday with a company with a ‘responsible’ travel policy – a 28% increase since 2001(13). A report by Tearfund(14) declared that 55% of consumers believe that travel agents have a responsibility to provide the information, while 48% think tour operators should provide it.

So what now? Are industry and government moving in this direction?

Although consumers may expect to see social or environmental considerations addressed in the brochures and Websites of operators and travel providers, they do not currently demand these when booking travel packages because many operators simply do not offer responsible/sustainable travel options.

To further the sustainability agenda within the tourism industry, there are a number of recommendations. First, governments should focus their capacity-building efforts on suppliers, using methods like legislated compliance (e.g., environmental, reputation and business probity) and ensuring that resources are available for supplier training and learning and, where needed, filling resource gaps. Second, there is a need to increase public-private partnerships to train the tourism sector in environmental and social awareness and mitigation strategies and industry associations should offer incentives and reporting guidelines. Governments and industry alike need to support training and the sharing of best practices while encouraging industry associations to make adherence to sustainable or responsible tourism policies a condition of membership and to report on progress.

Third, with greater consumer awareness of issues such as climate change, the demand for more information is growing. Demand for sustainable tourism products and services may also grow, if the industry starts to offer more sustainable choices to clients. Businesses can diversify and gain a competitive advantage.

Finally, there is a need to encourage corporate social responsibility reporting from tour operators, airlines, cruise lines, hotels and destinations so that they can understand the impact they themselves are having. Reporting will also provide measurable criteria to allow for comparison of companies and destinations.

Sources:

1. Switzerland Travel Writers and Journalism Club, cited on the Fair Trade in Tourism South Africa Website. Retrieved July 5, 2005, from http://www.fairtourismsa.org.za/fairtrade/index.html
2. MORI (2002). “Package Holidays 2002.” London: Association of British Travel Agents (ABTA).
3. Travel Industry Association of America (2003). “Geotourism: New Trend in Travel Study.” Prepared for National Geographic Traveller, October 2003.
4. Travelmole (2007). “Travellers Back Radical Moves to Protect Environment.” Retrieved August 8, 2007, from http://www.travelmole.com/stories/1121133.php.
5. TripAdvisor (2007). “TripAdvisor Travelers Keen on Going Green.” Retrieved January 16, 2008, from http://www.tripadvisor.co.uk/PressCenter-i120-c1-Press_Releases.html.
6. TNS Travel and Tourism (2007). “Quarter of holidaymakers say they’ll switch to greener plans.” Press release. Retrieved January 16, 2008, from http://www.tnsglobal.com/news/news-4078B2FF93A14AD084EE03C776EE6009.aspx
7. Anavo & STI (2004). Retrieved July 5, 2005, from http://www.sustainabletravelinternational.org/enewsletters/february05travelreport.html
8. TIA (2003).
9. TNS Canadian Facts (2007, December 4). “Canadian travellers express willingness to change their travel behaviours owing to environmental concerns: survey”. Press release. Retrieved January 16, 2008, from http://www.tnsglobal.com/news/news-4CEBC86E3705458FBD60A0D5D960E94A.aspx
10. Dodds, R., & Leung, M. (2007). “Climate change awareness in the tourism industry.” Conference Proceedings TTRA Canada, October 18-20, 2007.
11. TNS Travel and Tourism (2007).
12. Tiscali (2007). “Summer Lifestyle Report 2007.” Retrieved January 16, 2008, from http://www.tiscali.co.uk/presscentre/press_release/2007/july/071807summerlifestyle.html
13. Taylor Nelson Sofres (2004). Responsible Travel ‘Had Enough’ Survey. Retrieved July 5, 2005 from http://www.responsibletravel.com/Copy/Copy101763.htm.
14. Tearfund (2001). “Worlds Apart – A call to responsible global tourism.” Middlesex, UK

Catégories
Issues Sustainable tourism

Sustainable purchasing policies: Does your business have one?

Green purchasing or sustainable procurement is a tool to mitigate the environmental impacts of consumption. It simply means looking at what products are made of, where they come from, how they are made and how they will be disposed of at the end of their life cycle. Green purchasing is also an initiative to consume responsibly and move towards a more sustainable society.

Most governments, large companies and, increasingly, small and medium enterprises in tourism have some sort of purchase or procurement policy that incorporates environmental and socially responsible objectives. The number of tourism businesses that operate with a green purchase policy has not yet been quantified. The public sector spends 45-65% of its budget on procurement, which amounts to 13-17% of the GDP of OECD nations. Overall, tourism has the potential to significantly improve its sustainability performance by implementing green purchase policies because it is an industry that consumes products and services from almost every economic sector. For example, some hotel chains like Scandic as well as the Resort Municipality of Whistler have integrated sustainable purchasing goals into their procurement policies and developed a number of resource tools to encourage better purchasing choices.

What is a sustainable green product?

In simple terms, sustainable products must meet one the following criteria: they must be made from abundant and/or renewable sources, recyclable, organic, made or grown locally, powered efficiently, durable (i.e., have a long life cycle) and/or be reusable. In effect, a sustainable product best meets the aims of environmentally responsible management at all stages of the product’s life cycle. Life cycle analysis is a very important part of responsible consumption. It refers to the analysis of all the stages involved in the production and consumption of something:

  • materials initially used to produce it
  • amount of energy used to extract materials
  • waste outputs involved in acquiring the raw materials
  • manufacturing processes
  • consumer use
  • maintenance
  • final disposal

Traditional products do not reflect the full cost of their social and environmental impact. For example, the price of polluting products such as chemicals and non-biodegradable products does not include the cost of cleaning up the pollution they cause. Instead, this cost is the responsibility of the communities affected and is usually paid by public funds. It is almost impossible for a tourism business or consumer to analyze the life cycle of every product. To make it easier to identify more socially responsible products, a variety of organizations are developing standards, labels and certification programs (see figure with logos). In Canada, Environment Canada’s Environmental Choice Program provides a list of products that have been tested and certified environmentally responsible throughout their life cycle. Such products are the least damaging compared to alternatives on the market and they are permitted to display the EcoLogo. Various other organizations across North America and elsewhere offer certification for a diverse range of products.

It is difficult to assess products that are not labelled. It is also necessary to pay close attention to labels and marketing tactics as the market is currently being saturated with “environmentally friendly” products that do not truly live up to their claims. A product can be assessed by checking product Websites and obtaining information directly from suppliers. If a company does not have a clear description of their sustainability policy, it is also advisable to check its accreditation for general compliance with standards as well as whether it belongs to Canadian Business for Social Responsibility (CBSR).

Why sustainable purchasing should be the norm

Green purchasing influences the market by encouraging businesses to offer more innovative and sustainable options. Besides being generally more responsible, businesses enjoy numerous other advantages by adopting a sustainable purchasing policy. This includes many savings, especially over the long term, as well as an enhanced brand image. As consumers are becoming increasingly green-oriented, companies who have already embraced more responsible practices are realizing opportunities to differentiate themselves from competitors. Other specific benefits can include:

  • savings due to lower operating costs because energy, water and other resources are used more efficiently
  • savings from lower waste management fees
  • easier compliance with environmental regulations
  • avoidance of unnecessary health and safety risks associated with toxic product use

It must be noted that several of these benefits may only be realized over the medium or long term. When companies who have adopted sustainable purchasing policies educate the public and build awareness of their economic and environmental benefits, employees develop a sense of pride across the organization.

Practical steps for implementing a sustainable purchasing policy

1. Reconsider each purchase

A lot of businesses consume products that are not necessary. To determine whether a specific product needs to be purchased, the following questions must be asked:

  • How does this product contribute to the company’s service?
  • Can the company deliver its service without this product?
  • (if relevant) Has the product been used to the end of its life cycle?

In the case of consumable items, it is worthwhile to assess the possibility of reducing the rate of consumption. Reducing the purchase of unnecessary items will create savings for purchasing or encouraging more sustainable products.

2. Rent, lease or buy it second-hand

Infrequently used products like office furniture, tools, machines and computers, for example, can be also rented, leased or even shared with other businesses. Renting means that the initial purchase price is reduced, so it saves money and avoids the risks and costs associated with disposing of these products. Some companies that purchase durable goods are legally responsible for the waste and recycling of their products. In the case of renovations and building, construction materials can increasingly be purchased recycled or second-hand.3. Choose a durable or longer life productIt is better to choose products that are longer lasting and, preferably, multifunctional to reduce one’s overall rate of consumption. This requires comparing the cost of a non-disposable version with a less durable or disposable product to determine the cost per use and estimate whether money can be saved. For example, throwaway items such as foam cups can be replaced with recyclable equivalents, including glass. Most products on the market, like light bulbs and batteries, have “longer life” versions. Products such as electronics and machinery have a long service life and can often be repaired.

4. Choose products or services designed to address specific environmental or social concernsIf possible, it is preferable to choose labelled products that have been tested by reliable organizations. If a labelled product is not available, consider the following:

  • For all chemical-based products, check the product’s content. Cleaning products, fertilizers, lighting, paints, piping and wood products all have specific assessments to show how toxic they are and these are often available on government department web pages or other publicly accessible sites. Certain computer hardware components and cleaning products contain toxic ingredients such as formaldehyde, mercury, lead, cadmium, chromium, phosphate and volatile organic compounds. These products need to be replaced with low polluting, less toxic alternatives. For example, oil-based paints have water-based equivalents and so on. Some plastics and furniture can emit gas, which is not only harmful to the environment in general but also dangerous to human health.
  • For all non-perishable products, check whether the product can be recycled and reused. These include products such as toner cartridges, oils, glass, plastics, paper, pens, beverage containers, batteries, and so on.
  • For products that use water and/or energy, check the availability of more efficient alternatives that use less of these resources. This applies to anything from plumbing fixtures, to kitchenware and light bulbs.
  • Check whether the product is recyclable, or contains recycled materials or reusable parts. Sometimes new products are available from recycled materials and the purchase of these items promotes recycling instead of using virgin materials. These products are labelled to show the percentage of content that was produced from recycled sources. Some products are made from materials that are less and less abundant and nearly exhausted, including furniture.
  • For products that use non-renewable energy such as petrol-based fuels, check whether alternatives exist that use a cleaner source of energy or renewable energy. This applies particularly to cars. The variety of fuel-efficient equivalents is growing rapidly in all vehicle categories and in Quebec the government provides a tax rebate for buyers of some hybrid vehicles.
  • For perishable food items, check whether they have been organically and/or locally grown. If you run a dining establishment, you must pay particular attention to foods like fish to avoid serving species whose stocks are overharvested. Sustainable Seafood Canada is a coalition of conservation organizations that has developed a guide to encourage sustainable consumption patterns.
  • For imported products from less developed nations, check whether they have been produced in accordance with fair trade principles.

5. Source products locally as possible

In an effort to reduce greenhouse gas emissions, it is really important to source as much as possible from local sources.

How to get started?

Implementing a sustainable purchasing policy will take time because purchasing staff need to consider trade-offs. This includes environmental objectives versus operational requirements, price competitiveness and product quality and availability. For most tourism businesses, implementing a sustainable purchasing policy will not be easy because of the need to strike a balance between these aspects. However, it is better to start with a simple plan that can be improved continually. Organizations that have implemented such sustainability actions have the following advice:

  1. develop a clear policy statement about the organization’s vision and objectives regarding sustainability, including a new purchasing plan with clear priorities
  2. involve everyone in the organization in the process
  3. set clear, measurable targets for implementation
  4. regularly monitor the organization’s progress towards achieving the objectives

Sustainable purchasing is an effective tool that helps businesses prevent pollution at the source. It is also an effective way to educate everyone to be responsible. As purchasing affects every phase of the production process, from the extraction of raw materials to waste management, via responsible consumption, an organization’s financial and environmental performance can improve because every buying decision has an impact on the economy, the environment and society. Buying “green” products helps suppliers that produce responsible products to realize economies of scale. This reduces their costs and encourages a wider distribution of their product, probably at lower prices. Today’s responsible products are produced at low volumes and cost more partly because the market is still small. This should change as demand increases.

Every person and every business needs to be more responsible and change today. Consumers cannot shop the planet out of its problems, but responsible patterns of consumption will help mitigate some issues.

Sources:

Catégories
Customer segments

Spotlight on Generation Y

Although the definition can vary, the term “Generation Y” generally refers to people born between 1978 and 1989, or those aged 18 to 29. Whether you call them Echo Boomers or Generation Y, they are without doubt a major, surprisingly different, customer segment. However, does Quebec’s Generation Y travel? If so, what are its favourite activities when travelling, and in general? What is the best way to appeal to these complex new consumers weaned on technology?

Profile of the Echo Boomer market segment

In 2005, Generation Y represented 20.3% of the Quebec population 18 years and over. They account for a similar proportion of the travel market, constituting 18.8% of the province’s domestic travellers and 19.5% of its international travellers during the past year.
According to the Print Measurement Bureau (PMB), 42% of young Quebeckers in Generation Y have travelled within Canada in the past year, while the rate is 46% among the entire population aged 12 years and over (Table 1). Nearly one-third of them made at least one trip within Quebec and 10% visited Ontario.

 

Table 2 lists the most popular international destinations among Generation Y travellers in the past three years, noting the percentage of those who made at least one trip to each destination, as compared to the entire Quebec population. Though this demographic group visited the Northeast United States and France in greater numbers than did the overall Quebec population, it was not as fond of Cuba as other customer segments were.

Figure 1 illustrates the percentage of young people aged 18 to 29 who take part in certain activities while travelling in Canada, compared to the number of participants from the overall Quebec population. Members of Generation Y are more likely to practise sports activities, hiking and skiing, and engage in shopping and nightlife than other travellers. However, they are less likely to attend cultural activities like museums, art galleries and events.

Here are some more pertinent facts taken from the PMB with regard to the travel behaviour of Quebec Generation Y travellers in Canada:

  • 85% travel by car, 9% by bus and 10% by plane
  • 78% travel for only a few days, 22% for one week and only 7% for two to three weeks
  • their favourite type of accommodation is with friends and family (40%), followed by hotels (34%), motels (18%), campgrounds (18%), cottages (17%) and, rarely, B&Bs (5%)

When travelling outside the country:

  • 41% travel for a few days, 44% for one week, 27% for two to three weeks and 12% for one to two months
  • 76% travel by plane, 36% by car and 10% by bus

Other than their favourite activities while travelling, what interests this clientele? What are its favourite hobbies and leisure activities? Figure 2 illustrates the percentage of this generation that engaged in various sports and leisure activities over the past year.

Compared to the overall population, young people aged 18 to 29 have a higher participation rate in a greater number of sports and activities (cycling, dance, photography, running, canoeing, amusement parks, etc.). Nightlife is especially popular, with 46% of young people having gone out to bars in the last year.

As illustrated in Figure 3, some Quebec events are quite popular with young people in Generation Y: for example, 15% attended the Montréal International Jazz Festival last year. Other Quebec attractions are popular too, with one out of five Quebeckers aged 18 to 29 having visited La Ronde, a proportion that is twice that of the overall Quebec population.

Looking beyond the numbers

With personalities and behaviours that differ from those of preceding generations, Echo Boomers are a challenge for the companies who would like to attract them. However, they are not unreachable, and the following information may help you understand them better.

  • For this generation, travel offers a sense of accomplishment and pleasure; it is a tool of personal development, a way to discover new lands and an enriching experience, both personally and socially. Traditional sightseeing activities, guided tours and museums are not attractive to them. They prefer adventure tourism, sports tourism, the latest forms of entertainment and outdoor activities.
  • Professionally, the children of Baby Boomers do not want to be like their parents. While the latter are often workaholics, Generation Y aims for a better balance between work, family and one’s personal life. Not particularly loyal employees, these people look for work that they can be passionate about, rather than something stable and well paid. They do not like hierarchical organizations.
  • Though often big consumers, they are also savvy, experienced buyers. As a customer segment, they are demanding and hard to predict. Because they often have limited budgets and many have a high debt ratio, the quality-price ratio is key to them (they often travel with only one credit card). In addition, they are very skilled at searching the Web for the ideal destination and price. The Internet now offers tremendous information transparency and Generation Y is certainly the generation that takes full advantage of this.
  • Technology is part and parcel of their lives and the internet holds few secrets for them; they navigate easily and confidently, whether searching for information or making online reservations.
  • Unlike other customer segments, Echo Boomers are not afraid of innovation. On the contrary, they enjoy surprises, adapt quickly, and like to get off the beaten path to discover new horizons, new destinations and new activities.
  • In terms of marketing, it is vital to remember that they have been immersed in advertising since birth and, as a result, are less sensitive to it or even immune. Therefore, they can be difficult to reach through traditional media and more easily reached through the internet. However, viral marketing, search engine referencing and online public relations are more effective than conventional advertising banners. Furthermore, the advent of social networking sites like MySpace and Facebook means that marketing efforts must “listen” in order to identify, target and reach Generation Y. Members of this generation like to talk about themselves and their lives (their trips, friends, photos, etc.) on personal pages and blogs.
  • Remember that they share a lot. Thanks to social websites, cell phones, online chatting and Skype, they are instantly up to date with whatever their friends are doing, no matter where or when. This is why well-executed viral marketing campaigns can be so effective.
  • The most powerful hook for them is probably a sense of humour, or even sarcasm. Strategies that can make them (and their friends) laugh will win points. Some marketing campaigns have used humour to great effect, even with limited budgets.

In short, they are skilled negotiators, ambitious and nonchalant, and they question everything. They are also wholehearted hedonists, sensitive to the fate of the planet and keen to learn more about the world. Full of ideas, these people are inspiring.

Sources:

– Print Measurement Bureau, 2007.
– Renaud, Jean-François. « Le Web de la génération Y », Adviso, conseil + stratégies, 7 décembre 2005.
– Hira A., Nadira. « You Raised Them, Now Manage Them », Fortune, 28 mai 2007.
– « The Children of the Web », Business Week, 2 juillet 2007.
– Ramsay, Charles-Albert. « Fallait y penser: un nouvel emploi chaque semaine? », Les Affaires, 7 juillet 2007.
– Canning, Simon et Lara Sinclair. « End of the Love-in », The Australian, 20 octobre 2006.

Catégories
Customer segments Marketing @en

Familiar with tweens? You should be…

A recent development in marketing has been to define a new customer segment: « tweens » or preteens. While young people ages 9 to 14 are no longer children, they are not yet teens, either. With surprising purchasing power and influence on a variety of family decisions, they are an attractive market. Although manufacturers have recognized the potential of this market, the travel industry is just beginning to clue in. In fact, tweens now make up another type of traveller. This does not mean family vacations are a thing of the past; they have simply changed direction – to follow tweens!

What is a tween?

« Tween » is a marketing term used to describe preteens ages 9 to 14. Straddling childhood and adolescence, they have a foot in both worlds. When it comes to technology, they rule: they are online longer, adopt and master new technologies faster than adults and participate in a wider variety of online activities. In Canada, 85% of tweens have access to a computer, 82% to a video game system, 25% to an iPod or MP3 player and 16% have a cell phone (this number rises to 26% among 12 to 14 year-olds).

While their favourite medium is still television (50%), 27% of American 9 to 14 year-olds watch it on the internet. Figure 1 lists their favourite online activities.

activites_tweens

Purchasing power and influence on family decisions

Spending by tweens has doubled every decade for the past 30 years. In the US today, between spending their own money and influencing their parents’ purchasing decisions, this segment controls or influences approximately US$260 billion in spending. According to the BRANDchild study (conducted by Millward Brown among 2,000 young people ages 9 to 14 years in several countries), tweens influence 80% of their parents’ brand purchases.
Tweens2

In 2005, there were approximately 2.5 million tweens in Canada and their average annual income was CAN$1,155. This means they controlled CAN$2.9 billion of their own money in addition to influencing another CAN$20 billion in family purchases.

It is this financial power that differentiates tweens from earlier generations; never has this age group exercised such influence. The generation is populous enough to ruin a brand it does not like or catapult another to success by adopting it. The influence of tweens is particularly noticeable when it comes to choosing a restaurant, groceries and even cars, but they can also affect travel-related decisions:

  • Over 40% of young people believe they have some or a lot of influence when it comes to choosing a vacation destination.
  • Although only a small percentage of tweens feel they have a strong influence on hotel choices, 59% believe they have some influence. Also, 20% of parents say they « always or sometimes » ask for their tween’s opinion when selecting a hotel.
  • Tweens believe they influence the planning of vacation activities 55% of the time.

achat_tweens3

They may be plugged in, but do they shop online?

Surprisingly, tweens and teens are shopping online in increasing numbers, thanks to prepaid gift cards. Major companies now offer prepaid credit cards designed especially for young people. The Visa Buxx card is just one example and can be used everywhere Visa is accepted, particularly online!

Tweens5

Receptiveness to advertising

Young people in the United States, Australia and Great Britain see an average of 20,000 to 40,000 commercials per year and spend 60% more time in front of the television than at school. Two surveys conducted by The Harris Interactive Youth and Education Research Group in May 2006 offer more insight into young people’s attitudes towards advertising:

  • Tweens attach a great deal of importance to objects and brands « cool. »
  • Friends have a tremendous influence on their preferences and they want what their friends have. Their consumer choices are also influenced by advertising.
  • More than earlier generations, tweens are very receptive to celebrity-driven advertising.
  • Young people say they are most influenced by television commercials (54%), magazine ads (23%) and movie-theatre commercials (19%).
  • Advertisements for food seem to attract the most attention from tweens.

Generally speaking, marketing specialists use the strategy of treating tweens like teens. The marketing industry has forced children to grow up faster and studies show that those aged 11 and older no longer consider themselves children.

Ethical debate

There is a major debate concerning the ethics of tween-oriented marketing. By treating these young people like mature, independent consumers, advertisers are taking parents out of the decision-making process and thereby making children more susceptible to unhealthy messages about body image, sexuality, relationships and violence. This is an emotional issue that creates sharp divides. Although the tourism industry is less involved in such marketing, it is important to be aware of the issues.

Some tourism examples

In terms of the tourist experience, tweens are often too old for activities aimed at children and too young for teen and adult activities. Very few tourism-based businesses offer products specifically for tweens. However, some businesses have adapted their products for this segment.

Club Med offers two programs designed for 11 to 17 year olds: Junior Club Med, which supervises young people and organizes group activities (beach volleyball, trapeze, trampoline, sailing, inline skating, tennis, etc.), and Club Med Passworld, an exclusive new zone with special high-tech equipment. Specially-trained counsellors facilitate the discovery of new activities designed specifically for them and encourage their development and socialization.

Some Four Seasons hotels (Atlanta, New York, London, Chicago, Philadelphia and Toronto) have added a youth concierge to their service teams to deal specifically with tweens and teens. These hotels have also conducted focus groups with tweens in the aforementioned cities to identify cool things to do locally. They now have an updated idea of this clientele’s preferences and interests. These hotels also provide special amenities to this customer category, offering things like popcorn, recent magazines and films, an indoor pool, and balanced meals designed especially for them. For its part, the Ritz Carlton in South Beach, Miami, provides a tech centre for tweens and teens.

Finally, the Florida tourism portal lists activities aimed at tweens, like scuba diving, an indoor rink for roller-skating and skateboarding and water skiing.

Be among the first!

Given their economic muscle, tweens will no doubt continue to be targeted by businesses. In addition, since relatively few tourism businesses target this clientele in particular, doing so would probably provide a competitive edge. A few suggestions for reaching this market segment:

  • Carefully analyze their likes, dislikes and influences, to offer products and services tailor-made for them.
  • Speak their language: tweenspeak is the system of abbreviations, symbols, icons and numerals used for text messaging and in chat rooms. This new language enables them to communicate with each other around the world without even speaking the same language!
  • Keep wait times to a minimum. Although no longer interested in colouring, tweens still don’t have much patience.
  • Offer cool products traditionally aimed at older customers, but ensure they are closely supervised to reassure parents.

Sources:
– Business Wire. « iGillottResearch Finds Significant Opportunities for Wireless Devices in the Tween Segment, » July 22, 2005.
– De Mesa, Alycia. « Marketing and Tweens, » Business Week Online, October 12, 2005.
– eMarketer. « What Do Kids, Tweens and Teens Do Online? » www.emarketer.com, October 10, 2006.
– Lindstrom, Martin. « Branding Is No Longer Child’s Play! » Journal of Consumer Marketing, Vol. 21, No. 3, 2004.
– Martin, Suzanne. « Advertising to Youth: What Youth Want And What Advertisers Need to Know, » Trends & – Tudes, Harris Interactive, Vol. 5, No. 7, August 2006.
– Media Awareness Network. « Special Issues for Tweens and Teens, » www.media-awareness.ca.
– Shohan, Aviv and Vassilis Dalakas. « He Said, She Said, They Said: Parent’s and Children’s Assessment of Children’s Influence on Family Consumption Decisions, » Journal of Consumer Marketing, Vol. 22, No. 3, 2005.
– YTV, Corus Media. « 2002 YTV Tween Report: Special Kidfluence Edition » and « Winter 2006–YTV Kids Trend Report. »

 

Catégories
Around the world Customer segments

Loyal customers spend less than new customers

Spanish researchers have analyzed the expenditures of travellers in relation to how many times they have visited a destination. According to their findings, returning travellers spend less than first‑time visitors, primarily because of their increased knowledge of the destination. Destinations may want to consider the true economic benefits of new visitors versus loyal customers in relation to the money spent to attract them.

The advantages of loyal customers

In the tourism industry, regular customers are generally desirable for a number of reasons, in particular:

  • Marketing costs for attracting loyal customers are lower than those required to solicit new business.
  • A repeat customer usually indicates satisfaction with the product or service.
  • Customers who regularly return to a destination tend to encourage those around them to do the same.

In economic terms, destinations appreciate repeat visitors because they help stabilize market share, require lower promotional costs, and are less sensitive to price variations and potential service problems. However, another factor comes into play: returning travellers are more familiar with the destination and able to make more informed decisions when it comes to most travel expenses.

The Balearic Islands: A case study

Researchers Joaquin Alegre and Catalina Juaneda, from the University of the Balearic Islands, have attempted to analyze the relationship between consumer behaviour and repeat visits. The study looked at a sampling of German and British tourists vacationing in Spain’s Balearic Islands; many variables were analyzed, such as the number of visits to the destination and motivations like delivery quality.

In particular, the study examined the fact that first-time visitors are initially influenced by external factors, primarily the cost of the trip. Once destination quality proves to be a critical factor, high price is often seen as the best indicator of quality. As for repeat visitors, they are more motivated by factors linked directly to the destination, for example, hotel and service quality.

Not all tourists can be loyal

To clearly understand the context of repeat visits, it is important to realize that some tourism motivations run counter to destination loyalty. For example, for those who see travel as a break from routine (an opportunity for unique experiences and the discovery of new places, new people and other cultures) destination loyalty is not appealing. Travellers fitting this description would generally not be interested in revisiting a destination.

On the other hand, individuals with little tolerance for risk would feel comforted and relieved to return to the same place. This type of traveller usually seeks relaxation, comfort, a familiar environment, and a minimum of uncertainty and risk. Moreover, it takes time and effort to find and research a new destination, and money to set up new routines.

Differences observed

Why do first-time visitors spend more? Even if they have managed to compile a lot of information from travel guides or Web searches, it is very difficult to acquire intimate knowledge of local pricing realities. Given this lack of information (and more importantly, lack of first-hand experience), first-time visitors readily accept prices that may, in fact, not be considered competitive.

The study’s findings show that repeat visits to a destination have an influence on tourist expenditure patterns. The share of expenditures made in the home country of travellers who are visiting for the second or third time is 28% lower when compared to expenditures by new visitors. The difference is even more significant (32%) among tourists who are on their fourth or higher visit.

The impact of customer loyalty on consumer behaviour is even more remarkable when one looks at the amounts spent at the destination itself, during the vacation. Repeat visitors, regardless of how many times they have been, spend 40% less than first-timers.

Other motivating factors

Tourists who attach a great deal of importance to hotel quality tend to spend more on their vacations, both at home before the trip (+49%) and at the destination (+44%). People who consider the quality of their surroundings to be important also spend more, especially at the destination itself (+28%). A similar observation can be made about tourists who return to the same region, with expenditures of 17% more in the destination country.

The study findings also demonstrated the following:

  • Repeat visitors are more likely to opt for half-board lodgings, in other words, accommodations that include one or more meals.
  • Loyal tourists have a longer length of stay.
  • The more times tourists visit a destination, the more they tend to visit the same region.

Lessons learned?

A destination’s positioning should consider the proportion of new to return visitors. When a large percentage of one’s customers are not first-timers, it may be risky to promote services with a large mark-up. According to the study’s authors, increased profitability from unit sales will not be enough to compensate for an eventual decline in the number of visitors from a well-informed customer base.

Obviously, the example presented by the researchers covers only the case of the Balearic Islands (a sun destination) and is based on a restricted clientele, that of British and German tourists. However, the study’s authors conclude that their findings still apply to many destinations.

Sources:
– Alegre, Joaquin and Catalina Juaneda. « Destination Loyalty: Consumers’ Economic Behaviour, » Annals of Tourism Research, Vol. 33, No. 3, p. 684-706, 2006.
– Um, Seoho, Kaye Chon and YoungHee Ro. « Antecedents of Revisit Intention, » Annals of Tourism Research, Vol. 33, No. 4, p. 1141-1158, 2006.

Catégories
etourism and technology Management

Price customization: bold… or deceptive?

Is it farfetched to believe that an online shopper’s browsing history could affect a travel site’s search results? It most certainly is not. Although the internet gives consumers a powerful tool for easy price comparisons, the downside is that it also enables retailers to collect detailed information about online shoppers’ spending habits. Thanks to the internet, businesses can now use a myriad of new approaches to efficiently adjust their pricing to increase profit margins.

Warning, you’re being tracked!

Thanks to browser technology, businesses now have the ability to store profiles of their customers’ buying habits, preferences, financial resources, and so on. Some companies judiciously use this type of strategic information to adjust their pricing according to a user’s profile.

According to Charles Leocha, a journalist for MSNBC.com, online travel agencies like Expedia use sophisticated software and browser cookies to analyze customers’ previous transactions. This means a consumer’s search results can vary according to the profile recorded. For example, if a particular consumer is shown more higher-priced fares – or fewer discounted fares – it could be because the system has identified him or her as a « good customer » who is more likely to purchase higher-priced items. In fact, this is a subtle way of preventing certain types of consumers from purchasing lower-priced items. It’s a little like banning well-heeled shoppers from dollar stores!

A concrete example

Although this type of marketing practice may seem like a paranoid example of Big Brother at work, it is nonetheless closer to the truth than to fiction. Online travel agencies may insist that such biases don’t exist, but our experience shows otherwise.

To test the truth of this hypothesis, we conducted a test with members of the Tourism Intelligence Network team. We ran a simple search on the Canadian Expedia site for a plane ticket from Montreal’s Dorval Airport to Paris’ Charles de Gaulle Airport, departing January 8, 2006, and returning a week later on the 15. However, our three searches, conducted simultaneously on three different workstations, produced three different results (see illustrations).

Profile 1

In the case of Profile 1, the lowest price offered was $800 for a connecting flight or one with 2 stops or more, with no direct flight option. As for Profile 2, the lowest price displayed was once again $800, but this time, we were offered a non-stop flight for $978. Finally, Profile 3 was offered a flight for the somewhat surprising price of $699, in other words, $101 less than the other two! And yet, it was the very same US Airways itinerary, with exactly the same departure times.

Profile 2

 

Profile 3

Read the fine print

Expedia’s policy with regard to using information collected from customers is as follows:

«Expedia.com collects certain technical information from your computer each time you request a page during a visit to Expedia.com. This information is collected from your computer’s Web browser to enhance your experience on our site…»

Few consumers are aware that retailers are able to manipulate online shoppers’ personal information to conduct what some experts call « psychological marketing. » The Annenberg Center at the University of Pennsylvania examined this phenomenon in a study entitled Open for Exploitation, released in June 2005.

The study’s results demonstrated the naiveté of US online consumers, 68% of whom believe price comparison sites like Expedia and Orbitz are required by law to display the lowest available price. Furthermore, 87% of the people surveyed said they strongly object to online retailers offering different prices for the same product, depending on the information gathered on customers’ shopping habits.

Somewhat questionable, but still legal. Use with care.

Price customization is therefore a very real practice and, contrary to popular opinion, it is entirely legal. As long as discrimination is not based on factors like race, religion, nationality or gender, there is no problem. Such approaches have been around for a long time, like discounts for students and seniors, for example.

This type of strategy is a legitimate business tool because it follows the trend of yield management and companies must satisfy the needs of shareholders. Although businesses that offer a flat price at all times may satisfy their clientele, they will definitely deprive themselves of a higher profit potential.

There’s nothing new about dynamic pricing. The major difference stems from the fact that the internet offers businesses a number of new ways to efficiently adjust their pricing. Since consumers are still not very aware of the incidence of price customization, businesses employing this strategy must be very careful not to cause dissatisfaction and erode customer loyalty.

The internet unquestionably offers businesses an opportunity to acquire highly relevant and strategic information about their customers and thereby target different market segments with different prices for the same product. Technical tools enable retailers to study not only the purchasing behaviour of online shoppers, but also their non-purchasing behaviour, in other words, their information searches.

In today’s context where the internet plays an increasingly important distribution role in relation to global distribution systems (GDS), more and more travel agencies are going online to find prices. This raises another question: what happens when travel agents consult the internet on behalf of their clientele? Could such agents be penalized due to their frequent use of sites that employ dynamic pricing?

Tourism-based businesses with the technological ability to do so must ask themselves a key question: is it profitable to take advantage of our clientele’s electronic profiles to implement dynamic pricing?

A double-edged sword

Retailers trying to determine their web strategies in relation to dynamic pricing must define these strategies with great care. For example, is it better to offer lower prices to customers who visit the site frequently, but rarely buy, or to those who are loyal and rarely shop elsewhere? It is a difficult question because, in fact, a business could decide to offer higher prices to loyal return customers, gambling that their loyalty will blind them somewhat and make them unlikely to shop elsewhere. Or the same business could just as easily adopt the opposite strategy, in other words, reward loyal customers by offering them the lowest prices possible.

The stakes are high because bad decisions could cause a business to lose many customers. On the other hand, automatically rejecting any type of dynamic pricing is also a way to miss out on some lucrative profits that would be difficult to make in other ways. To make an informed choice, retailers must look at all the parameters that could help guide them. In particular, they should not only consider the frequency of a customer’s site visits, but also the time of year, the type of products purchased, the profit margin on previous transactions, etc.

Possible backlash

Since the practice of dynamic pricing is in its infancy, businesses can still take advantage of the fact most consumers know nothing about it. However, in the longer term, organizations that rely too heavily on this approach could well pay the price.

One possible risk is an increase in the number of intermediaries created to fight back against businesses « guilty »of too much greed. Although the goal of such initiatives would be to denounce abusive practices, they could also, for example, rank travel websites according to their level of « honesty » and try to protect customers – or even steer them away – from businesses seen as too manipulative.

Although it is difficult to accurately assess the extent to which dynamic pricing is used in Quebec, we can safely assume that few organizations have adopted it as yet. Although companies are technically capable of amassing a ton of information about their online customers, very few do so in order to analyze it, while others simply do not have the resources needed to efficiently collect this type of information.

Managers will definitely have to weigh the pros and cons before blindly adopting dynamic pricing. However, there is an amazing wealth of strategic information that can be gleaned by analyzing online clicking behaviour. Without going so far as to customize pricing, businesses could benefit – at the very least – from learning more about their site visitors, whether they buy anything or not.

Sources:
– Elliott, Christopher. « A Low-Fare Browser? », National Geographic Traveler, July-August 2005.
– Feldman, Lauren, Joseph Turow and Kimberly Meltzer. « Open to Exploitation: American Shoppers Online and Offline », Annenberg Public Policy Center of the University of Pennsylvania, June 2005.
– Knowledge@Wharton. « What Consumers – and Retailers Should Know about Dynamic Pricing », Hotel News Resource [www.hotelnewsresource.com], December 2, 2005.
– Kontzer, Tony. « Online Shoppers Growing Wary Of Sharing Data », InformationWeek, August 15, 2005.
– Ramasastry, Anita. « Web Sites Change Prices Based on Customers’ Habits », CNN [www.cnn.com], June 24, 2005.
– Ramasastry, Anita. « Websites That Charge Different Customers Different Prices: Is Their ‘Price Customization’ Illegal? Should It Be? », FinLaw, June 20, 2005.

Catégories
Distribution networks Management

Make your pricing scheme work for you

Although business-people often tend to set the price of their products by looking at the cost and the desired profit margin, this is by no means the optimal approach to pricing because it does not take into account what each market segment is willing to pay. For Yves Cornu, a consultant with Capgemini, managers must change their attitudes towards pricing if they want to improve business profitability. Welcome to the world of dynamic pricing!

Blame it on the GDS

In the travel industry, the arrival of the GDS (global distribution systems) led to the first dynamic pricing strategies, also known as yield management, by enabling travel agencies to easily compare prices among competing companies. The advent of the internet has simply encouraged this comparison phenomenon. In an environment of virtually transparent pricing windows, dynamic pricing is even more important. Certain experts make a distinction between dynamic pricing and yield management; the former is a pricing strategy defined over the medium or long-term, while yield management uses this approach in the short-term.

Adopting dynamic pricing

An effective dynamic pricing strategy can help improve the profitability of a business. The traditional approach of many managers was to prioritize cost-cutting to increase profit margin. In today’s more open business environment, the idea of adopting a well-defined pricing strategy for one’s product has become a very interesting alternative. According to the firm of Simon Kucher & Partners, a pricing specialist, dynamic pricing can increase net profitability by anywhere from one to four percent.

With the help of technology, many hoteliers like Hilton and Intercontinental have recently adopted a much more dynamic approach to pricing. Jim Kilroy, vice-president of Starwood Hotels, feels traditional pricing models based on ceiling rates are a thing of the past and hotels should be more responsive to the market.

Before testing the waters of dynamic pricing, Xavier Marcé of XMO Consultants suggests that businesses follow the guidelines below to increase their chances of success:

  • Find out how your clients react to fluctuations in price. It’s also important to realize that demand is composed of several blocks and that it can fluctuate according to market segment, originating market, dates, etc. During certain high seasons, it is much less flexible.
  • Be familiar with what your competitors are offering. You must know who your prime competitor is before you can develop an effective price strategy. For example, the Montréal Science Centre recognizes that the Biodome offers more direct competition than an ordinary museum does.
  • Adapt your products and services to your customers’ expectations. When you are knowledgeable about your customers, you can adapt your products to specific segments. Ski areas, for example, attract retirees by offering special season passes that can only be used outside peak periods.
  • Identify demand for each period of the year. The travel industry is subject to major seasonal fluctuations in demand. Since this problem will always exist, detailed knowledge of the phenomenon’s extent, combined with dynamic pricing, can attenuate the effects.
  • Select the ideal distribution channels. While the internet has definitely encouraged an increase in direct sales to consumers, it has also created a greater number of sales channels. Online sales are a particularly flexible and responsive method of marketing one’s wares. Selecting your distribution channels also means selecting the partners who will act as intermediaries. For example, many hoteliers have regretted their decision to join forces with online agencies like Expedia that use the merchant model, because this has translated into a loss of control over the online sale of their rooms.
  • Set price barriers. By making certain prices conditional on specific situations, you can avoid losing some of your traditional customers who might be attracted to discounts. For example, offering an « early-bird » special can help counteract the effects of « last-minute » deals while maintaining less price-sensitive customers who will simply reserve later. You can also restrict the availability of products at certain prices. Finally, a method commonly used in the airline industry is to limit the options of changing or cancelling in the case of certain discount products.

Many advantages

Improving one’s pricing process is clearly more advantageous than trying to cut costs. First, it does not require a large financial outlay. Second, a new pricing strategy generates immediate results and can quickly enhance cash flow. Third, dynamic pricing usually creates a more substantial impact than simple cost-cutting.

It is also important to remember that one must never compromise product integrity. After all, for potential buyers, price is still closely related to quality and – above all – to perceived value. Consumers can be annoyed if prices are constantly being cut or products put on sale. Studies have shown that, even during a crisis, it is not profitable to drop one’s prices.

Although it may not be a science, dynamic pricing requires thought and deliberation on the part of managers so their organizations can adopt consistent strategies that reflect their corporate philosophies.

Sources:
– Boehmer, Jay. « Hotels Float Rate Change: Chains Attempt to Expand Dynamic Pricing to Corporate Travel, » Professional Pricing Society [www.pricingsociety.com], August 2, 2005.
– Brault, Franck and Sabrina Brouzes. « Le pricing dynamique, une formidable opportunité pour les tour-opérateurs, » Revue Espaces, No. 226, May 2005.
– Cornu, Yves. « Un produit n’a pas un coût, mais un prix! » Revue Espaces, No. 226, May 2005.
– Marcé, Xavier. « Les entreprises touristiques découvrent l’art du pricing, » Revue Espaces, No. 226, May 2005.
– Serlen, Bruce. « Hotel Rates Go Dynamic: Hilton, Intercontinental End Fixed Pricing, » Business Travel News [www.btnmag.com], October 18, 2004.
– Simon, Hermann and Kai Bandilla. « Maîtriser la chaîne des prix pour accroître ses profits, » Revue Espaces, No. 226, May 2005.

Catégories
Management

Cookies, vacations, and other choices…

Many people believe that consumer satisfaction in every conceivable area will automatically increase with the number of choices – but not Barry Schwartz. In his book The Paradox of Choice: Why More Is Less, he explains that the more alternatives people have, the more stressed-out and indecisive they become as they struggle to make the best possible choice. This belief was confirmed in a taste test, where those consumers who were offered a four-fold increase in jam choices registered a decreased purchase rate.

Who has the time to choose?

We are constantly dealing with choices. American supermarkets stock 285 different kinds of cookies, 21 of which are of the chocolate chip variety. The drug store has 40 kinds of toothpaste, there are 110 choices of TV (high definition, different kinds of screens, sound quality, etc.) – and it’s the same story, from insurance to jeans, and even for schools. And now, there is a dizzying array of rates and airline companies waiting to whisk you off to your destination, as well as hundreds of activities offered closer to home, on which people can spend their free time – if they have any left!

People associate choice with the independence, freedom and power they confer. It would seem evident that the opportunity to make more and more choices in every conceivable area would tend to increase consumer satisfaction. However, according to Barry Schwartz, the opposite is true: people think they want to have more choice but – the more they have, the less satisfied they are with the choices they make.

 MLa_biscuits

Who has time to look at the 300 different kinds of cookies on the supermarket shelves before making a decision? When faced with such overwhelming choice, the consumer will usually purchase his regular brand, without paying the slightest attention to at least 75% of the brands clamouring for his attention and his grocery dollars.

Too many choices negatively affect consumers

Human nature being what it is, too much choice makes us stressed out, unhappy and dissatisfied. Why? Because we don’t have the time or the information to make an informed decision. Suppose it turns out to be the wrong decision? Suppose I could have found something better? Will I end up regretting my choice?

Modern consumers end up putting more effort in making a decision, and less into enjoying the results. And while it’s true that choices made in the cookie aisle are not earth-shattering, the higher the amount of money involved, the more important the decision becomes. For example, how can anyone make an informed decision about which cell phone to buy? By the time you’ve compared the vast array of models, options and plans available, the technology will already have changed!

In this context, two types of personalities emerge: the « maximizer » (the one who makes every effort to find the best possible option in terms of price and quality) and the « satisficer » (who establishes criteria to reduce the number of possibilities and thus facilitate the decision-making process).

Schwartz maintains that it,s better to be a « satisficer », since his way of thinking leads to less dissatisfaction. After all, do we really need the best product in every single category, along with all the stress that searching for it involves? Or could we simplify our life by settling for a « good enough » kind of choice that we can live with?

What if we applied the « jam principle » to tourist products?

Living as we do in a society with extremely varied tastes, it is natural to suppose that if merchants limit their offerings, they are likely restricting their potential clientele. However, this statement is only partially true, for a greater number of products does not necessarily translate into higher sales, as illustrated by the following test, in which consumers were asked to taste different kinds of jam and then decide whether or not to buy them.

Close to one third of the people who only had to choose between six kinds of jam bought a product. When the number of choices was increased to 24 ? with the obvious intention of appealing to a greater range of tastes ? the purchase rate dropped to 3%! It seems that the stress of having to choose between so many products outweighed any interest the consumer had in acquiring the product.

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If more choice attracts more people, but fails to persuade them to buy, then merchants have not accomplished their primary objective of making a sale. Barry Schwartz believes most people are comfortable choosing between 6 to 12 different alternatives. Here are a few ways we can put into action the lessons to be learned from this paradox of choice:

  • Restrict choice. On your brochures or website, group products according to theme. Or, show only your top 5 to 10 products on the site, and provide a link where customers can go to see more. Try it; the results will surprise you.
  • Facilitate choice. Faced with a confusing array of products, the consumer needs help making a choice; the merchant who can quickly and simply convey the advantages or distinctive features of a certain product has made the consumer’s life easier and beat out the competition. The best price guarantee instituted by many large hotel chains to attract internet users to their sites is an example of this approach.
  • Provide positive reinforcement. Once the sale is made, many clients agonize over their decision. This is the time to deliver some positive reinforcement; provide your client with some solid reasons for his choice, so he has can counter his neighbour’s claims that he paid half as much for something twice as good.
  • Target specific markets. Faced with such a multitude of products and the difficulty of making a choice, the client must restrict his alternatives. Faced with a multitude of clients – and the difficulty of differentiating his product from the many competing products – the merchant must follow the same approach: he must focus his efforts on reaching the people most likely to be interested in his product, i.e., segment his clientele.

Sources:
– Hurst, Mark. « Interview: Barry Schwartz, author, -The Paradox of Choice », [www.goodexperience.com/blog/archives/2005_01.php#000106], 20 janvier 2005.
– Pollack-Pelzner, Emma. « You Choose, You Lose – Does the Freedom to Choose Make Us Unhappy? », The Yale Review of Books, vol. 8, no 1, hiver 2005.
– Schwartz, Barry. « Excerpt – The Paradox of Choice », USA Today, 16 janvier 2004.
– Solman, Paul. « The Paradox of Choice », [Online NewsHour], 26 décembre 2003.