Case Study: Retail Travel Agency and Franchise

Business Needs: Growth of retail sales as well as growth of the franchisee footprint
Primary Contact: Business owner, senior management team, two key franchise owners
Engagement Duration: One month including several working sessions plus implementation time

One of our clients approached us looking for ways to differentiate themselves in the retail travel market. Over the past 10-15 years the travel agency business has moved largely online which has drastically changed the cost and revenue model of the agency business. Large competitors such as RedTag.ca, SellOffVacations.com, and Expedia have implemented easy to use online gateways for retail travel which shifted the work of research and booking from the agency to the customer, and therefore reduced the cost of delivery of the services.

While our client had developed an online sales presence and was moderately successful in self-booked sales through their online channel, they were looking for ways to differentiate themselves from the competition. They had some significant differences from many of the other agencies out there which they sought to leverage into advantages in the market. The biggest difference was that this agency operated primarily as a network of independent home-based sales agents across Canada who had purchased a “franchise” of the business. Each of these independent owners developed their own customer clientele and sold the products available through the agency exclusively.

While the agency had seen significant growth in its agent population, it felt that the value proposition for both new agents as well as for customers was getting somewhat lost as they tried to compete in the price conscious retail travel market with a “legacy” high touch / high service model and they wanted to identify new ways to:

  • Differentiate themselves with customers both online and through their franchise agents
  • Support agents to build their businesses with the right tools, marketing, and products
  • Attract new agents to further grow the retail footprint of the business

The Current Strategy and Model

When we were engaged, one of our first recommendations was to go through the Business Model Canvas to understand the “as-is” model and approach of the organization which could serve as a baseline of common understanding for what the current state of the organization and its position in the industry. The resulting canvas looked like this:

At this stage we had a good collective understanding of the business and where it fit within the competitive industry. The working session where the Business Model Canvas was developed was a spirited conversation with lots of questions and discussion around the components and where pieces fit. It was also (as it often is) enlightening to the business owners themselves as they were forced to think about their business more carefully and break down the component pieces. Very often we find that just this first session can have an enlightening effect on owners and managers as they realize some of the hidden opportunities that were hiding in plain sight.

Once we had agreement on where things sat today we looked at the output in order to determine the best path forward. We could take a “Blue Ocean” approach to the work where we would look to identify niche markets where the agency could focus their attention and service development on or we could look to use more traditional business analysis tools to identify opportunities for growth within the existing market and customer base.

Because the travel industry and specifically the agency industry is significantly constrained by a fixed number of travel suppliers (aggregators, booking systems, travel operators etc) and commodity availability of all of the standard products through both discount (online) and premium (retail boutique) channels there didn’t appear to be a realistic “niche” opportunity where a blue ocean approach would bring benefit. It may be something we look to in the future, but with what we know about the landscape it would likely carry a much higher level of risk and lead time, and our client was looking for near term opportunities for growth.

Business Analysis Tools

Five Forces Analysis

In this case then, we took a traditional approach to the analysis and leveraged the Five Forces model and a standard SWOT analysis to examine the market and look for insights. The Five Forces model output look like this:

Threat of New Entrants: Medium Capital cost of entry has shrunk in the past few years, but regulatory standards remain high and are climbing. Customers are wary of new brands, but several new entrants have been successful in recent years which would seem to indicate that this barrier is lowering as well.
Threat of Substitutes: High Almost all products and services offered through the company are available through other discount agencies, premium agencies, and in some cases direct from the suppliers themselves. There is virtually no switching cost to consumers to using any of those services.
Industry Rivalry: Medium There is significant rivalry and competition between the large discount agencies (RedTag, SellOffVacations, etc) but they do not compete directly with personal touch agencies. There are many small regional and individual agencies who provide personal touch service under their own local branding who would be the primary competition for the home based agents. The personal touch market continues to shrink as customers become more comfortable booking their own vacations online.
Bargaining Power of Customers: High Highly segmented market with many different options available to consumers. Low product differentiation as most agencies carry the same suppliers and vacation brands. Low brand affinity with retail customers. Limited successful loyalty programs at the agency level – most loyalty programs exist at the supplier/provider level which is available through any agency.
Bargaining Power of Suppliers: Low Many alternative providers of the same properties and vacations. Lots of alternative properties and service offerings available. Low switching costs to agencies as most bookings are done through aggregators and central hubs which offer all suppliers products in one place. Airlines have removed commission fees and other providers have reduced commission fees.

Based on the knowledge gained from our Business Model Canvas as well as the discussion that followed around the Five Forces we are able to quickly identify that the two biggest threats to the business are the threat of substitutes and the bargaining power of their customers. The industry has become very commodity based over the past several years so there are lots of alternatives for customers to book their trips, and with the emergency of discount online agencies there is a significant risk of customers taking advice and input from agents and then electing to book their own vacation at a discount online.

Another observation that came out in our discussions was the increased pressure on pricing which had come about due to economic concerns, recession concerns, and job security concerns of their customers. People were looking to spend less on their vacations and were looking for any additional discounts they could find to improve the overall cost of their vacation.

SWOT Analysis

Based on the understanding we had worked through to this point we set to building out a SWOT (Strengths, Weaknessess, Opportunities, Threats) matrix which would help us to focus our idea generation on some areas where we could leverage our strenghts and offset our weaknesses. The SWOT analysis was done together with our client as well since we believe that by working together we a) improve common understanding of the models themselves, b) improve common understanding of the business challenge, and c) help provide foundational skills and capabilities to our clients which they can use in the future to deal with other challenges in their business.

SWOT Output:

Strengths

  • Broad agent network and experience
  • Strong supplier network
  • Strong on-line channel user experience
  • Shared CRM approach
Weaknesses

  • Variable customer base
  • Seasonality of primary offering (all-inclusive)
  • Integrated CRM supporting systems
  • Common customer view across franchises
Opportunities

  • New segments (retirees, off-peak travellers, millennials)
  • New destinations (adventure travel, non-inclusive destinations)
  • Make-your-own products (reduce reliance on traditional tour operators)
Threats

  • Low brand loyalty
  • Removed airline commissions in ticket prices
  • Substitute and commodity product offerings
  • Economic and cost perception pressures

Confrontation Matrix

From our SWOT analysis then we were able to drive idea generation around strategic opportunities leveraging the confrontation matrix approach. In that approach we use the output of our SWOT analysis and then look at specific strategies by combining components of the matrix:

  • Attacking Strategies: Strengths + Opportunities
  • Strengths Building Attack Strategies: Strengths + Threats
  • Defensive Strategies: Weaknesses + Opportunities
  • Strengths Building Defense Strategies: Weaknesses + Threats

Ideation and Future Strategy Development

Working through each of these lenses we were able to generate hundreds of ideas in one working session leveraging our ideation facilitation. Not all of these ideas were great ones, but they all triggered conversation and thought. Because we create a non-judgmental environment in our idea generation sessions the ideas were able to flow and build on each other so even some of the ideas that weren’t great or were way out there helped to build and create new ideas which were more achievable. Ultimately through the generation and further refinement workshop process we were able to identify 3 key strategies that we wanted to move to implementation:

  1. Implement a common CRM and Knowledge Management system to provide common shared knowledge about specific properties and vacation options, better communication between agents and franchise owners, and a more consistent and measurable CRM approach to customers which could be improved systemically over time.
  2. Implement a loyalty program for customers of the agency which served to motivate them to book their trips through the agent rather than an online discount portal as well as to encourage repeat business.
  3. Leverage the new CRM system and work with non-traditional vacation providers to build new off-peak business and attack new markets with non-traditional vacation options.

The Future Strategy

Finally we returned to the Business Model Canvas to visualize the impacts of these new strategies as a foundation for our implementation planning. Layering our new strategic priorities over our existing canvas we can see the target future state for the organization:

With this visual understanding it is easy to see the areas where we needed to work with our client to build out implementation plans, metrics and measurements for success, and support their execution towards growth.

The Results

Ultimately we were successful in helping our client:

  • Implement a new CRM system which provided Knowledge Management capabilities including the migration of their existing data into the system and the remote training of all of their franchised agents on the new system (which drastically simplified their own activities as well).
  • Leveraged their existing data and the structure of the new CRM system to generate a new focused marketing approach targeted at specific new segments of customers and around non-traditional vacation offerings (off-peak travel for retirees, experiential travel for millennials, and seasonally focused campaigns for families with budget conscious non-traditional vacation recommendastions).
  • Explored loyalty program offerings which could help provide motivation to customers to book through the agency and return for future trips. Ultimately the decision was to hold off on implementation of the loyalty programs due to the additional cost pressures of the program on an already thin margin structure for vacation revenues. The idea has been parked (not killed) and will be revisited as part of our annual strategic planning engagement with them.

The results were fantastic. Through the new system the agents and franchise owners expressed some significant gains:

  • Much easier to manage their clients and complete the required information to meet regulatory needs (not even the benefit we were going for, but a nice additional benefit to the organization)
  • Campaigns were more unique and aligned to new opportunities so agents felt like they were able to compete less with the mainstream travel providers on peak business
  • Much better ability to share knowledge and information about specific properties – what was good for families, what suited retirees, where was a good place for millennials looking for nightlife, what was under construction? With better knowledge the agents were able to improve the value they were providing their clients and further create loyalty.

While we can’t share the raw revenue and profit gain figures with you for confidentiality reasons rest assured the results were extraordinary and were multiples more than the cost of the engagement and implementation of the strategic changes. Seasonality was flattened, revenues were up, and repeat client business was significantly improved.

This simple example leveraging some of our core tools and our facilitation and leadership is something that we can and have repeated in many businesses and industries. If you are looking for untapped growth opportunities or ways to strategically grow your business contact us today. We would be happy to discuss your business and structure an engagement that meets your specific needs.