Why Discounting Won’t Work to Survive this Recession

Great article by Anna at Tourism Internet Marketing – what are your thoughts on discounting? Have you tried it? What were the results?

The tourism industry has often boasted of its resilience and ability to rebound after drops in demand caused by such negative factors as 9/11, SARS or natural disasters. The adaptive response most frequently deployed is generic discounting. But does this serve the individual business or the tourism community well and will it work this time?  I believe the answer is NO and for the following reasons:

1.       We’re not looking at a temporary blip in demand. Life and business, as experienced between 2003 and Q3 2008 will not return to normal. The growth in demand for discretionary services was fuelled by cheap credit, cheap energy (until 2007), and asset inflation – all unsustainable illusions based on a denial of environmental realities. Expansion in capacity (airline seats, condominiums and ocean view apartments, whether sold in wholes or fractional units, hotels and restaurants) was all based on an over estimation of demand by suppliers and consumers alike. Now only the airlines have the option to remove excess capacity from circulation by parking their vehicles in the desert. As identified by Time Magazine in February 2009 , consumers shop very differently today. As indicated by McKinsey as far back as 2007[i], boomers won’t be spending as freely after seeing their assets (first homes, second homes, pensions and equities) plummet in value; and the kids, who were supposed to be filling a major labor shortage due to retirement of the boomer workforce, will face tough competition from people old enough to be their grandparents.

2.       We are looking at fundamental changes in the nature of demand; the way consumers make decisions and respond to brand messages and the way suppliers gain their attention. Not only do consumers regularly turn their backs on advertising, they worry more about the opinions of peers or society. Sean Gregory’s article in Time identified three kinds of consumer in terms of their willingness to spend right now. In short:

  • Those that can’t (they’ve lost their job or income)
  • Those that might but won’t (they fear they might lose their job or income or are simply being prudent/cautious)
  • Those that could but still won’t (because they don’t want to send the wrong signal to peers)

3.       We are looking at deep and major changes in the source of travel demand and businesses must be more granular and refined in their approach. In their 2006 article, McKinsey showed how price sensitivity varied by a factor of 13 across regional markets and even by a factor of 3 across zip codes in the same cities. In other words, consumer behaviour cannot be predicted by macro demographics, psychographics and post code but by individual circumstance, perception and attitude. Individual consumers are demonstrating their individuality. Destinations that continue to rely on macro economic models to prioritize top ten performing countries will miss out big time. This is the time for more in-depth research into customer perceptions and motivations not less.

4.       We are also looking at fundamental shifts in the way consumers spend their free time (internet usage now exceeds TV watching for many) and the way customers are reached and influenced. Furthermore, the relative cost and ROI of various distribution channels can vary enormously as illustrated by McKinsey’s research[ii]:

anna-post1.jpg

In this context, blanket reductions in marketing spend across the board combined with a reluctance to change channels would spell disaster.

At a time when customers have ceased to trust brands; when they favor the recommendations of friends and peers over the exhortations of sales personnel; and when they can research a producer’s claims or compare supplier’s prices on their mobiles as they walk to the check out stand, loyalty cannot be bought. It can only be earned through assiduous attention to detail, through rigorous honesty, through genuine respect for the customer’s intelligence and through genuine gratitude for past business. Tough but true.

To read the full article visit:

http://tourisminternetmarketing.com/featured/why-discounting-wont-work-to-survive-this-recession/

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