Blog homeYesterday Yen Lee, from Uptake (the travel search engine formerly known as Kango), stated (as quoted by Travolution)
“What’s surprised me is that when there are so many really strong brands in Europe, we’ve spent 80% of today talking about price. People don’t go to Barcelona because it’s cheap. They go because of what they can do there. Think more about the experience, rather than the cost.”
[Travolution Summit 2008, London]
Jo Buhler, in a comment on the Travolution blog, replied
“Amen to that, Yen!
It’s the industry that keeps shooting itself into its collective foot with this price focus, which has dominated the discussion since day one of online travel and then being surprised at the resulting mass media coverage that, of course, hammered away at this as well. When does the smart benefit emphasizing marketing finally kick in……?”
Yeah I am not going to get into a big “price vs benefits” discussion - but I thought I would highlight an economic theory that relates to this - and explains why price is so important. The theory is called price disperson.
Price dispersion is variation in prices across sellers of the same item, holding fixed the item’s characteristics. If price dispersion didn’t exist (and everyone sold at the same price) then there would be no reason to comparison shop and consumers would always buy from the same places, and agents profits would stagnate. New online entrants would also find it difficult to break into a market.
i.e. suppliers create price instability on purpose - and actually this benefits both the “agent” and the supplier. So lets stop worrying about it and get on with making great products, websites and systems!
In conclusion, actually these price differences are fairly fundamental so the successful operation of the travel industry.
And before anyone thinks I have suddenly become an academic (!) I am “borrowing” concepts from this article on Slate. Thanks should go to Hal Varian (an economist at U.C Berkeley) for these findings. Should I stick to technology? Umm.
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Alex -
what you describe is true in different industries at different times and these days you can see it working so well in FMCG where the same food/drink is repackaged and resold in a number of different flavors/channels/price options to avoid direct price comparison.
In online travel we are getting there. For the past 10 years, online travel in a nutshell has been a relatively simple story of automating processes (web bookings), cutting intermediaries (direct links and contracting), eliminating inefficiencies (easier price comparison) and information asymetries (reviews). Price dispersion exists big time, but as a side effect more than a calculated move.
The upcoming trends and technologies that some call 2.0 (and some “innovators” already call 3.0) will see our industry getting into more value based marketing, brands, individual customization on one side, mass volume/hard discounters on the other, and niches in between. Everyone will try to avoid direct comparison and commoditization, and will strive to innovate in all areas.
[OMG I speak like a consultant! What have I become, I am supposed to be an engineer!]
Cheers