Prospects for profitability

Mind your Ps and Qs (21) Part 2

Please re-read Part 1 of this article so as to put this second part into context.

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Ignorance of the complexities of visitor behavior (even what constitutes a trend) is the single greatest strategic risk facing individual businesses and destinations today. Indeed, changes in visitor priorities, variations in their preferences, wealth, and experience with products, services, and destinations are the most important triggers of new patterns in travel and tourism, as well as new value creating (co-creating) opportunities. The key question to answer is: How is your customer changing?

Given the expansiveness of tourism markets, many companies are becoming far more selective in determining who they serve and how much they want to invest in those customers. This awareness stems from increasing variability in the costs-to-serve customers, evidenced through declining gross margins and a recognition that not all visitors are profitable.

Visitor profitability, however, is a relative concept. When capacity utilization is low during seasonal lulls, every customer is valued because incremental volume helps cover fixed costs. To mount a reversal in declining profitability, however, companies, as well as destinations, are rigorously attempting to micro-segment their visitor base, not just to determine their true profitability, but to even-out the cycles of demand. This approach ultimately will turn into a quest to identify every enterprise as a market-of-one, every customer as a market-of-one…a quest that is likely to intensify as artificial intelligence or generative AI is used to mine valuable personal data and personalize customer service.

However, situations do exist where large customer segments (especially purchasing groups) wield sufficient bargaining power, allowing them to demand lower prices and/or higher utility. On the other hand, astute organizations will always attempt to position themselves in more favorable competitive positions, giving customers little choice but to pay premium prices.

Achieving such favorable situations occurs when organizations and destinations work tirelessly to redefine who their customers or visitors are, or, more precisely, who they want to be. Provided through psychographic profiling, as in this Canadian study of the Explorer Quotient (EQ) and finessed through the application of EQ (Emotional Quotient or Intelligence), relationships with guests, clients and customers can be manipulated and enhanced.

Indeed, when what’s on offer is branded as a fashionable status symbol and endorsed through recommendations by advisors, influencers, and indirectly involved decision-makers, organizations and destinations are more likely to prosper. But a cautionary tale must be told.

We take for granted that communities-as-destinations should be accessible and open to people from all walks of life. When deliberate actions are taken to appeal primarily to high-income, big-spender, fastidious luxury-seeking visitors, such exclusivity drives out inclusivity.

Moreover, a destination`s risk profile can intensify especially as they age, fail to remain au courant, don’t diversify, and become dependent on income streams from a single market segment. This problem intensifies when the demand for auxiliary and complementary products and supplies skews toward to imported goods and services, thereby forcing localized, economic multipliers to plummet and tourism developments to destabilize local economies through inflationary pressures.

To differentiate themselves, countries, cities, communities and regions are jumping onto the destination or place branding bandwagon. By selling a carefully honed image, message, and promise, customers and visitors are being encouraged to shift the typical buying behavior - ‘seeking the best available price’ - to choosing the one that offers the most or best value.

Branding efforts that focus on identity and distinctiveness are designed to encourage preference and establish relationships, even a sense-of-community. Doing so allows for the creation of loyalty programs that offer bundled packages and favorable price positions that lead to better value and higher profits.

The move to profit multiplier models is becoming increasingly common among major brands. Consider this example in which Four Seasons Hotels and Resorts recently signed a partnership with the HBO streaming service to keep future seasons of The White Lotus hit show frolicking throughout their hotels.

Travel and tourism have always enjoyed close links with cultural phenomena, whether related to literature, cinema, theatre, festivals, events, sports, music, health, food, beverages…a lesson that is being further exploited through the offering of specialized and innovative, next generation products/services/ experiences (identified through opportunity portfolios as well as the careful segmentation of markets, passions and interests).

Similarly, profit multiplier platform strategies are being successfully employed by companies like Disney and Virgin who for years have used them to develop and interlink business systems across complementary and differing product and service offerings.

Platform strategies, however, aren’t just relevant for organizations, but for entire communities. In effect, all destinations operate as platforms, though it is amazing how few platform strategies have been successfully developed for tourism by placing and linking all their economic, industrial, cultural, retail, religious, and nature-based assets and networks in such ways as to optimize tourism’s wide variety of potential offerings and ease the flow of information…all part and parcel of becoming an intelligent community, as has been accomplished in Australia`s Sunshine Coast

As it now stands, far more could be accomplished if efforts were made to create more robust domains through that`s been called “sur/petition” (beyond competition) and portfolio platform eco-system strategies that might offer unique solutions to value creation opportunities for customers and visitors; improve tourism’s systems and correct their dysfunctionalities; including shifting the emphasis from the functional value of tourism’s offerings to their knowledge improvement and life-affirming value.

At this point, it is useful to be reminded of why so many of the major accommodation chains have become, and remained, so dominant. Most have divested themselves from owning hotels and moved to specializing in providing branded managerial services. Consider Marriott: Not only do they offer the largest and most compelling collection of brands but offer unparalleled turnkey management services that turn assets to essence.

Perhaps the same approach applies to destinations. They represent a collection of brands with many trying to do their do best to create wealth and well-being in accord with a universal set of criteria. While the criteria, as outlined, seems in keeping with what may broadly be deemed as ‘profitability’, I am of the opinion that it falls short of a thorough evaluation of what managing communities-as-destinations and destinations-as-communities should be about…determining the extent to which all stakeholders are enabled to create and capture value from tourism for themselves.

In sum, the ability to create and capture value and achieve profitability is totally dependent on (1) “doing what you are best at” and “doing what matters” for customers/communities/citizens/organizations while simultaneously focusing on (2) designing and building the organizational systems that take their cue from being both customer/visitor centric as well as community/destination centric.

Functional and technical skills will always remain foundational skills, but how well and appropriately they are applied depends not just on the quality of the managerial skills and values in play and how they are shifting (must shift) from strength to strength to strength, but making the effort to really identify and challenge the assumptions that govern our behavior and decisions.

Whether at organizational or destination levels, it’s becoming increasingly evident: Travel and tourism are at a crossroads. Given what is happening in the world, the role of leadership and management for the new world of work needs reinvention. The complexities and encumbrances that are challenging our ability to create and capture value need updating. Profitable bottom lines that please all stakeholders need to be prioritized. If they are not given the attention they deserve, there can be no win-wins.

It all starts with you, “the man (and woman) in the mirror”, and your efforts to harness the power of others, a destination`s tourism cluster, including its entire workforce and citizen hosts.

Participatory action that puts Destinations-in-Action,