pwc.com.au Distribution 2020: Situational Analysis Tourism Australia Distribution in Australia’s international markets: Situational Analysis March 2013 Final Report Key Findings There is no one agreed definition of ‘tourism distribution’ across both industry participants and government bodies. Some viewed the term ‘distribution’ to be the interaction of customers with travel agents and other traditional intermediary, or third party channels. In this context, communicating directly with customer was thought of as ‘marketing’ activity. The other view was that distribution encompasses any action or channel that connects customers with tourist products, be it through direct communication or through third parties. While the general idea of linking a customer through to a travel and tourism product is a consistent theme across both these views, we have adopted the broader all-encompassing definition, as this better aligns with changes in how consumers are purchasing travel products, and how industry has responded to these changes. In this study we are seeking to: understand the relevance of different tourism distribution approaches now and in the future across Australia’s key holiday markets. review the current structure and activities of Tourism Australia and state tourism organisations (STOs). While specific data across sources is fragmented and hence clouds the view of the future, the key findings of our initial review, consumer survey and stakeholder interviews are: There is a clear trend towards a greater role of online sources for identifying Australia as a holiday destination, and then planning, booking and subsequently sharing holiday experiences. Indeed, the identification of Australia as a destination, and the planning of a holiday, increasingly is undertaken online. Despite this clear trend, the current level of use of these digital distribution channels differs significantly across the customer purchase cycle (i.e. the process that a customer goes through in buying a product: dreaming; planning; booking; destination; and sharing) by market (see Exhibit 1 — a detailed market analysis is available in Appendix D). – digital disintermediation is often driven by the presence of online travel agents (OTAs) and airlines, particularly low cost carriers (LCCs), offering direct airline and other product bookings from a particular market. – digital booking is less prevalent in emerging markets where the online penetration, infrastructure and trust that underpin this digital behaviour lag. – stated and observed customer behaviours suggest a slower process of adjustment to use online methods for booking long-haul travel to Australia. Conversely, ‘game changing’ technological advancement that allows greater customisation and simplification of booking long-haul travel may significantly accelerate this process. Hence, despite this trend towards increased digital engagement, traditional distribution channels (e.g. retail outlets) remain important. Indeed: – in mature markets, the levels of internet use for planning and booking appear to have reached a plateau. Tourism Australia PwC i Key Findings – while 46% of total holiday travellers to Australia are booking some aspect of their trip online prior to arrival, retail outlets and the associated distribution infrastructure play a role in converting the other 54%.1 Stakeholder consultation suggests that this level is as high as 90% in emerging markets and for key purchases such as airfares and tours. Survey results from ATE 2012 reinforce these findings, with industry expecting only minor changes to this over the next 3 to 5 years. – some companies that experienced rapid growth with a 100% online presence and booking system, are now actively expanding into traditional wholesale and retail channels as their next avenue to market growth. Discussions with stakeholders point to some key themes which will shape the subsequent distribution strategy, including: – general consensus that Australia should go to market under one banner, that return on investment could be enhanced through greater cooperation, and that there is lack of clarity around roles and responsibilities which is leading to duplication. However, while government agencies at all levels and industry perceived a duplication of resources and expressed frustration at this, their current role was not perceived as contributing to this duplication. Rather, their role was viewed to fit naturally into the customer purchase cycle to fill a perceived gap left by another layer of government. – friction in the relationship between Tourism Australia and various State Tourism Organisations (STOs). From a state perspective this stemmed from what we perceived as a ‘coercive’ attitude adopted by Tourism Australia and the lack of greater control over their product’s message and content when used internationally. From Tourism Australia’s perspective, this friction stemmed from a perceived duplication of aspects of their role by states, leading to inefficient use of resources and undermining of the strength that can be associated with going to market under a single banner. – current spend by Tourism Australia and STOs matches their perceived primary role in the customer purchase cycle. Tourism Australia’s spend is heavily focused on communicating directly with the customer, or communicating with the customer in partnership with industry (trade co-op). STO spend has a heavier focus on communicating with customers in partnership with industry and industry engagement through trade development, events and missions. 1 Tourism Research Australia, International Visitor Survey (IVS), March 2012. Tourism Australia PwC ii Key Findings Marketing budget data (2011-12, excluding ATE and ‘other marketing’) 100% 9% 7% Events & missions (trade-related) 90% 17% 80% 19% Trade development (training, famils) 70% 11% 60% 49% 50% Trade co-op (brand advertising, campaigns, events etc) 40% 61% 30% PR, IMHP & Media famils 20% 20% 10% Consumer marketing (events, 7% promotions and advertising) 0% TA All STOs Source: Tourism Australia and STOs. Note, data for two STOs has been excluded from this aggregate analysis due to inconsistency in the data submitted. This exclusion is not deemed to significantly change or alter the findings contained within the analysis. The Australian Tourism Exchange (ATE) remains a valued mechanism by which Australian product can connect with overseas channels. However, there is a need to reduce the cost of the investment, both for Tourism Australia and participants, while seeking to maintain the value generated from the ATE. In this regard, Tourism Australia should explore options including: – reducing the length of the ATE (a change adopted for 2013) – merging the East and West exhibitions (a change adopted for 2013) – opening the ATE to consumers on the last day (acknowledging that this may be of limited value to the host jurisdiction) – contracting out more of the planning and operations of the ATE, acknowledging the need for Tourism Australia to still ‘control’ the ATE – doing away with the expectation that the ATE must necessarily rotate around Australia. The Aussie Specialist Program (ASP) is seen by many industry participants as a valuable mechanism to attract tourists, although somewhat resource intensive for STOs to maintain. That said, we are concerned that there are limited metrics to measure the volume of sales generated by individual ASP members, and hence the potential to target and reward ASP members to increase sales is limited. The Australian federation creates some difficulty in the role that each level of government plays in international tourism. Applying the rule of subsidiarity (that the power to implement a policy should reside with the lowest tier of government where it is practically possible), we suggest: – the Commonwealth should be principally responsible for the development and maintenance of Australia’s brand image (i.e. the dreaming phase) – the development of domestic industry-wide initiatives with obvious spillover impacts resides with the Commonwealth, with the states playing a supporting role Tourism Australia PwC iii Key Findings – the development and/or support of local specific tourism products should be devolved to the lowest capable level of government. – the stimulation of demand for specific tourist destinations within Australia is ultimately the responsibility of STOs and RTOs, but should be done consistently with the broader national tourism strategy. In this respect, Tourism Australia should have carriage for leading a more coordinated national distribution strategy, taking a proactive role facilitating STO, RTO and industry activities. Tourism Australia PwC iv Exhibit 1 – Use of internet and online channels by market Dreaming Planning Booking Destination Sharing Online Offline Internet Travel Friends & Guide Any part Airfare Accommo Did not use Internet Used Internet Would not Would share agent relatives books of trip online dation in Australia in Australia share using using social online online social media media China Japan South Korea Singapore India United Kingdom Germany United States Indonesia Brazil Source: TNS and PwC analysis from Tourism Research Australia, International Visitor Survey (IVS), March 2012. Tourism Australia PwC v Contents Key Findings i 1 Introduction 1 Part A Background, context and trends 3 2 Understanding tourism distribution 4 3 Broad trends 9 Part B Analysis of current distribution 16 4 Understanding the customer 17 5 Distribution strategies by industry participant