Monday, 20 January 2014

Dynamic Packages - A Fallacy

As you know we are a meta-search for tour packages in Singapore called www.flocations.com.  Our goal is to have the largest database of tour packages in SEA, which we have already achieved.  This means that we have taken both online and offline packages from some small local agencies and also used APIs to take packages from larger incumbents.  However, most incumbents don't have their own packages per se.  They have what is known as dynamic packages which is a flight and hotel combination that, if purchased together, the user receives a small discount.  Dynamic packages are very different than traditional pre-made package that are sold off-the-shelf at a local tour agency.  

After running tour packages for a while using Asiatravel.com, Expedia and Wego, I have some internal knowledge that I would like to share.  This is a lengthy writeup but I guarantee there's something in here that you don't know about, especially about tour packages and the markets that purchase them.

1.  Brand Affects Conversions - We have both Asiatravel.com packages on our site and our own "Dynamically" created Wego Packages (we used Wego API to pull out a cheap flight and match it with a recommended hotel then make it look like a ) -> Even though the Asiatravel.com and Wego Packages are both rank the same, ie, exact same in appearance and "page position", Asiatravel.com packages generate way more clicks (10-20x more) than Wego packages.  
We think it's a brand thing amongst our audience as our market tends to be  more in-tune with local offline brands.  We haven't found a good way to test this hypothesis.

2.  Package Purchases are done Offline - We have used both Asiatravel.com and Expedia APIs to access their own Dynamic Packages -> Click Volume is quite high for these packages but conversion to sale for us was below 0.1% (the advertised conversion-to-sales was as high as 2%). 

We speculate that low conversion from our traffic was due to a mismatch between dynamic packages and purchase intent from traditional package buyers (the flocations audience).  Read below for an attempt at an in-depth explanation.  Essentially, traditional package buyers will not buy online packages.

Traditional Package Buyers vs Online Package Buyers:
Since Asiatravel.com & Expedia are established OTAs, have packages and thrive on online sales, we were expecting a higher conversion-to-sales rate for their inventory. Perhaps even half of the advertised 1-2% conversion-to-sales that they are experiencing on their own domains.  We are still speculating on why our target audience was not converting on these OTAs, and our hypothesis is that Package Buyers is not one group but actually composed of two, mutually exclusive groups: "Traditional" Package Buyers and "Online" Package Buyers. 
  • Traditional Package Buyers make their purchases offline.  This group are the 35yo+ with families or young couples that are used to buying tour packages from the travel agency down the street.  These are the original travellers which purchase packages offline.  They might not have credit cards nor have the trust to do a purchase online. In fact, this group's travel requests are so expansive (visa requirements, large families, children of different ages, dietary/religious restrictions, payment issues) that an online sales system can't cater to their needs.
  • Online Package Buyers - online package buyers are not actually package buyers at all.  In fact, we think they are your regular, independent online buyers that never have (or no longer) purchased traditional packages.  However (and this is where there is a misunderstanding), they get falsely defined as package buyers when they happen to purchase a flight+hotel combination on the same OTA or system.  These Online Package Buyer never bought a package in the traditional sense, they just happen to buy a flight and then got "up-sold" to buy a hotel which online people define the Hotel+Flight purchase as a "package".
Traditional Packages Buyers and Online Package Buyers are mutually exclusive and are a completely different markets, but unfortunately, the industry has slotted them in the same definition. In other words, Traditional Buyers will never buy an online package and Online Buyers will never buy a Traditional Package. 

We believe that Traditional Package Buyers do have a chance to convert to an Online Package Buyer and vice versa, but that's another topic.  

Hence, we recommend that dynamic packages should never be promoted to Traditional Package buyers. Dynamic packages should only be used to upsell a previous purchase (ie, you just bought a flight, now buy this hotel for 10% off).

Conclusion: Dynamic packages should not be treated as Tour Packages in the traditional tour agency sense nor can they expand your market to reach a traditional tour package buyers.  Dynamic Packages only exist if an individual online travel buyer happens to purchase hotel+flight on the same OTA or is a travel purchase that gets "upsold" an additional travel component.  The users that buy Dynamic Packages are not the same user that buys Traditional tour agency packages and these two groups are mutually exclusive.  

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