Statistics show that online media will continue to reshape the travel industry (first of two parts).

Consumers still seem resistant to buying cars, groceries or furniture online. But travel and financial services are easy to buy digitally, and consumer attitudes and behavior in 2004 are being shaped very differently as a result of online media. Let's look at travel and at airlines in particular.

"There is now near-perfect information for the customer. Products, amenities and prices can be compared on a vast 'super-market' of unprecedented choice," says Bala Subramanian, senior vice president of brand integration at Hilton Hotels. Subramanian, whose responsibility spans Hilton, Embassy Suites, Hilton Garden Inn, Hampton Inn, Homewood Suites and Doubletree says, "While share of shelf-space and customer facings is important, rising above the noise to increase customer relevance and making an emotional connection without resorting to discounting is a challenge."

Joel Chusid, formerly a vice president at American Airlines agrees, "Airlines have become a commodity, and must strive to differentiate their products. Product differentiation is important, and one can point to differentiation in First Class long-haul services, but also in short-haul domestic routes, a la Jet Blue and Song with state-of-the-art entertainment options. But these are not necessarily drivers of choice, at least not as strong as price. However, building brand identity, a reputation and an image is still important."

Price, price and what else?

Lower commissions on one hand and lower average fares on the other are squeezing independent travel agents, small and large. Caught in this vise, travel agents are finding that increased activity in 2004 is not translating into increased profits. Price has become the most effective generator of business for airlines, but airline pricing defies logic, and has nothing to do with distance. I was once able to fly from Los Angeles to London and stop in New York on the way back, for half of what United wanted me to pay for Los Angeles to New York roundtrip.

Chusid, who is now managing director of Americas sales and marketing for Shanghai-based China Eastern Airlines says, "Historically, airlines ran fare sales in newspapers, or even on TV and radio, but that's less common now, as the Internet allows for such dynamic changes. Just putting a low fare in the market does work, since sophisticated monitoring systems pick actions up quickly. But most consumers don't have their 'radar' out, so it's important to place the price in targeted places, such as the Internet travel agencies and on one's corporate Web site, while at the same time minimizing cannibalization, or the dilution of higher fares that would otherwise be charged."

The role of online

At Singapore Airlines, Michael Stellwag, manager of e-marketing, says, "Online is used as a strategic vehicle to further strengthen the Singapore Airlines brand to specifically targeted customer verticals. Secondarily, there is a tactical element used to drive customers down the purchase funnel on our singaporeair.com/usa Web site."

Stellwag has seen rapid evolution in his tenure at this large carrier. "Airlines have begun moving beyond the banner, looking at more effective ways to reach their target," he says. "This has led to leaps in the growth of contextual and search engine marketing. The banners that remain have become smarter, through media-richness and contextual targeting."

Research from Dynamic Logic's MarketNorms database over the last five years clearly documents the impact of online media in changing travelers' attitudes. The bar graphs show the brand lift created by online advertising among all five metrics tracked in the normative database. Travel as a whole -- and airlines as a subset of travel -- do reasonably well compared to the overall success of 1,400-plus campaign studies by Dynamic Logic.

Source: Dynamic Logic MarketNorms Q4/03; Overall n=1,234,195, Airline Campaigns n=23,710

Let's look further at the impact of rich media on travelers. Rich media can be Unicast, Eyeblaster, Flash, dHTML, or anything with sound or video (essentially anything other than a GIF or JPEG image). It is easy to see how Stellwag and other airline marketers are partial to rich media, since it vastly outperforms traditional banners on every branding metric. The differences on lower-funnel metrics, such as brand favorability and purchase intent, are particularly pronounced. Of course, rich media typically costs more than standard banners so smart media buyers are still able to coax cost effective results from banners alone. It is worth noting that these particular MarketNorms graphs don't take into account differing site placements and other factors that could affect brand lift.

Source: Dynamic Logic MarketNorms Q4/03; Airline Campaigns Non Rich  n=16,052;  Airline Campaigns Rich  n=6,320

Aggregator vs. supplier

As the power of traditional travel agents has waned, it was expected that online sources such as Travelocity, Expedia and Orbitz might rise to replace them. Travel marketers tend to have a love-hate relationship with these intermediaries.

Chusid says, "Everyone has their own favorites. Frequent flyer program addicts will often check their preferred vendor sites first, but most people shop around. I have found Sidestep.com to be quite effective in searching multiple sites simultaneously. But some vendors are trying to get their customers back from the middlemen, and are willing to match them or offer prices to beat them, such as Hilton does with the hotel sites."

Hilton's Subramanian says, "These aggregator sites provide a useful complement to our efforts with loyal customers that we have a relationship with, but their costs and commissions are substantially higher, so our hotels use them primarily as a source of distress bookings. These companies are also resourceful in building their own brand identities and that has the potential long-term of challenging the established travel brands of suppliers."

Stellwag agrees. "Aggregator sites such as Orbitz tend to be great for shopping, but supplier sites (airline and hotel) tend to be great for buying. We see it time after time. Consumers know that aggregators provide the richest information on multiple suppliers, but that the best airfares sometimes hide on the airline's Web sites."

Monday: The effect of age and what the future holds for travel marketing.

Gunjan Bagla is a mechanical engineer and entrepreneur who has been active in marketing and media for over 15 years. He is presently responsible for Dynamic Logic's business with movie studios, automotive companies and others in the Southwest. His writing has appeared in Direct Marketing, iMarketing News, Silicon India, Channel Seven and ClickZ.