Nine strategies to win in the China travel industry

By 2030, 49% of all passenger traffic globally will be within Asia-Pacific or between the region and the rest of the world, according to a study by Boston Consulting Group and TripAdvisor. The study also outlines nine guidelines for travel brands to cater to Chinese travellers and serve them better. APAC travel boom, China in particular More than 50% of the growth in global traffic will come from the APAC area. As disposable income rises, a billion people in Asia will have annual earnings of $15,000 or more—and will be ready to give their travel business to airlines, hotels, and tour companies around the world. The vast majority of these “next billion” travelers will come from China, India, Indonesia, Japan, and South Korea. Travelers from China will account for the lion’s share of this growth—and about 40% of Asian outbound (international) travelers by 2030. Within the same time frame, China will likely overtake the US as the largest domestic-travel market in the world. Chinese urban travelers took about 500 million domestic and outbound trips (excluding day trips) in 2012, spending about $260 billion. Those numbers will increase to 1.7 billion trips and $1.8 trillion in spending by 2030. China travel market scenario

The market will grow at a compound annual rate of about 11% from 2012 to 2030. Driving this growth is China’s rapidly expanding population of middle-class and affluent consumers (MACs) - households with annual disposable income of $13,000 or more—with a strong desire to travel, both domestically and abroad. However, competition for their business is fierce, in many cases, playing out between major international brands and fast-growing Chinese challengers. In the case of China domestic airlines, they face competition from China’s rapidly growing network of highways and high-speed trains.

Online travel scenario:

Distribution will continue to be a challenge in China’s travel market. The market is highly fragmented, and the government still prohibits foreign travel agencies from participating directly in outbound tour business.
Fierce competition among low-cost travel agencies makes the domestic sector extremely challenging.
In the digital space, China’s Ctrip has more than 40% of the OTA market, compared with just over 10% for the next closest competitor.
Qunar is the largest online site for travel searches, reviews, and aggregation: traffic has been growing about 30% per year since 2010.

Strategies for winning

The following nine guidelines can help companies position themselves, reach Chinese travelers, and win their loyalty. 1. Follow the money China is too big and diverse to be approached with a one-size-fits-all solution. By segmenting different groups of travelers and monitoring their behaviors and spending habits, companies gain insights that can help them prioritize target markets, guide investment decisions, and deliver their services more effectively. By 2030, outbound trips will account for about 40% of China’s total market value (up from 30% in 2012), and Chinese travelers will be spending about $700 billion on these trips. As it is today, most of this travel will be for leisure. From 2012 to 2030, three segments of the outbound leisure market will grow the fastest: Young affluents (ages 18 to 30), senior professionals (ages 45 to 55, traveling without an organized tour group), and small groups of families and friends (ages 30 to 45, also traveling without an organized tour group). Combined, by 2030, these segments will account for an incremental 100 million annual trips and $340 billion in annual spending. 2. Anticipate new, high-volume destinations Although outbound traffic from China is growing, levels remain relatively low—for now. But most industry analysts expect that to change in the next 10 to 15 years. In 2012, Chinese travelers took 48 million overnight outbound leisure and business trips. Chinese travelers represented only a small fraction of total inbound tourists for most non-Asian countries in 2012. That will change, however. China’s outbound leisure and business-travel market is projected to grow to about 211 million trips per year by 2030, and interest in non-Asian destinations will increase. According to data from TripAdvisor China’s official site, of the website’s unique visitors in July and August 2013 who researched outbound destinations, 12% researched Hong Kong and Macau, 44% researched other Asian destinations, and 44% researched destinations outside of Asia. Paris, Rome, London, and New York, which were among the most frequently researched destinations, may see a sharp uptick in Chinese visitors. On TripAdvisor China, interest in outdoor and adventure destinations such as Nairobi and the Serengeti National Park more than tripled in the past year.

Similarly, BCG’s 2013 survey showed that a growing number of young affluent Chinese tourists were interested in longer-haul trips. 3. Capture big prizes in “small” cities While well-known tier 1 cities such as Shanghai, Beijing, Shenzhen, and Guangzhou all have populations of more than 10 million, they are also highly competitive environments. More than 80% of China’s MAC population live in places many people would be unable to find on a map. For example, the cities of Rizhao in Shandong province, Huzhou in Zhejiang, and Xinxiang in Henan will each have MAC populations well in excess of 500,000 by 2020. According to 2013 data from TripAdvisor China’s website, more than 70% of unique site visitors researching outbound destinations lived outside the four tier 1 cities. And online traffic from these visitors is growing two to three times faster than that of visitors from the tier 1 cities. [caption id="attachment_140885" align="aligncenter" width="550"]

Most TripAdvisor China visitors for outbound travel are from outside the top 4 cities[/caption] Companies that reach beyond China’s tier 1 cities may have to further adapt their service models, marketing, and distribution, but they also have a better chance of gaining a first-mover advantage. 4. Keep your Chinese travelers happy Travel and tourism companies that deeply understand and cater to the preferences of Chinese travelers can differentiate themselves and win market share. Many of these preferences are evolving quite quickly—particularly for the young affluent segment. For example, Chinese travelers tend to be more spontaneous and have shorter planning timelines than their Western counterparts, mainly because they love bargains but also because planning for a vacation three to six months in advance is not the cultural norm in China. In BCG’s 2013 survey, young affluent travelers indicated that they fly significantly more with Chinese carriers today but are likely to increase their use of international carriers. The top booking considerations were price, safety record, and seat comfort. The biggest deterrents were flight delays, inconvenient departure times, and uncomfortable seats. When it comes to hotels, the biggest decision factors for young affluent travelers are location, cleanliness, and price. In a TripAdvisor survey of hotel preferences, the most important considerations for business and leisure travelers alike were location and reputation. In terms of payment options, offering China UnionPay—the dominant credit-card organization in China—is important, particularly for less experienced travelers. 5. Brands really matter, but you may need to adapt yours Effective brand management is a critical aspect of any China-travel strategy, and the companies that get it right will be in the best position to win. Many global brands are less well known in China. And since the country’s travel market is still emerging and evolving, there is, as yet, little brand loyalty to international brands, but there are many opportunities for travel service providers to rethink and strengthen their brand portfolios. A major strategic consideration is the role of global versus local brands. When a company is trying to appeal to Chinese consumers—no matter which option the company choses—it must be consistent in the way it presents the brand: Chinese travelers value authenticity, which they associate with a consistent brand presentation. 6. Be creative to maximize your marketing impact Traditional marketing may not always be effective in China, and companies must find new ways to make an impact. Given the growing popularity of social media, mobile technology, and celebrity endorsers, some travel providers have started to use the concept of advocacy marketing to their advantage. Critical influencers who can be used for advocacy marketing can include celebrity endorsers, credentialed experts, or current customers. For example, New Zealand hosted a Chinese celebrity wedding in Queenstown for a famous Chinese actress, Yao Chen, who, alongside Lady Gaga and Justin Bieber, is among the most followed social-media personalities globally with 37 million followers on Weibo. News of the wedding spread quickly on Weibo, which registered 40 million discussion items with New Zealand as a key topic. Tourism New Zealand estimated that close to 7,000 media articles were written about the wedding, and Queenstown was portrayed as the ultimate destination for romance and honeymoons—exposure worth tens of millions of marketing and advertising dollars. 7. Know your distribution options Distribution in China is challenging, particularly for subscale foreign players. To succeed, travel companies must seek innovative ways to break into the Chinese market, recognizing that there is significant white space in this uncharted territory. Although the market is still evolving, one thing is certain: industry players must be extremely flexible and dynamic, taking a pragmatic, focused, and prioritized approach to distribution. China has many legal and regulatory constraints, and the travel market has splintered into a kaleidoscope of competing channels. Chinese consumers continue to emphasize that they trust recommendations from people they know, as well as online opinions, more than corporate marketing messages. Travel and tourism companies that monitor and manage their online reputation can drive demand for their products through review forums. At the same time, OTAs are rapidly gaining share from traditional travel agencies and—with airline and hotel websites—will soon become the primary research and purchase channel for hotels and airline tickets. BCG's 2013 survey of young affluent Chinese travelers showed that use of these online agencies is up 17 percentage points since 2010, largely at the expense of state-owned travel agencies, private travel agencies, and agency hotlines. Many global hotel chains have acknowledged the importance of the online agencies like Ctrip. For example, in 2013, IHG developed a link between its own reservation system and Ctrip. The link enables Ctrip users to see real-time availability and get online booking confirmations for all IHG properties worldwide. And since 2012, Marriott Rewards members can elect to earn Ctrip points for their stays at participating Marriott International hotels globally. Although many top global hotel chains focus on the direct channel, they also carefully manage the agency channel—particularly online—driving demand in the Chinese market through their premium brands and locations, granting favored distributor status to buyers of large “room blocks,” giving the distributors healthy margins, and imposing strict volume and pricing guidelines. For example, agencies and OTAs may not publish room rates that are lower than the rates of the hotel’s direct channel. By contrast, airlines tend to rely more on wholesale distribution networks. There are opportunities for companies to play aggregator roles in the distribution chain. For example, Kuoni Group, the largest foreign-travel-services company in China, has a successful wholesale business - GTA - that aggregates a wide range of premium hotels and ground travel offerings, which it sells to retail travel agents, wholesalers, tour operators, and OTAs. Kuoni's success is due to its wide range of travel options, local sales and service, competitive credit terms, and a website and distribution solution that connects seamlessly to the online platform of group travel agencies. 8. Join forces to win, but choose your partners wisely Since few foreign travel companies have sufficient scale or influence in China, there is value in partnering creatively with other industry players or collaborating at the destination level. Joining forces with other industry players can strengthen a company’s brand, service offering, and competitive position. 9. Invest for the future, but keep your options open Winning travel and tourism companies will have a variety of investment strategies, but all should address a range of considerations along a continuum of time, effort, and risk. At one end are the near-term marketing, branding, and communication tactics that will begin to engage Chinese travelers, shaping their perceptions and preferences. Related read