Destination Management Organisations vs. Tour Operators

Destination Management Organisations vs. Tour Operators

In the early days of the Internet, we tried to forecast how it would change the way travel was sold. A common prediction was that the Internet would cause travel agents to die out. Quite a few did close down, but quite a few are still in business. Another part of the industry was also forecast to undergo significant change. This was tourism. Tour operators sold holidays that saw tourists travelling to destinations whilst destination management organisations (DMOs) promoted the destinations.

DMO and tour operator activities were necessarily constrained by geography. Tour operators were and still are mostly outbound sales organisations. They are geographically close to their customers. Pre-Internet, they could only cost effectively market to audiences close to them. A tour operator based in the Britain would be advertising in British newspapers, running adverts on British TV channels, mailing brochures to British tourists and distributing brochures to British travel agents.

DMOs were and still are inbound organisations. They promote their destinations to the whole world. They would run promotional campaigns in key markets and work with the local travel trade to provide support in selling their destinations. In terms of marketing, the typical strategies of DMOs were all about building brand awareness.

The Internet brought the Web. Now DMOs could reach out to the world. This was not only affordable but also gave the opportunity for DMOs to get selling. Their destinations encompass product – accommodation, attractions, transport, restaurants, activities, etc. Here was the chance for DMOs to start making money. As they were close to the product, surely they should be putting it on sale? They would be competing against the tour operators who had been their distribution partners but what can you do? They simply could not ignore this opportunity to move from being cost centres to becoming profit centres.

The DMOs that wanted to forge ahead invested significantly in Destination Management Systems (DMSs). These would allow them to put product on sale worldwide on their new DMS driven websites. They grew their organisations so that they could contract products and operate call centres for sales and customer support.

Destination management organisations were forecast to be the tour operators of the future. The strategic reasoning for this seemed obvious. They had great access to product and a cost effective mode of global distribution.  They also considered that they had the brand power.  DMOs were, of course, the primary promotional organisations for their destinations. So quite a few DMOs launched DMS powered websites. These all tended to have a similar domain style – visithere.com, visitthere.com.  Many were backed with considerable government investment.

So what went wrong?  Why do DMOs not dominate product sales for their destinations?

Recent Trekksoft research might contribute to the answer.  This was a survey of 61 DMOs.  One question was “What percent of your budget/focus is spent on marketing experiences compared to accommodation?” The DMOs surveyed stated that 73% of their budgets/focus is mostly on experiences. Asked whether activities were bookable in real time, 85% of DMOs said no.

The new, online profit centres of many destination management organisations were meant to profit by selling accommodation in the main as this is what every tourist needs. However, this has not worked out well. DMOs have not managed to become primary distribution channels for their accommodation providers.  Why this might be?

What was not forecast at the time when DMOs were investing in DMSs for product sales was the substantial growth of the OTAs such as Booking.com and Airbnb and how they would come to dominate the online accommodation sales. Neither was it forecast that PPC (pay per click) advertising would be so crucial in driving online visibility. The large online travel businesses have achieved the economies of scale that allow them to invest technological efficiency. This, in turn, provides the business economics that allows them to plough more and more funds into pay per click whilst still operating profitably. DMOs just do not have the right business model to permit them to do that. They have priorities other than simply selling product. Also, they only represent a single destination so could not hope to achieve the economies of scale required to compete with the OTAs.

The revealing question in the Trekksoft survey is “How digitally relevant are you as a DMO?” 64% responded that they are either behind the industry or trying their best to stay digitally relevant but struggle. For those DMOs that hoped to become their destinations’ dominant tour operator, it just hasn’t worked out as predicted.

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Paul Richer is Senior Partner of Genesys, a management consultancy specialising in providing advice on technology for the travel, tourism and hospitality industries. Genesys has built a worldwide reputation for its knowledge and experience of new system procurement, online technology and strategies including website audits and online booking systems, reviewing and formulating companies’ IT strategies and more. Clients include many of the best known names in travel. Paul has co-authored several reports examining the impact of technology on the distribution of travel, including “Distribution Technology in the Travel Industry” originally published by Financial Times Retail and “Marketing Destinations Online – Strategies for the Information Age” published by the World Tourism Organisation. He has presented at and chaired many online travel conferences, is regularly quoted in the press and has also been invited to make several appearances on television to debate the subject. Prior to founding Genesys in 1994, Paul was Business Development Director of Finite Group plc and Head of the Group’s IT strategy consultancy. He holds an MBA from Cranfield School of Management, is a Fellow of the Institute of Travel & Tourism and Member of the Chartered Institute of Marketing. More information at http://www.genesys.net/

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