Lee Hayhurst spoke to Hopper's chief strategy officer Dakota Smith ahead of his keynote address at this month's TravelTech Show
TravelTech Show: Look beyond travel to combat commoditisation in the post-COVID era
Travel firms can fight commoditisation in the industry if they look beyond the core product to offer services that add value to customers’ lives.
That will be the message at this month’s TravelTech Show where chief strategy officer of fast-growing OTA Hopper, Dakota Smith, will deliver a keynote.
The Hopper app is aimed at a younger, digitally native generation of travellers and Dakota said this has enabled it to achieve phenomenal growth during the COVID pandemic.
The Montreal-based firm which was founded in 2007 has seen sales leap from $500 million annually pre-pandemic to $5 billion, said Dakota.
“I'd be lying if I said part of it wasn't fortunate or luck because Hopper focuses on a younger demographic of Gen Z people and young millennials in their twenties.
“And if you had to pick one travel segment in the world for the last three years that was travelling non-stop during the pandemic, it would be young Americans for leisure travel.
“That said, we attribute a lot of our success to our introduction of our fintech and flexibility products.”
This ‘financialisation’ of ecommerce is not limited to travel. Dakota said Apple’s move take credit risk on Apple Pay instalments is ‘transformative’ in the electronics hardware sector.
Hopper offers a number of innovative fintech shopping solutions to help users lock in prices for flights, accommodation and car hire which it takes the financial risk on if prices change.
A number of these, like Price Freeze, which was recently adopted by KAYAK as part of a partnership deal, and flexible cancellation and disruption cover were introduced pre-COVID.
Dakota said there was some nervousness having launched these risk-based products as the sector was hit by a major “Black Swan” event, but that soon dissipated.
He believes one of the lasting changes among consumers due to COVID is heightened levels of anxiety when travelling and this is something all travel firms must address.
“Creating those suites of products designed to mitigate traveller anxiety, in some ways, it was perfectly timed.
“They were in the market before the pandemic and people were buying them, but then as soon as the pandemic hit the attachment rates jumped up, probably increased by 100%.
“Now it's something like 60% of our customers are buying at least one of these products and it's persisted even as the pandemic has receded.
“In my opinion a whole generation of travellers has learned first hand why you can't take anything for granted. There's increased levels of anxiety and firms need to understand that.”
Dakota added: “Our price freeze product is actually an interesting example. We surveyed customers to ask why are you buying this product.
“For 60% it was the most obvious answer: ‘Because I needed more time to book. Why do you think I'm buying the product?’ So it was almost a dumb question.
“But for about 30% to 40% they were buying Price Freeze because they needed time for their pay check to arrive and they didn't want to miss the great price.
“That's a perfect example where it's hard to underestimate how much customers appreciate having more options and more ways to pay.”
Hopper has launched Hopper Cloud, it’s B2B2C division which is looking to extend the distribution of its fintech products through third part industry partnerships.
Dakota said margins on these products are much higher than on the travel products themselves, and said firms should take a creative approach to working with partners.
“Hopper Cloud allows other travel firms who don't have the large data science departments and competencies using algorithms to price risk to work with us.
“Is it worth recreating all the competencies and spending years trying to price the risk models when you can work on a profit share basis and offer these products to customers?
“In travel you might be savage competitors with one company in one area but then work with them as a partner with a different entity.
“You see that so much in travel, so I think the industry is a lot more open about the challenges it faces than some other sectors. And that's where Hopper Cloud comes in.
“People say but these companies are your competitors, but we're working with almost all of them in different ways and in dozens of different touch points.”
One of the key areas Dakota identified that all travel firms should place a greater focus on to differentiate themselves following COVID is customer service.
“What is it about you that says to customers you should book with us versus the market leader whether that be Expedia, booking.com, or Airbnb. Customer service is a great example of where can you uniquely add value.
“We all know there were issues with customer service during the pandemic, everyone got caught off guard, but that's another example of this heightened awareness for travellers.
“I don't know that people cared about that as much in 2019. Back then people wouldn't be talking much about customer service in traveller surveys.
“When we survey travellers customer service is almost always ranked number one. One of the biggest anxieties is customer service won't be there for them when they need it.
“The travel industry, as a whole, has learned a lot of lessons but that's a good example of looking at your customer survey data and saying what has changed in the market.”
Dakota cited the pivot by European OTA group eDreams ODIGEO to become a subscription based travel company as a prime example of a firm adapting to a changing market.
But he said the COVID crisis is likely to spark an era of innovation with new entrants coming into travel just as happened in the fintech arena after the 2008 global financial crash.
“If you go back and look at some of those amazing digital companies and when they were founded, so many came out of these financial or industry crises.
“Airbnb came out of the 2008 recession because people were having trouble paying their mortgage. Uber, similarly, because people were willing to drive for incremental revenue.
“Even the likes of Amazon and PayPal being born in the in the .com crisis. Only companies that are good at operating survive and it kind of levels out the playing field. It's like a reset.
“And it gives new upstarts opportunities because the market leaders’ advantages are usually just economies of scale, brand recognition and really large marketing budgets.
“We're coming out of a period where if you're 22 years old in the US, I don't think you were on Expedia necessarily for the last few years.
“New generations, new devices, usually create opportunities for new brands to enter fields, because some sort of brand affinity has been reset. And I think crises do the same thing.”
Dakota Smith's keynote will take place in the Lovelace Theatre at the TravelTech Show on June 30 at 10am. Registrations for the two-day show at the Excel exhibition centre in east London are open.