Thomson Holidays: Changing the strategic identity for customer loyalty
A series of studies and workshops helped Thomson refocus its identity, strategy, business model and customer thinking, leading to one of the most innovative and effective loyalty programmes in Europe and the development of digital marketing culture. Angus Jenkinson explains
This case might be described as ancient history, at least within the terms of management thinking, for it dates back 20 years. As a result, however, it is possible to have full disclosure of what happened. Moreover, the principles remain as valid today as they were 20 years ago (which should be no great surprise). As with all good readings of documents and events, it can be seen at multiple levels.
- 1. One concerns the transformation of business and marketing towards individualised relationships aided by digital information. It explains the logic of why customer information has become so crucial.
2. The second concerns mindsets and how these condition C-suite leaders and their potential strategies in ways that are sometimes horribly dangerous. It shows why an existing business logic and business model can cripple the business as the waves of change flow around it.
3. And a third is related to organisational learning and what is called the Conant Ashby theorem. It explains why organisations go to the wall when there is existing information that would tell them what they need to do.
Transformation was achieved when the directors of the company were taken through a short design exercise to understand the customer journey through the holiday life cycle, identifying the many opportunities in which information about customers could be used to add value to their experience while increasing business sales and efficiency. Thomson Holidays (www.thomson.co.uk) recognised the extreme wastefulness of failing to adopt a digital marketing strategy. They were literally throwing away millions of customer records each year, meaning that their understanding of the financial worth of different segments was hopelessly limited. Once better information about individual customers was aggregated clear strata of customer financial value emerged, which led to significant changes in strategy and identity.
The situation at the time
At the time, in 1996-1997, Thomson Holidays was the U.K.’s leading package holiday company. Indeed, they had played no small part in the transformation of the holiday industry and holiday mindset in the UK, a revolution in which foreign packaged holidays transformed the habits of millions of Brits, not just abroad, but in the interests and tastes and experiences that they brought home to Britain. As a result, millions of people booked holidays with Thomson Holidays – in fact 9 million passenger holidays each year. Yet in principle they did not know whether this was a few hundred people going on thousands of holidays or 9 million people going once.
All their holidays were sold on the high street through travel agents, one of the largest of which was their own subsidiary. They were merely presented with an instruction to fly so many people from such and such a destination and deposit them in such and such an hotel over a particular period. All of them were presented with customer satisfaction forms on their flights back and these were dutifully analysed for satisfaction research and then shredded. From the point of view of Thomson Holidays, the holiday makers were anonymous and Thomson Holidays had a hands-off structure and cultural relationship with customers, except amongst its staff in resorts, many of whom worked part-time during the summer. This disconnect was also precisely the situation with all the supermarkets at the time (and many today). The company had many passing personal relationships with customers but no systemic ones.
This situation and the new strategy that grew from it is one of the platforms that have equipped modern marketers in the digital Internet age and shifted organisations into a world of digital relationships.
What happened next?
At the time, we had already worked with a group subsidiary, Portland Holidays, which was the number 1 in direct holidays. We had helped them to design and develop their marketing strategy and the execution of resources required including a new database and digital information hub as well as call centre infrastructure and capability. As a result of the success, when the CEO, Claire Wilson, was moved into a marketing leadership position in Thomson Holidays group, we were invited by her to work with the Thomson Board to review their vision, business model and channel strategy.
Essentially, Claire Wilson saw that the business model that Thomson Holidays followed was unsustainable. The question was, how to get the board to see the truth of this. The fact of the matter is that while she was respected enough to hold a senior position she was like so many others not respected enough to be seriously listen to in a business that was convinced that it knew what was what and how to do things. Think in this respect of other companies like the past failure of Marks & Spencer or even more catastrophic failure of Nokia.
One of our experiences in organisations over more than two decades is how commonplace this phenomenon is. Innumerable companies walk over cliffs (fortunately some of them of only modest height) because there is an information gap between those who know what is going on in the world and those who are responsible for guiding the company. This is not to discredit the intelligence of leaders not to say that they might not have a great deal of wisdom and expertise within certain domains. But it is a fact of the job that it situates people in such a way that for the most part they get systematically informed in some areas and systematically uninformed or even misinformed in others. Systemically, it cannot be otherwise. Take for example the chairman or CEO who spends vast portions of his or her time dealing with financial analysts and investors and handling legal questions to do with the status of the company.
And when a company is the clear and dominant market leader, the danger is that this becomes even more established as a probable outcome. You do not become the clear and dominant leader without getting a few things right somehow or other and there is every reason to believe that the model that you have adopted is a good one. Why would you need to change it? The proof of the pudding is in the eating, and here we are, the number one player in the industry. Hubris and the wheel of fortune come to mind.
We can analyse this under two different headings:
- first there is the mindset/paradigm problem;
- and then more precisely there is the Conant Ashby theorem, which says that only variety can absorb variety. The variety in question is variety of information, the amount of difference being understood. It says that if you want to understand something with a lot of variety you need an analysing capability that takes in all that variety (call it a mind, a model, a technology according to situation). According to this principle it is commonplace for some parts of the organisation to simply not get other parts and sadly this includes senior management not understanding facts beyond there ken, just as it can also include junior staff not understanding, or finance not understanding marketing and marketing not understanding operations.
How did this develop?
It was clear to myself and Claire that there was a significant gap in current practice, which offered a huge business opportunity. Moreover, it was a business opportunity that if Thomson Holidays did not take, competitors would, seriously damaging its future prospects.
It was proposed that I run a one-day workshop for the board to enable them to examine the issues and opportunities related to information about their customers. So I designed a proposed process. Then we were informed that the board could not spare the whole day but we could have the morning. When we turned up, we were informed that the board could not spare the whole morning that could offer 2.5 hours. It happens.
When they arrived, the group managing director (CEO) opened proceedings by saying,
“I do not know why we are doing this. We already pay the travel agents to sell our holidays. Why do we have to spend more money?”
You can see the logic, but at the same time this is the blinkered mindset and it is why the greatest tool of management is wonder.
If I analyse this using the viable system model* (see Glossary), the organisation has an identity that is predicated on a particular business model. According to this business model it pays out cash to agents who generate business for it and it therefore minimises all internal costs. Its job is to create good holidays and provide brochures and holiday information to the travel agents and their customers along with competitive prices.
The competitive prices is a key factor in this. The assumption is that customers will pick the cheapest holiday that looks equivalent. There was a good deal of truth in this (less as we will see than they believed). One of the reasons for this truth is that the holiday business had systematically driven down prices and turned the packaged holiday business into a commodities marketplace, at least as far as possible. Given the romance and importance of holidays, it is a curious approach but for 20 years the whole industry engaged in a price war and convinced the marketplace that cheaper was better. So by this logic it was right to avoid spending any more than was necessary. The point of the customer research was to find out whether the product was good and that was all. That would have course also help them in negotiation as well as merchandising choice.
The structure, function, organisation and activities of Thomson Holidays was driven by this identity model through all levels of detail. And it meant that when they went looking into strategic innovation (in viable system model, this is so-called system 4 function), it was driven by by the existing identity model and imperative. So they already spend money on travel agents, why would they spend money on collecting information?
The logic fault
We did not know who their customers were and we could not identify specific holidays to specific customers, but we were able to get at certain inferential data. As a result of various research projects we could draw some good conclusions about who was buying their holidays and the level of repeat and spend.
The start point for the analysis by the Board was not as simple as assuming that everyone in the country was an equally good customer or an equally good opportunity but there was a general assumption the Thomson provided holidays for all strata of society spread across the nation. In that context the obvious communication medium was TV and the need to maintain information about customers was limited. Spend on marketing communications was broadly dispersed as shown in the graphic below.
We arrived at a compelling analysis that disproved this.
In fact the Thomson Group touched 50% of the UK market each year, but maintained a relationship with very few.
We could show that 6% of the nation generated at least 44% of their annual income. Further analysis showed the considerable importance of their more valuable customers, who might be worth 10 times an average customer. Except of course they did not know which customers these were nor which 6% of the nation. Even more emphatically, just 2% of UK households generated 30% of their sales, but they did not know who they were.
The exercise with the board
Armed and confident with this information, the workshop design was very simple. What was necessary was to get the board to actually think concretely about customers and about the brand’s relationship with them. To that end, board members were split into four groups each with a flipchart, on which a circle had been drawn with a vertical and horizontal axis. Each of them began by focusing on one of the segments but were invited to think across the whole circle. The task was to mark a series of potential points of interaction – moments of truth or touchpoints around the circle on a timeline. They were asked to consider both:
- primarily when the customer might want to interact or get information;
- and when the brand might want to interact or gain information.
In relation to these the executives were asked to consider what kind of information might be useful and what it might be possible to obtain that would be useful in supporting future interactions. This was in part an exercise in empathy, stepping into the shoes of customers. And the effect was remarkable.
After working on this for 90 minutes and sharing information with each other it was stunningly obvious how much opportunity for valuable interaction was being missed, the extent to which the business was literally haemorrhaging value. The decision almost made itself. We are told them that we would be able to give them some information about the value of customers. Three or four key statistics were elegantly presented showing the relative worth of customers within their own customer set and relative to the marketplace.
There were some concerns that travel agents might Thomson Holidays going direct but a few statistics from direct experience and industry research about similar situations in financial services and other sectors showed how to handle the situation and why no alternative made sense. There and then the board committed strategic resources to the management of information direct to customers.
And then it got interesting
It was not enough to commit resources: as the effect of large-scale prime mover in the major player in the industry they needed to do something of quality, and that was certainly the intention of Claire Wilson and myself.
- In the first instance there was a commitment to building a massive customer database with information about millions of customers.
- There was a significant retraining effort and the upgrade of call centres and customer service.
- And an innovative loyalty programme. It provided a number of benefits, primarily in resort, to members of the club, with the ability to moderate the offer according to the loyalty and worth of the customer.
- And we created the Founders Club. At the time, until 1998, Thomson Holidays (or more precisely Thomson Travel Group), was owned by Thomson Corp of Canada. In 1998, the company was floated on the London Stock Exchange and customers who had signed up for the loyalty programme were given a special offer. The club lasted 10 years.
These events took place during 1996-1998. The new strategy was internally launched in 1997 and when large-scale in 1998 to the public. 1999 was the beginning of the Internet Rush. What might have happened if Thomson had not prepared itself mentally, culturally and practically for the digital age of relationships?
Of course the digital age is just an opportunity to exercise creative imagination. Anyone who thinks that computers create loyalty has a problem. Amazon founder Jeff Bezo was meticulous in analysing customer journeys to enhance service. Tesco, with whom I was also involved by working with DunnHumby, already pioneered a transformation in supermarket retailing with the Tesco loyalty card and they were equally prepared for the Internet age: in fact for quite a long time there will be the most profitable online company in the world and by a considerable margin the first grocery supermarket to be profitable.
Today Thomson Holidays is once again needing to find new va va voom. It’s been making losses the last couple of years. Good luck to it.