Costco’s expansion into the Canadian leisure travel market did not go unnoticed – not by shoppers and certainly not by advisors, suppliers, consortia and advocacy bodies. The question is: how real is the threat?
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BIG-BOX STORES LIKE COSTCO changed the retail landscape long ago. Diversifying into optical, insurance and automotive, Costco has earned a reputation as an industry disrupter. More recently, the wholesaler’s foray into the Canadian travel market has seen deep discounts on vacation packages, cruises and rental cars.
Here’s how it works: without agent commissions to pay, Costco pockets a narrow margin and discounts a travel product from a wide range of reputable suppliers using the balance. What’s more, they entice shoppers with rewards like gift cards, rebates and other perks. The practice has sparked concern among travel advisors, leading them to wonder if its travel business is a threat to their livelihood.
“What’s affecting [travel advisors] is they spend a lot of time building a relationship with the client and building the perfect package. They do all that work only to be told, ‘Oh, by the way, I can get a $450 gift card from Costco if I book exactly what you just offered me,’” said Deanna Byrne, president and CEO of The Destination Experts. “It’s deflating for them.”
Complaints against Costco about poor customer service and disappointing travel experiences are easy to find online, Byrne noted during a Key Notes on Travel expert panel discussion examining Costco’s influence on the travel industry. This means advisors remain as relevant as ever to travellers looking for value beyond the impact on their pocketbook, Byrne said.
Encouragingly, travellers still recognize the value of a relationship with a travel advisor who offers personalized service and in-depth knowledge about the packages and destinations they are selling.
“If I want something cheap, I’ll go to Costco. Our services just don’t fit within that realm,” said Brett Walker, general manager of tour operator Collette. “Typically, people are looking for an authentic travel experience. It’s emotional and the emotional part starts right at the beginning – with a travel agent.”
Tim Morgan, director of business strategy at Virtuoso, reminds advisors that even though Costco generates tens of billions of dollars in annual revenue, when advisors advocate as a unit and when consortia band together, their purchasing power rivals Costco.
“It’s our responsibility as consortia to throw our weight around…with partners in particular,” Morgan said during the panel.
Virtuoso members are asked to follow a simple guideline: if you see something, say something. As an example, Morgan pointed out that members flagged deep Costco discounting of Viking and Seabourn cruises. Virtuoso consulted with both companies and ultimately, each ended their relationship with Costco. Speaking from the supplier perspective, Walker admits there is “compelling data” that shows the benefits of working with Costco, but Collette has chosen not to.
As Walker characterized it, the move was less a principled decision than a business one. “We want to create raving fans of our services,” he said. “The whole idea of customer satisfaction is done. If any of us are [just] satisfied with a product, we aren’t buying it again.”
The easiest way for a supplier to stop working with Costco, he noted, is to give the company little-to-no room with which to offer a discount to customers.
“The only thing that works is rolling back their commission to the extent that if Costco wants to sell your product, it’s going to cost them,” he said. “By virtue of that, they don’t sell it anymore. And that’s exactly what we’ve done.”
While suppliers like Collette can choose to not sell its product through Costco, travel advisors are left to compete with discounting and rebating. This is where consortia, as well as advocacy bodies such as the Association of Canadian Travel Agencies (ACTA) and the American Society of Travel Advisors (ASTA), come in.
Heather Craig-Peddie, vice president of advocacy and member relations at ACTA, told the panel that ACTA will engage directly with suppliers when there are overt attempts to bypass agencies.
ACTA also develops traditional media and social media campaigns to promote the value of travel advisors, she said.
Her tips for advisors include ensuring clients understand the agent’s role throughout the process. “When something goes wrong, and it will, you are there for your client. They’re not alone,” she said. “You cannot buy this peace of mind at a bulk store.”
ASTA, which supports its members in much the same way ACTA does, also offers a verified travel advisor certification program.
“It’s a distinguishing mark of integrity,” Erika Richter, ASTA’s director of communications, told the panel. “It lets the consumer know that the travel advisor has unparalleled knowledge, professionalism, ethical standards: the sorts of things you can’t find in bulk at Costco.”
A digital marketing campaign is also helping to connect customers with advisors in a forum that allows advisors to promote themselves and share their experiences.
Richter adds: “When I’m talking about travel advisors, I always like to tell people: you can go book online but the Internet doesn’t call you back.”
Ultimately, each of the experts agreed that advisors must remember what brings value to their service: deep product knowledge, long-standing relationships with suppliers, and a willingness to establish long-term connections with clients.
Costco is just one among many disruptors the travel profession has and will confront. (Who remembers the arrival of OTAs?) While Costco may be innovating its business model, Morgan encouraged travel leaders not to react in haste: “The most important thing you can do is understand the threats, learn their weaknesses and then use your strengths to overcome them. Don’t let someone else force your hand in how you operate your business.”
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