Keep it simple and cost-effective for travel and hospitality clients during times of extreme disruption—but be ready to innovate

Even before our current pandemic, we knew the travel, hospitality, and logistics (THL) industry was “behind the curve in some investments, notably in modernizing legacy technology.” Due in part to large investments in legacy technology, the asset-heavy nature of these businesses, and the associated cost-sensitivity, THL clients don’t always prioritize innovative solutions. This de-emphasis on innovation is evident in Exhibit 1, which displays the leading differences between THL executive’s selection criteria for external service providers and all other industries: existing relationships, absolute price, and reference clients all trump innovative solutions. We’ll be exploring this in greater depth in our upcoming refresh to the THL Top 10, but service providers catering to this industry are focusing on nurturing established relationships with their THL clients and preparing to innovate or face the risk them shopping elsewhere.

Exhibit 1: THL companies are less focused on innovative solutions than other industries

What are the top three selection criteria for choosing an external service provider, starting with the most important?

Source: HFS Research, 2020

You get what you pay for—THL executives are less concerned with quality and innovation but expect a cut-rate price in return

Legacy infrastructure has plagued THL firms for some time now, giving reason to why they see innovative solutions less enticing than other industries. THL has invested heavily in infrastructure in the past, and the industry isn’t prioritizing it as heavily as other industries are. Exhibit 1 shows us that a meager 22% of THL executives position innovative solutions as an important factor for an external service provider, as opposed to 34% of all other industries’ executives. In addition, THL clients are far less concerned with the quality of the service offered by their provider—only 37% of THL executives placed it as an important factor compared to 47% of executives in all other industries. To put it plainly, the evidence suggests that many THL clients don’t want their provider to disrupt business with innovative solutions, especially with the ongoing COVID-19 crisis. Instead, they want providers to produce solutions that are fit for purpose; they aren’t looking for any extras.

On the other hand, THL providers rank the absolute cost of service higher than all other industries; 28% of THL executives rank it at the top of their selection criteria, but only 24% of executives in other industries do. Service providers, this means that while THL clients are willing to forgo quality and innovation in their solutions, they want to see this reflected in the price of what you offer. They want to maintain their focus on the day-to-day running of their expensive physical assets. It’s crucial that although THL providers take this tradeoff into consideration, the THL providers must hammer home the importance and incentives associated with innovative solutions.

Service providers must focus on their domain experience and expertise; maintaining a relationship is paramount to THL customers

Exhibit 1 shows us that THL executives heavily weight the importance of domain experience and expertise when choosing a service provider; they weight it nearly 20% more than other industry executives. THL customers are looking for a provider that understands their industry’s unique needs and those they can trust; THL executives also weight the importance of an existing relationship 10% more than other industry executives.

Service providers must nurture their existing relationships; it’s clear from Exhibit 1 that THL executives choose their providers based on previous experience and their price, but importantly they aren’t looking to regularly switch providers. They care about building a relationship with a provider that is looking to collaborate and know what they want from that relationship. Service providers must, therefore, meet their customers halfway by realigning their offerings. Further, they must understand that innovative solutions aren’t customers’ main focus; customers need to concentrate on their priorities—keeping their ships floating, their lorries on the road, and their planes in the air. Innovative solutions may be valuable, and there are without doubt incentives and good reasons to invest, it’s likely that the THL industry has not realized the full value of its investments as other industries have.

The Bottom Line: THL service providers must convince their customers of the real value of innovation.

In the short term, THL companies are keeping a steady eye on the basics and cost containment, but they will need to revisit the best ways to innovate when business resumes to something resembling normal; service providers will be integral partners in that shift. Innovation can be great for THL and enable companies to conduct business faster and more effectively—it’s up to service providers to make them understand this and shift them from their legacy ways of thinking. Service providers failing to help their customers get their legacy systems up to date will see their customers unprepared to weather the next wave of disruption, struggling to stay relevant and stay in business amid the potential next wave of lockdowns—keeping customer experiences in good shape when they have to ramp back up.