Industry Insight: The rise of the staycation: myth or reality?

Tim Cook is a partner at OC&C Strategy Consultants, where he heads up the company’s leisure practice

If you ask consumers about people’s changing holiday habits, they will tell you three things: people are taking fewer holidays than they used to, they are taking shorter holidays and they are seeking better deals.

These factors play to the staycation phenomenon in a number of ways. The reduction in overall trips is driving a decline in overseas breaks, which are being replaced with short trips within the UK. The shift towards shorter holidays also favours domestic travel more as the ‘cost’ of travel is generally lower as a proportion of the overall holiday. Finally, the shift to value has also benefitted the domestic market as there is a strong perception amongst UK consumers that domestic trips are significantly cheaper than their overseas counterparts.

However, as the economic climate begins to stabilise, we are seeing early signs that consumers are once again treating themselves to overseas holidays – especially to destinations which offer good value for money and where the weather tends to be nicer.

But the financial crisis is likely to have a longer-term impact on the industry. Firstly, the increased focus on value is likely to remain. In many markets, where consumers have discovered they can safely trade down, many do not trade back up. This will mean that more upscale propositions will have to work extremely hard to tempt consumers back.

Secondly, the significant shift to using online travel agents and price comparison sites offering better price transparency and trustworthy assessments will ultimately drive an improvement in the overall British holiday experience. It is clearly a huge opportunity for enlightened operators, who will capitalise on consumers’ direct recommendations. UK businesses that offer poor service and value are unlikely to succeed in a more cut-throat marketplace.

Thirdly, as operators struggle with volatile demand and excess capacity, consumers have learnt that they can often get a better deal by booking late. Savvy consumers actively seeking out deals are an increasingly common part of the consumer landscape. This trend is very tricky to respond to, and has created a dilemma for many hotels over their pricing strategy. Should they lower prices at the last minute to attract guests and raise occupancy? Should they stick to their guns and accept low occupancy rates? Or should they build yield management tools to better match supply and demand for specific hotels on specific dates?

All these issues raise a number of fundamental questions for leisure operators – how can you keep delivering great value and improvements to the customer experience whilst also increasing overall yields and profitability? One option could be to develop segmented pricing approaches that work for different consumers, to switch investment in branding into investments in the parts of the business that have the most impact in driving customer perceptions, and to paying closer attention to how consumers are experiencing the proposition when researching online.

Perhaps it’s too early to call the death of the staycation. However, what we may well begin to see is the rise of the smartcation – where consumers seek out better value for money and shop for holidays in a smarter way.

Tim has over a decade’s experience working with UK and international leisure operators on a variety of strategic projects. Tim’s ground breaking approach to ‘cognitive pricing’ has fundamentally changed the rules around how some hotels price rooms, present room choices, structure restaurant menus, and price conferences has been applied successfully in the UK, the US, and Asia.