23 October 2019 05:34

MARKETING

What we can learn from the demise of Thomas Cook

By now you will probably have heard that 178-year-old British travel company Thomas Cook ceased trading recently, stranding 150,000 UK holiday makers, threatening over 20,000 jobs and challenging the tourism industry around the world.

The company’s demise is a salutary reminder that big is not the same as strong when it comes to business and brands.

This was not the first brush with disaster for Thomas Cook. In 2011 the company nearly collapsed but was saved by a last minute £100 million loan extension. In retrospect, this action simply staved off disaster and added to the debt burden the cost of which the company was already struggling to pay. Since then, the company has been living a hand-to-mouth existence that ended abruptly when talks with investors failed to extend funding.

The inquest into how so a big company could suddenly cease trading has already begun but the conclusions will likely highlight that the company failed to adapt to changing times. Setting aside the short-term impact of Brexit, two major changes combined to change consumer behavior and undermined the prevalence of the package holiday, as follows.

The rise of the low-cost airline meant that people could easily take short breaks in major cities across Europe, undermining demand for the traditional two week packaged holiday. At the same time, Thomas Cook was challenged to match low-cost airline prices without the same infrastructure or scale.

The advent of the internet meant people could easily put together their own vacation, from finding a destination to booking flights and accommodation. However, this in itself does not mean a lack of desire for specially curated vacations, simply a lack of need for the everyday package holiday. Thomas Cook might have been better off if it had introduced a premium vacation service instead of buying up equally challenged competitors.

Essentially these two changes created a travel ecosystem that debundled the package holiday for many people. It was not a case of one thing or the other but both. Many, like financial analyst David Buik quoted in the New York Times have suggested that Thomas Cook failed in part because it had too many physical stores. However, as we see with many DTC companies, a physical store can be a strength if it is used to add value to the company’s offer. Where Thomas Cook failed was in not figuring out what its real strengths were compared to cheaper, shorter and do-it-yourself breaks.

In 2019, the brand was hugely salient but lacking both meaning and differentiation compared to other vacation providers, proving once again that size is no substitute for relevance. For more on how people perceived Thomas Cook check out this review by Jane Bloomfield on WARC.

However, capable today’s management team, what is clear is that past incumbents were to blame for not evolving the company’s business model to a changing environment which enabled people to easily satisfy their desire for a quick break now over the delayed gratification of a long vacation in several month’s time. Failing to adapt led to the financial death spiral which ultimately led to the company’s demise.

 

Written by Nigel Hollis, Executive Vice President and Chief Global Analyst at Kantar’s Insights Division.

Read 465 times Last modified on Thursday, 03 October 2019 01:47
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