12 April, 2018

Learning from dairy farmers means learning to win!

Dairy farmers are trying to regain dwindling margins.
Tourism should be acting like them.

No - I did not smoke too much. No, I am not an old Communist who - with the aim of "learning to win" - looks back romantically on Soviet-style socialism. Rather, in the last few days, two messages have gotten me to hit the keys and write this short column.

Message 1 was that many dairy farmers in the world (especially in New Zealand) increasingly invest, or have been investing in their own processing (for example, milk powder) and distribution (in online shops) and thus worked out an alternative to bypass the international Fat Cats of the processing industry.

Message 2 was that German, but also increasingly Italian and French tourism service providers jump into the production of internationally marketable tours (including for the Chinese market) and thus break with the outbound logic of international tour operators. The distribution of own packages is now carried out directly via travel agencies (stationary and online) in the source markets.

The reason for doing so is the same for both: the commodity business is under pressure, margins are eroding, and thus income from the core business is literally evaporating. One can find the solution to cope with this challenge in any basic business education textbook or handbook of the development agency. In essence, one must valorize commodities (for example, with at least one processing stage in agriculture or with integrating or additional tourism services) in order to benefit from one higher-value - that is a less price-sensitive stage to be able to place the competition. However, valorization has to be implemented by producers in the country of origin and not somewhere in the virtual nirvana or country of distribution, whereby the rules of the game are determined by the producers and not the distributors in the source markets.

We should now seriously consider such an approach in mature tourism destinations, such as in Switzerland. I know there have always been moderately successful attempts to do so, for example with commercial incoming agencies of established tourist marketing organizations. The first misconception was that we have been trying to produce tours for local markets - nota bene for guests who, due to their cultural and geographic proximity, could well create their own experiences. The second misconception was that, from a traditional tourist understanding of distribution, these agencies tend to act as buyers and integrating resellers. Thus, the service providers were indeed "downgraded" to mere core service providers.

I propose, also inspired by the Grand Tour of Switzerland, the following alternative: The service providers interested in the global commercial incoming business are joining a national consortium whose governance is geared towards generating and fairly distributing revenue under the condition of shared costs. They develop there, moderated by non-commercial partners (national and/ or regional and/ or local DMOs) service packages in the form of market and customer-specific integral offers and tours. Those offers are inspired by the distribution in the sense that the content of the service packages are aligned to the guests and their needs (based: Stories, which they are supposed to post) specific to a given distribution channel. The service providers co-produce for one or more packages and organize themselves in appropriate sub-consortia, all of which have the same governance. Hence, they can be members of several of these sub-consortia, which always work the same way.

By this approach, cooperation becomes commercial and each service provider is forced to orientate oneself to customer processes and needs. It is time to recover margin in the international business. Let us bag it!

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