George Bernard Shaw famously quipped that the Americans and British are essentially “one people separated by a common language.”  That tongue-in-cheek observation holds similar currency when comparing how well affiliate marketing performs in the travel sector in each country.

Econsultancy’s recent studies of the US and UK affiliate marketing industries revealed some very interesting industry-wide facts, dynamics and trends associated with each market, as well as underscored a number of intriguing industry sector / product similarities and differences.

I found two of their conclusions concerning the role and impact that affiliate marketing has played in the travel industry on ‘each side of the pond’ rather telling:

  • Health, Sport and Fitness was cited as the top industry sector by US affiliate marketers, with approximately 41 percent of all affiliates participating in the survey stating they promote products in this vertical
  • However, in the UK affiliate marketing industry, Travel and Flights lapped all other industry sectors (with Health, Sport and Fitness tying Computer Games & Consoles for a rather distant eight place), though the travel sector was promoted by just 33 percent of all affiliates

These statistics are more remarkable when you consider the sales revenue generated by affiliate marketing in each market…US affiliates account for about $300 million in annual travel industry sales, while their British counterparts drive more than $3 billion* to UK travel companies.

Why has affiliate marketing performed better financially in the UK travel industry than in the US?  Why are there such large market disparities?  What do UK affiliate marketers and travel suppliers know that their US counterparts don’t?  Are these differences structural and permanent, or can either be changed?

Having spent a fair amount of my professional career working on corporate strategy, M&A and technology related projects for travel companies in the US and UK, in my opinion these striking market dichotomies can be attributed to four underlying differences in the structure of each market:

  1. Brits love to travel (let’s face it, if you lived in a country where rain is the norm, you’d want to escape, too), and they do a lot of it – spending more than €55 billion in 2007.Moreover, when the average British ‘punter’ travels, he / she is just as likely to visit  short-haul destinations (think Paris, Mykonos, or the Cotswolds) as far-off locales spread across the globe (e.g. Seychelles, Bali, Miami, Dubai)…and most of these leisure trips involve airline travel in combination with some sort of land package, often put together by a tour operator or travel agency (bricks and mortar type or online travel sites like lastminute.com). American travelers on the other hand, though no slouches when it comes to traveling, tend to stay closer to home; the automobile accounts for about 86 percent of all passenger miles traveled by US residents, with planes, trains and buses accounting for the remaining 14 percent.It is also interesting to note that only about 92 million Americans, or approximately 33% of the US resident population, carry a valid passport; contrast that with the UK, where more than 78% of British citizens hold passports.  In 2008, British travelers took more than 69.5 million international trips, 54.5 million alone were to Europe.  During the same year, US citizens took slightly more than 40 million overseas air trips.
  2. When determining where and when they travel, price has historically been the British travel consumer’s principal buying criteria. In today’s UK travel industry, price is often the sole determinant for many consumers, which helps in large part to explain why such notoriously ‘service-last’ companies like Ryan Air have thrived financially (these are the guys that have given considerable thought to charging their passengers to use the lavatories in-flight).Americans tend to be a bit more value focused, and therefore less price-driven when making their travel plans compared to their British cousins (though US traveler purchasing behavior has been inexorably moving towards cost as the preeminent decision point during the last 10 years).  The current economic recession is likely to accelerate this trend, and likely erase the distinction within the next several years.
  3. British travelers have flocked to the Internet to book holiday packages (vacation packages in ‘American English’), while Americans, who have little problem booking flights and hotels online, have yet to fully embrace the Net for more expensive aspirational travel purchases like tours and cruises.Moreover, unlike their British counterparts, US tour operators have moved at a snails pace in marketing their product online, further impeding consumer adoption of the online channel.
  4. For any travel supplier to succeed in an intense, price-driven competitive market like the UK, they must be maniacal when managing their costs.  Customer acquisition is one of the largest variable costs for any merchant; indeed, depending on whether they are pursuing customers through direct or indirect channels, sales, marketing and distribution costs can account for 5-26 percent of the cost of their product.For an industry where profit margins for most players even in good years might be between 1-3% of sales, squeezing a few extra pennies out of your marketing costs can make the difference between a profit or a loss.

So, are these structural market differences permanent and preclude affiliate marketing from matching the type of growth and profitability experienced by UK players, or are they symptomatic of something else?

In my opinion, what UK travel suppliers have long figured out – and US players have largely missed or foolishly ignored – is that affiliate marketing is the most cost-effective distribution channel, beating all others – including supplier-direct – hands down.

What other marketing model enables the supplier to offload marketing costs to the retailer and pay for the customer acquisition after the sale or a lead is delivered?  Simply put, British travel companies and affiliates understood the intrinsic promise and value that affiliate marketing holds for suppliers, and both were keen on exploiting it to their advantage, even when the economy was on fire.

To paraphrase George Bernard Shaw, US travel suppliers need to start ‘speaking the same affiliate language’ as their UK counterparts. Once they do, my sense is that we’ll not only experience a swelling of the ranks of quality affiliates that want to sell travel products, but also an explosion in US travel affiliate sales that will surpass the giddy heights achieved in the UK…and that day is ‘just around the corner’.

I am curious if travel suppliers and affiliates in the UK and US share similar views? What do you think?

* Source: a4uexpo ExCeL London, October 14-15, 2008

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