After 178 years, British global travel group Thomas Cook went into administration on Monday 21 September 2019, leaving employees jobless and thousands of customers stranded away from home. Nathalie Schooling, CEO of customer experience company nlighten, believes the story can tell us about business strategy and customer engagement.
Firstly, the question “What caused Thomas Cook to fail?” must be asked. The seeds of the current crisis were sown in over the last 20 years. A flirtation with bankruptcy in 2011 should have been a bellwether for what happened in the past few days.
Since the rescue package for the previous crisis was enacted, the business was struggling under massive debt repayments with some estimates calculating that 25% of the price of every holiday sold was going directly to interest servicing. As a traditionally low margin and volatile industry, this interest burden was ultimately too much to carry.
How did this happen to the world’s oldest travel firm?
Like many big brands – especially businesses that regard themselves as the creators of their industry – Thomas Cook traded on its legacy. Brand arrogance can prevent any business, especially big business, from understanding and embracing the consumer-driven market changes.
This is especially true in the case of fundamental model revolution. In the case of the package holiday industry, this change was the movement from High Street/retail presence to online presence.
Being the first, or the biggest, or the oldest is no guarantee of success in today’s market; consumers don’t care what you were, only what you are.
What does it mean for the type of business model they had? Is it doomed? Any business model with significant physical assets must find a way for those assets to generate returns or to act as brand enhancement.
For Thomas Cook, investing in small high street retail travel agencies, plane fleets and hotels is a massive drag on the balance sheet and unnecessary when those assets could easily have been subcontracted or replaced. A model based on an online sales presence and fewer owned assets would have been more agile and able to respond to consumer changes.
Physical presence is effective when consumers need to connect to the product (this Apple Store or Tesla sales rooms) and the asset becomes a way to market the brand in high profile locations; but no longer as a primary sales route.
What can other organisations learn from Thomas Cook’s demise?
Listen to what your customers want and don’t be so attached to your legacy that you cannot adapt to changing and evolving consumer habits. Be wary of thinking that because you are an established company that’s been in business for many years, that you are immune to failure.
First published by IT-Online.