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Analysis - November 2, 2006

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November 2006

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Print Around the world, Customer segments,

Loyal customers spend less than new customers

Spanish researchers have analyzed the expenditures of travellers in relation to how many times they have visited a destination. According to their findings, returning travellers spend less than first‑time visitors, primarily because of their increased knowledge of the destination. Destinations may want to consider the true economic benefits of new visitors versus loyal customers in relation to the money spent to attract them.

The advantages of loyal customers

In the tourism industry, regular customers are generally desirable for a number of reasons, in particular:

  • Marketing costs for attracting loyal customers are lower than those required to solicit new business.
  • A repeat customer usually indicates satisfaction with the product or service.
  • Customers who regularly return to a destination tend to encourage those around them to do the same.

In economic terms, destinations appreciate repeat visitors because they help stabilize market share, require lower promotional costs, and are less sensitive to price variations and potential service problems. However, another factor comes into play: returning travellers are more familiar with the destination and able to make more informed decisions when it comes to most travel expenses.

The Balearic Islands: A case study

Researchers Joaquin Alegre and Catalina Juaneda, from the University of the Balearic Islands, have attempted to analyze the relationship between consumer behaviour and repeat visits. The study looked at a sampling of German and British tourists vacationing in Spain’s Balearic Islands; many variables were analyzed, such as the number of visits to the destination and motivations like delivery quality.

In particular, the study examined the fact that first-time visitors are initially influenced by external factors, primarily the cost of the trip. Once destination quality proves to be a critical factor, high price is often seen as the best indicator of quality. As for repeat visitors, they are more motivated by factors linked directly to the destination, for example, hotel and service quality.

Not all tourists can be loyal

To clearly understand the context of repeat visits, it is important to realize that some tourism motivations run counter to destination loyalty. For example, for those who see travel as a break from routine (an opportunity for unique experiences and the discovery of new places, new people and other cultures) destination loyalty is not appealing. Travellers fitting this description would generally not be interested in revisiting a destination.

On the other hand, individuals with little tolerance for risk would feel comforted and relieved to return to the same place. This type of traveller usually seeks relaxation, comfort, a familiar environment, and a minimum of uncertainty and risk. Moreover, it takes time and effort to find and research a new destination, and money to set up new routines.

Differences observed

Why do first-time visitors spend more? Even if they have managed to compile a lot of information from travel guides or Web searches, it is very difficult to acquire intimate knowledge of local pricing realities. Given this lack of information (and more importantly, lack of first-hand experience), first-time visitors readily accept prices that may, in fact, not be considered competitive.

The study’s findings show that repeat visits to a destination have an influence on tourist expenditure patterns. The share of expenditures made in the home country of travellers who are visiting for the second or third time is 28% lower when compared to expenditures by new visitors. The difference is even more significant (32%) among tourists who are on their fourth or higher visit.

The impact of customer loyalty on consumer behaviour is even more remarkable when one looks at the amounts spent at the destination itself, during the vacation. Repeat visitors, regardless of how many times they have been, spend 40% less than first-timers.

Other motivating factors

Tourists who attach a great deal of importance to hotel quality tend to spend more on their vacations, both at home before the trip (+49%) and at the destination (+44%). People who consider the quality of their surroundings to be important also spend more, especially at the destination itself (+28%). A similar observation can be made about tourists who return to the same region, with expenditures of 17% more in the destination country.

The study findings also demonstrated the following:

  • Repeat visitors are more likely to opt for half-board lodgings, in other words, accommodations that include one or more meals.
  • Loyal tourists have a longer length of stay.
  • The more times tourists visit a destination, the more they tend to visit the same region.

Lessons learned?

A destination’s positioning should consider the proportion of new to return visitors. When a large percentage of one’s customers are not first-timers, it may be risky to promote services with a large mark-up. According to the study’s authors, increased profitability from unit sales will not be enough to compensate for an eventual decline in the number of visitors from a well-informed customer base.

Obviously, the example presented by the researchers covers only the case of the Balearic Islands (a sun destination) and is based on a restricted clientele, that of British and German tourists. However, the study’s authors conclude that their findings still apply to many destinations.

Sources:
– Alegre, Joaquin and Catalina Juaneda. “Destination Loyalty: Consumers’ Economic Behaviour,” Annals of Tourism Research, Vol. 33, No. 3, p. 684-706, 2006.
– Um, Seoho, Kaye Chon and YoungHee Ro. “Antecedents of Revisit Intention,” Annals of Tourism Research, Vol. 33, No. 4, p. 1141-1158, 2006.

 

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