Why Taking Aim at Apple Fans Was the Smart Move for Orbitz

Mac and OrbitzIf you're looking for a travel bargain, you may be better off using your mother's ancient Gateway desktop when planning your next vacation. Word is out that if you're checking out getaways on a Mac, you could be getting tempted with more expensive travel options as a result.

But don't be mad at Orbitz: The online travel company is just giving its customers what they want.

Orbitz (OWW) has explained that it has determined that Apple (AAPL) users tend to like more upscale hotels, which is why that's what it's showing them.

"Just as Mac users are willing to pay more for higher-end computers, at Orbitz we've seen that Mac users are 40% more likely to book 4- or 5-star hotels as compared to PC users," Orbitz CEO Barney Harford said.

Its shoppers are shown identical prices for any one hotel, but PC and Mac users may see different hotels in the "recommended hotels" section after they click on a particular property, Orbitz said.

How You Are Profiled: Personal Branding

Whenever someone visits a website, the user's browser sends a packet of information to the web server with details about the computer system being used -- including the user's operating system (e.g. Mac OS, Windows, Linux, Android) in order to make sure that the website is optimized for that person's device. Orbitz takes advantage of this personal information to tweak its selections for luxury-inclined Mac users.

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"That's just one of many factors that determine which hotels to recommend a given customer as part of our efforts to show customers the most relevant hotels possible," Harford said.

But it's a detail that tells a broader story about the customer. For example, nine out of every 10 personal computers bought for over $1,000 were Macs, according to a 2009 Techcrunch report, but beyond the higher prices those buyers were willing to pay for their computers, Mac users meet a particular character profile. It's not surprising, therefore, that Orbitz wants to get inside its customers' heads and see how they purchase based on the brands they choose.

"No one has raised the [identity marketing] to quite the same explicit level as Apple with its Mac vs. PC ad campaign, in which stereotyped characters were offered up as the very embodiment of competing computer brands," according to a 2011 Psychology Today article. "Remember how each ad began with the words "I'm a Mac" and "I'm a PC"? You don't get identity marketing much clearer than that. (And the central message was equally clear: to avoid being fatally dorky, get a Mac)."

But beyond the hip vibe Apple may have tried to convey in those ads, Orbitz is tapping into the real ways these brand choices reflect customers' wider lifestyle choices and preferences.

"We know how overwhelming it can be to have to choose from hundreds of hotel options, and we are focused on using technology to help our customers find the best deals on the most relevant hotels," Harford said. "We look at hundreds of variables to build the algorithms that determine which hotels we recommend during the shopping process."

And that profile can be more fully refined by focusing on one of the most important tools we use, the personal computer.

"Consumers, incidentally, jump at the opportunity to use products as a way of defining and broadcasting their personal identities, as documented by Rob Walker in his interesting book Buying in: What We Buy and Who We Are," the Psychology Today article reads. "These days, to drink Pabst beer rather than Heineken or to use French's yellow mustard over Dijon-style is more than just a matter of personal taste. It says something about who we are."

Fighting Against The Travel Current

Orbitz may be on to something in this attempt to boost profits by more accurately targeting customers willing to buy premium deals. And these tactics are becoming ever necessary for the company. Between high airfares and the eurozone crisis, the travel industry has been hard pressed. And Orbitz has long been mired in third place among online travel sites, trailing Priceline (PCLN) and Expedia (EXPE).

Orbitz has to become more competitive, said Mark Mahaney, an Internet analyst at Citigroup. "[This Mac-user targeting] says this company has pretty advanced and sophisticated marketing techniques."

Orbitz has too long focused on the air travel side of its business, Mahaney says, which typically yields under 5% commission from airlines, as opposed to 15% yields from hotels. To build up its hotel sales, the company is banking on techniques like this smart market segmentation.

In the fourth quarter of 2011, Orbitz had a 3% decline in revenue year-over-year, but has started to rally since then. The company reported first quarter figures of $73 million ahead of consensus expectations on gross bookings, according to a May Goldman Sachs report on the company, and $190 million in revenue, up 3% from 2011.

The truth about travel portals
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Why Taking Aim at Apple Fans Was the Smart Move for Orbitz

Let's go over a few of the things that Priceline, Travelocity, Expedia (EXPE), and Orbitz Worldwide (OWW) would probably prefer that you don't know.

1. No portal offers every available option. Southwest Airlines (LUV) prides itself on its low fares. And since it's one of the few major carriers that won't hit you with fees on your first two pieces of checked baggage, a great rate can get even better compared to legacy airlines charging as much as $120 for two bags.

However, you won't find Southwest in the list of vetted flight results through most portals. Southwest's low-overhead approach and desire to have passengers deal directly with the airline make it a surprising omission.

You'll never see the portals spell out which carriers are outside of their search scope. It would only encourage visitors to crack open a new browser window and check those rates directly.

Things get even more limiting when it comes to lodging. Most of the major chains are refreshingly represented, but what about small inns, cozy bed-and-breakfast establishments, and the growing number of vacation properties that are showing up on HomeAway (AWAY) or Airbnb?

2. Traditional travel sites will never tell you to wait. Microsoft's (MSFT) Bing has an interesting treat for those kicking the tires of its travel portal. Bing Travel offers what it calls Price Predictor on flight searches. It offers a five-point system that lets travelers know if rates are likely to head higher, lower, or stay the same.

Bing claims that Price Predictor will save customers over $50 on a typical round trip. A third-party audit of its predictive technology claims that the gauge is accurate about 75% of the time. Analyzing weekly pricing patterns, industry moves, and availability make it a reasonable call to make.

Why aren't all of the portals following the lead of Bing's comparison-shopping engine? Well, think about it. Portals pride themselves on what they initially called a "bookers to lookers" ratio. They want to seal the deal, before you change your mind and head off to other websites or have a change of heart with your travel plans. They would lose plenty of sales by telling travelers to wait a few days, even if they would earn gobs of trust in return.

3. Booking directly still has its advantages. Travel portals are as popular as ever. Priceline reported blowout quarterly results this week. Revenue climbed nearly 36% in its latest quarter, and earnings soared 58% higher. Through its several global websites, Priceline arranged $21.7 billion in gross bookings last year. If you think that's a lot, consider that market leader Expedia scored $29.2 billion in global gross bookings in 2011.

Both companies are growing at brisk double-digit percentage clips, so obviously it's not as if their shortcomings are scaring consumers away. Priceline's "name your own price" option offers knowledgeable travelers the ability to take a stab at a low rate. For those with a little less sense of adventure, but still open to a little mystery in exchange for a deal, Expedia's Hotwire may be just the ticket.

However, few lodging deals may be as sweet as calling up the actual hotel you wish to stay at and trying to negotiate a daily rate directly.

4. Travel portals need to up-sell you. A few years ago, smart travelers would scour the travel portals -- and comparison-shopping sites such as Kayak that may throw out wider nets -- and then head off to the actual websites to complete the transaction. Traditional portals were charging $5 to $10 in airline booking fees to offset carriers that were slashing commissions.

We're in fairer times now. Most portals have done away with booking fees. They make it easy to add frequent flier membership numbers and select seats. However, this doesn't mean that the playing fields are finally level.

Websites still have bills to pay. Start checking out after finding the perfect flight through Priceline and you'll be asked if you want to buy travel protection insurance. No? How about a place to stay? No? Will you need a car while you're away? No?
Even Kayak and Bing Travel can get in your face with third-party ads. They do link directly to travel sites, so that's a plus, but it pays to be a disciplined online travel shopper.

Bon voyage.

The company is continuing to fight against the tide: Hotel booking transactions fell 10% in the fourth quarter of last year, and rallied slightly for 1% increase year-over-year in the first quarter. Hotel room nights grew 3% year-over-year for Orbitz.

Sales at Orbitz have been pushed higher by vacation packages and an increase in mobile bookings, but offset by expensive air travel prices -- a clear reason for it to tap into any data it can find to steer potential bigger spenders toward pricier resort choices. Given that Orbitz says 90% of people who book a hotel choose one that appears on the first page of results, targeting those to the individual shopper is essential.

The flight ahead for Orbitz might be slightly turbulent: Goldman Sachs estimaties that 22% of Orbitz's second quarter revenue will come from Europe with the dollar-euro and dollar-pound comparison decreasing 3% and 7%, respectively.

But perhaps tapping into the psychology of our computer-buying habits will help Orbitz navigate a smoother path into the future.

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