Co-creation of tourism experience on travel guide and booking websites

¶ … co-creation does not exist in tourism marketing today but is the future of the industry. The concept is investigated from multiple angles. Today's e-commerce tourism sites are sophisticated marketplaces but are incapable of providing a true co-creation experience. The algorithms to provide this true co-creation experience are in development, however. This article examines the convergence between these algorithms, customer relationship management, the experience economy and the concept of co-creation in tourism marketing with an eye towards a vision of the industry's future. While the scholars who have introduced the idea of co-creation to the tourism marketing literature may have made some spurious assumptions, their ideas are more ahead of their time than faulty.

Introduction

The notion of co-creation in tourism is an interesting one that has been proposed -- yet the reality of the tourism industry today does not support this fanciful notion. Tourism is pre-packaged in the form of cruise ships, all-inclusive resorts and package tours. Independent travel is a dying art in Western society, where the types of trips on offer are limited and even niche tourism is becoming subject to industry packaging. While the information available on the Internet allows consumers to exercise more choice in co-creating their own experience, few consumers exercise this option as a matter of course. The notion that consumers are co-creators of their own experiences is absolutely unsubstantiated. This paper will demonstrate the potential for co-creation in the tourism industry but understands that this potential has yet to be realized by the industry, which instead markets the idea of co-creation.

The literature in support of the idea of co-creation is subject to sweeping, generalized assumptions that are not supported. Once these assumptions are removed, the argument that tourism is a bastion of the co-creation experience becomes shakier. The idea of co-creation sounds good, and certainly the potential for a dramatic shift in consumer behavior is there, but in the real world, co-creation is to this point little more than wishful thinking, an idea that is good on paper but has yet to take hold in the marketplace. There are specific reasons for this. Customized, negotiated travel costs more than mass market travel. Companies simply cannot offer co-created travel at the same margins as pre-packaged travel. Consumers, while empowered by information, have recognized there is an opportunity cost to acquiring this information. As such, they are trending towards tourism in a format that requires little work -- most seem unwilling to dedicate hours to research when a packaged trip offers them the utility that they seek.

Co-Creation

The idea of co-creation was explained by Binkhorst (n.d.) as being a manifestation of the experience economy. The experience economy is loosely described by Binkhorst as being "a balance between control by the experience stager and self-determined activity with its spontaneity, freedom and self-expression." What this means is that the tourist, working with a framework provided by the destination, engages in some element of customization of their experience. This is the embodiment of Binkhorst's co-creation ideal.

Prahalad and Ramaswamy (2004) clarify the concept. They argue that the process of value creation is "shifting rapidly from a product- and firm-centric view to personalized customer services." They argue that the notion of the market is as a point of interchange between consumers and businesses. To them, at no point in human history until now did consumers have any say in product design. This is a faulty assumption, equally faulty as the idea that consumers are able to interact directly with companies prior to the point of exchange. They point as an example of this shift online hotel and airfare auctions (i.e. Hotwire, Priceline). Yet the locus of interaction at these markets remains at the point of exchange. Bargaining online is no different than bargaining at a Middle Eastern bazaar or Asian night market.

Prahalad and Ramaswany further argue that there is a paradigm shift in which "the customer pays according to her (sic) utility rather than according to the company's cost of production." This implies two things. The first is that there has been a shift in buyer power in the industry. This is true. In consideration of Porter's Five Forces model (Porter, 1980), an increase in information on the part of the buyer implicitly increases the bargaining power of the buyer and these websites represent an increase in buyer information.

The second implication, however, is that there has been a shift in the negotiating dynamic itself. This is not the case. The negotiating dynamic still involves the same parameters as it has since the first markets appeared in Neolithic society. A buyer and seller must, after a period of negotiations, conclude their business with an offer, acceptance and delivery - the fundamentals of any purchase contract. The medium for the negotiation may have changed, but the negotiation itself has not changed. The consumer may be better empowered to seek his or her price, but cannot negotiate the finer terms of the offering. A consumer can no more negotiate, for example, the thread count on the linens at the hotel as a result of online auctions than was possible ten or twenty years ago. The company still controls the nature of the product. Moreover the company will still not sell a price that is unfavorable and the consumer still will not make an offer at a price that he or she considers unfavorable. Indeed, Prahalad and Ramaswamy commit a cognitive error in comparing the way a firm sets price on a physical good to the way prices are set on a perishable service such a hotel or an airline seat. The two are not the same, and never were. What online auctions deliver, at best, is the illusion of co-creation. This illusion is created by greater information and the increased competitive intensity created by the online marketplace in comparison to the pre-Internet marketplace when the acquisition cost of information was much higher.

Both Prahalad and Ramaswamy (2004) and Binkhorst (n.d.) argue that "consumers want much more." This claim is not verified. Indeed, evidence from the industry indicates that the vast majority of consumers have no particular interest in a co-creation experience. They may like the idea of co-creation, but in practice, the major drivers of travel revenue continue to be packaged vacations -- all-inclusive resorts, tours and cruises. When consumers do undertake independent travel, they do not necessarily do it as part of a co-creation process; they simply do it on their own.

The global tourism industry is with $1.1 trillion per year. Growth has been strong from the mid 2000s through to 2007, suffering a decline in 2008 with the onset of the economic downturn. An estimated 51% of this was for "leisure, recreation and holidays" (WTO, 2009). Areas of growth are all focused on package tourism sectors -- Central and Southern America, the Middle East and Asia. The Chinese market is dominated by package tourism, and domestic tourism in China is growing rapidly. Emerging markets lead the way for tourism source growth at a growth rate of over 15%, and emerging market tourists tend to be focused on package tourism as they are less familiar with the concept of independent tourism than Westerners. The WTO also identifies construction of mega-resorts as being an industry trend in recent years, though it criticizes the practice as short-sighted and views that in the coming years the trend will be towards greater diversification in the industry (WTO, 2009).

Towards Diversity

At its core, the notion of co-creation as presented by Binkhorst, Prahalad and Ramaswamy is a representation of a future that maximizes the use of technology. The WTO report highlighting a future of highly diversified travel shows that organization believes that co-creation may come to pass in future. This is facilitated by the use of technology. Simply put, the Internet provides consumers with the access to information needed to create the vacations they desire. Companies will naturally respond to this by setting up systems whereby they do work with consumers actively to create these experiences. It is easy to imagine that the proponents of co-creation are simply ahead of their time. To understand how co-creation in tourism will work -- and perhaps why it does not yet work on anything approaching a mainstream scale -- it is worth considering how e-commerce works in the travel industry today.

The websites that facilitate interaction between consumers and travel providers attract consumers with information -- the same information that increases consumer bargaining power. Consumers implicitly understand that increased bargaining power will mean lower prices. They gain knowledge about the quality of the offerings available, the number of offerings available and they are provided with invitations to treat from the travel providers.

With this captive audience, the websites need to find ways to make consumers buy, so that the site earns revenue. Hu (2008) explains how this process works. "Travel websites should pay more attention to the improve (sic) the electronic service quality," he explains. The quality, the e-SQ employs a fuzzy number to account for the consumers' subjective preferences. As these preferences are determined, the algorithm then determines the best invitations to treat to present to the consumers. Today, these processes are powerful and can drive business at these websites, but they do not yet constitute bona fide interaction between the travel provider, the agent (website) and the consumer. Rather, the algorithms merely produce smarter sales pitches. At such a point when algorithms can literally cater to consumers' needs based upon the consumers' interactions the travel industry will be on the cusp of experiencing genuine co-creation. Co-creation at this point, however, is not an automated process. It must be conducted by humans. Given that more people are purchasing travel online than ever before, this would point to a decline in co-creation. It may be, however, that this technology will emerge in the next few years and truly transform the travel industry into one where co-creation is the norm.

Li and Petrick (2008) view co-creation as a future potential as well. They study the ways in which new marketing concepts have become integrated by the tourism industry. They found that while many new concepts have begun to be integrated, this has not yet happened in any broad, strategic fashion. Given that co-creation as Binkhorst has conceptualized it is a strategic choice, this would indicate that it has yet to be adopted by the industry as a whole. Technology has adopted the marketplace, but it has not inherently changed the market. Co-creation as a strategy choice would be a differentiated service, to use Porter's generic strategy typologies. With high value-added, co-creation would be a service function ancillary to the mass market travel that dominates the current landscape -- cruises, all-inclusives and online booking engines. The industry shift towards co-creation, therefore, will need to occur at the strategic level. Ultimately, this will need to be driven by consumers and a desire to gain unique experiences. This desire for unique experiences is assumed in the co-creation literature, rather than explicitly proven. The market statistics are the proof, and they still point to mass market tourism. The implication for the tourism industry is that there is room for a successful co-creation model. It may begin as a niche but over time has strong growth potential because of the value added.

This begs the question of why progressive marketing techniques like co-creation have yet to be adopted. Part of the answer lies in the willingness of consumers to adopt it, but this is not a satisfactory explanation in and of itself. If any market existed -- and we know that it does because independent travelers have been the authors of their own experiences since the days of Marco Polo and Ibn Battuta -- surely a company would have established dominance of that niche. The issue appears to lie in the slow pace of adoption of information technology by the travel industry. This slow adoption explains the rapid rise of online booking engines -- none of which had significant market share until perhaps a decade ago. Indeed, Murphy and Tan (2002) found that during the early part of the last decade most travel companies struggled with utilizing email, much less the complex algorithms needed to properly execute the co-creation paradigm. Poor technological savvy in the industry can also contribute to the findings of Li and Petrick that the travel industry is behind the curve in the implementation of new marketing concepts.

The move to a co-creation model would be spurred by improvements in the technology -- at some point a company would take advantage of the opportunities presented in the marketplace. Hu (2008) contributed an algorithm to aid in the development of software applications capable to transforming the travel industry to a co-creation model. Chiu (2007), having identified that the current websites are poor even at providing useful information much less taking a proactive approach to assisting tourists, has proposed a Collaborative Travel Agent System (CTAS) to resolve the issue. This system uses semantic web technologies and using agent clusters. The agent clusters may "comprise several types of agents to achieve the goals involved in the major processes of a tourist's trip." The difference between this paradigm and the current paradigm offered by booking engines is stark.

The CTAS design proposed by Chiu et al. (2007) features multiple agents, each of which bears a specialty. The current systems at work on Expedia, Travelocity, Priceline and other booking engines may feature one agent at a time -- hotels, airlines, car rentals -- but when these agents are combined, they set the terms in the form of a "take it or leave it" invitation to treat. The buyer can either make the offer or not. There is at best the illusion of interaction or co-creation. What Chiu et al. propose is that these agents function together. If the algorithm is sufficiently sophisticated as to function on an intuitive level -- as proposed by Hu - then the result will be that the consumer can enter parameters and receive a response containing a wide variety of options. Negotiations over features and terms would continue from there. The degree of ambiguity in such a process would require highly sophisticated algorithms that exist more on a theoretical level but are well within the range of possibility for today's mathematicians. Indeed, there is likely the means right now to surpass the current booking engines in terms of their ability to recognize the subjective preferences of the consumer.

Such technology would be the first non-human realization of Binkhorst's vision, shared by Prahalad and Ramaswamy. It is possible, however, that the integration of current technology and the human brain can produce these results already. That this does not occur more frequently is not a condemnation of the idea of co-creation, but rather a recognition that until the technological environment improves to the point where co-creation in tourism is easy for the consumer, it will not become mainstream.

Moving Forward

While the technological development that will make co-creation possible is in development, the travel industry needs to consider what true co-creation will look like. Remember that the foundation of co-creation in travel is the idea of the experience economy. Morgan et al. (2008) explain the experience economy as "a view of consumer behavior which stress (es) the emotional, aspirational and participative over the functional and rational." The travel industry today can be seen as having mastered two elements of the experience economy. Travel marketing today is highly oriented towards the aspirational and the emotional, with all type of travel promotion featuring evocative imagery of idyll, of fun and of unique experiences. Tourists aspire to luxury, to adventure, to live the life found on the Travel Channel or in the pages of a Lonely Planet book. Where the experience economy has been slow to develop in tourism marketing is in the participative element.

Morgan presents the idea that the experience economy means that memorable experiences become a source of competitive advantage. The tourism industry has taken this lesson and applies it liberally in its promotions. Yet, the memorable experiences being marketed are broad-based, the consumer typecast, at least for large destinations and promotions in mass media. The idea that the consumer may wish to be the co-creator of his or her own experience is not foreign to the industry. Many major destinations use the ability to create multiple different types of memorable experiences as a source of competitive advantage. Such destinations have differentiated the experiences that they offer in order to appeal to more market segments -- consider Las Vegas adding shows, shopping, food, family-friendly entertainment and even desert/mountain ecotourism to its core gambling offering. This makes it clear that many tourism operators and destination managers understand the value of co-creation, but at this point they do not have a sophisticated means of developing it. The current model is focused more on providing options and allowing the consumer to choose from them, rather than a truly collaborative approach that would see the consumer work in an active way with the destination to create his or her own personal memorable experience. That would be true co-creation.

Another element of the experience economy or co-creation paradigm in the tourism industry is with respect to electronic word-of-mouth. Litvin et al. (2008) presents a study of this element of consumer behavior and its implications for tourism marketers. Consumers, Litvin notes, are heavily influenced by interpersonal influence. In tourism marketing today, that influence is almost entirely peer-based. Websites such as Tripadvisor.com provide an avenue for gathering of different information about destinations during the planning stages of a vacation. For tourism marketers, Litvin argues, managing these interactions is an important consideration in their business. For consumers, interpersonal influence helps to mitigate the risk associated with the major of an expensive but perishable commodity.

Tourism marketers, when designing their co-creation systems, must take into account the role that interpersonal influence plays. Their algorithms must include, for example, the verdicts of consumers on sites such as TripAdvisor. Consumers faced with options during the course of a co-creation discussion are likely to refer to such websites during the course of the negotiation, so it is better if the tourism marketer takes the available peer-produced data into account from the outset.

Furthermore, a co-creation service would still be subject to the same fundamental measures that all e-commerce travel services are subject to. Ho & Lee (2007) outline these as being information quality, security, website functionality, customer relationships, and responsiveness. Security and functionality are self-evident, and more the concern of it departments so they will be ignored for the purposes of this discussion. Information quality refers back to the idea of interpersonal influence. Information provided strictly by the industry is viewed with distrust relative to the information provided by everyday consumers (Litvin, 2008). The most important elements for an e-commerce site that wishes to build on a co-creation business model are the latter two -- customer relationships and responsiveness. These variables are at the core of the co-creation concept elaborated by Binkhorst, Prahalad and Ramaswamy.

Customer relationship management (CRM) is a fundamental marketing concept, explained by Reinartz et al. (2004) as being a recognition that "customers have different economic value to the company…and adapting their customer offerings and communications strategy accordingly." CRM, therefore, is the process by which the company learns about its customers, fosters a relationship with the customers and then tailors the offerings to the customers. It is not difficult to see how central the concept of CRM is to co-creation. Brown (1999) was blunt -- customer relationship management is imperative to the success of e-business. If algorithms drive customer offerings, then intuitively we understand that algorithms would perform this function better if they know who the customer is and what the customer likes. Software to help build CRM is already in wide use in the industry. The most robust examples of such software, such as that at Amazon.com, are proprietary, but even the examples that can be purchased and adapted provide a baseline framework for the development of co-creation.

How this would function is simple. Co-creation relies on CRM software to learn about the customer -- what has been searched previously, what has been purchased previously, what questions have been asked previously -- every interaction between the customer and the website. This information is accessed by the co-creation algorithm and processed in conjunction with the prompts that the consumer inputs at present. This allows the algorithm to respond with an entire history of the customer as consideration, rather than simply the current information. The result would be a closer match. The customer may be satisfied with the first one or two offerings presented by the algorithm. The interactive process becomes more effective with more customer information and will yield more positive results.

The output received by the consumer will be of a higher quality. Consumers are already engaged by the other two aspects of the experience economy -- the emotional and aspirational -- and they are heavily influenced by peer recommendations. The move towards the mainstreaming of co-creation in tourism will be at hand once the concept becomes more truly interactive and delivers exciting, dynamic results to the consumer. Payne & Frow (2005) point out that CRM is a cross-functional process that must be integrated at the strategic level, echoing the view expressed earlier that successful implementation of a co-creation strategy in the tourism e-marketing framework would need to be strategic, rather than tactical initiative.

In an elaboration of that work, Payne, Frow and Storbacka (2008) outline the case for service-dominant logic, which is rooted in the proposition that the customer becomes the co-creator of value. They explain that very little is known about how customers engage in this process of value co-creation. Firms seeking to adopt a service-dominant approach take the view that the service element is the most important component of the transaction. The implication for a tourism marketer is that co-creation -- a true application of the service component -- is a greater generator of value than the vacation itself. Co-creation in tourism engages the customer and by doing so, is likely to increase satisfaction and improve brand loyalty. Not only is value derived from the consumption of the good but value is derived merely from the creation of the good -- creating a vacation better than could be achieved if either the consumer or the travel company created the good independently.