Taking the Next Step Towards Customer Orientation

Patrick (Sungho) Yoon

December 22, 2014

Business case topic

• What kind of businesses should Hotels.com acquire

and why?

2

Executive Summary

• Expedia group has been growing fast with its competitive online travel booking service platform,

and the trend of brick-and-mortal travel business moving online. For Hotels.com, this growth has

been fueled by 2 key factors : increasing the number of travel partners and traffic generation.

Much has been worked on to increase the number of travel partners through domestic and

overseas acquisitions of similar kind. On traffic generation side, however, a lot of marketing

resources are being spent to increase the traffic into Hotels.com, which has been damaging the

operating margin.

• The recommendation is to improve the ease of use for our customers to increase the number of

repeat customers who are cheaper to maintain than acquiring new customers. The company

Tripomatic, which provides a travel planning and organizing service, will likely attract more user

base due to its simple-to-use trip planning service. Hotels.com, as well as Expedia's other services,

can benefit from Tripomatic's service due to abilities to 1) develop and maintain more repeat

customers, 2) exploit cross- and up-selling opportunities with Tripomatic's recommendation system

and 3) increase conversion rate from window shoppers to buyers due to simpler decision making

process.

3

Agenda

4

1

2

3

4

Analysis of Expedia Group and Hotels.com

Identifying Opportunities and Target Company

Synergy and Risk Analysis

Next Steps

Transportation

Accommodation

Food

Activities

expedia inc.

Today, Expedia Group provides one of the most competitive online

travel booking services in the world

5

Global

Market

• International tourism receipts reached USD 1.16T (2013)

• International tourist arrivals expected to grow from 1.08B to 1.8B by 2030

• Asia Pacific has the strongest prospects (5~6%) followed by Africa (4~6%)

1) UNWTO Tourism Highlights (2014), United Nations World Tourism Organization

1)

+ “Deals”

“Things to Do”

• Potential area to explore

Hotels.com has been a key driver of growth for Expedia, which has

been fueled mainly by two key success factors

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• Hotel reservation booking is 72% of Expedia’s sales (2013)

• Room nights growing 27% in 2012, and 23% in 2013

• Channels of sales : Hotels.com, eLong and Expedia

1)

1) Annual Report, 2013, Expedia Inc.

Core Benefit

# of Travel

Partners

Online Marketplace

“Best Price”

Key

Success

Factors

Core Service

Traffic

Generation

• Expanding the global network

of travel partners

• 260,000 partner hotels, more

than 100 PoS in 60 countries

1

1

2

2

• Customers coming into the

brand websites to shop

• Hotels.com has to be a good

marketing company?

So, is Hotels.com a good marketing company?

7

Implications3Yr CAGR

17.6%

3,449

4,030

4,771

-

1,000

2,000

3,000

4,000

5,000

2011 2012 2013

(USD M)

Revenue

• Revenue has been

increasing fast at 3yr CAGR

of 17.6%, which implies that

both the number of travel

partners and traffic

generation has been

growing healthy.

Source) Annual Report, 2013, Expedia Inc.

13.9%10.7% 7.7%

Operating

Margin-12.6%

• The operating margin has

been declining, which

implies that costs are

outgrowing the revenue.

43%

46%

Cost of Revenue Selling and Marketing

Technology and Content General & Administrative

22.0%

23.2%

16.8%

10.3%

• Selling and Marketing

expense has been mounting,

which suggests that 1)

marketing is fueling the

revenue growth and

2) customers are getting

more expensive to acquire.

22.0%

• Well aware of

the brand and

ready to buy

1. Competitive

pricing

2. Increase

switching cost

3. Improve

ease of use

Who are they? Approach

1. Marketing :

Search engines,

Metasearch,

campaigns, Ads

2. Promotions

• New to the

brand and need

to be convinced

• Need to be

converted from

window shoppers

to buyers

Increasing and maintaining the number of repeat customers can be a

solution to improving the operating margin

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Customers

New Customers

Repeat Customers

Agenda

9

1

2

3

4

Analysis of Expedia Group and Hotels.com

Identifying Opportunities and Target Company

Synergy and Risk Analysis

Next Steps

Top ten market trends in travel industry suggest that our consumers are looking

for tools to save time, but still want personalized and authentic experiences..

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Source) Top 10 Trends in Travel Industry, Mintel Group (Market Research Firm)

Consumers are seeking tools to

help them perfect their productivity.

Life Hacking

Time is of the essence.

Faster Happier

Personalization is a right, not a

privilege.

Make it Mine

Consumers are craving products and experiences that come with a stamp of authenticity.

The Real Thing

Enriching our lives with experiences

has become more important.

Immaterial World

Mobile and GPS technology is enabling us to explore our surroundings like never before.

Access All Areas

Consumers are spending more time in transit. Commutes offer new marketing opportunities.

Transumers

Growing urbanization requires re-imagined, revitalized city states that inspire their citizens.

Rebirth of Cities

Work like an adult, play like a

kid.

Play Ethic

Intense physical and sensory experiences give life, brands and products deeper meaning.

Sense of the Intense

.. and customer insight indicate that customers become “sticky” when

decisions are simple to make

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“To keep your customers, keep it simple.”

by Patrick Spenner and Karen Freeman

1)

1) To keep your customers, keep it simple, Patrick Spenner and Karen Freeman, HBR, Issue of May 2012

• Definition of “Sticky” = Likely to follow through on an intended purchase, buy the

product repeatedly, and recommend it to others

• Survey of more than 7,000 customers and hundreds of marketing executives

• Questions were asked about respondents’ attitudes and purchase experiences

across variety of product & service categories including shopping duration, effort

required, relationship with the brand, likelihood of repurchasing and recommending

Study Design

Key Findings

• After studying more than 40 variables that affect stickiness, the single biggest

driver of stickiness, by far, was “Decision Simplicity”

• The ease with which consumers can gather trustworthy information about a

product & confidently and efficiently weigh their purchase options

Search and

book for flight

1

Even today, planning and organizing a trip still requires immense

amount of time and efforts from our customers

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Let’s follow a customer journey towards a holiday vacation…

• Our typical customer from Korea, planning for a week’s vacation

with his family during Christmas season in Strasbourg, France

Search and

book hotels

2

Search and

book local

transportation

3

Search for

local activities

4

Itinerary TicketsBudget &Routes

KeyBenefits

• Hotels.com can sell more room-nights to repeat customers who

values online trip planning tools that save their time and efforts

1

Accommodation

Trip planning service would operate as a frontend user interface, winning

customer loyalty as an easy-to-use trip planning and organizing tool

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Trip PlanningService

Automatically generates- Itinerary- Estimated budget- Routes on downloadable maps- Makes bookings- Manages tickets

• Take full advantage of repeat customers and provide entire service

offerings

2

“Things to Do”

Transportation

Activities

Tripomatic S.R.O. provides a simple tool to plan and organize trips,

integrating transportation, accommodations, and local activities

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Tripomatic, S.R.O.

• Private company

• Executive Head : Mr. Lukas Nevosad

• Office : Brno, Czech Republic

• Revenue : USD 908,895 (2012)

• 15 employees (2012)

• Homepage : tripomatic.com

Service Features

• Service concept : “Saves you from painful trip planning”

• Provides trip planning and organizing service with offline navigation and travel templates

• Service available today for PC, tablets and mobile (iOS, Android, Blackberry)

Business Model

• Operates as a metasearch company

with advertising being the main

source of revenue

• Recommends services that are not

yet picked up by the customers

• Major travel partners (current)

– Accommodation : Booking.com

– Transportation : Rentalcars.com,

local transport websites

– Activities : Viator.com, official

venue websites

Planning for tour activities with Tripomatic on the Web

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Click here to watch a promotional video

Agenda

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1

2

3

4

Analysis of Expedia Group and Hotels.com

Identifying Opportunities and Target Company

Synergy and Risk Analysis

Next steps

Synergy potential between Hotels.com (and Expedia) with Tripomatic is

beyond just increasing the number of repeat customers

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1

Develop pool of repeat

customers

• Customer benefit from trip planning

service will help us develop more repeat

customers who are more profitable

3

Increased conversion rate

• Tripomatic’s service can increase the

conversion rate of window shoppers to

buyers due to more simplified decision

making process

2• Upside potential to cross-sell and up-sell

through Tripomatic’s recommendation

system

Increased opportunities to

cross-sell and up-sell

Potential risks associated with the acquisition

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• Assessment of technologies

in place during due

diligence process

Technical difficulties in

service integration

• Need to assess current

business relationship with

Booking.com and

Rentalcars.com

Business relationships

with Priceline

Conceivable? Likely?Key Risks Mitigation Plan

Tripomatic’s business

not taking off

• Become a partner first

through a strategic

investment and acquire

later when the business

really takes off

Agenda

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1

2

3

4

Analysis of Expedia Group and Hotels.com

Identifying Opportunities and Target Company

Synergy and Risk Analysis

Next Steps

Next steps

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Action Items2015

Jan. Feb. Mar. Apr. May Jun. Jul. Aug.

1. Internal Analysis

1.1. Identify areas of synergy

1.2. Quantify synergies

2. Due Diligence

2.1. Contact target company and sign confidentiality

agreement

2.2. Conduct due diligence

2.3. Valuation and deal structure

3. Develop Business Plan

3.1. Marketing, operations, HR, finance, partners

4. Negotiation

5. Transaction & Deal Closure

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End of Presentation