Thomas Cook’s Failure to Diversify

Nothing to Declare:Thomas Cook article

It can’t have escaped your notice that Thomas Cook – the UK’s oldest holiday company of 178 years trading – went into administration last weekend. Aside from the tens of thousands of passengers stranded on holiday in countries from Cuba to Croatia, thousands of jobs lost around the world, and the huge repatriation mission ahead, what has Thomas Cook’s demise left for us? As business analysts would tell us, there are certainly a few lessons for business owners – large and small – about business strategy and customer engagement within the tale of Thomas Cook’s collapse.

What caused the fall of the world’s best-known name in travel?

Although events seem to have progressed rapidly over the last few weeks, in reality the seeds of the crisis that brought down Thomas Cook were sown some 20 years ago. In fact, the company flirted with bankruptcy right back in 2011, which should have sounded a heavy warning bell for what was to come. A rescue package that was put into place at the time was so badly negotiated that it was thought that almost a quarter of the price of every holiday the ailing firm sold was directly routed to interest servicing. Whilst the package was enough to keep the company plodding along, add in a volatile industry and low margins and it proved too much of a burden for the business to bear.

Failure to thrive

Like many big brands, especially those who consider themselves as being originators of their industry, Thomas Cook largely traded on their legacy. However, seeing themselves as an immovable pillar of the industry could be taken in this case as arrogance, and this short-sightedness could prevent any business from thriving in a constantly changing market, with the failure to react to consumer-driven market changes playing a pivotal role in their business fortunes.

In Thomas Cook’s case, the consumer change that had the most effect on their customer retention was the movement from retail bookings to those made online. Online consumers could be considered savvier when it comes to getting a good deal, and could be more willing to abandon the first or the biggest in the market when there is a similar offer that comes in a fraction of the price from a lesser known business. The message is simple – consumers no longer care about what a business was. They care about what the business is right now – at the point where they make a decision to purchase.

What does it mean for the ‘old’ business model?

Any business model that involves significant physical assets must make those assets pay, whether as brand enhancement or by providing an ROI that helps keep the business afloat. Thomas Cook’s investments into high street retail outlets, fleets of aircraft and hotels was a significant drain on their finances. These assets could far more easily have been subcontracted or replaced. Physical presence is usually only highly effective if a consumer needs to physically connect to the product on offer – to see, feel, and experience it. Although the need for physical presence could remain in some markets in order to market the brand in high profile locations, if Thomas Cook had acted to move their sales presence largely online, and rid themselves of some of the physical assets, replacing them with subcontractors where possible, this could have made the business more agile and able to respond as the market shifted.

What can we take away from the Thomas Cook Tale?

Essentially, no matter how well-established and seemingly untouchable in the market a business is, they could still fall foul of a changing market. If a business fails to listen closely to what their customers want and do not adapt the business to evolving consumer habits, all they may have left is a sorry tale of what they once were.


View the previous nlighten article by Nathalie Schooling: How to stay relevant to your customers

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