The tourism industry has often boasted of its resilience and ability to rebound after drops in demand caused by such negative factors as 9/11, SARS or natural disasters.

The adaptive response most frequently deployed is generic discounting. But does this serve the individual business or the tourism community well and will it work this time?  I believe the answer is NO and for the following reasons:

1.       We're not looking at a temporary blip in demand. Life and business, as experienced between 2003 and Q3 2008 will not return to normal. The growth in demand for discretionary services was fuelled by cheap credit, cheap energy (until 2007), and asset inflation - all unsustainable illusions based on a denial of environmental realities. Expansion in capacity (airline seats, condominiums and ocean view apartments, whether sold in wholes or fractional units, hotels and restaurants) was all based on an over estimation of demand by suppliers and consumers alike.

Now only the airlines have the option to remove excess capacity from circulation by parking their vehicles in the desert. As identified by Time Magazine in February 2009 , consumers shop very differently today. As indicated by McKinsey as far back as 2007[i], boomers won't be spending as freely after seeing their assets (first homes, second homes, pensions and equities) plummet in value; and the kids, who were supposed to be filling a major labor shortage due to retirement of the boomer workforce, will face tough competition from people old enough to be their grandparents.

2.       We are looking at fundamental changes in the nature of demand; the way consumers make decisions and respond to brand messages and the way suppliers gain their attention. Not only do consumers regularly turn their backs on advertising, they worry more about the opinions of peers or society. Sean Gregory's article in Time identified three kinds of consumer in terms of their willingness to spend right now. In short:

• Those that can't (they've lost their job or income)
• Those that might but won't (they fear they might lose their job or income or are simply being prudent/cautious)
• Those that could but still won't (because they don't want to send the wrong signal to peers)

3.       We are looking at deep and major changes in the source of travel demand and businesses must be more granular and refined in their approach. In their 2006 article, McKinsey showed how price sensitivity varied by a factor of 13 across regional markets and even by a factor of 3 across zip codes in the same cities.

In other words, consumer behaviour cannot be predicted by macro demographics, psychographics and post code but by individual circumstance, perception and attitude. Individual consumers are demonstrating their individuality. Destinations that continue to rely on macro economic models to prioritize top ten performing countries will miss out big time. This is the time for more in-depth research into customer perceptions and motivations not less.

4.       We are also looking at fundamental shifts in the way consumers spend their free time (internet usage now exceeds TV watching for many) and the way customers are reached and influenced. Furthermore, the relative cost and ROI of various distribution channels can vary enormously as illustrated by McKinsey's research[ii]:

In this context, blanket reductions in marketing spend across the board combined with a reluctance to change channels would spell disaster.

At a time when customers have ceased to trust brands; when they favor the recommendations of friends and peers over the exhortations of sales personnel; and when they can research a producer's claims or compare supplier's prices on their mobiles as they walk to the check out stand, loyalty cannot be bought. It can only be earned through assiduous attention to detail, through rigorous honesty, through genuine respect for the customer's intelligence and through genuine gratitude for past business. Tough but true.

So if these four observations have some validity, why do so many businesses in tourism continue to slash prices and offer blanket discounts at the first deep drop in occupancy statistics or passenger loads? Random or blanket discounting can only do more harm than good:

a.       It sends a very dismissive signal to past loyal customers - essentially saying their loyalty is worthless and implying that the profit margin is so high that the supplier can afford to discount indiscriminately now. Can it surprise if the following thought passes through such a client's mind "so if, when I visited your resort last year I was being fleeced why should I return this year when times are tough for both of us?" How many times have you been attracted to an offer made by your own supplier only to read the fine print that says "this offer doesn't apply to existing customers." So much for appreciation.

b.      It reinforces the notion that if the seller doesn't value their own product, why should the buyer? How often do you see de Beers slash the prices of their diamonds?

c.       It further commodifies the industry and, by necessity, downgrades service levels. How do 5 star hotel properties manage to offer 50%+ discounts without reducing back of house staff and dropping service levels?  Once upon a time and a long time ago, travel was a joyful and sometimes glamorous experience of positive discovery and excitement. Now it is an exercise in stamina requiring an infinite capacity to endure rudeness, boredom, indifference and alienation not to mention body searches.

d.      It will make it very difficult to raise prices and capture back customers when interest rates, taxes and the price of energy, carbon and other key inputs rise and rise they most certainly will within the next 18-24 months.

So what's the alternative? Which businesses and destinations will come out of the recession ahead in terms of resilience and fiscal health?

1.       Those  who act on the truth that marketing is not a battle but a dance in which the customer does the asking and takes the lead and that markets are not monologues broadcast by suppliers but conversations between customers that occasionally involve suppliers.

2.       Those that bend over backwards to sustain a conversation with past guests - find out which ones are suffering and cheer them up with an attractive offer or who reward loyalty with carefully crafted offers to past guests. Note:  well over 70% of business is influenced by the recommendations of peers and the stories people want to read in gloomy times are happy stories told by delighted customers who feel cherished and supported when time are tough.

3.       Those that engage their employees in collectively finding ways to combat the downturn together; who offer discounts to employees' networks of friends, peers and families simply because they are connected to a person who helps co-create the brand; and who do whatever they can to retain and incentivize good and loyal staff to go the extra mile.

Companies are not just legal entities with a profit motive built into their DNA but also communities of people sharing a common purpose, culture and considerable time together. Remember, it is always during tough times that corporate rhetoric about our people being our greatest asset is shown to be true or false - with potentially disastrous consequences for service, loyalty and guest satisfaction.

In summary - successful businesses understand that companies are communities courting customers though respectful conversations. The provision of discounts has a place alongside active listening, on-going support and exemplary customer care but only if tailored to the specific needs and circumstances of customers and are perceived as a way of saying thank you - for trying the product or sticking with it. What do you think? Let's start a conversation.

[i] David Court, Diana Farrell, and John E Forsyth, "Serving Aging Baby Boomers" McKinsey Quarterly, November 2007[ii] David Court, The Downturn's New Rules For Marketers, The McKinsey Quarterly, December 2008.

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