Information technology has revolutionized the business of travel in Spain. Booking 5.8 billion euros (US$7.9 billion) in online reservation in 2008, virtual travel agencies accounted for roughly one-third of the overall travel sector’s revenues. And rather than losing ground during the economic downturn, online agencies managed to maintain revenue growth, albeit at a modest 2.7%, according to PhoCusWright, a travel-sector consulting firm.

Against this backdrop, three marketing professors at the University of Oviedo in Spain — Rodolfo Vázquez Casielles, Ana Belén del Río Lanza and Leticia Suárez Álvarez — have researched the world of virtual agencies to get a better understanding of the quality of their sites and what it takes to stay ahead of the competition. As they write in their paper titled, “Virtual Travel Agencies: Analyzing the Quality of E-Service and Its Effects on Customer Satisfaction” (published in the Universia Business Review): “The competitiveness of virtual agencies is becoming more intense, so it is critical to understand the way their customers perceive the quality of the online services they receive.” In a recent interview with Universia Knowledge at Wharton, the professors discussed how top virtual travel agencies are learning how to make their sites both useful and fun in order to keep their hard-won customers happy.

An edited transcript of the conversation follows:

Universia Knowledge at Wharton: How has the virtual travel agency sector evolved in recent years?

Ana Belén del Río Lanza: The data for virtual travel agencies in Spain are very positive: More than half of the money spent on travel and hotel reservations is via Internet transactions, according to a 2008 report by DBK, a consulting firm. And 53% of people buying online reserve their travel, lodging and tickets for special events. Direct distribution by tourism-service providers (especially traditional airlines and low-cost carriers) has created a favorable climate, which helps customers overcome their concerns about making commercial transactions over the Internet. This has fueled the growth of virtual travel agencies. When things started out, airline tickets were the products most commonly offered by these sites. However, thanks to increasingly sophisticated technology, the agencies are able to provide every sort of tourism product.

According to rankings published by Hosteltur, a [Spanish] tourism industry magazine, the virtual travel agency with the [country’s] highest revenue is eDreams, which is fighting for the top spot with Rumbo (owned by Spanish telecom company Telefónica and Amadeus, a provider of travel industry technology); and Lastminute (a British agency that has a Barcelona subsidiary and merged with Travelocity and Travelprice). The Spanish market has also attracted such low-cost travel agencies as Mundoviaje and Expedia, the world’s leading seller of online travel, which arrived in Spain a couple of years ago. In June 2007, ETHI, a Swedish company, set up shop in Madrid and began operating through its Supersaver brand, which focuses on low-cost vacation products.

The development of online services for travel and hotel reservations in Spain has also awakened interest in tourist destinations as well as traditional travel agencies. These retailers, which at first thought their businesses were threatened by online travel agencies, are reinventing themselves so they don’t get left behind. They are developing online versions [of what they do] that complement their principal [brick-and-mortar] businesses.

Clearly, the number of web pages about travel has grown rapidly in recent years, and competition is more intense. So we need to analyze the quality of the online services from the perspective of their usual customers. We also need to investigate how the quality of these services influences customer satisfaction and identify the strengths and weaknesses of the various strategies undertaken by virtual travel agencies.

Universia Knowledge at Wharton: Your study draws up a scale to measure service levels, so that virtual travel agencies can differentiate between the two dimensions: "utilitarian quality" and "hedonistic quality." Why do you differentiate between the two?

Rodolfo Vázquez Casielles: We focus on the two dimensions of e-service quality that virtual agencies must keep in mind, not only to create a favorable first impression for the customer (one stage in the selection process), but also to facilitate the customer’s online search for product offerings and his or her ability to learn from the website (one stage in the decision-making process).

We differentiated between the two types of quality of the offerings of virtual travel agencies. Utilitarian quality is functional and extrinsic. It refers to the added value (or utility) that people derive from completing a search for information and/or making a purchase. The second is hedonistic and intrinsic. This refers to the pleasure that people derive from the search for information and/or purchase of products on a site.

Utilitarian quality is composed of four sub-dimensions: Web design and functionality (including the design of the website, its efficiency and the ease of navigation); the quality of the information (its relevance and degree to which it is complete, detailed and up to date); reliability (the fulfillment of promises, speed, privacy and security); and responsiveness (the variety of services and degree to which they are adapted to each customer’s needs). This includes individualized attention; prices targeted at the needs of various customer segments; how easy it is to contact the company through alternative communication channels; and the online agency’s commitment to making changes and offering compensation to customers [if plans are changed or cancelled].

Hedonistic and intrinsic quality involves various things related to entertainment and pleasure. They have an emotional content, such as customers’ perception that they are spending a pleasant amount of time online, undertaking an adventure and forgetting their problems. The site offers them the chance to communicate their experiences. These attributes have the potential to awaken emotional responses in customers because the Internet provides customers with interactivity.

Universia Knowledge at Wharton: Who is the typical customer of a virtual travel agency and what kinds of decisions does he or she take when going to such an agency?

Leticia Suárez Álvarez:To collect information, the researchers conducted face-to-face interviews and using a questionnaire given to respondents living in various cities in northern Spain. They obtained 480 valid responses.

Of the respondents, 48% were men and 52% were women, and 47% were between the ages of 18 and 34, 39% between 35 and 54, and 14% older than 54. As for the way that the travel sites are used, 30% said they log on to them to obtain information, while 70% said they obtained information and bought products and services. The most popular products bought were airline tickets, hotel reservations and vacation packages. The average customer had been using such sites for 2.4 years and had spent an average of 734 euros on each trip.

Universia Knowledge at Wharton: Your study talks about the importance of making a first impression on customers. Why is that important? What recommendations about strengthening the first impression can you provide?

Del Río Lanza: Some customers who have a favorable first impression about the website they select are more likely to remain on it and proceed to search for detailed information; thus, [it requires] learning about how to navigate the website to find the services supplied by the agency. When making a decision, a customer can use the website as a source of information and/or to make an online reservation or purchase. The goal of the company is to attract a lot of visits to the website and, of course, generate sales. Virtual travel agencies must manage their strategies for online service quality not only to create a favorable first impression during the selection stage, but also to facilitate the search for products offerings and the learning process [about travel options] during the decision-making stage.

Universia Knowledge at Wharton: What are the strengths and weaknesses of the virtual travel agencies you analyzed?

Vázquez Casielles: One way of identifying the strengths and weaknesses of virtual travel agencies is to use a technique known as Importance-Perception Analysis. [It starts with a ranking of] the perception that customers have of the importance of a particular service and its quality. Four different situations can be obtained:

1. Competitive Vulnerability: When customers provide a relatively low rating regarding aspects of the site they consider important. A virtual travel agency may be vulnerable to competition if it doesn’t improve the quality of those services.

2. Competitive Strength: When customers provide a high rating to a site regarding aspects of the site they consider important. A virtual travel agency must make every effort to maintain its high rating.

3. Irrelevant Superiority: When customers give relatively high ratings to aspects of the site they consider relatively unimportant. In this case, if an online travel agency does not increase customers’ perception of the importance of such dimensions, it may be misallocating resources.

4. Relative Indifference: When customers’ low ratings of aspects of a site do not lead to major problems for the agency because the customers consider these dimensions to be relatively unimportant. Nevertheless, it is worthwhile to monitor the importance of these dimensions regularly.

The results of the research permit virtual travel agencies to analyze their competitive strengths and weaknesses in terms of the quality of their services.

Top virtual travel agencies are well positioned when it comes to trustworthiness. That is, they provide immediate reservations and confirmation of orders; they provide reliable information about those services; and they offer privacy and security. These attributes are the source of their competitive strength because their customers, who consider these factors important, rate them highly.

The second-tier agencies are highly rated by customers for the quality of their information, site designs and functionality, but their customers are not demanding about these factors when it comes to rating a travel site for customer satisfaction. Their superiority in areas that their customers consider unimportant suggests that they may want to re-channel some of their resources into other activities that have greater customer importance and/or try to increase the importance of the factors considered less important, especially the quality of the information they provide.

The final group comprises virtual travel agencies that must improve the responsiveness and pleasurable aspects of their sites. This involves changing some aspects of their sites that their customers consider important.

Universia Knowledge at Wharton: What are the implications of the study?

Del Rio Lanza: Strategic management of service quality has important implications for improving the competitive position of an agency. The first implication of the study is that it makes sense to consider the two main dimensions of quality — utilitarian quality and hedonistic quality. From this perspective, virtual travel agencies must have a differentiated product that is highly valued by customers because it is both useful and provides pleasure. With this goal in mind, online travel agencies must stress four factors to improve quality: the design and functionality of their website, the quality of the information a site provides, trustworthiness and the responsiveness of the site. In each aspect, it is extremely important to improve the perception of visitors.

The study found that virtual agencies are vulnerable to competition because they have to invest heavily to offer more individualized treatment to their customers, such as personalized trips; promotional deals; programs for boosting customer loyalty; access to other activities that may take place in a tourism destination and including local guides and practical advice; travel insurance; and facilitating changes if reservations need to be modified or canceled.

Virtual agencies must also make a greater effort to develop strategies that create the perception that their site is pleasurable for customers looking for information and customers making reservations. They can facilitate visits to the site through blogs, chat rooms, online forums and virtual communities (which experts call Tourism 2.0) as well as games, technical integration (downloads to cell phones, MP3 players and GPS navigational systems), and giving visitors a way to share photos and videos and make virtual trips to a tourist destination, and making it easier for customers to share recommendations with one another. The goal should be to intensify the emotional attractiveness and social relevance of their sites, which are factors that influence satisfaction.

Another major conclusion of the study is the importance of strengthening users’ awareness of the quality of the information online. More and more people are surfing the Internet before going on a trip, and many not only search for rates and conventional information about destinations, but also want to enjoy the information they read and learn about the experiences of other travelers. Supplying travel information on the Internet has grown so much, and the sites capable of managing that information have a critical role to play. The professionals who run virtual travel agencies can find the tools in Tourism 2.0 that enable them to design a quality product. By using these tools, they can provide their customers with travel information that is much more comprehensive, current, reliable and interactive than ever before.