Tuniu rolled out plans to set up 100 regional service centers next year to counter arch rival LY.com’s recent announcement of opening 11 new experiential showrooms around China by the end of April. This development is an indication that the two companies are making showrooms their new battlefront.
Tuniu and LY.com race to set up offline showrooms
LY.com’s COO Jian Wu said the company has set a comprehensive O2O distribution strategy extending from departure points to destinations and will continue to extend its services from online to offline while furthering penetration of destinations in the future. CI Consulting senior analyst Shengwen Xue thinks that LY.com’s aggressive distribution indicates its desire to overtake rivals via O2O channels.
Tuniu CEO Donald Yu said they would accelerate the national development of its offline regional service center network this year. It currently has 75 regional service centers and this will grow to over 100 next year and 200-300 eventually.
A Tuniu manager said 50% of Tuniu’s transactions came from second- and third-tier cities, which are currently the biggest battlegrounds for the online travel market. Analysys International analyst Zhengyu Zhu said online user coverage is widespread in major cities but there is more potential in offline markets in second- and third-tier cities.
Little short-term profit from showrooms
One OTA had a trial experience with an offline experiential showroom and found it still offered mainly travel product consultation and booking, contract signing and other document processing services avaliable online as well. The costs for operating the showroom were also high, with annual rental of RMB730,000 for the location in a Beijing financial plus salaries for six staff. The OTA concluded that its showroom was similar to traditional tour agencies with no apparent advantages or unique selling points.
Despite skepticism, LY.com’s Ms. Wu remains upbeat about setting up offline experiential showrooms. She thinks showrooms can enhance user satisfaction and the project’s advantage in scale will become apparent as the number of showrooms increases, providing strong support for the OTA’s performance and resource development. “The showrooms’ profitability isn’t the only performance indicator . Rather we’re looking more at its strategic value and potential for future growth.”
Tuniu said its regional service centers are helping its expansion into second- and third-tier cities and boosting revenue growth. Its data show its regional service centers in 58 cities in 2014 contributed 8.7% of its turnover in the fourth quarter alone.
Showrooms, just for show?
So far OTA leader Ctrip has been nonchalant about the offline competition between LY.com and Tuniu. Ctrip only has three showrooms in Beijing, Shanghai and Wuhan and said it has no plans to expand the scale of its offline experiential showrooms in the future.
CI Consulting Mr. Wen said: “Although showrooms don’t offer short-term profit and the user experience isn’t comprehensive, OTAs will still contest this area. During the initial development stage there will be a high degree of homogenization. As the segment enters a high-growth stage, OTAs will still be unable to differentiate themselves much in service as their focus will be on locations and market share. However differentiation will emerge as their development becomes more mature.” (Translation by David)
