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Winners

Recruit Lifestyle Travel Information Division, Jalan net

2012 12th Porter Prize Winner Online hotel reservations
Creating more and happier matches between travelers and hotels through online hotel reservation site, Jalan net.

Industry Background

img_2012_04_p.jpgThere are three strategic groups in the online hotel booking industry. The first group offers the broadest line of hotels. The second group focuses on business travelers. The third group focuses on the high-end niche segment.

Executive Summary

Jalan net is a unique case in which a latecomer caught up with the industry pioneer in the online services business, where the first-mover advantage comes into play. Recruit Lifestyle entered the market in 2000, which is four years later than early entrant (and early leader) Tabino Madoguchi (lit. the "Window for Travel," now Rakuten Travel). However, Jalan net, with its unique value proposition, expanded the market, established itself, and achieved a higher profitability.

Contrary to the early movers, who targeted early adopters (the business traveler segment), Jalan net successfully created a market through micro-segmentation of the majority segment. Jalan net helps them to find a hotel that fits their particular needs by uniquely defining customer segments (such as customers traveling with pets, and customers who want to take leisurely trips). Customers experience Jalan net as if it were a personalized service. This raises the switching cost for customers.

Unique Value Proposition

Jalan net's mission statement is as follows: "Have people meet the region, so that the world will be filled with more smiles." If all the hotels could improve to a five-star rating in their customer evaluations, all the customers would be happy and travel more, more business would be generated, and the industry would expand.

Recruit Lifestyle believes that its mission can be achieved by: 1) increasing the total number of transactions through total customer support, which begins with the provision of travel information and ends with the collection of feedback from customers after their trips; 2) working with hotels and inns to improve their service quality; and 3) helping local areas to improve their attractiveness as a travel destination and develops programs to attract more tourists.

Jalan net is a double-sided platform that targets both travelers and hotels as its main customers. On the travelers' side, Jalan net targets individual travelers. Jalan net's target customers on the hotel side are hotels and inns of various sizes and types located all over Japan.

For travelers, Jalan net helps them to find a hotel or inn that fits their particular needs by uniquely defining customer segments. To make this possible, first, Jalan net tries to offer the longest list of hotels available. Its list includes small inns and hotels located in less popular areas of Japan. Second, Jalan net makes searching fast and easy. It lists hotels giving priority to those with the highest customer ratings as a default setting. Jalan net also makes sure to provide both the positive and negative customer reviews it receives, including even the complaints, and does not alter the customers' original statements.

As an example of its travel packages, the "Jalan Package" enables customers to check the seat availability on flights or Japan Railway (JR) trains on a real-time basis, and make reservations for both hotels and transportation in one click at Jalan net.

For hotels, Jalan net helps them to more effectively attract new customers. It provides a platform that is visited by many potential travelers, a place where each hotel can propose a unique value proposition, get honest customer feedback, and gain better exposure if its customer rating is good.

Jalan net also provides services that make the hotel's work easier. Hotels can post room offerings, with prices that vary depending on the day of the week, the season, and the schedule of local events. Hotels can also offer special packages for a limited time only, and this and other information can be communicated through blogging. This system also allows hotels to analyze historical records for customer bookings, and make a comparison with local booking trends. This information can then be used in the development of marketing strategies for hotels.

Local sales representatives provide free consultations to hotels, and offer them suggestions and recommendations on how to boost room occupancy rates. They advise hotels on how to develop new accommodation packages, how to more effectively publicize their accommodations and services, and how to generate more word-of-mouth publicity and raise customer satisfaction. In the provision of such consulting services, the sales representative analyzes the hotel's booking records, as well as data from a database containing information on all affiliated hotels. Through such consultations, hotels can also gain access to the best practices in the industry.

Jalan net's service fee, paid by the hotel, is less expensive than the fees charged by conventional travel agents. When Jalan net started out, its fee was about half the amount charged by the leading travel agency competitor. Among online hotel reservation service providers, there is not much difference in the service fees they charge.

The uniqueness of Jalan net's value proposition is that it considers its business as fulfilling a kind of "intermediary" role. This means that the more smoothly matching between hotels and travelers can take place, the more profitable Jalan net will be, and the entire system will get into a virtuous cycle. This approach is based on Recruit's traditional business concept, called "ribbon-zu" (lit. ribbon image). First, both sides need to be increased. This will result in a bigger knot. Also, a good match should be achieved―it should be the right one―so that both customers (the traveler and the hotel) are happy. In line with its commitment to achieving a good match and satisfying both customers, Jalan net does not offer better positioning on its website for a fee, as this would damage the quality of the match.

Unique Value Chain

Procurement
Hotels can display rooms and accommodation packages online by using the reservation management system provided by Jalan net. Local sales representatives encourage the hotels to post their rooms and accommodation packages on the Jalan net website.

Recruit Lifestyle has formed alliances with airlines and railways to make it possible for customers to confirm seat availability on a real-time basis, design their own package tours, and make reservations with one click for a package that includes both transportation and accommodations at Jalan net.

Marketing and sales
Regarding the sales personnel who engage in hotel-focused sales activities, Recruit Lifestyle recruits residents of the targeted local areas. Jalan net inherited sales people from Jalan travel magazine, which was founded in 1990. The sales staff visit hotels, ask them to join the list,and then develop service packages for them. In most cases, Recruit Lifestyle looks for people with the motivation to revitalize the local economy.

Since 2010, Jalan net has been operating a call center-based customer support group, which covers the more than 20,000 hotels listed at Jalan net. This group responds immediately to customer calls, and handles customer requests with great efficiency.

Recruit Lifestyle treats activities such as advertising not an expense, but rather as a purchasing cost that is required for sales. It makes aggressive investments with the aim of attracting more visitors to Jalan net.

Leveraging its scale, Recruit Lifestyle employs nationwide TV commercial campaigns to raise customer awareness and stimulate demand for traveling.

Recruit Lifestyle uses a search-word listing. It also encourages inflow from affiliated websites. It shares information on hotels and accommodation packages with the Jalan magazine to increase the number of website visitors.

Jalan net has achieved economies of scope in attracting users by leveraging Recruit Lifestyle's other business units. For example, by sharing the point system with its beauty-focused website, Hot Pepper Beauty, Jalan net can attract Hot Pepper Beauty's customers to Jalan net. Also, PONPARE (a group purchasing service for collective ticket buying), is a powerful tool for attracting users to Jalan net.

After-sales service:
Jalan net has a Customer Satisfaction Promotion Office to accept inquiries and complaints about Jalan net and the hotels.

The Jalan Research Center provides various seminars throughout Japan for local governments and local associations comprised of businesses that deal with tourists to help them identify the unique attractive features of their local areas. Jalan Research Center helps participating localities to improve their attractiveness as a travel destination and develops programs to attract more tourists.

Human resource management:
Jalan net provides attitude training as well as skills training. Attitude training includes a discussion of the meaning of work, each individual's personal vision, and the sharing of Jalan net's mission.

Fit among Activities

At Recruit Lifestyle, activities are selected and coordinated in order to maximize the number of happy matches between travelers and hotels. Among them, the key strategic choices are: 1) giving priority to attracting tourists; 2) providing services to hotels through the use of local sales staff; and 3) working to reinvigorate the tourist industry. (Please refer to Recruit Lifestyle Jalan net's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Recognized that the majority segment is actually the long tail, and that it could be micro-segmented.
  • Bought search words that are not directly related with travel, instead of obvious ones like "Hakone," "Saturday," "traditional Japanese hotels," and "reservations." The latter will more likely lead to customers who actually make reservations, because they have a better developed incentive to travel. This results in a better ROI for online reservations companies. The former search words imply that the user is not accustomed to using online reservations services.

Consistency of Strategy Over Time

Jalan net has been consistent in its competitive strategy and its core activities, which include the following. It tries to meet travelers' needs by offering the longest list of hotels and by providing an efficient search tool. It does not accept payment from hotels for a better position higher up on the list. Local sales staff advise hotels on ways to improve their services and offerings.

Its mission has evolved and changed over the course of several years following its launch. However, there is no contradiction between the company's new mission and the strategy and value chain that were already in place. Rather, the new mission has helped Jalan net to sharpen its focus. Jalan net's original mission was to list all the hotels and inns in Japan, a mission that was inherited from Jalan magazine--"a booking media that allows customers to make reservations at any hotel or inn in Japan." Jalan net aimed to develop the longest list of hotels and inns in the industry. Jalan net eventually realized that it was not trying to create any new value for the customers beyond that. This prompted Jalan net to declare a new mission, which is to contribute to the growth of the travel industry by working with hotels and submitting proposals on ways to improve the travel experience, in addition to providing an online service for making reservations at any hotel in Japan.

Trade-offs

  • Does not place information regarding other services (such as restaurants, bridal services, recruitment, housing, and school information) on its website, in order to keep the focus on travel-related services.
  • Does not sell advertisement space to non-travel advertisers.
  • Does not sell better positioning on its website to hotels for fee.
  • Does not focus on any particular customer segment.
  • Does not concentrate teams of sales representatives in big cities. Does recuit sales staff locally, in each region.

Profitability

Both return on invested capital and return on sales exceed the industry average by a wide margin.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
2007 2008 2009 2010 2011
16.8%P 32.1%P 23.0%P 16.3%P 12.2%P 18.8%P
Inter quartile range (IQR) = 6.9%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
2007 2008 2009 2010 2011
32.9%P 28.8%P 32.6%P 33.4%P 29.5%P 38.3%P
IQR = 12.2%P
Return on sales =Operating income / Net sales

Activity System Map

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