There can’t be many brands that boast a global market share in excess of 65% but whose boss argues he has not yet reached more than 1% of the potential audience.
This is the paradox Ted Stimpson outlines as he details how the Leisure Pass Group (LPG) plans to convince more consumers to buy its product. It’s a simple concept; persuade visitors to a city to pre-purchase a package of excursions and attractions at a discount rather than pay full price on the door, and give them a big choice (of around 60, in the case of the London Pass) for a set price. Suppliers that sign up get extensive third-party marketing, as does the destination; it sounds like a good deal all-round.
LPG’s chief executive is evangelical about the concept and its prospects. He points out that globally, there are only “8-10” big attraction pass brands, of which LPG has three of the largest companies; the original London-based Leisure Pass Group and its various city attraction passes; Boston-based Smart Destinations, which operates the Go City Card US brands; and the New York Pass, which also operates the Philadelphia Pass.
In March 2017, private equity firm Exponent merged the three similarly sized brands under LPG (which it acquired in December 2016) and later that year added the New Orleans and Las Vegas Power Pass to its portfolio, giving it an enormous market share. Added to this is the fact that Exponent also owns Big Bus Tours, one of the top-five most-popular options for pass users.
Surely the competition authorities had something to say about this? “The regulators defined the market as attractions, not attraction passes,” Stimpson points out. “The tourism activity category is worth $100 billion globally. We have less than 1% of that. The concern of a regulator is that the consumer is getting ripped off.”
There is an easy response to this, as Stimpson puts it succinctly: “If someone doesn’t think there is value in the pass, they buy individual tickets.”
It is certainly a high-growth industry. LPG is now active in 37 markets in 17 countries, and technology is making it easier for smaller attractions to join the combined pass concept, something Stimpson says is long overdue. “Tourism attractions are the final frontier in wiring up,” he says.
Stimpson divides his time between head office in London and the former Smart Destinations headquarters in Boston. It is a busy time; over the last five years, LPG’s brands have seen average volume growth of 21.4%.
“Revenue numbers are higher,” he says. “We will do three million passes this year with 15 million visits to 1,000 attraction partners. We are putting the category on the map in a way it wasn’t before. People ask me who buys them – it’s really anybody that travels.”
Three million passes is a drop in the ocean, LPG believes, and Stimpson says his biggest challenge to expansion is simply awareness. “The vast majority of people don’t know this exists. If we are 1% market penetration globally now, it’s entirely possible it could be 20-25%.”
He marries this statistic to tourism’s global expansion as a whole – 3.5% annually – and that of online purchasing, which is growing at 12-15% a year.
“The pass category is growing at 20%-plus,” Stimpson informs.
Still fewer than a quarter of tourists pre-purchase their attraction visits, which is Stimpson’s other big obstacle. He calls it DOU – or Day of Uncertainty – the barrier to pre-purchase. “Three weeks ahead, you don’t know if your flight will be delayed, what the weather will do or if your kids will be sick. People are not willing to commit.”
Offering more flexible pass options – as LPG is now doing – eliminates DOU, he argues. Having different product types is a key expansion tactic.
The London Pass, for example, is an all-inclusive product, offering more than 80 attractions. “When we asked how many they visited, 48% said three or less; that’s not an all-inclusive customer.” For the 48%, Explorer Pass now offers a choice of between three and 11 attractions from a range that can be more than 50, but at a much lower cost. Explorer has been a success since its launch in Europe early in 2018. “It’s five times our budgeted volume expectations,” Stimpson says.
Another boost to the sector is coming from the OTAs. Expedia’s Things To Do tab plays into LPG’s hands by raising awareness, as does TripAdvisor. “People are being educated, they will run into us either on these sites or Googling ‘things to do’.”
Stimpson believes the OTAs are playing catch-up and blames them in part for the lack of awareness about the attraction pass industry. “I think historically the sector was left behind, primarily by the OTAs. They offer the big-ticket items – air, hotel, car. Attractions are small commission and many were not wired up, so they left it.”
He cites the example of a paddle-board operator in Hawaii, to which LPG is able to offer mobile ticketing and global earning opportunities. “We are wiring up the long tail attractions,” he says. In plain language, these are the niche products – such as paddle-board operators – normally overlooked in favour of the mainstream attractions.
“They were left behind technologically and fragmented, but that’s all changing.”
In terms of where LPG operates, Stimpson has attempted to broaden its mainly Europe and North America footprint since the three brands were merged, opening in Sydney, Hong Kong and Dubai, with plans for “two to three” cities a year. He names Macao, Singapore and Seoul on his hit list, and has already begun work in China, which presented challenges, as many attractions are government-owned, making sealing a commercial agreement difficult.
“In Europe, it would take three months and cost $100,000, but in China we would struggle to get those relationships off the ground, so our approach is a partnership,” Stimpson explains.
LPG’s partner is Ctrip, China’s largest online agency, which assembles LPG’s product there and also sells LPG’s Europe and North America passes under its own Dolphin Pass brand.
Wherever and whichever way the relationship is established, it’s a no-brainer for the attraction or the local tourism body, he believes. “They obviously give us a discount, but we bring them incremental customers from all over the world and spend tens of millions on marketing.
“If you’re a free-sale attraction like a museum with no capacity constraints, the cost of that extra customer is virtually zero. We have over 1,000 attractions and in the last five years two have left. One came back.”
Marketing the world
In this digital age, another advantage is market intelligence. “Our customers are almost entirely purchasing online before they travel; 65% is on our own website, 30% from other sites and less than 5% is local purchase – 80%-plus is delivered via the app.” This has obvious data-harvesting benefits: “We know where they have come from, where they were before and where they go afterwards.”
Ancillary sales are another obvious opportunity, given all this data. “The general rap against passes is they are low-yield, but if you can push clients through gift shops or cafes, you can up that,” adds Stimpson.
For the destination as a whole, there are also big wins, he stresses. “Their job is to market to the world and that’s exactly what we do. New York has a ‘five boroughs’ strategy (to spread tourists). We have 80 attractions there, almost half of them off Manhattan.” This is, he says, on trend with the local host-led, ‘off-the-beaten-track’ Airbnb traveller generation.
LPG also licenses its software to secondary cities whose tourism chiefs may want to offer a pass with less of a commercial motive. Gothenburg and Blackpool are among them but Stimpson says this is less than 10% of LPG’s business and not a big priority. For the future, it is the big cities that he has his eye on, with Exponent keen to maximise its investment.
There is a lot to be getting on with, and Exponent’s clock is ticking. Given that private equity firms’ investment cycles are usually three to seven years, the investor must have an exit plan. Stimpson says it will likely be “probably less than seven years” but says he has “a patient owner”. “The business is already 10 times the size it was when I started five years ago. No one is saying ‘we have to get to this level and then we sell’. I think very little about that – I’m just here to build the business.”