1. IGE105 – Communication Technology in a Changing World
Dr. Ken Cosh
Week 11

2. Regulation In the Real World & in Cyberspace Law Social Norms Market
Architecture
Control?
Freedom?

3. This Week
ICT within the Tourism industry

4. IT in tourism industry Tourism is an information rich industry.
Tourists need information, as the product is intangible, and therefore can not be tested.
Customers need information to help them plan their trips
Tourism industry organisations are searching for new means of distributing information about its products
ICTs are providing new innovative ways of satisfying both these needs

5. Tourism Industry Tourism is an information rich industry…
Information is the ‘lifeblood’ of the industry…
Tourists are unable to pretest an intangible hospitality or tourism product…
O’Conner, P. (1999). Electronic Information Distribution in Tourism and Hospitality. Oxford: CABI.

6. Tourism Industry
Tourism industry operators depend on finding and developing new means to distribute information-based travel products and services, marketing information to customers at their convenience…
Zhou, Z. (2004). E-commerce and information technology in hospitality and tourism. Canada: Delmar.
Clearly the development of internet services by players in the tourism industry assists with this goal as e-tourism offers opportunities for speedy communication and global access with minimal expense…
Buhalis, D. (2001). The future of eTourism intermediaries. Tourism Management, 23,

7. Tourism Industry
As well as providing an opportunity for the tourism industry to market its wares, there is substantial evidence to point to tourists demanding access to travel information through electronic channels. Trends point clearly towards a changing face of the travel industry: for instance the opportunity of disintermediation allows final product or service providers to bypass the services of travel agents to directly target their customers resulting in travel agents being forced to adapt their business model from a intermediary to an infomediary…
Nadkarni, S. & Peng, C. (2001). The relevance of travel agencies in the era of e-commerce and globalization.

8. Tourism Industry
Travel agents are repositioning themselves as a consultant or trusted, independent advisor…
Ching-biu Tse, A. (2003). Disintermediation of travel agencies in the hotel industry. Hospitality Management, 22,
The nature of information provision, whether through intermediary or provider, is also changing as new communication tools are developed and offered, with , live chat rooms or bulletin boards allowing asynchronous or synchronous communication to suit the circumstances…
Cox, B., & Koelzer, W. (2004). Stickiness: Internet marketing in hospitality. New Jersey: Pearson Education.
Picozzi, L. (2005). Understand Online Customer Service.

9. Tourism Industry These quotes point towards 2 noticeable trends;
1) Service providers (such as hotels, airlines...) are using the internet channel to directly target potential customers.
2) Travel Agents are needing to change their business model to still ‘add value’.
(And CRM is clearly an important system)

10. Effect of Network on Travel Industry
Changes in customer information search behaviour
New communication means
Chat
Online booking as well as information distribution
24/7 reaching more potential customers than other channels
Customisation of travel products

11. E-Intermediaries
Traditionally Travel Agents were the intermediary between producers and customers
Now direct communication is possible
Or through new e-intermediaries
~94billion US$ online bookings from US
European travelers use internet more for search than bookings

12. Web 2.0 New age of participation More interactivity
New threat to traditional travel agents?
Information produced by other travellers
Blogs
Forums
Tripadvisor
Wikitravel
Better quality and more reliable information
New threat to producers?
Loss of control over their marketing message

13. ICT -> Hotels
To begin with assisting with inventory and asset management
Integrate with tools for market research, customer service improvements
Easily added to GDS (Global Distribution Service)
Intermediaries such as Hotels.com have revolutionised the way customers book hotels
Internet affords a direct channel to customers
Marriott 75% direct through website
Smaller hotels via an intermediary

14. ICT -> Hotels 2 Customers are demanding more technology
Wireless Internet Access now a standard feature
Business suites / conference facilities with modern multimedia
Virtual & Teleconferencing systems
Early adopters gain competitive advantage

15. Video
Future Hotels

16. ICT -> Airlines
An industry of early adopters and technical innovators
Oligopoly / Natural Monopoly leads to strategic alliances which in turn leads to investment in ICT
Surface air communication
Navigation
Airlines pioneered GDS to manage their supply chain, now many airlines bypass intermediaries selling directly online.

17. ICT -> Airlines Impacts on Customer service
All customer facing employees have access to customers itineraries
Real time flight rescheduling
In flight entertainment systems
1.8Bln $ in 1998
What about now?
Shift from transactional marketing to relationship marketing

18. Video
Future Flying

19. ICT -> Tour Operators
Backward Integration -> Airlines/Accommodation
Forwards Integration -> Travel Agents
Using relational databases and artificial intelligence, tour operators could make real time, on-site, recommendations or adjustments to improve customer experience

20. Video
Tour Guide

21. ICT -> Travel Agents
Traditionally an intermediary facing disintermediation?
The internet offers a new distribution channel, but…
Customer fears regarding security
Lack of social interaction

22. Evolution of the Tourism Supply Chain
As well as having an impact on individual firms, ICT’s have had an impact on the tourism industry as a whole
The supply chain has changed
Strategy of major players
Selective introduction of technology

23. Tourism Supply Chain Brick & Internet Mortar Travel Agents Customer
Distributors
Material
Suppliers
Service
Providers
GDS/CRS
Supplier
Reservation
Centers
& Ticket
Offices
Websites
Internet
Travel
Agents
Con-
solidators
Brick &
Mortar

24. Computerised Reservation Systems (CRS)
Introduced by the Airline industry in the 1970’s
Simple database system managing seats on flights, shared between partners
Terminals added to high volume agencies.
Easy to manage inventory, and facilitate distribution channel
Later hotels and tour operators also used similar CRS

25. Global Distribution System (GDS)
With the networked economy the CRS could be distributed more easily.
Applications with more sophisticated features were developed
Sabre, Galileo International, Amadeus, Worldspan
Originally intended as B2B, but with the internet has turned to B2C too

26. Video
Amadeus

27. Porter’s 5 Forces
Framework for analysing industries & developing business strategy
Threat of Substitutes
Threat of New Entrants
Bargaining Power of Customers
Bargaining Power of Suppliers
Competitive Rivalry
Lets take a look at some of the forces having an impact on the tourism supply chain.

28. Threat of Substitutes
This concerns whether a substitute product or service exists which customers could be tempted to use as an alternative. For instance, when a traveler could travel by train rather than airplane. The strength of this threat depends on how well the current product is differentiated, and how well the substitute product matches the needs of the customer, as well as switching costs involved.

29. Threat of new entrants
This concerns how feasible it is for more competitors to enter the marketplace. Various things can affect the likelihood of new entrants emerging, for instance the capital requirements for set up costs, any learning curve advantages, government policy or access to distribution channels.
If we consider traditional brick and mortar travel agents, the capital requirements are high, and access to distribution channels limited, compared to online travel agents where start up costs are minimal and access to distribution channels universal.

30. Bargaining Power of Customers / Suppliers
This covers the balance of power in a supplier/customer relationship.
For airlines operating in a natural monopoly, the customer switching costs could be substantial, leading to powerful airlines
The role of the GDS within the tourism industry became increasingly more powerful as utilizing an alternative distribution channel became increasingly more expensive

31. Bargaining Power of Customers / Suppliers
Another important factor in this power relationship comes from the potential to forward or backward integrate.
Travel agents are generally unable to backward integrate to their suppliers (i.e. a Travel Agent is not able to start offering flights or rooms in their own hotel).
On the other hand, airlines and hotel chains, particularly with the affordances of the Internet, are able to forward integrate and develop their own distribution channels as alternatives to using a travel agent.
This supports the idea that the balance of power lies in the producers favour.

32. Competitive Rivalry
This concerns the intensity of competition within the market, often influenced by the number and diversity of competitors. In a saturated market, many players will lose power, unless they can differentiate their product offering from their competitors. One popular means of differentiation is through the integration of ICT’s, which could be as simple as adding a new online distribution channel, or by setting up an electronic booking system.

33. Travel Agents
If organizations, or certain business models, can establish a means to radically affect their strength relative to organizations around them, then the supply chain can be revolutionized.
With the introduction of ICT’s, and the ability for airlines and hotels to directly target their customers through the Internet, the tourism supply chain was drastically altered.
And the role of the Travel Agent has changed

34. The future of Intermediaries?
Modern ICT infrastructure allows the creation of extended global enterprises, where companies such as airlines have the ability to vertically integrate and directly target their end customers.

35. Alternatively…
ICTs have afforded complex interconnections between the firms operating within a supply chain, and thus the creation of virtual corporations or networked organizations.
Here each organization focuses on their core competencies, be it operating planes and flight schedules or distributing the product.

36. Intermediaries Add a significant cost to the value chain
Leading to higher final prices
Pressure to bypass intermediaries and internalise their value added functions
This happened when airlines were under particular pressure to reduce costs, due to rising oil prices

37. Disintermediation The role of travel agents includes:
Transaction processing
Information provision
Other industries (e.g. Banking) have shown these functions are most readily replaced by technology
And that technology can be managed by the supplier

38. Disintermediation Airlines capped / reduced transaction commissions
And made more efforts towards direct sales
E-tickets remove the need for physically based transactions
Some travel agents reacted by recommending preferred suppliers, based on commissions available
This compromises the perceived independence of the Travel Agent.

39. Re-intermediation It’s not all bad news!
E-Ticketing has reduced the importance of the ticket, and increased the importance of personalised service
ICT’s can capture, store and process information, but they can’t analyse the semantics of that information
Human intermediaries are needed to assess the quality and reliability of online information

40. The role of intermediaries
Lets extend the role of intermediaries;
Search and Evaluation
Needs Assessment and Product Matching
Customer Risk Management
Product Distribution
Product Information Dissemination
Purchase Influence
Provision of Customer Information
Producer Risk Management
Transaction Economies of Scale
Integration of Consumer and Producer Needs

41. The role of intermediaries
Part of that role can be taken over by ICTs
Some can’t
Needs assessment
Product Matching
Travel agents provide a neutral aggregation service to reduce customer’s risks

42. Reinventing the Travel Agent
Before the internet
TAs had exclusive access to information
All the information to make intelligent travel decisions
TAs were among the first small businesses to install computer terminals
Airlines allowed access to CRS / GDS
Wide range of tourism products

43. Reinventing the Travel Agent
With the reduction / elimination of airline commissions
TAs have to cut costs (particularly Brick and Mortar TAs)
The internet affords this
Physical limitations removed
Expanded potential market

44. Reinventing the Travel Agent
Inventories of accurate travel information in databases
Databases of customers, complete with personal preferences, used within CRMs
Diverse supplier’s products combined to make innovative packages
Golf + Hotel + Flight = Golfing Holiday
The travel agent becomes a trusted counsel for the prospective traveler

45. Reinventing the Travel Agent
4 key roles
An information broker, passing information between guests and suppliers
Processing transactions by booking rooms or flights and then transferring money
Provide advice to customers, specific to their requirements
Providing value added services by integrating a wider variety of travel products

46. Intermediary? Or reinvented as an Infomediary?
But the infomediary product is easily copied and redistributed…
…so new new ways to add value are needed.
Previously TAs were agents for the product/service providers
i.e. the airlines & the hotels
Now they are agents for the people
i.e. the customers

47. Cybermediation
The opportunity for cybermediation exists in markets where product/service bundling opportunities exist, where the market is fragmented with many different sellers and buyers, markets with low barriers to entry and where there is a scope for establishing novel price discovery mechanisms
Giaglis et al.
That sounds like the Travel industry to me!

48. Cybermediaries Online travel agents The Click and Brick business model
The virtual GDS
New players in the market

49. Online Travel Agents
29 percent of US travelers make all their travel arrangements on the Internet
52 percent of all travelers purchase more than half of their travel online
Almost one third of the US citizens were planning to increase their online travel purchases over the following year
17 percent of all online purchases in the country were travel-related
The majority of online travel shoppers start travel planning at an online travel website because of the one-stop shopping convenience
73 percent of respondents who purchased travel online researched travel at a general site, but then went to a specific company's site to book travel, attributing their decision to lower prices and special deals

50. The future of Cybermediaries
Persuading customers to ‘click and close’
While customers are happy to look for information, getting them to purchase online is still growing
Why?
Navigation difficulties
Reluctance to rely on machines rather than people
Mistakes are easy to make, but hard to correct
Lack of personal approach
**Security & safety**
When giving CC information.

51. Cybermediary vs Intermediary
The roles are in some way different
Add web skills to destination knowledge and access to tourism products
But, in someways the same
The focus on customer service and CRM is essential to success.