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 tripsTourism industry organisations are searching for new means of distributing information about its productsICTs 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 IndustryTourism 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 IndustryAs 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 IndustryTravel 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 behaviourNew communication meansChatOnline booking as well as information distribution24/7 reaching more potential customers than other channelsCustomisation of travel products
11 E-IntermediariesTraditionally Travel Agents were the intermediary between producers and customersNow direct communication is possibleOr through new e-intermediaries~94billion US$ online bookings from USEuropean 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 travellersBlogsForumsTripadvisorWikitravelBetter quality and more reliable informationNew threat to producers?Loss of control over their marketing message
13 ICT -> HotelsTo begin with assisting with inventory and asset managementIntegrate with tools for market research, customer service improvementsEasily added to GDS (Global Distribution Service)Intermediaries such as Hotels.com have revolutionised the way customers book hotelsInternet affords a direct channel to customersMarriott 75% direct through websiteSmaller hotels via an intermediary
14 ICT -> Hotels 2 Customers are demanding more technology Wireless Internet Access now a standard featureBusiness suites / conference facilities with modern multimediaVirtual & Teleconferencing systemsEarly adopters gain competitive advantage
16 ICT -> AirlinesAn industry of early adopters and technical innovatorsOligopoly / Natural Monopoly leads to strategic alliances which in turn leads to investment in ICTSurface air communicationNavigationAirlines 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 itinerariesReal time flight reschedulingIn flight entertainment systems1.8Bln $ in 1998What about now?Shift from transactional marketing to relationship marketing
19 ICT -> Tour Operators Backward Integration -> Airlines/AccommodationForwards Integration -> Travel AgentsUsing relational databases and artificial intelligence, tour operators could make real time, on-site, recommendations or adjustments to improve customer experience
21 ICT -> Travel Agents Traditionally an intermediary facing disintermediation?The internet offers a new distribution channel, but…Customer fears regarding securityLack 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 wholeThe supply chain has changedStrategy of major playersSelective introduction of technology
24 Computerised Reservation Systems (CRS) Introduced by the Airline industry in the 1970’sSimple database system managing seats on flights, shared between partnersTerminals added to high volume agencies.Easy to manage inventory, and facilitate distribution channelLater 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 developedSabre, Galileo International, Amadeus, WorldspanOriginally intended as B2B, but with the internet has turned to B2C too
27 Porter’s 5 ForcesFramework for analysing industries & developing business strategyThreat of SubstitutesThreat of New EntrantsBargaining Power of CustomersBargaining Power of SuppliersCompetitive RivalryLets take a look at some of the forces having an impact on the tourism supply chain.
28 Threat of SubstitutesThis 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 entrantsThis 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 airlinesThe 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 RivalryThis 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 AgentsIf 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 pricesPressure to bypass intermediaries and internalise their value added functionsThis happened when airlines were under particular pressure to reduce costs, due to rising oil prices
37 Disintermediation The role of travel agents includes: Transaction processingInformation provisionOther industries (e.g. Banking) have shown these functions are most readily replaced by technologyAnd that technology can be managed by the supplier
38 Disintermediation Airlines capped / reduced transaction commissions And made more efforts towards direct salesE-tickets remove the need for physically based transactionsSome travel agents reacted by recommending preferred suppliers, based on commissions availableThis 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 serviceICT’s can capture, store and process information, but they can’t analyse the semantics of that informationHuman 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 EvaluationNeeds Assessment and Product MatchingCustomer Risk ManagementProduct DistributionProduct Information DisseminationPurchase InfluenceProvision of Customer InformationProducer Risk ManagementTransaction Economies of ScaleIntegration of Consumer and Producer Needs
41 The role of intermediaries Part of that role can be taken over by ICTsSome can’tNeeds assessmentProduct MatchingTravel agents provide a neutral aggregation service to reduce customer’s risks
42 Reinventing the Travel Agent Before the internetTAs had exclusive access to informationAll the information to make intelligent travel decisionsTAs were among the first small businesses to install computer terminalsAirlines allowed access to CRS / GDSWide range of tourism products
43 Reinventing the Travel Agent With the reduction / elimination of airline commissionsTAs have to cut costs (particularly Brick and Mortar TAs)The internet affords thisPhysical limitations removedExpanded potential market
44 Reinventing the Travel Agent Inventories of accurate travel information in databasesDatabases of customers, complete with personal preferences, used within CRMsDiverse supplier’s products combined to make innovative packagesGolf + Hotel + Flight = Golfing HolidayThe travel agent becomes a trusted counsel for the prospective traveler
45 Reinventing the Travel Agent 4 key rolesAn information broker, passing information between guests and suppliersProcessing transactions by booking rooms or flights and then transferring moneyProvide advice to customers, specific to their requirementsProviding 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 providersi.e. the airlines & the hotelsNow they are agents for the peoplei.e. the customers
47 CybermediationThe 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 mechanismsGiaglis et al.That sounds like the Travel industry to me!
48 Cybermediaries Online travel agents The Click and Brick business model The virtual GDSNew players in the market
49 Online Travel Agents29 percent of US travelers make all their travel arrangements on the Internet52 percent of all travelers purchase more than half of their travel onlineAlmost one third of the US citizens were planning to increase their online travel purchases over the following year17 percent of all online purchases in the country were travel-relatedThe majority of online travel shoppers start travel planning at an online travel website because of the one-stop shopping convenience73 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 growingWhy?Navigation difficultiesReluctance to rely on machines rather than peopleMistakes are easy to make, but hard to correctLack of personal approach**Security & safety**When giving CC information.
51 Cybermediary vs Intermediary The roles are in some way differentAdd web skills to destination knowledge and access to tourism productsBut, in someways the sameThe focus on customer service and CRM is essential to success.