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

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

This Week ICT within the Tourism industry

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

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.

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, 207-220.

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. http://www.mca.org.mo/

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, 453-460 The nature of information provision, whether through intermediary or provider, is also changing as new communication tools are developed and offered, with email, 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. http://www.score.org

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)

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

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

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

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

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

Video Future Hotels

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.

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

Video Future Flying

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

Video Tour Guide

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

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

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

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

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

Video Amadeus

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.

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.

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.

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

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.

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.

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

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.

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.

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

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

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.

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

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

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

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

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

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

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

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

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!

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

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

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.

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.