IGE105

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IGE105 Communication Technology in a Changing
World

• Dr. Ken Cosh
• Week 11

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Regulation

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

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This Week

• ICT within the Tourism industry

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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

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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
• OConner, P. (1999). Electronic Information
  Distribution in Tourism and Hospitality. Oxford
  CABI.

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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.

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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/

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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

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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)

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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

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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

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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

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ICT -gt 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

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ICT -gt 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

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Video

• Future Hotels

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ICT -gt 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.

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ICT -gt 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

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Video

• Future Flying

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ICT -gt Tour Operators

• Backward Integration -gt Airlines/Accommodation
• Forwards Integration -gt Travel Agents
• Using relational databases and artificial
  intelligence, tour operators could make real
  time, on-site, recommendations or adjustments to
  improve customer experience

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Video

• Tour Guide

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ICT -gt Travel Agents

• Traditionally an intermediary facing
  disintermediation?
• The internet offers a new distribution channel,
  but
• Customer fears regarding security
• Lack of social interaction

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Evolution of the Tourism Supply Chain

• As well as having an impact on individual firms,
  ICTs have had an impact on the tourism industry
  as a whole
• The supply chain has changed
• Strategy of major players
• Selective introduction of technology

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Tourism SupplyChain
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Computerised Reservation Systems (CRS)

• Introduced by the Airline industry in the 1970s
• 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

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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

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Video

• Amadeus

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Porters 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.

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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.

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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.

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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

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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.

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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
  ICTs, which could be as simple as adding a new
  online distribution channel, or by setting up an
  electronic booking system.

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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 ICTs, 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

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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.

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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.

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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

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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

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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.

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Re-intermediation

• Its not all bad news!
• E-Ticketing has reduced the importance of the
  ticket, and increased the importance of
  personalised service
• ICTs can capture, store and process information,
  but they cant analyse the semantics of that
  information
• Human intermediaries are needed to assess the
  quality and reliability of online information

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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

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The role of intermediaries

• Part of that role can be taken over by ICTs
• Some cant
• Needs assessment
• Product Matching
• Travel agents provide a neutral aggregation
  service to reduce customers risks

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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

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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

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Reinventing the Travel Agent

• Inventories of accurate travel information in
  databases
• Databases of customers, complete with personal
  preferences, used within CRMs
• Diverse suppliers products combined to make
  innovative packages
• Golf Hotel Flight Golfing Holiday
• The travel agent becomes a trusted counsel for
  the prospective traveler

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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

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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

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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!

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Cybermediaries

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

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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

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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.

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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.