Part 3, Unit 7 Strategic

Options

Risk Management and Strategic Planning

Reading

Book Ch

Tribe, J, (2010) Strategy for Tourism, Goodfellow Publishers, Oxford.

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Capon, C. (2008) Understanding Strategic Management, Prentice Hall: Hemel Hempstead.

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Tribe, J. (2005) The Economics of Recreation, Leisure and Tourism, Butterworth Heinemann, Oxford.

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Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring Corporate Strategy, Prentice Hall: Hemel Hempstead.

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Part 3: Strategic Choice The next stage of strategy for tourism is strategic choice and

by the end of part 3 it should be possible to propose and justify a particular strategy for a tourism entity. Strategic choice follows logically from the previous two stages. Strategic analysis resulted in a summary of the opportunities and threats evident in the tourism organisation's external environment and of its internal strengths and weaknesses and it is in the light of this analysis that strategy can be formulated, guided by the organisation's mission. A framework for strategic choice is developed to assist tourism entities in the development of an appropriate strategy.

Chapter 7 introduces the main types of strategy, using Porter's (1998) generic strategies as a starting point.

Chapter 8 considers the directions methods by which an organisation can pursue its strategy.

Chapter 9 offers a template that can be used to evaluate competing strategies so that an appropriate strategy can be chosen.

Learning Outcomes

After studying this chapter and related materials you should be able to understand:Price-based strategiesDifferentiation-based strategiesHybrid StrategiesFocus strategies

and critically evaluate, explain and apply the above concepts.

Discussion Point

What kinds of strategy could an organisation / destination follow to gain competitive advantage?

Porter Adapted

Bowman (Bowman & Faulkner, 1995) and Johnson et al. (2008) et al. have sought to rework Porter's typology of generic strategies. The typology is adapted to reflect the consumer view of things. Consumers are sensitive to prices Consumers consider perceived quality or

value added

Price / Quality Matrix

Price-based strategies Price-based strategy

emphasises the fact that low costs are passed on to the customer in the form of lower prices. Products are thus likely to be standardised, and unnecessary but costly extras will have been stripped away.

Value chain analysis can be a useful tool for highlighting extras which can be removed (eg. Ryanair)

Price based strategies McDonald's restaurants: Its use of standardized products

and processes, self service, self clearing up and huge economies of scale are key factors enabling low prices.

Hotel Première Classe (France): Hotels are located where land prices are cheap but demand strong (e.g. industrial estates near motorway junctions). Fittings are standardised and with no frills. Use of automation reduces labour costs.

Cheap Package Holidays: These cut costs all along the value chain. Internet sales reduce distribution costs. The use of charter flights with high load factors, night flights and secondary airports, together with coach transfers reduce transport costs. High density, no frills hotels in mass tourism destinations and bulk buying power reduce accommodation costs. Vertical integration along the supply chain reduces “middleman” costs.

Differentiation-based strategiesThese have an emphasis on providing

extra qualities which are valued by the consumer. This value added may be provided by:designexploitation of the value chainadvertising

Differentiation based strategies 7* Hotels e.g. the Burj Al Arab in Dubai, United Arab

Emirates which offers guests a chauffeur driven Rolls Royce, discreet in-suite check in, a private reception desk on every floor and a private butler service. It is located in the exclusive Jumeirah Beach area of Dubai and its Royal Suite offers private elevator access, a private cinema and a rotating four-poster canopy bed.

St Moritz, Switzerland: This is a destination that has managed to cultivate an up-market exclusive image and appeal to the luxury end of the market. Its very expense differentiates it from other destinations and its popularity amongst celebrities helps to differentiate it from competing destinations and sustain its elite and glamorous image.

The Michelin Star rating of restaurants can provide a distinctive marker of differentiation. Three Stars is the highest rating which means “Exceptional cuisine and worth the journey”. In 2010 there were less than one hundred 3* rated restaurants including El Bulli (Roses, Spain), The Fat Duck (Bray, UK), Lung King Heen (Hong Kong, China) and L'Osier (Tokyo, Japan).

Differentiation: Airline Seats

Destination Differentiation

Destination Differentiation

Destination Differentiation

Destination Differentiation

Destination Differentiation

Destination Differentiation

Destination Differentiation

Hybrid strategies

A hybrid strategy is an attempt to provide quality products and services at low prices.

It seems contradictory because adding value adds to costs which should preclude low prices.

The key to a successful hybrid strategy is therefore to reduce average costs.The first route to this is achieving of economies of

scale. Economies of scale are therefore open to firms which can achieve high market share, and a virtuous circle may become established.

The second route, important to service providers such as tourism organisations, is to ensure high load factors.

Hybrid strategies

Route to Hybrid Strategies

Hybrid Strategy

Virgin Blue is an example of an airline following a hybrid strategy. Virgin Blue operates in Australia and describes how

“Unlike traditional ‘no frills’ low-cost carriers, Virgin Blue’s approach is to offer consistently affordable fares, outstanding service and a host of other options available on a pay for use basis” (Virgin Blue, 2008)

Virgin Blue

Focused strategies

Price-based and differentiation strategies may each be focused on a particular market segment and it is increasingly common for organisations to seek to serve a number of different market segments.

Examples in the tourism industry.In the hotels sectors IHG operates both

InterContinental and Formule 1 hotels. In the airline industry Qantas offers four different

classes of travel – Economy, Premium Economy, Business Class and First Class.

At the destination level the island of Mallorca, Spain offers holidays to both mass budget tourists (e.g. the resorts of Magaluf and Palma Nova) as well as to the upscale segment of the market (e.g. Deja).

Zone X

Zone X (Tribe, 1997) represents a combination of high prices and low quality and will generally therefore lead to failure. However there are exceptions to this.First, where an organisation has a monopoly it can

operate in zone x without fear of loosing customersSecond, where consumers have lack of information

about quality, or competitive prices, zone x strategies may persist. Tourist areas represent a potential site within which organisations may operate such strategies since new and naive tourists are continually arriving. Restaurants, hotels and taxis may be able to operate zone x strategies under such conditions.

Part 3, Unit 7 Strategic

Options The End

Risk Management and Strategic Planning