International Tour Operator Management Part II

Market Research and customer behaviour

Forecasting models in tourism Forecasting is very necessary in tourism Rational decision cannot be taken with forecast about trends Risk of management mistakes is high in tourism because Tourism services cannot be stored Service consumption is part of production, happening at same time Customer satisfaction depends to a large part on external factors For many areas high investment costs (infrastructure, hotels) Different criteria for measuring tourism Number of visitors/guests, number of tourists (UNWTO) Number of visitor groups Number of overnight stays Level of expenditure per person per day Value added share of tourism (WTTC) Market share

Forecasting methods in tourism Difficulties New industry, lack of long-term timelines and historic data Standardisation of tourism statistics just beginning internationally (Satellite accounts), not existing for domestic tourism Demand volatile, easily influenced by external factors and events Under-academication of tourism industry, „Rule of thumb“ Lack of methodical knowledge in tourism industry Forms of forecasting Qualitative und quantitative Forecasting methods Short / long term methods Examples: Survey, Scenarios, Delphi

Market research and analysis Systematic process of acquiring, processing and analysing quantitative and qualitative data to assist the decision making process. Different forms of market research Facts, Images, perceptions, motivations Analysis of situation at given moment or ongoing market scan to understand developments and trends of market Major tasks of market research Definition of (sub-)markets Analysis of (sub-)markets Demand research Competition research

Market research forms Primary research – Field research Own research (company or Institute) Surveys Observation Experiment Reporting Secundary research – Desk research Internal sources External sources

German tourism market research institutes I B.A.T. Freizeit-Forschungsinstitut GmbH, Hamburg Consultant Aviation & Tourism, Stelle Creatours Destination, Freizeit, Tourismus, Dresden Dallmeier & Partner, Korschenbroich Deutscher Reisemonitor – DRM, c/o IPK International GmbH, München Deutsches Touristik-Institut eV, DTI, Stockdorf/München dwif – Consulting GmbH, Berlin/München dwif – Deutsches Wirtschaftswissenschaftliche Institut für Fremdenverkehr eV an der Universität München, München Europäisches Tourismus Institut – ETI, Trier Europäischer Reisemonitor c/o European Travel Intelligence Center, Luxemburg FT – Freizeit und Touristik GmbH, Grafschaft

German tourism market research institutes II FUR Forschungsgemeinschaft Urlaub und Reisen eV, Kiel Inspektour GmbH, Heide Ipsos GmbH, Mölln ITF Research GmbH, Bremerhaven Mobility & Touristcope, (DB, LH, T.O., Autoindustrie), Frankfurt Project M Marketing Research GmbH, Lüneburg Reppel + Partner GmbH, Karslruhe-Durlach Studiengemeinschaft für Tourismus SfT, Ammerland/Bayern TourismusKompetenz, München Ulysses – Web-Tourismus, München World-Travel Monitor Ltd. Malta, c/o IPK International GmbH, München

Tourism Fairs in Germany and abroad Visitors Exhibitors 2004 2005 ITB Berlin 141.139 142.351 10.023 10.409 CBR München 139.000 130.000 1.143 1.237 CMT Stuttgart 190.476 176.930 1.400 Messe Essen 110.600 103.200 858 751 Reisen Hamburg 103.000 100.000 1.060 1.086 Freizeit+Garten Nürnberg 178.746 143.249 702 624 WTM London 2006: 46.945 5.602 CITM Shanghai 3.100

Examples of Market research methods Surveys: oral, written, by telephone, online Structured/unstructured, standardised Open/half open/closed surveys Experiment Test markets Observation Customer behaviour Frequencies, Spatial movement analysis, test purchases Trend analysis Extrapolation of past developments into the future: dangerous („Predictions are dangerous, especially if they concern the future“ – Nils Bohrs) especially for fast developing activity like tourism Example: Predictions of situation 2007 made in 1987 (cold war), or 1997 (no internet, no budget airlines)

Customer behaviour Increasing segmentation Influences Cultural Cultural background Subculture Social background Social Peer groups Family Role and Status Perception of tourism Personal Age, current biographical situation Job Economic situation Lifestyle Self-perception Motivation Values Travel Biography Increasing segmentation number of milieus increasing disappearance of clear social roles in post-modern society

Market segmentation http://www.sinus-sociovision.de/

Analysis of customer behaviour Seven questions, seven answers Who is the market? Customers What is the product? Product (physical/intentional) Why is it bought? Purchase objectives Who influences the purchasing process? Stakeholders How is the purchase organized? Purchasing process When does the purchase happen? Purchase triggers Where does the purchase happen? Point of Sale

Competitor analysis and benchmarking Ongoing analysis of competitors behaviour Direct: Observation of products, offers, marketing activities of competitors Indirect: Intelligence about competitors plans and strategies („Know your enemy better than he knows himself“ – Sun Zi) Benchmarking Learning from the best in the branch (opposite „best practice“ – can also be from other branches) Identifying benchmark competitor for specific task, analysis of own shortcomings, implementation, feedback (TQM)

Definition of Market for specific product Markets are mentally constructed Markets are dynamic Customers decide on market structure Classical Segmentation Geographical, demographical and psychographical Postmodern Segmentierung Lifestyle, activities, milieus

Major trends in customer behaviour 1. Changing customer profile 2. Shifting consumption pattern 3. Intensifying competition / continuing consolidation 4. Growing segmentation 5. Escalating concern for safety / security 6. Increasing value orientation 7. Increasing influence of the internet 8. Several short trips instead of one long holiday, short-time decision 9. Less customers loyalty for Tour Operator or destination

Influences on customers behaviour in tourism Development Observable changes Results for tourism behaviour Demographical development Greying society more small and single households Income and wealth More high-income people More wealthy people Loss of set values Disappearance of class and strata specific behaviour

Influences on customers behaviour in tourism Development Observable changes Results for tourism behaviour Time perception More free time yet feeling of necessity to save time Multitasking Health and environmental interest Interest in healthiness and environmental impact of products Level of education and travel experience Increasing education levels and travel experience

Tourism motivation Some classical theories: Maslow‘s pyramid of needs Fleeing from bad situation at home Search for authenticity Recreation, regeneration Self-actualization Contrast to home Structuring of time after loss of religious time frame Travelling for health reasons Travelling for unrestricted enactment of consumption (sex, alcohol, servility) Travelling as own goal (the way is the goal: hiking, cruise)

Tourists typologies Typologies according to Activities Preferred surroundings Spatial behaviour Level of integration into local community Forms of information gathering Opposition to normal life Frequency of travel Position in biographical development of travelling Etc. etc. Problem: multioptional behaviour within source markets and within individual tourist increasing, wish for higher intensity

Tourists and lifestyle typologies - Examples Opaschowski: Tourists focussing on Integration Prestige Experience Culture Entertainment Quality Economy Austria 2000 – Euro-Lifestyle The careful Recreationist The classical Culture tourist The demanding Experiencer The young Enjoyer The young Family

Marketing for Tour operators Discussion Major problems: Brand-adequate Quality: Dependance on external service providers Increasing transparency of offers from competitors / direct sales Dependance on destination marketing - Necessitiy of cooperation …

Product Management

Product Management Steps Market research, analysis, product and marketing planning Economical and technical planning Sourcing Product Management Publication PR, Ads, Distribution Actual trip After trip/program feedback, controlling Customer feedback management

Product Management policies Programme policies Brand policies Product development and adaptation Customer Service Dimensions of Product Management Strategic Product Management Long term development Tactical Product Management Product development and adaption Operative Product Management Product realization

Types of packages tours Full package tour Part package tour Individual package tour (moduls) All Inclusive Tour Dynamic Packaging Specific tours (f.i. business, incentive, cruise, pilgrime, event tour)

Product development What is the customer really looking for? Example „Space“ tourism Generic product Expected product Extended product Potential product Product includes Competence to offer product solutions Bundle of services necessary Service claims and promises Risk taking Package price Preparation, Standardisation, Quality control

Product adaptation What are different source market customers really looking for? Product adaptation according to customers expectations and behaviour Different stories for same product for different customers Spatial differentation for different customer groups at destination

Parts of product Technical Aesthetic Symbolic Main features Material, Construction Aesthetic Form, Colour, Design, Packaging Symbolic Brand, Image Main features Aim/Goal of product purchase Additional features Information, Customer service

Dynamic Packaging Definition Choosing, packaging and booking for different moduls of a package tour in realtime with a package price Dynamic Packaging disappears in mass market With increase of package tourists standardised pre-packed tours with standard length and programme easiert to organise and to sell Dynamic Packaging reappears in post-industrial consumer market Wish for multi-purpose, multi-dimensional travel. Increase in travel experience by customers, IT advantages Dynamic Packaging changes T.O. business Need to have stand-alone components ready in realtime Muddling of border travel agency – tour operator

Pricing

Price in the product life cycle Premium Pricing Skimming Discount Pricing Cost plus Pricing Penetration Time

Price limits Price variation of offer Upper price limit Too expensive, outside of price acceptance Price acceptance Acceptable increase Optimum price limit Planned Budget Lower price limit Acceptable decrease Too cheap, outside of price acceptance

Distribution

Distribution Ways of distribution Direct distribution indirect distribution Forms of sales organisations Own / others: broker, consolidators, traders Within the industry (cooperation, franchise, travel agencies) / outside the industry (retail, department stores, gas station) Instruments of distribution Agency agreement, commission, direct/indirect sales support, training of staff

Direct and indirect Distribution Lower costs Better customer relation Higher brand awareness Less reliance on distribution partners But: conflict with travel agencies and other distribution partners (examples German Railway, Colorline) INDIRECT Own channels (travel agencies, media groups, franchise) Other channels (general, selective or exclusive)

Travel agencies as distribution channel for tour operators „Ein Reisebüro/Reisevermittler ist im Verhältnis zum Reiseveranstalter Handelsvertreter im Sinne der §§ 84 ff HGB und für den Kunden / Reisenden auf der Basis eines entgeltlichen (Provision) Geschäftsbesorgungsvertrages § 675 BGB mit Werkvertragscharakter §§ 631 ff BGB tätig.“ Vertragsgegenstand zwischen Reisebüro und Kunde ist die Vermittlung einer einzelnen Reiseleistung eines fremden Leistungsträgers oder Vermittlung einer Pauschalreise eines fremden Reiseveranstalters.

Function of the travel agency Tour operators point of view: Matchmaking between customer and T.O. Commission is only paid if business is generated, part of variable cost structure Provision of comprehensive distribution network without onw investment Known POS Often good location (1A) (physical / internet) Existence of loyal regular customers, good experiences of customers with travel agency crossing over to recommended T.O. product Customers point of view: Easy to reach, personal service Physical information (catalogues) Consultation, answers to „silly“ questions Face-to-face communication, also for complaints Filters out unsuitable, unrealiable offers

Communication policy

Communication policy Goal: Positively Influencing Own staff Potential customers Actual customers Public opinion Politicians, institutions

Advertisement – above the line Openly influencing public opinion to Keep customers Get new customers Produce positive environment for own products Directly adress customers

Sales support Supporting distribution channels: Monetary activities: Commission on sales (basic, special, volume-based, target-based) Incentives for individual sellers Refinancing of PR/advertisement activities Payment of credit card costs etc. Non-monetary activities: Product information Trainings discounted travels decoration materials Hotline etc. Supporting direct distribution: Catalogues, discounts, loyalty bonusses etc.

Public Relations work - below the line Indirectly or Covertly influencing public opinion by Press releases Events Sponsoring Customers forum House magazines Website Participation in fairs etc. Product placement Guerilla marketing Covert websites support Cross selling etc.

Quality Management

Quality management Quality ≠ Expensive Quality: Hardware, Surroundings, Software Quality: Ongoing process

TQM – Total Quality Management Customer point of view: How important is the service offered and how was the quality of the service perceived? Producers point of view: How good was the quality management? TQM as a never-ending upward spiral (Kaizen)

European Recovery Program (ERP) Deutsche Ausgleichsbank (DtA) Ecology management Based on: Laws and regulations Customer demand Staff demand In Germany: DeHoGa Eco Criteria Government subsidies from European Recovery Program (ERP) Deutsche Ausgleichsbank (DtA) Kreditanstalt für Wiederaufbau (KfW) Bundesländer Subsidies

Ecology management Labels: Many Ecology labels worldwide on different levels Example Bavaria: http://www.stmugv.bayern.de/umwelt/wirtschaft/siegel/index.htm Other examples: Blaue Flagge, Grüner Koffer Top label in Germany: Viabono

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Abbrevations AG Aktiengesellschaft AGB Allgemeine Geschäftsbedingungen AGBG Allgemeine Geschäftsbedingungen Gesetz BCG Boston Consulting Group BGB Bürgerliche Gesetzbuch BAT British American Tobacco BSP Billing and Settlement Plan BTM Business Travel Management CA Canada/USA CSI Customer Satisfaction Index CRS Computer Reservation System DB Deutsche Bahn DCR Differenz zwischen Business Class und dem Rechnungsbetrag DER Deutsches Reisebüro

DMC Destination Management Company DMO Destination Marketing Organisation ETIX Electronic Ticket FTI Frosch Touristik International FuE Forschung und Entwicklung GDS Global Distribution System GF Geschäftführer GfK Gesellschaft für Konsumforschung GSA/GV General Sales Agent/General-Vertretung HGB Handelsgesetzbuch HLX Hapag Lloyd Express InfV Informations-Verordnung

IPK Institut für Planungs-Kybernetik ITS Internationaler Touristik Service KfW Kreditanstalt für Wiederaufbau LCA/LBA Low-Cost-Airlines/Low-Budget-Airlines LCC Lufthansa City-Center/Low Cost Carrier LG Landgericht LTI Luft Transport und Immobilien LTS Luft Transport und Service LTU Luft Transport Unternehmen (Luft Transport Union) LVG Luftverkehrsgesellschaft MIS Management- oder Marketing-Informations-System NSA Norwegische Schifffahrts-Agentur NUR Neckermann & Touristik NVAG Neckermann-Versand AG PangVO Preis-Angaben-Verordnung

RB Reisebüro RM Reisemittler, Revenue Management R/N Room/Night T.O. Reiseveranstalter RV Reiseveranstaltung RZ Risiko-Zuschlag TC Thomas Cook TN Teilnehmer TQ3 Total Quality 3 TQM Total Quality Management TUC TUI Urlaubs Center PAF Pay-as-you-fly PD Preisdifferenzierung PM Product-Manager POS Point of Sale

PR Public Relation PTA Prepaid Ticket Advice (Rufpassage) QM Qualitätsmanagement TUI Touristik Union International TVG Touristische Vertriebs-Gesellschaft UWG Unlauterer Wettbewerbsgesetz VF Verkaufsförderung WKZ Werbekosten-Zuschüsse YM Yield Management (Revenue Management) 3BZ Dreibettzimmer 4BZ Vierbettzimmer