AULIANA POON Introduction
International tourism is undergoing rapid and radical change – a trans-formation toward a new industry ‘best practice’. This new ‘best practice’
holds a number of important implications for companies in the tourist industry. It also holds important consequences for developing countries, in Africa, Asia, the Caribbean and the Pacific regions that are growing in-creasingly dependent on the tourist dollar. This chapter examines the way in which the international tourist industry is being transformed from mass, standardised and rigidly packaged form into a new industry ‘best practice’
of flexibility, segmentation and diagonal integration. The implications of this new best practice for companies within the tourist industry as well as for destinations are considered.
A Radically Changing Industry
The radical transformation of the international tourist industry can best be illustrated by what this author describes as ‘old tourism’ and ‘new tourism’. Old tourism is the tourism of the 1950s, 1960s and 1970s. It is char-acterised by mass, standardised and rigidly packaged holidays, hotels and tourists. ‘New tourism’ is the tourism of the future. It is characterised by flexibility, segmentation and more authentic tourism experiences. It is also marked by a thrust toward the diagonally integrated organisation and management of the tourist industry, driven by the power of information technology.
Old tourism
Old tourism was not only mass, it was standardised and rigidly packaged. Mass, standardised and rigidly packaged (MSRP) tourism was
Classic Reviews in Tourism
Competitive Strategies for a New Tourism 130
created and nurtured by a number of favourable post-war developments (Poon, 1987) These included:
the arrival of the jet aircraft in 1958;
promotional fares such as the Advance Purchase Excursion (APEX) fare;
cheap oil;
Keynesian-inspired economic growth;
paid holidays; sun-lust tourists;
the entry of multinational corporations;
vertical and horizontal integration; and
the ubiquitous franchise.
With respect to franchises, and the multinational hotel chains which per-petuated them, it is argued that their growth resulted in ‘stultifying homogenization of products and communities. They destroy a sense of community by mass producing environments that minimize personal con-tacts’ (Luxenberg, 1985: 10). By 1972, the 41 World Tourism Organisation (WTO) concluded that:
the changes that have already taken place and the future investment plans and programmes of numerous travel enterprises leave no doubt that the travel sector will, in the main, be structural on the basis of large owners backed by strong financial interest, and in the selling of stan-dardized packaged deals at low rates to a large clientele. (WTO, 1972: 39, emphasis added)
Not even sex tourism escaped this phenomenon.
New tourism
In the 1990s these were already signs that the tourist industry was begin-ning to take on a different shape. International tourism was responding to, and internalising a number of signals – socially, culturally, technologically, ecologically, economically and institutionally – that emanated from the world environment. One was witnessing a transformation toward a new tourism, a tourism based upon a new ‘common sense’ or ‘best practice’ of
‘flexibility, segmentation and diagonal integration’ (FSDI). This new tourism was created by a number of factors, including:
the diffusion of a system of new information technologies (SIT) in the tourist industry;
deregulation of the airline industry and financial services;
the negative impact of mass tourism on host countries;
the movement away from sun-lust to sun-plus tourists;
environmental pressures;
technology competition; and
changing consumer tastes, leisure time, work patterns and income distribution (Poon, 1987).
The factors that are engineering the transformation of the tourist industry can be seen in Figure 8.1. One can observe from this figure that it is the factors that facilitated the creation of mass tourism that have them-selves been changing. With these changes come the transformation of the entire industry best practice. It can be seen in Figure 8.1 that the econom-ics of new tourism is very different front the old: profitably no longer rests solely on economies of scale and the exploitation of mass undifferentiated markets. Economies of scope, systems gains, segmented markets, designed and customised holidays are becoming more and more impor-tant for profitability and competitiveness in tourism. Traditional mana-gerial and organisational practices of vertical and horizontal integration are also giving way to diagonal integration. Tourists themselves are moving away from ‘tinsel and junk’ to more, real, natural and authentic experiences. There is also a movement away from mass, impersonalised services to ‘high tech, high touch’ (Naisbitt, 1984: 64) and there is greater care and concern for and conservation of the natural environment (Krippendorf, 1986). Flexibility, segmentation, diagonal integration and more authentic holiday experiences constitute the new tourism ‘best practice’ of the future.
Group Individual
Search for the Sun Experience nature Follow the masses Affirm individuality Just to show that
you had been Just for the fun of it
Having Being
Escape Fulfilment
Figure 8.1Old tourist versus new tourist
Source: Tourism, Technology and Competitive Strategies, Poon (1993)
Old Tourist New Tourist
Evolution of a New Tourism Best Practice
The concept of ‘best practice’ refers to the set of principles and ingrained common sense that guide the everyday practices for profitability and com-petitiveness of the travel and tourism industry. A new best practice can be readily identified within the new tourism. Four elements of a new best practice are evident – flexibility, segmentation, diagonal integration and the evolution of tourism as a total ‘system of wealth-creation’. These are ex-plained below.
Segmentation
The mass market in tourism is splitting apart. One of the profound changes in the travel marketplace comes from the consumers themselves.
Tourists no longer have single, standardised and rigidly packaged wants.
They never really had them. Tourists were simply forced by the economics of mass production to consume standardised and rigidly packaged holidays ‘en masse’. However, the economics of new tourism allows sup-pliers to deal more effectively with the increasing complexity and diversity of consumer requirements. New technologies, coupled with diagonal inte-gration, are making it possible to produce flexible and segmented vacations, which are price competitive with mass, standardised holidays (Poon, 1987).
It is interesting to observe, in addition, that segmentation in the travel environment is unique, unprecedented and infinitely more complex. In the past, it was common practice to segment the holiday market along tradi-tional uni-dimensional lines of gender, age and income. Today, one has to be much more sophisticated when markets are segmented. Specifically, cluster segments of the vacation market must be catered to – that is, segments based on clusters of multi-optioned needs and consumer charac-teristics. This means that the choice is not between sun or sand holidays;
young or old; male or female; but rather, exciting holiday combinations that incorporate a cluster of market requirements. For example, vacations must be provided which cater to Double Income No Kids (DINKS) couples, from the sunbelt region of the United States who seek sun plus windsurf-ing, plus bird watchwindsurf-ing, plus fresh air, plus Trinidad Carnival. Similarly, vacations tailored to the over–50s couples, who seek sun, plus sailing, plus educational tours, plus walking, plus healthy foods, etc. The key challenge for travel suppliers is to understand the components and composition of these cluster segments and to determine in which clusters an organisation can supply a competitive advantage. Today, in fact, one has to be surgically precise in defining markets. Some examples of these markets are gay and
lesbians, vegetarian, sports, weddings and honeymoons, dive market and meetings and conventions.
Flexibility
Flexibility, as a core element of the new tourism best practice, is reflected at four levels:
(1) Flexibility in the organization.
(2) Production and distribution of travel.
(3) Flexibility in the choice, booking, purchase and payment of holidays.
(4) Flexibility in the consumption and enjoyment of the holiday experience.
These aspects are all inter-linked. Information technology plays a major role in facilitating flexibility in the travel market-place. This is clearly evident in the case of time-share vacations.
Time-share, as its name implies, refers to the purchase of vacation time at a specified tourist resort. It amounts, for example, to owning time (usually one week) at the resort, for a number of years (spanning the life of the unit).
The very concept of time-share is limited. It could mean, for example, that a retired couple would be limited to spending their vacation in the same room, in the same resort, in the same country for the rest of their lives. But informa-tion technologies have come to the rescue: it is now possible to facilitate the exchange of time and venue among time-sharing vacationers. For example, assuming that the correct matches can be made, it is possible for a couple who own a week in a villa in Spain to exchange this for a different week – at destinations from Tobago to Timbuktu. Information technologies have thus increased the flexibility, choice and variety with which time-share vacation can be produced, marketed and consumed.
Flexibility is also evident in the development of computerised reserva-tion systems (CRS) which allow travel agents to look, book and sell in one call; in teleconferencing which allows meetings and conferences to take place from remote locations; in smart cards which can be used to purchase airline tickets outside normal working hours and outside travel agencies;
and satellite printers which automatically deliver airline tickets to corpo-rate offices. Flexibility too, is evident in the proliferation of all-inclusive, club vacations which emphasise a number of informal and flexible ways in which to ‘spend’ free time. Flexibility will increasingly be a key element of profitability and competitiveness in tourism.
Diagonal Integration
Diagonal integration is created by new information technologies (computer and communications). It is the process whereby service firms
move into new and different activities, with tremendous synergies, systems gains and scope economies to be derived from such integration (Poon, 1986). Synergies are benefits which accrue to the management, oper-ation and organisoper-ation of interrelated activities, where each activity is capable of generating benefits that mutually reinforce each other. Each activity adds value to the other, thereby making the whole output greater than the sum of the discrete parts. Systems gains refer to the benefits or economies derived from creating and engineering linkages among design, production, marketing organisation and management. Examples of systems gains are networked activities, where each activity (or sub-division within an organisation) can share a common database or pool of knowledge. Economies of scope refer to the lower costs associated with the joint provision of more than one product or service, rather than producing each separately (Willig, 1979). With economies of scope, the joint produc-tion of two goods by one enterprise is less costly than the combined costs of two firms producing either goods 1 or goods 2. Assuming that scope econo-mies existed in the provision of car rentals and hotel bed nights, for example, it would mean that the cost of adding the provision of car rentals to hotel bed nights would be cheaper than producing car rentals alone
The essence of diagonal integration is that 2 + 2 = 5. The economics of diagonal integration will lead to the increasing cross-fertilisation of many on unconventional services, with tremendous implications for travel sup-pliers. In tourism, therefore, it will no longer be best practice to produce single and unrelated items of tourism output. It is increasingly common sense to produce clusters of interrelated services (which may not all be tourism-specific) which are integrated into a total system of wealth creation. Perhaps the best way of defining diagonal integration is to explain what it is not. Table 8.1 explains the differences among vertical integration, horizontal integration, diversification and diagonal integration.
Tourism as a Total System of Wealth Creation
One corollary of diagonal integration is that tourism is becoming a total system of wealth creation. In other words, wealth in tourism is created through the diagonal and synergistic integration of a number of activities into a total system. Within this total system of wealth creation, a computer and communications infrastructure provides the critical foundation from which a number of services can be spawned.
The fundamental backbone of this system of wealth creation is intelli-gence and information, i.e. the intelligent transaction in, and manipulation of, information. Information, as well as its intelligent manipulation, is of critical importance to the tourist industry – that is for understanding,
ma-nipulating and profitably satisfying the tourism market. The economics governing this system of wealth creation is very powerful. This can be seen both from the demand and supply imperatives of the system.
On the supply side, investment in a telecommunications infrastructure results in diminishing marginal costs with increasing utilisation. A com-puter-reservation system (CRS), for example, can market a number of travel services including airline and hotel reservations, flower and cham-pagne services, cruises, car rental, restaurant bookings, etc. The beauty of these CRS however, is that once an initial investment is made in a computer and communications infrastructure, another group of services can be added at little or no marginal costs to the provider. Lastminute.com, for example certainly realises this. Since the users (travel agents) and other suppliers (co-hosts) pay market prices, rather than marginal cost prices, profitability to the suppliers (hosts) of the system is very great.
On the demand side, the wealth-creating potential of the tourism system Table 8.1Diagonal integration compared with other forms of integration
Forms of Integration Characteristics Vertical
integration
Horizontal integration
Diversification Diagonal integration Production focus Many stages of
production
Same stage of production
Many unrelated activities
Many tightly-related services Objectives of
integration
Control over stages of production
Monopoly power/
concentration
Spread risks Get close to the consumer/
Lower costs of production Integration
mechanism
Acquisition/
start new businesses
Acquisition/
collusion
Acquisition/
start new activities
Information partnerships Strategic alliances Strategic acquisitions
Operational-ization
Integrated production and management
Operate as one entity
‘Arms Length’ Synergistic production/
shared networks Orientation of
production
Production-oriented
Supply-oriented Investment-oriented
Consumer-oriented Production
concept
Economies of scale
Economies of scale
Production unrelated to markets
Economies of scale Economies of scope Synergies/
systems gains Source: Tourism, Technology and Competitive Strategies, Poon (1993)
lies in the character of demand for its output, i.e. the combinational and the lifetime character of demand for tourism and other related services. Travel is not consumed like washing machines, where relatively few purchases fix the need. Rather, it is purchased over one’s lifetime. Travel, moreover, is not purchased by itself. It is usually purchased in combination with a number of other services such as travellers cheques, credit, insurance, investment services, ground tours etc. The profitability potential of pro-ducing and marketing a cluster of services which are effectively demanded by a targeted group of consumers is tremendous. Indeed, the economics of producing a whole range of services to a targeted market is different from providing the same item to a supermarket of clients. This American Express discovered a long time ago.
Information Technology – a Vital Pillar of the New Tourism In tourism, it is not a computer or a telephone or videotext that is being diffused, but a whole system of these technologies, based upon micro-electronics (see Figure 8.2). The ‘system of information technologies’ (SIT) comprises computers, computerised reservation systems, digital tele-phone networks, videos, videotext (viewdata in the United States),
Figure 8.2The system of information technologies in tourism
Source: Tourism, Technology and Competitive Strategies, Poon (1993)
interactive videotext, teleconferencing, management information systems, energy management, and electronic locking systems. Moreover, this system of technologies is not being used by airline, or hotels or travel agents, but by all of them.
The diffusion of the system of information technologies in tourism will increase the efficiency, quality and flexibility with which travel services are supplied. It has already led to the generation of new services (tele-conferencing, interactive videotext, video brochures and the Internet).
Technology will have the greatest impact on the marketing and distribu-tion of travel but will leave relatively untouched the human–intensive areas of guest–host relations and supplier consumer relationships (Poon, 1988b). Information technologies applied to the tourism system will increase the efficiency and quality of services provided and lead to new combinations of tourism services. This will be achieved without changing the manifestly human ‘high touch’ content of travel (Poon, 1988c).
It is the systematic use of the system of information technologies by all tourism suppliers, together with its profound impact on the travel industry that allows information technologies to create the foundation for a new tourism best practice and produce a total system of ‘wealth creation’.
Implications of the New Tourism Common Sense Competitors come from outside the industry
One of the implications of the diagonally integrating practices of compa-nies and the evolution of tourism as a total system of wealth creation is that a firm’s competitors will increasingly come from outside the tourism industry. This means that a firm’s competitive advantages can be eroded not by obvious, readily identifiable competitors within its own market segment or industry, but from the entry of firms from completely unpre-dictable places (e.g. banks, telecommunication suppliers or real estate agents). This is clearly evident in the United Kingdom’s travel market, for example, where banks, telecommunications providers and software com-panies have entered the travel market. The competitive threat of these suppliers that come from outside the traditional boundaries of the travel industry is potentially very great because firms from outside bring differ-ent experiences, resources, clidiffer-ent bases and competitive strengths to the travel industry. In responding to increased competition from the outside, two complementary avenues are open to travel suppliers – industry moni-toring and cross-fertilisation of travel services.
In the first option, systems of information provision, intelligence gather-ing, research and development, and market monitoring are necessary.
Firms must be continuously on the lookout for changes and new
develop-ments, not just in their own market segment or industry, but from the entire tourism system. Information about markets and competitors must be intel-ligently utilised to render and reinforce competitive advantage.
Cross-fertilisation of services also provides an important opportunity for survival and competitiveness in the travel industry. In other words, just as other suppliers are entering the travel industry, travel suppliers must creatively enter other areas. This practice of cross-fertilisation is already being adopted by travel suppliers as they attempt to respond creatively and competitively to an increasingly dynamic, complex and changing travel environment.
Innovation holds the key to survival and competitiveness
Survival within the transformed and continuously changing travel industry means that innovation is needed in order to survive. In today’s tourism marketplace, a firm has virtually to run in order to stand still. Inno-vation is the essence of being creative and bringing new ideas and tourism services to the marketplace. Innovation must, however, be interpreted in the true Schumpeterian sense – encompassing innovations in goods, services, markets, methods of production, organizations, and sources of raw material (Schumpeter, 1965). It is necessary, therefore, to be totally in-novative – not just in the marketing or vacation concepts, but also in the organisation, product blending, packaging, management of tourism (Poon, 1988a). A stand-alone or de-linked innovation is not likely to be as potent as a cluster of innovations related to different spheres of a firm’s op-eration.
Innovation must not only be total; it must also be continuous. Indeed a company cannot hope to produce a single innovation and expect it to provide sustainable competitive advantages. The innovation itself has to be sustainable. With innovation, however, sustainability usually implies more innovation. Competitiveness then warrants the origination and sus-tenance of continuous clusters of innovation. A detailed comparative analysis of the Jamaican SuperClub hotel chain and the Benetton clothing concern in Italy revealed unambiguously that the ability of these organisa-tions to evolve continuous clusters of innovation were vital ingredients in the success of both enterprises (Poon, 1988a).
Get closer to the consumer
The complexity and unpredictability of tourists, coupled with the in-creasing diversity of their needs, mean that producers will have to get even closer to their customers. This closeness will be necessary in order to under-stand consumer demand, monitor its pattern and satisfy it competitively and at a profit.
A profound understanding of complex requirements, expectations and desires of consumers as well as their time and budget constraints is vital.
Creating a travel option simply because it is sophisticated, or because the technology is available, or because the firm has some unused capacity simply will not work. Any innovation, new idea or concept must be grounded in the marketplace. It has to reflect the effective needs and re-quirements of consumers. It also has to be properly marketed in order to reach the target group. In this regard, choice of advertising mode and media is also important.
Match the firm’s skills and resources with the marketplace
While it is important to understand the travel market, to be creative and to utilize new information technologies, these activities constitute only half of the tourism profitability and competitiveness equation. The other half of the equation is related to the actual endowments of the firm, and how suited they are to the new requirements of the travel market-place. In other words, a firm may he very creative in thinking about a new service for the travel market; a proven demand for the service may exist; and the technol-ogy and software may be available to bring the new service to the market.
However, the venture could fail if there is not a good match between the competitive strengths and resources of the enterprise and the requirements of the new travel services. New travel services as well as cross-fertilisations must be spawned from resources and competitive strengths already devel-oped and acquired by a firm, (e.g. reputation, information, intelligence, vision, financial assets, software, skilled manpower. It is very easy to run into dis-economies of capital, skills and resources if an optimal match does not exist between the marketplace and the capabilities of a firm.
This is a very important point which should not be overlooked. Since the tourism system and its ancillary services are so complex and interrelated, just about any activity within the system can be perceived as related to any other (for example, hotels and theme parks; theme parks and cruise ships).
Moreover, information technologies can easily make it possible to link just about any activity – from hotels to portfolio management – into a total system of wealth creation. However, this will not necessarily lead to market success.
The difficulty lies in the fact that for any given firm, this cross-fertilisation (diagonally integrating) process can be severely limited by the availability of human intelligence, skills, finance and other resources (polit-ical connections, contacts and information), some, all, or none of which a firm may possess. This seems to be the case with the Mariott hotel chain, for example, which succeeded in diversifying into restaurants and hotels but
‘largely failed in gourmet restaurants, theme parks, cruise ships and
