Transcript Notes - Computer Information Systems

IGE105 – Communication
Technology in a Changing World
Dr. Ken Cosh
Week 11
Regulation
 In the Real World & in Cyberspace
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Law
Social Norms
Market
Architecture
 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.
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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
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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
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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
Material
Suppliers
Service
Providers
GDS/CRS
Distributors
Supplier
Reservation
Supplier
Centers
Websites
& Ticket
Offices
Internet
Travel
Agents
Customer
Consolidators
Brick &
Mortar
Travel
Agents
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
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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;
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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
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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.