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3. Assessing Destination Competitiveness World Tourism Organization Manila, 20 – 22 March 2006 M Fabricius THE STRATEGY PROCESS A FRAMEWORK FOR DESTINATION STRATEGY Where are we and how well do we compare? Supportive industries Industry structure & rivalry M Fabricius Target market strategy Positioning and branding strategy Key success factors & capabilities What core image do we wish to project to them? Macro environment: Technological Who are our What do we need to clients and what do well to comply to are their their needs? preferences? Economic Political Socio-cultural Stay ahead? What should we develop and sell to them, at what price, how and through what mechanisms? Development programmes Spatial tourism Development plan Projects Attractions HR/awareness Infrastructure SMME /entrepreneurship Safety Marketing programmes Product Target Market Price Natural Place Promotion How do we ensure and measure success? Institutional Management and Monitoring Resources Vision, goals, objectives and core strategies How do we get there? Integrated Implementation Framework Demand/customer patterns and segments What are our dreams, goals to achieve and direction? Competitor performance Destination competitiveness Where would we like to be? ASSESSING THE COMPETITIVE ENVIRONMENT THE IMPORTANCE OF ENVIRONMENTAL ADAPTATION • THERE ARE TWO REALITIES – – • The KEY CHALLENGE IS TO SCAN AND RESPOND – • The environment is changing at an escalating rate. This change is largely outside the control of the destination marketer What are the trends, possible implications and what can the response be? THE ENVIRONMENT NEEDS TO BE EVALUATED AT THE MACRO AND INDUSTRY LEVELS M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE MACRO ENVIRONMENT The National/ International Economy The Natural Environment THE INDUSTRY ENVIRONMENT •Suppliers Technology Demographic Structure •Competitors •Customers Government M Fabricius Social Structure ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE ECONOMIC ENVIRONMENT • • • • • • • • Exchange rates Interest rates Economic stability Inflation Fuel prices Aviation costs Privatisation Currency re-evaluations M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE SOCIO-CULTURAL ENVIRONMENT • • • • • • • • Population trends (e.g. aging) Lifestyle and value trends New tastes and social trends Leisure orientation rather than work Sport, health and fitness orientation Emergence of global village Increasing impact of the media Quality of life focus M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE POLITICAL ENVIRONMENT • Global/regional conflicts (e.g. Post 9/11) • Boycotts/sanctions • • • • • Regional relations Changes in power structures Occurrence of extreme events (e.g. terrorist attacks) Legal restrictions Positive political developments (e.g. South Africa and the Berlin Wall) M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE TECHNOLOGICAL ENVIRONMENT • • • • • Global distribution systems Internet and CD Rom marketing Transport innovations Virtual reality Video and teleconferencing M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT THE ECOLOGICAL ENVIRONMENT • Tourism impacts on and is increasingly being impacted by the environment • Increasing strain on the environment in popular destinations • Greater awareness of and concern for responsible management of the environment • Responsible travel (triple bottom line) • Species awareness • Increasingly destinations will be confronted with issues such as value, sustainability and ethics M Fabricius ASSESSING THE MACRO COMPETITIVE ENVIRONMENT MACRO ENVIRONMENT – IMPACTS ON STRATEGY •Destination positioning: Taking a short, medium & long term view on where and how to position the destination in the face of macro trends (e.g. currency gains, global conflicts, etc.) •Timing: molding strategy to capitalize on immediate environmental opportunities, riding out or counteracting threats, when and what to communicate, etc. (e.g. safety incidents) •Tactics: shifting the marketing plan – target markets, promotional spend, distribution channels, product highlights to best capitalize on/counteract macro movements (e.g. global warfare) •Internal marketing: working with government and business community to soften, counteract or capitalize on macro environment (e.g. regional events) M Fabricius ASSESSING THE INDUSTRY COMPETITIVE ENVIRONMENT IDENTIFYING COMPETITORS •Comparing apples with apples – benchmarking the most relevant destinations •Competitors in •International •Long haul markets •Short haul markets •Local (domestic market) •Type of product •Main tourism seasons •Size of tourism industry and level of development •Competitors and Complementors. M Fabricius ASSESSING THE INDUSTRY COMPETITIVE ENVIRONMENT ANALYSING INDUSTRY COMPETITION SUPPLIERS Bargaining power of suppliers POTENTIAL ENTRANTS Threat of new entrants INDUSTRY RIVALRY RIVALRY AMONG EXISITING FIRMS Bargaining power of buyers BUYERS M Fabricius Threat of substitute products and services SUBSTITUTES ASSESSING THE INDUSTRY COMPETITIVE ENVIRONMENT ANALYSING INDUSTRY COMPETITION SUPPLIER POWER Factors determining power of suppliers relative to producers same as those determining power of producers relative to buyers THREAT OF ENTRY INDUSTRY RIVALRY Economies of scale Absolute cost advantages Concentration Capital requirements Diversity of competitors Product differentiation Product differentiation Access to distribution channels Excess capacity & exit barriers Governmental and legal barriers Cost conditions THREAT OF SUBSTITUTES Retaliation by established producers BUYER POWER M Fabricius Price Sensitivity Bargaining Power Cost of product relative Size, concentration of to total cost buyers vs suppliers Product differentiation Switching costs Competition among buyers Buyers information Buyer propensity to substitute Relative price performance of substitutes ASSESSING THE INDUSTRY COMPETITIVE ENVIRONMENT STRATEGY, STRUCTURE & RIVALRY •Current competitors: who are they, their resources, cost structures, positioning strategies •Power of suppliers and buyers: influence on destination competitiveness (e.g. cost structures, quality, diversity and innovation) of major hotel groups, airlines, tour operators, internet services •New entrants and substitutes: emerging destinations and products on offer, cost and quality comparison with ourselves, options to differentiate •Complementors: regional and local joint marketing agreements with other destinations, economic sectors and suppliers so as to expand the length and depth of our product M Fabricius ASSESSING DESTINATION POTENTIAL A FRAMEWORK FOR DESTINATION STRATEGY Where are we and how well do we compare? Resources Supportive industries Industry structure & rivalry Vision, goals, objectives and core strategies M Fabricius Target market strategy Positioning and branding strategy Economic Political Stay ahead? What do we need to What should we sell to do well to comply to them, at what price, their needs? how and through what mechanisms? Key success factors & capabilities Product Socio-cultural Place Target Market Price What core image do we wish to project to them? Macro environment: Technological Who are our clients and what are their preferences? How do we get there? Natural Promotion How do we ensure and measure success? Institutional Management and Monitoring Demand/customer patterns and segments What are our dreams, goals to achieve and direction? Competitor performance Destination competitiveness Where would we like to be? ASSESSING DESTINATION POTENTIAL FACTOR CONDITIONS MACRO ENVIRONMENT Our resources DEMAND CONDITIONS Our markets RELATED & SUPPORTING INDUSTRIES STRATEGY, STRUCTURE & RIVALRY Our industry M Fabricius Our allies ASSESSING DESTINATION POTENTIAL M Fabricius ASSESSING DESTINATION POTENTIAL DESTINATION RESOURCES COMPETITIVE ADVANTAGE STRATEGY KEY SUCCESS FACTORS DESTINATION CAPABILITIES RESOURCES TANGIBLE Physical Financial M Fabricius INTANGIBLE Technology Reputation Culture HUMAN Skills/ Communi- MotivaKnowledge cation tion ASSESSING DESTINATION POTENTIAL RESOURCE STRENGTHS AND WEAKNESSES •Tangible resources •Unique natural, cultural and man made attractions, activities and facilities •Quality of hospitality, meeting, transport, catering services, etc. •Intangible resources •Reputation: safety, value for money, lifestyle appeal, culture of excellence •Brand appeal: values, emotional appeal, cultural appeal, innovation •Technological advancement •Human resources •Levels of service skills and customer knowledge •Communication and interaction abilities – language, cultural interaction, etc. •Extent of entrepreneurship, innovation, passion, M Fabricius ASSESSING DESTINATION POTENTIAL RELATED INDUSTRIES: THE DESTINATION CLUSTER Leisure Attractions Holiday Resorts Historical Places Sight Seeing Action Holiday Facilities Game Parks Infrastructure Transportation Airlines Promotion Railway Co. Promotion Buses Car Rental Taxis Airports Promotion Roads Promotion Telecom Rail Security IT Services Accommodation Hotels Hostels Campsites INDIVIDUALS FAMILIES TOUR GROUPS STUDY GROUPS SPORT TEAMS PATIENTS DELEGATIONS POLITICIANS BUSINESS PEOPLE Cultural Offer Promotion Sport Facilities Tour Operators Promotion Promotion Travel Agents Government Shopping Public Events Business Activities Business Study Congresses Political Events M Fabricius Support Industries Food Service Banking Promotion Laundry Promotion Outfitting Insurance Promotion Legal Promotion Promotion Medical Real Estate Promotion Construction Restaurants Promotion Catering Promotion Bars Training Centres Hotel Promotion Mgm’t Guide Promotion Customer Service ASSESSING DESTINATION POTENTIAL DEMAND CONDITIONS: MONITOR THE MARKETPLACE •Markets of origin: •Profile - who, how many, from where, how, when, how long •Potential – current performance, expansion potential, emerging markets, future opportunities •Yield: length of stay, local spend, return visitation •Local (domestic) market performance •Trends: global movements, demand consistency, seasonal variations, price sensitivity, sales and reservation channels, market preferences,etc. •Gaps: where/when/in which segments do we not get our rightful share and what are the reasons •Impacts: job creation, investment, aviation, environment, social, etc. •Often too little investment in market analysis, forecasting & segmentation M Fabricius ASSESSING DESTINATION POTENTIAL INTER-INDUSTRY STRUCTURE, STRATEGY AND RIVALRY •Institutional “thickness” •Price competitiveness •Diversity of facilities and services •Quality and standards •Competitive maturity •Technological astuteness, etc. M Fabricius ASSESSING DESTINATION POTENTIAL EXAMPLE: SWOT ANALYSIS STRENGTHS World class attractions Established tourism economy High repeat rate Good infrastructure World city brand Value for money WEAKNESSES Limited direct air capacity Limited business tourism mix Seasonal pattern Distance factor Non-representative industry Brand/budget fragmentation OPPORTUNITIES Events development Conference/business market Single stop relaxation destination More direct airline entry Product growth opportunities THREATS Direct flights reducing Expensive perception Crime/violence perception Benefits don’t filter to grass roots Budget restriction Continued brand fragmentation M Fabricius THE COMPETITIVE CONTEXT WHERE ARE YOU IN THE DESTINATION LYFE CYCLE? Rejuvenation Critical stages of capacity management and major rivalry Consolidation Stagnation Number of Tourists Decline Development Involvement Exploration Time M Fabricius ASSESSING DESTINATION COMPETITIVENESS YOUR ASSIGNMENT •Identify your 3 main competitors in the international market •Use the diamond framework to conduct a SWOT analysis and highlight maximum three (3) most important •Macro environmental issues, •Destination levers (Strengths, Weaknesses, Opportunities and Threats) Facing your destination M Fabricius ASSESSING DESTINATION COMPETITIVENESS Time out !! M Fabricius