The TUI is a worldwide leading leisure travel group intending to provide customers with a broad choice of differentiated and flexible travel activities to meet their changing needs. This course work explains the many strategies being employed by this organisation. Strategy includes perspective, position, plan, and style. Strategy is the bridge between policy or high-order goals similarly and tactics or concrete actions on the other. Strategy and techniques jointly straddle the difference between ends and means. In short, strategy is a term that refers to a intricate web of thoughts, ideas, insights, experience, goals, expertise, thoughts, perceptions, and anticipations that provide standard assistance for specific actions in pursuit of particular results (Whittington 1993).
ENVIRONMENTAL ANALYSIS OF THIS TOURISM INDUSTRY WITH IMPLICATIONS TO TUI
The environment to be analysed is considered to be of two varieties specifically the macro environment and the micro environment. The tool used to analyse the macro environment is PESTEL, and the tool used to analyse the micro environment is Porter`s five pushes analysis.
Porter`s five pushes analysis handles the factors that are outside the industry which influences within the industry, and may predict the profitability. This eventually influences the competencies of the organization. In order to compete effectively, the business enterprise should comprehend its industry and market. Porter has defined the forces contending that a competitive environment is established within the industry by the interaction of five different pushes acting on a business. The five makes are rivalry among existing firms, risk of new entrants into market, distributor power, electric power of potential buyers, and threat of substitute products or services. Understanding these makes will generate the correct approaches for the firm to be successful ( Porter 2005).
Rivalry occurs between the existing sellers in the market. In the case of TUI, maybe it's other tourism organisations. Rivalry determines the appeal of the customers towards a business or a particular organisation. For the TUI, the rivalries were Thomas Cook, MyTravel Group, ReweTouristik and First Choice Holiday seasons. Having market share of more than 32 percent, TUI was the first player in the focused market. This means that the high amount for TUI on the market. This may be directly related to monopoly that is, having less economic competition.
The threat of entrance for new company is usually predicated on the market admittance barriers. The barriers for entry into the market could be the scale of market, cost of access, distribution programs, cost advantage, authorities legislation, differentiation etc. TUI could stand well in the industry because it had a large range investment, good tour packages, low cost plans, and good services. Each one of these factors helped TUI to take off the risk of entry into the market as a fresh firm.
The threat of substitute products could be technological dangers, where in the latest technology is used to replace something with some other industry gives the same degree of satisfaction or even better, and same final result. TUI launched the online travel operator Touropa. com retailing travel travels online, through travel businesses, television set, call centres etc. These are the modes by which TUI obtained the direct deal of travel products through technology.
The buyer electric power has got two important determinants which will be the size and awareness of customers. If an industry has to draw in a large volume of customers, then it will have a greater concentration on the market. TUI can be viewed as to be always a powerful buyer because there is merely one buyer or hardly any buyers and lots of sellers. TUI bought suppliers such as travel organization chain, air travel and logistic services, various leading bundle vacations, all inclusive vacation club string etc. TUI was a leading company in tourism with over 200 travel and leisure brands around the world making it an extremely powerful buyer.
The supplier electric power is a mirror image of the buyer electric power. Suppliers of raw materials, labour and services to the company can be considered a source of ability over the organization if they are unique enough and more developed suppliers. Supplier electric power can are present when there is certainly switching costs, electric power of brands, possibility of in advance integration of suppliers, fragmentation of customers. Based on the case study TUI does not have powerful suppliers, because they bought most of them such as travel company chain, air travel and logistics services, head to providers etc. Other tour operators were the most susceptible because these were handicapped by a higher level of preset investments and less able to manage their flight and hotel capacities.
In studying the macro-environment, it's important to identify the factors that may in turn have an impact on lots of vital factors that will probably effect the organization's resource and demand levels and its own costs (Johnson and Scholes, 2001).
A quantity of checklists have been developed as means of cataloguing the multitude of possible conditions that might affect an industry. A PESTEL research is one of these that is merely a framework that categorizes environmental affects as political, monetary, social, technological, environmental and legal pushes.
Political factors include authorities regulations and legal issues and specify both formal and casual rules under that your firm must operate. The politics factors include taxes policy, employment regulations, environmental legislation, trade restrictions and tariffs, politics stability.
For the TUI, issues with politics factors could be terrorism, taxation etc. Different countries will have different taxation procedures. Since TUI works on different countries, it will have to manage these guidelines with a solid management team. There have been several terrorist problems in tourist locations like NY, Djerba, Bali, Madrid etc. These problems had created a sense of insecurity among the tourists to go to the area again, which eventually damaged the travel and leisure industry.
Economic factors have an impact on the purchasing vitality of potential prospects and the firm's cost of capital. The economical factors include economical growth, interest rates, exchange rates, inflation rate etc. Tour providers appeared to be the most exposed to the economic problems due to the advanced of fixed possessions and less able to manage their air travel and hotel capacities. The global economic downturn and health problems has also possessed an ill effect on the international travel, thus impacting on the TUI.
Social factors are the demographic and ethnic areas of the exterior macro environment. These factors affect customer needs and the size of potential marketplaces. Some public factors include health consciousness, population progress rate, age circulation, career attitudes, emphasis on safety etc. When a demographic data is gathered about tourism and even if the result is positive, it`s not necessarily reliable because, the thoughts and opinions given during the research could change with changes in the economy of the united states.
Technological factors can lower barriers to admittance, reduce minimum effective development levels, and impact outsourcing decisions. Some technical factors include, R&D activity, automation, technology incentives, rate of technical change. TUI has got the latest technology to mention information through marketing. TUI has launched the exclusive travel operator Touropa. com through which travel tours can be purchased online, and also with the help of travel agencies, television set and call centres.
Environmental factors include weather, weather, and local climate change, which may especially affect travel and leisure industry. Climatic change could have an impact on the international travel, but it`s not a long term problem. Environmental factors could also include pollution created by the airfare fuel, food packages etc. TUI offers its own flight for travel and it produces co2 which is bad for the surroundings. TUI also provides food services and hotel services. If indeed they use cheap food packages maybe it's harmful to the environment as well. Such factors should be taken into consideration and tried to reduce as much as possible.
Legal factors include discrimination regulation, consumer laws, antitrust law, employment law, and health insurance and safety laws. Since TUI works on different countries for import, export and shipping and delivery purposes, there could be restrictions or regulations that range for different countries that could create an inflexible environment for the company.
COMPETITIVE ADVANTAGE OF TUI
When a firm sustains gains that exceed the average for its industry, the firm is thought to have got a competitive benefit over its competitors. The goal of much of business strategy is to achieve a lasting competitive advantage. A couple of two basic types of competitive edge namely cost benefit and differentiation advantage.
A competitive benefit prevails when the organization is able to deliver the same benefits as competitors but at a lower cost (cost benefit), or deliver benefits that go over those of competing products (differentiation benefit). Thus, a competitive advantage enables the firm to make superior value for its customers and superior earnings for itself. Cost and differentiation advantages are known as positional advantages given that they explain the firm's position on the market as a innovator in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive gain that ultimately ends in superior value creation (Porter 1985).
COST ADVANTAGE AND DIFFERENTIATION ADVANTAGE
Competitive advantage is established by using resources and capacities to achieve either a lower cost structure or a differentiated product. A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central element of the firm's competitive strategy.
Another important decision is how broad or small is market segment to focus on. Porter produced a matrix using cost advantage, differentiation advantages, and a broad or narrow target to identify a set of general strategies that the firm can pursue to create and sustain a competitive benefit.
COST Management STRATEGY IN TUI
Cost control is a concept developed by Michael Porter, used in business strategy. It `means the lowest cost of operation on the market. The cost control is often driven by company efficiency, size, level, scope and cumulative experience. An expense leadership strategy seeks to exploit scale of development, well defined scope and other economies producing highly standardized products, using high technology. To be able to sustain through the slump in travel and leisure, TUI introduced a fresh cost cutting programme strategy targeting every year savings which they achieved. These were in a position to sell low priced holidays even without catalogues, decorations or chairs, but customers received information concerning this and booked for the holiday themselves. TUI was also present in the low cost airline market in Germany and the UK.
The firm creates value by doing a series of activities that Porter recognized as the worthiness chain. In addition to the firm's own value-creating activities, the company manages in a value system of vertical activities including those of upstream suppliers and downstream route members.
To achieve a competitive gain, the organization must perform a number of value creating activities in a manner that creates more overall value than competition. Superior value is created through lower costs or superior advantages to the consumer (differentiation).
RESOURCES AND CAPABILITIES
Patents and trademarks
Installed customer base
Reputation of the firm
Capabilities make reference to the firm's potential to make use of its resources effectively. An example of a capability is the capability to bring a product to market faster than competition. Such capabilities are embedded in the routines of the organization and aren't easily noted as procedures and thus are difficult for competitors to replicate. TUI offers efficient distribution channels and good economies of range which are believed to be the attributes that other organisations cannot imitate.
The firm's resources and capacities collectively form its distinctive competencies. These competencies allow innovation, efficiency, quality, and customer responsiveness, most of which is often leveraged to create a cost edge or a differentiation gain.
STRENGTH AND WEAKNESS OF TUI
A firm's advantages are its resources and capabilities you can use as a basis for creating a competitive advantage. Examples of such advantages include patents, strong brands, good reputation among customers, cost advantages from proprietary know-how, exclusive access to high grade natural resources, favourable access to distribution networks.
The lack of certain strengths may be looked at as a weakness. For instance, each one of the following may be looked at weaknesses lack of patent security, a weak brand name, poor reputation among customers, high cost framework, lack of access to the best natural resources, insufficient usage of key distribution stations.
In some cases, a weakness would be the flip side of the durability. Take the circumstance in which a firm has a huge amount of making capacity. While this capacity may be considered a strength that rivals do not promote, it also may be a considered a weakness if the top investment in processing capacity stops the organization from reacting quickly to changes in the strategic environment.
LIMITATIONS OF THE TOOLS USED FOR ANALYSIS
Porter's model is a proper tool used to recognize whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the total amount of electric power in other situations.
Porter argues that five pushes determine the success of an industry. In the centre of industry are rivals and their competitive strategies linked to, for example, costs or advertising but, he contends, it is important to look beyond one's immediate competitors as there are other determines of success. Specifically, there might be competition from alternative`s products. These alternatives may be perceived as substitutes by purchasers even though they are really part of an different industry. An example would be plastic bottles, cans and cup bottle for packaging carbonated drinks. There can also be potential risk of new entrants, even though some competitors will dsicover this as an opportunity to improve their position in the market by ensuring, so far as they can, customer devotion. Finally, it's important to understand that companies obtain suppliers and sell to customers. If they are powerful they are really in a position to bargain revenue away through reduced margins, by forcing either cost boosts or price decreases. This pertains to the proper option of vertical integration, when the company acquires, or mergers with, a distributor or customer and therefore gains higher control over the string of activities which leads from basic materials through to final use.
Further restrictions are that it is not necessary that new business models and the dynamism of the sectors, such as technological innovations and strong market entrants from start-up will completely change business models within short times. For instance, the travel and leisure industry is recognized as being competitive and also being revolutionized by technology that indicates Five Makes model being of limited value since it signifies no more than snapshots of your moving picture. Therefore, it is not advisable to develop a strategy strictly on a model basis, but to look at it in addition to other tactical frameworks of research.
Nevertheless, that does not mean that Porters theories became invalid. What must be done is to look at the model with the data of their limitations and to use them as part of a larger platform of management tools, techniques and ideas. The model assumes that all business human relationships are competitive, and that industry restrictions are stable as time passes, ignoring advancement and entrepreneurship(Offer 2007). Restrictions of PESTEL model is that they come to some final result which is not just what the organisation wants, but the ways concerning how the organisation could be advanced. SWOT framework has a tendency to oversimplify the problem by classifying the strong`s environmental factors into categories where they might not always fit. The classification of some factors as talents, or weaknesses, or as opportunities or risks is slightly arbitrary. For instance, a particular company culture can either be durability or weakness. A technical change can either be a threat or an opportunity. The firm should become aware of these factors and develop a strategic intend to use them to its benefits.
Strategy is that which top management does that is of great importance to the business. The above analysis is about the environmental examination of the travel and leisure industry with implications to TUI. The various tools that has been used to analyse are Porter`s five push model and PESTEL model. A report about the competitive advantages, power and weakness of TUI is also done along with the limitations of the tools that has been applied to analyse. Competitive benefit of the TUI is its cost leadership strategy and it has been successful with this strategy so far. Despite having the changing business environment TUI would probably be successful because of its strategy.
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