Strategy for Tourism

Unit 5
The External
Environment:
Competition
Professor John Tribe
Learning Outcomes © John Tribe

 After studying this chapter and related materials

you should be able to understand:
 Industries, markets and strategic groups
 Porter’s five forces
 Competitor analysis
 Destination competitiveness
 and critically evaluate, explain and apply the
above concepts
© John Tribe
Case Study 5: Global Airlines © John Tribe

 Competition in the airline industry is intense. But it hasn’t always

been so.
 For a long while the ‘legacy carriers’ (carriers such as British
Airways, American Airlines and Lufthansa) were protected from
competition by regulation that included protective entry barriers and
price agreements.
 But the 1978 Airline Deregulation Act liberalised national aviation
markets in the U.S. opening them up to competition. Subsequently
the E.U. aviation markets were deregulated in the 1980s and 1990s
and the USA and E.U. agreed on the Open Aviation Area in 2008.
 Deregulation ushered in wave after wave of ‘low cost carriers’,
notably South West Airlines in the U.S. and Ryanair in the U.K and
the airline industry was rocked by the low-cost revolution. Low-cost
carriers offer no-frills services and hence not only low costs but also
low prices.
Industries, Markets and Strategic
Groups © John Tribe

 Industries are is focused on production

 Markets are focused on customers and therefore
on the demand side
 It is sometimes the case that the notions of
"industry" or “market” are too wide to allow for
useful consideration of an organisation's
competitive position. Strategic group analysis can
be used to focus on defined business units (which
may be part of a larger organisation) which
compete on similar territory.
Strategic Groups for Paris
Hotels © John Tribe
The competitive
environment © John Tribe

 In his book Competitive Strategy (1980), Porter

proposes the following model (‘the five forces’)
for investigating the competitive environment:
 1 the threat of entrants
 2 the power of suppliers
 3 the power of consumers
 4 the threat of substitutes
 5 competitive rivalry
Porter’s Five Forces © John Tribe
The threat of entrants © John Tribe

 Any significant recent or future entrants for your

organisation / destination?
 The extent of the threat of new entrants will depend upon
barriers to entry such as:
 Economies of scale
 Capital requirements of entry
 Availability of supply and distribution channels
 Expected retaliation: Price and advertising barriers
 Product differentiation
 Government policy
The bargaining power of
buyers © John Tribe

 The bargaining power of buyers measures the relative

power of customers in relation to the producers in a
particular market. Buyer bargaining power is affected by:
 Switching costs
 Large volume purchasers
 Homogeneous products
 Buyer knowledge of competition *
The bargaining power of
suppliers © John Tribe

 The bargaining power of suppliers is the relative

power of suppliers in relation to producers. Key
factors affecting supplier power include:
 Supplier size and concentration
 Switching costs
 Uniqueness of the supplied resource
The threat of substitutes © John Tribe

 The threat of  January 2012:

substitutes Kodak files for
describes the bankruptcy
likelihood of other
services or
products being
used in place of
any existing
product or service.
The degree of competitive
rivalry © John Tribe

 Competitive rivalry measures the intensity of

competition in an industry.
 It is determined by the competitive conditions in
the four forces analysed above and in addition:
 Degree of market leadership (dominant firm)
 Industry growth rate
 Perishability of products
 Marginal costs of sales
 High exit costs
 Cross subsidisation
Changing Competitive
Rivalry © John Tribe

 It’s not static!

 Seasonal pricing
 Dynamic
pricing
Porter’s Diamond for National © John Tribe
Competitive Advantage
Destination Competitiveness © John Tribe

 Crouch and Ritchie (1999, p. 146) argued for a

model where tourism destination
competitiveness is determined by four major
components:
 Core resources and attractors*
 Supporting factors and resources*
 Destination management*
 Qualifying determinants*
Destination Competitiveness © John Tribe

 Core resources and attractors include the primary markers of a

destination which are important in differentiating one from another.
They include landscape, climate, culture, history, links with tourism
originating regions as well as accommodation, food services,
transportation, tourist attractions and special events.
 Supporting factors and resources include the extent and condition of
the general infrastructure of the destination and factors that influence
its accessibility.
 Destination management includes destination marketing and the
management, co-ordination and maintenance of supporting services,
tourism resources and attractors.
 Qualifying determinants refers to factors that can impinge on the
other three components. These include safety, location and overall
costs.
Destination Competitiveness © John Tribe

 Dwyer et al. (2003) proposed a modified model of

determinants of competitiveness comprising of:
 Inherited Resources
 Created Resources
 Supporting Factors and Resources
 Destination Management
 Situational Conditions
 Demand Conditions.
Discussion Questions © John Tribe

1. Distinguish between an industry, markets and strategic groups using

a tourism example and explain their usefulness for competitor
analysis.
2. Conduct a five force analysis on the competitive environment for a
named tourism firm. Explain how this will enable the director of
strategy and planning of that firm to "find a position in the industry
where his or her company can best defend itself against these forces
or can influence them in its favour" (Porter, 1998).
3. Conduct a competitor analysis for a tourism firm. Identify its key
competitor and prepare a competitor response profile to show how
this organisation may react to a low price strategy from your chosen
firm.
4. What factors affect destination competitiveness?
5. To what extent can Porter’s five forces framework be used to
understand destination competitiveness?
Review of Key Terms © John Tribe

 Legacy carriers: Airlines which were founded before deregulation.

 Strategic group: Collection of defined suppliers who compete on a similar
territory.
 Porter's five forces: The threat of new entrants, the bargaining power of
buyers, the bargaining power of suppliers, the threat of substitutes and the
degree of rivalry between competitors.
 The threat of new entrants: The ease with which new firms may enter an
industry.
 The bargaining power of buyers: The relative power of customers in relation
to the producers.
 The bargaining power of suppliers: The relative power of suppliers in
relation to producers.
 The threat of substitutes: The likelihood of other services or products being
used in place of any existing product or service.
 The degree of competitive rivalry: An overall measure of the intensity of
competition in an industry.
 Competitor analysis: An analysis to formulate a strategy in the light of an
assessment of key rivals.
Strategy for Tourism

Unit 5
The External
Environment:
Competition
The End