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Competitive strategies and strategic directions in tourism and hospitality…
Competitive strategies and strategic directions in tourism and hospitality businesses
3 levels of strategy
Corporate level strategy
The overall purpose and scope of an organization
Business level strategy
How to compete successfully in certain market
Operational level strategy
detailed implementation issues relating to how the
proposed corporate and business level strategies can successfully be put into practice
Michael Porter’s generic strategies
Cost leadership
being the lowest-cost producer of a product so that above-average profits are earned even though the price charged is not above average
potential benefits
Can earn higher profits by charging a price equal to or even below that of competitors because its costs are lower.
Provides the possibility of increasing both sales and market share by reducing price below that charged by competitors
Allows the possibility to enter a new market by charging a lower price than competitors.
Can be particularly valuable in a market where consumers are price sensitive
Creates an additional barrier to entry for organizations wishing to enter the industry.
Example of how costs savings might be achieved
Reducing costs by copying rather than originating product design features
Using less expensive resource inputs
Producing products with ‘no frills’, thus reducing labour costs and increasing labour productivity.
Achieving economies of scale by high-volume sales perhaps based on advertising and promotion or allowing high fixed costs of investment in modern technology to be spread over a high volume of output.
Using high-volume purchasing to obtain discounts for bulk-buying of resource inputs such as accommodation or transportation requirements
Locating activities in areas where costs are low or government help, such as grant support, is available
Obtaining experience curve economies
Standardising products or resource inputs.
A cost leadership strategy, coupled to low price, is best employed in a market or segment where demand is price elastic
Differentiation strategy
creating a customer perception that a product is superior to those of competitors so that a premium price can be charged
The major benefits
its products will command a premium price
demand for its product will be less price elastic than demand for competitors’ products
above-average profits can be earned
it creates an additional barrier to entry to new businesses wishing to enter the industry
Differentiation can be achieved in several ways by
Creating products which are superior to competitors by virtue of design, technology, performance
Offering a superior level of service.
Having access to superior distribution channels
Creating a strong brand name through design, innovation, advertising, loyalty programmes and public relations
Distinctive or superior product promotion
Focus strategy
utilizing either a differentiation or cost leadership strategy in a narrow profile of market segments
(possibly just one segment)
The major benefits of a focus strategy
requires a lower investment in resources compared to a strategy aimed at an entire market
allows specialization and greater knowledge of the segment being served
makes entry to a new market simpler and less costly
A focus strategy will require
identification of a suitable target customer group which form a distinct market segment
identification of the specific needs of that group
establishing that the segment is sufficiently large to sustain the business
establishing the extent of competition within the segment
production of products to meet the specific needs of that group
deciding whether to operate a differentiation or cost leadership strategy within the market segment
Focus strategies can be developed in THE in a range of different circumstances by
Focusing on a particular group of buyers
Specializing in particular geographic destinations
Catering for the benefits sought by a particular group of buyers or a particular product
Bowman’s Strategy Clock
No frills
low perceived added value and low price
likely to be segment specific
Low price
standard perceived added value and low price
risk of price war and low margins; need to be cost leader
Hybrid
increased perceived added value and low price
Low cost base and reinvestment in low price and differentiation
Differentiation
increased perceived added value and standard price
without price premium: perceived added value by user, yielding market share benefits
with price premium: perceived added value sufficient to bear price premium
Focused differentiation
increased perceived added value and increased price
perceived added value to a particular segment warranting price premium
Increased price/standard value
Higher margins if competitors do not follow
high risk
Increased price/low value
Only feasible in monopoly position
Low value/standard price
Loss of market share
Strategic directions
growth strategies
market penetration – increasing market share in existing markets utilizing existing products;
Market penetration is likely to be appropriate when:
the existing market has growth potential;
other competitors are leaving the market
the organization can take advantage of its acquired experience and knowledge in the market
the organization is unable for some reason (such as lack of resources or regulatory restrictions) to enter new markets.
market development – entering new markets and segments using existing products
Market development is likely to be appropriate when
the existing market has no growth potential
regulatory or other restrictions prevent an increase in an organization’s market share in its current market
other geographic markets or market segments offer good growth potential
existing products are easily transferable
product development – developing new products to serve existing markets
Product development is likely to be appropriate when
an organization already holds a high share of the market and could strengthen its position by the launch of new products
the existing market has good potential for growth providing opportunities of good economic returns for new product launches
customer preferences are changing and they are receptive to new product ideas or new destinations
competitors have already launched their own new products
new products might be
Completely new to a particular organization
Developments of additional lines of existing products
Creations of differing quality versions of the same product
New products should:
have a market focus
build on existing core competencies
involve cross disciplinary teams in their development
involve good internal communications so that all within the organization are kept informed
diversification – developing new products to serve new markets
the directions and methods of diversification
Related diversification
Diagonal Diversification
Vertical Diversification
Horizontal Diversification
Forward Vertical Diversification
Backward Vertical Diversification
Unrelated diversification
stability strategies
three variants of stability
Pause/proceed with caution
It represents a deliberate attempt to make only incremental improvements until the environment changes
No change
Is a decision to do nothing new, choosing to continue current operations for the foreseeable future
Profit
Is a decision to do nothing new in a worsening environmental position but instead to act as though the organization’s problems are only temporary
retrenchment strategies
four variants of retrenchment
Turnaround
Emphasizes the improvement in operational efficiency when an organization has problems which whilst serious are not critical
Captive company
Involves giving up independence in return for security whereby management offers the company to one of its largest customers to ensure survival
Sell out/divestment
it choose to retrench through selling the entire organization or divesting those SBUs that are in a weak position in order to provide finance for those that are stronger
Bankruptcy/liquidation
involves giving up the management of the
company to the courts in return for some settlement of the corporation’s obligations