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Chapter 7: Competitive strategies and strategic directions in tourism and…
Chapter 7: Competitive strategies and strategic directions in tourism and hospitality businesses
3 levels of strategy
Corporate Level Strategy
Overall purpose and scope of an organization.
Decisions on which industries or markets to compete in.
Example
A hospitality group expanding into new geographic locations.
Business Level Strategy
How a business competes successfully in a certain market.
Decisions on competitive advantage and positioning.
Operational Level Strategy
Detailed implementation issues
How corporate and business level strategies can successfully be put into practice
Competitive strategy
The bases on which a strategic business unit (SBU) might achieve competitive advantage in its chosen market or markets.
Michael Porter’s generic strategies
Michael Porter (1980) identified three generic strategies for achieving competitive advantage
Cost leadership
Being the lowest-cost producer of a product
Above-average profits are earned
even though the price charged is not above average.
Examples
Low-Cost Airlines: Ryanair, easyJet, AirAsia, JetBlue.
Key benefits
Higher profits
Increased sales & market share
Market entry advantage
Appeals to price-sensitive consumers
Barrier to entry
Differentiation
Creating a customer perception that a product is superior to those of competitors
A premium price can be charged.
Key benefits
Premium Pricing
Lower Price Elasticity
Higher Profits
Barrier to Entry
Examples
Luxury Hotels: Mandarin Oriental, W Hotels (design & branding differentiation).
Focus
Utilizing either a differentiation or cost leadership strategy in a narrow profile of market segments
(possibly just one segment)
Key benefits
Lower Resource Investment
Specialization & Expertise
Easier Market Entry
Examples
Contiki Tours
Offers adventure & sightseeing tours
only for travelers aged 18-35
Bowman's Clock Strategy
Definition
A model that maps competitive strategy based on price and perceived value.
Helps businesses understand where they are positioned and how they can compete.
Key Strategy Positions
‘No Frills’ (Low Price, Low Value)
Likely to be segment specific
Low Price
(Cost Leadership)
Risk of price war and low margin
Hybrid (Low Cost + Differentiation)
Differentiation
(High Perceived Value, Standard Price)
Without price premium
Perceived added value by user
Yielding market share benefits
With price premium
Perceived added value sufficient
Bear price premium
Focused Differentiation (High Perceived Value, High Price)
Increased Price / Standard Value (Risky Strategy)
Increased Price / Low Value (Monopoly Pricing)
Low Value / Standard Price (Market Failure)
Strategic Directions
Growth strategies
Igor Ansoff’s product–market framework
Market Penetration
Increasing market share with existing products
Market Development
Entering new markets with existing products.
Product Development
Creating new products for existing markets.
Diversification
Expanding into new markets with new products.
Stability strategies
Reasons
Avoid unnecessary risks
Focus on efficiency and optimization
Suitable for mature or saturated markets
Maintain market position
Variants
Pause/Proceed with Caution
No change
Profit
Retrenchment strategies
Reasons
Weak Competitive Position
Hostile Environment
Reducing Scale of Operations
Examples
Post-9/11 Travel Industry Crisis
Variants
Turnaround
Captive company
Sell out/divestment
Bankruptcy/liquidation