The Holiday Company (HC) currently offers travel agency services by giving travel advice and making travel bookings for customers who physically visit the offices located in most major towns in the country. However, it is progressively reducing this part of the business while simultaneously trying to achieve a greater proportion of its revenue online.
To help meet this objective, HC is in the process of forming a new business unit to market and sell luxury holidays. The holiday product range marketed by this new business unit will be named Inspirations. It is intended that Inspirations will provide a high quality, bespoke holiday service for discerning clients. HC has decided that this new business unit will have its own mission statement of ‘delivering a high quality service for discerning travellers’. The new managing director of Inspirations has stated that it has an objective of achieving annual revenue of $100m by 2018. This would be approximately 25% of the total forecast revenue for HC that year, but it is expected to represent only about 5% of the total number of holidays sold by HC. The type of holidays offered by Inspirations is already provided by some of HC’s competitors.
Dilip Kharel, the new director of marketing of Inspirations, has stated that the internet should be increasingly used as the main source of marketing and selling the holidays, as ‘the days are almost gone when families visit a ‘high street’ travel agency to plan their holiday; it’s all done now from the comfort of the home’. He believes that potential customers of Inspirations will not want to visit high street travel agencies.
HC currently makes extensive use of traditional marketing techniques, sending out travel brochures containing all of its holidays to potential customers. However, as Dilip has recognised, ‘the problem is that we don’t even know if our customers bother opening these, or if they put them directly into the dustbin.’ These brochures are often produced months in advance, and may advertise holidays which are no longer available. Customers will not discover this until they visit one of the travel agents. The company currently does make some use of targeted emails, but it has been accused of sending spam mail in the past and mass mailing a weekly email of all current holiday offers to everyone registered on its database.
Dilip is keen to embrace the opportunities offered by electronic marketing and believes that Inspirations can benefit greatly by exploiting the principles of intelligence, individualisation, interactivity, integration and independence of location which are central to electronic marketing.
Inspirations will offer holidays in a wide variety of locations, including the Caribbean, Africa and Asia, and plan to offer ‘themed’ trips, such as gourmet food holidays and heritage trips. Different countries may have different requirements for visiting tourists, such as visa regulations. Inspirations does not own hotels or aircraft and therefore the majority of holidays offered will be provided by third-party suppliers, such as hotel and airline companies. This means that Inspirations can lack control over some elements such as passenger taxes. Inspirations will have representatives on site in all resorts to meet guests at airports and to address any issues they have with the holiday. However, the hotels and excursions will not be solely or exclusively offered to Inspirations guests. For example, there will be other guests at a hotel who have not booked through Inspirations.
Dilip is concerned about this. He feels that the company needs to be able to differentiate itself, either in the overall holiday experience itself or in the marketing of it, so that customers are more likely to book such holidays through Inspirations, rather than through a competitor, or indeed through booking with the hotel directly. He also recognises the importance of adopting an appropriate pricing strategy which meets the needs of the organisation (HC and Inspirations) and customers alike.
Required:
Evaluate how the principles of intelligence, individualisation, interactivity, integration and independence of location could be exploited when marketing the new range of holidays to be offered by Inspirations.
Dilip Kharel recognises the importance of a pricing strategy which supports the overall corporate and business strategies of the organisation.
Dilip is justified in his decision to attempt to exploit the principles of electronic marketing, as companies can benefit greatly from this approach. The five principles referred to in the question requirement may be exploited as follows:
(i) Intelligence
The internet can be used as a low cost option of gathering intelligence about customers and potential customers. The website could use cookies to track the customers’ mouse clicks, and see what has been of interest to them, and at what point they leave an area of the site. For example, do they get as far as looking at availability of a holiday and then leave the site when the price is displayed, or do they move on to another area on reading details about the hotel being offered? This can help to determine new product lines and other elements of the marketing mix.
If customers register on the site, then the company can also track their individual preferences over time, and this can help to exploit individualisation. As Dilip says, the company currently has no idea whether customers even read their brochure. The use of e-marketing will allow analysis of who visited which part of the site, how long they stayed there, whether they went on to get more information and how many times they re-visit the same page.
(ii) Individualisation
The current approach of sending the same marketing, covering all holidays, to every client is not appropriate for the luxury, bespoke service which Inspirations wishes to offer.
Inspirations should ensure it makes use of the features of promotion which offer individualisation, given that they are offering a bespoke service, which is, by its nature, individual. This is only possible if the company also exploits the use of intelligence, as previously mentioned. For example, if a customer has shown interest in gourmet food holidays, information relating to these can be shown on the home page. It may then offer a personalised home page when that customer visits again, with specific suggestions for them.
Customers should be able to save information on holidays which they are interested in and return to these. Inspirations could send emails if there is anything similar which may be of interest to those customers. Or, if a customer has booked a specific holiday in the past, such as a river cruise, the company may send them an email in the future with similar holidays.
(iii) Interactivity
This principle works on the idea of a ‘pull’ marketing approach, whereby the customers are driving the marketing and selling process, rather than the company ‘pushing’ its holidays at them. Given that the company wishes to sell bespoke holidays, this element is crucial.
The interactivity should begin with the use of search engines, such that when a potential customer types ‘luxury holidays’ or ‘bespoke holidays’, for example, Inspirations is one of the first to appear in the search results. Once on the website, the customer should be able to search from easy menus, such as ‘destination’ or ‘holiday type’. The customer should then be shown a range of options, and further action on their part may lead them to further details regarding the holiday being viewed. In this way, the customer will only view holidays and further information which is of interest to them.
Further interactivity may be provided in the form of a two-way dialogue with a holiday adviser, through an online chat function. This could work well with HC’s new business unit if the adviser is knowledgeable and able to offer enhanced services, such as managing the overall booking. This could be a valued differentiator for Inspirations: offering a personalised service, as if in-store, without the customer having to be inconvenienced by visiting the store.
(iv) Integration
Holiday companies could make great use of integration, which is about sharing knowledge and marketing activity between different parts of the company. For example, if customers switch to Inspirations holidays, having previously been a customer of HC, this information could be shared such that there is already some knowledge of the customers’ preferences.
Inspirations could also integrate the different elements of the holiday experience and the databases of different companies supplying the services. For example, it may be possible for the customer to book hotels, flights, car hire and excursions. Inspirations could integrate the information, such that once a customer has booked a holiday, marketing information could be sent for the elements which have not been included. Once a holiday has been booked, the website may offer suggestions for upgrades and further options. If, for example, a holiday is booked at a particular destination, then trips available at that destination may be marketed. Depending upon the holiday purpose, different add-ons could be offered. For example, the gourmet trips for food lovers could forward details of excursions to food production facilities, with booking offers if combined with an existing holiday.
(v) Independence of location
Independence of location allows the possibility of selling into global markets. Provided Inspirations has access to flights departing from different countries, there is nothing to stop it operating as a global travel provider. It is intending to make more use of online sales, with the internet being the main source of marketing this new business, therefore high street branches are not necessary in this instance.
In order to exploit the global market, Inspirations must ensure that it offers the ability to view holiday prices, and pay, in foreign currencies. It should also ensure that it considers the current trends of holiday destinations for different markets worldwide.
Describe a strategic approach to establishing prices in the context of Inspirations. You should recognise both economic and non-economic factors in your approach.
There are a number of influences which must be considered when determining a pricing strategy which will deliver the business and corporate objectives of an organisation.
Mission and objectives
Clearly, the objectives which are to be achieved should form a key element when determining the pricing strategy. HC’s new business unit has the mission of ‘delivering a high quality service for discerning travellers’, and aims to ’achieve revenue of $100m by 2018’. If the business unit is aiming for high quality, then its pricing strategy should be in line with this, in order that customer perception is in line with what the company hopes to deliver. This may lead to a premium pricing strategy for Inspirations to maintain the suggestion of a difference between the standard holidays offered and the new range of holidays. Prices should be higher to reflect the quality offered. HC must also consider the desired revenue, 25% of total company revenue but only 5% of volume; this suggests that the pricing must be set at a higher level than current offerings in order to achieve this. Price is a key element in differentiating its product.
Whilst organisations may use discounting as an aid to getting market share, a clear objective of HC, the use of discounting, in this market segment, would contradict the desired message of premium quality.
Cost
If a price fails to take cost into consideration, then the organisation may not be profitable and difficulties may arise in the long term. Although organisations have been known to sell products as a loss leader in order to attract other purchases, it does not seem as if this would be an appropriate strategy for Inspirations. It must cover its costs when deciding its prices.
The premium holidays offered will make use of the best hotels, with high ratings and quality features, and intend to use premium airlines and seat options only. These will be costly to the company and should be incorporated into the price. Inspirations could choose to price each individual option on a ‘cost plus margin’ basis, or simply ensure that the overall cost is covered when deciding the final price using some other basis.
Competition
There are a number of competitors already operating in the luxury holiday market, and Inspirations must consider what it is charging for equivalent services. Given the transparency of information available over the internet, customers will easily be able to compare holidays and prices. Inspirations does not own the hotels it intends to use for the holidays offered, and will not have exclusive use of them. Therefore, the price should either match those offered by similar competitors, or they should differentiate in some way and therefore be able to charge a justifiably higher price.
Customers
Customers will have a limit regarding what they are prepared to pay for a particular offering. Inspirations must ensure that its pricing is within that limit for its target customer group. Given that these are luxury holidays, Inspirations are targeting higher income customers. Whilst price competition may not be the main focus for these customers, they will still want perceived value for money. This will determine the upper price they are prepared to pay.
Controls
There are a number of external influences affecting the travel industry. Although it is often the airline or the hotel company which is subjected to these influences, such as local passenger taxes and visa requirements, the holiday company must consider these when determining its pricing strategy. For example, should these be incorporated into the price of the holiday or shown separately? Also, can the airline or hotel companies impose controls on the holiday company, such as a legal requirement not to discount their prices in any way?
Overall, therefore, Inspirations should consider a combination of the above influences to ensure that it sets a price which delivers a profitable product which meets the corporate objectives.