Strategy for Tourism
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Unit 5
The External
Environment:

Competition
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Reading
Book
Ch
Tribe, J, (2010) Strategy for Tourism, Goodfellow
Publishers, Oxford.
5
Capon, C. (2008) Understanding Strategic
Management, Prentice Hall: Hemel Hempstead.
2
Tribe, J. (2005) The Economics of Recreation, Leisure
and Tourism, Butterworth Heinemann, Oxford.
8
Johnson, G., Scholes, K., and Whittington, R. (2008)
Exploring Corporate Strategy, Prentice Hall: Hemel
Hempstead.
2
Learning Outcomes
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
Case Study 5: Global Airlines
 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
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
The competitive
environment
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
The threat of entrants
 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
How does Coca-Cola co
attempt to reduce the threat
of entrants?
 economies of scale
 capital and
experience barriers
to entry
 advertising barriers
to entry
 availability of
distribution channels
(vertical integration)
 product
differentiation
barriers
The bargaining power of
buyers
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
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 bargaining power of
suppliers
 Assess the power of
suppliers to Emirates
Airways
 Aircraft suppliers
 Airport owners
 Fuel suppliers
The threat of substitutes
The threat of substitutes describes the
likelihood of other services or products being
used in place of any existing product or
service. When analysing the treat of
substitutes the following are of relevance:
 Price/ performance ratio
 Extra-industry effects
The degree of competitive
rivalry
Competitive rivalry measures of the intensity
of competition in an industry.
 It is 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
Competitive Rivalry:
Santorini, Greece
Competitor Analysis
 This involves a more detailed look at a tourism
entity’s existing and potential competitors in the form
of a profile that might include:
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product lines
buyers
prices
quality
differentiation
advertising
market segment
marketing practices
growth and prospects
financial resources
human resources
Destination
Competitiveness
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.
Review of Key Terms
 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.
Discussion Questions
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?
Conduct a C-PEST O/T
analysis for a named tourism
organisation
Opportunities
Threats
Strategy for Tourism


Unit 5
The External
Environment:

Competition

The End