Travel Agency Distribution

1
Travel Agency Distribution
2
Porters Five Forces Travel Agency

• Industry Rivalry Highly Fragmented Industry
  with Intense Rivalry
• Highly Fragmented Industry.
• Organized players would barely have 15-20 of the
  marketplace
• Most of organized players are present in metros
  mini-metros
• Large disposable incomes in towns like Lucknow,
  Jaipur, Coimbatore etc. serviced by family run
  unorganized players
• Industry rivalry is intense but not cutthroat
• Rivalry Intense because of low switching costs,
  low levels of product differentiation,
  perishability of products diversity of rivals
• Rivalry is not cut throat since exit barriers are
  not high, fixed costs are not high, market growth
  is good

3
Porters Five Forces Travel Agency

• Threat of Substitutes Low Threat of Substitutes,
  as travel moves up the list of household
  priorities
• Lot of Possible Substitutes , Threat of
  Substitution Low
• India is witnessing a growth of discretionary
  spend as of income
• from 30 in 2005 to around 70 by 2025. Travel ,
  being a discretionary spend poised to gain.
• Travel has moved up the list of household
  spending priorities
• Unlikely to be substituted by a durable purchase
  or investments
• Education Recreation will occupy 9 share of
  wallet in 2025 as compared to 5 now.
• Travel Industry currently at 16 billion, is
  expected to touch 26 billion by 2010

4
Porters Five Forces Travel Agency

• Buyer Power While buyers are fragmented, their
  diminishing brand loyalty and ability to switch
  (for most products) gives them reasonable buying
  power
• Buyers are fragmented
• Diverse retail buyer and corporate buyer profiles
• Switching costs for buyers is not high as brand
  loyalty is low/diminishing
• Credible threat of backward integration
• Buyers can directly buy from suppliers (hotels,
  airlines etc)
• Luxury segement is brand consious to and willing
  to pay a premium for great experience and service
  quality

5
Porters Five Forces Travel Agency

• Supplier Power Supplier usually sell commodity
  products . Concentration ability to sell direct
  gives power to suppliers like airlines. Other
  suppliers are fragmented
• Forward integration by suppliers like airlines
  selling direct
• Attempts by suppliers to sell packages and
  complex itineraries not very successful
• While suppliers concentrated in some areas like
  domestic airlines, there is widespread
  fragmentation in hotels, tour operators, car
  rentals etc.
• There is no significant cost to switch suppliers
  and products like airlines, car etc. are fairly
  commoditized
• Travel agency cannot typically buyout suppliers
  like airlines

6
Porters Five Forces Travel Agency

• Barriers to Entry Exit While entry and exit
  barriers are low, difficult to build scale
  because of lack of ready distribution channels
• Government regulation of direct FDI in retail
  restricts entry of foreign retailers
• There are low level of proprietary travel
  knowledge and asset specificity. This makes it
  relatively easier for new players to enter
  industry and does not provoke very aggressive
  rivalry from existing players
• Low minimum efficient level allow entry of small
  startups, however significant scale is necessary
  to negotiate profitable deals
• Due to a fragmented market , travel agencies do
  not have access to ready distribution channels
• Online channel is growing at a rapid rate but is
  primarily selling air and rail

7
Implications of Analysis on Distribution

• Implications of Porter Analysis for Distribution
  
• While buyers are fragmented, their diminishing
  brand loyalty and ability to switch (for most
  products) gives them reasonable buying power
• Companies that thrive will not just meet
  travellers needs, but also please their tastes
  and sensibilities and do it for less
• Supplier usually sell commodity products . Most
  suppliers are fragmented. Multi-linked channels
  and product offerings continue to proliferate
• The explosion of product offerings and channels
  continues to erode profit margins and fragment
  markets

8
Distribution Strategy Imperative

• Strategic Imperative To serve this segment,
  Travel Agencies must drive out costs and build
  efficiencies
• Build on products that fit well with core
  competencies and create customer delight
• To out source low-cost, off-the-shelf packages
  for frequent destinations
• Improving technology and sharing routine
  functions with other players
• Leveraging data to increase accuracy, build
  volume or purchase bulk inventory at discount