Month: December 2016

StrategyStrategy planning & executionSustainability

The 5 Competitive forces: the threat of new entrants. Barriers to entry or challenges to compete successfully

Apart from the main challenges explained above, there are other kinds of barriers to overcome, related to the challenges to compete successfully in the market:

Supply-side economies of scale: They are created when large volumes of production manage to spread fixed costs over more units and thus lower the cost per unit, or obtain better deals with suppliers due to larger orders. That makes new entrants have to choose between investing on a large scale or assume a cost disadvantage that should be compensated via a differentiated product. Such is the case of mass tourism destinations, which can often be only competed against with smaller scale differentiated products at higher prices. Or even in the same destination, this is the competition between large hotels and boutique hotels. The most cost efficient level of production is termed Minimum Efficient Scale (MES). If MES for firms in an industry is known, then we can determine the amount of market share necessary for low cost entry or cost parity with rivals.

Demand-side benefits of scale: This advantage arises when a larger network of clients increases the attractiveness of the destination. In the tourism industry, this is the case of some popular destinations among a certain target of tourists, whose leaders attract most of the group, niche or segment to that destination, based on either objective or prestige criteria, or because spending holidays with the group is an essential part of the motivation.

Customer switching costs: These are costs that clients have to assume if they change to another supplier. In the tourism industry, this is the case of the residential tourism, in which the tourists own a property in the destination where they go most frequently. All the cost of selling the property and moving to the new destination is a significant barrier.

Incumbency advantages independent of size: Incumbents build often their competitive advantage on some proprietary assets such as exclusive licenses to access natural heritage or to operate in a certain location, reputable brand identity, or a specific know-how that sets them apart from competitors. This is the most typical kind of barrier to entry in the tourism industry, for which we could find an endless amount of examples, especially related to access to natural resources, geographic locations and brand identities. Technology in the tourism sector applies to the capacity to produce unique experiences due to a specific know-how, like the wellness & spa, gastronomy, cultural & art performances, etc.

Government advisories: countries presenting some kind of safety risk due to conflicts or health threats for travelers are evaluated by other countries governments, which advise their citizens about such threats. Presenting any relevant threat for the tourist is likely to prevent any destination from being marketed through the main distribution channels.

Investment and asset specificity: needless to say that for many tourism businesses, significant investments need to be carried out, some of which correspond to special equipment that cannot be used for other purposes or not easily sold if the venture fails, thus becoming a barrier to exit. Such is the case of ski resort lifts, sailing marinas and many others.

Brand loyalty and advertising expenses: incumbents’ brand loyalty may be a significant barrier to entry, as long as new entrants will have to develop expensive marketing campaigns to gain a position in the market. Those campaigns will only be profitable in the long term. Incumbents’ advertising expenses are themselves a barrier to entry, as new entrants will need to invest much more than incumbents to gain significant brand awareness and market share.

Apart from the barriers to entry, we should take into account the expected retaliation by incumbents towards new entrants. Newcomers are expected to fear retaliation if:

  • Incumbents have previously reacted effectively against the entrance of new players.
  • Incumbents have proven capacity to strike back (cash, borrowing power, productive capacity or influence in the distribution channels).
  • Incumbents appear to be likely to cut prices in order to retain market share, due to a high fixed cost structure.
  • The low industry growth so newcomers can only develop business by taking it from incumbents.

When carrying out the 5 competitive forces assessment for a destination’s strategy plan, we consider incumbents all the local operators: accommodation providers, local operators organizing activities, transport operators, and incoming agencies.

Would you consider other challenges to compete successfully?

Marketing 3.0Tourism marketing

Principles of story marketing for destinations

There is a series of principles that a marketer should never overlook when crafting the storytelling strategy for a destination:

Know your audience. You need to know the kind of characters they admire and why they like them, what are their aspirations, their values, their beliefs, their fears, and what they cherish. When you manage to understand what moves your audience you are setting the stage to become a thought leader for them, and sound understanding of the target audience is the basis for a successful marketing plan and adequately framing the story for them. Do not intend to be liked by the whole audience, but just by a large segment of people who ultimately expand the buzz to reach the mainstream, the turning point of success.

Know how to reach your audience. Beyond their needs and motivations in order to tailor the story for them, it is crucial to know their content consuming habits in order to know through what kinds of means and when it is best to deliver the stories to get their full attention. This entails knowing their social habits like the locations where they spend their free time, their purchasing habits, the kinds of media they engage with as well as the device they use to connect with them, their trusted sources of information, etc.

Craft an effective call to action. At the end of the story, the call to action has to be explicit enough to let the audience know what to do next, once they are emotionally engaged. The best way to do so is by making the main character become the messenger of this call to action, more directly or indirectly, without spoiling the spirit of the story. The call to action has to explain the expected outcomes from the action they are about to take, so to support the emotional conviction with some rational facts and drive them to take the next step without further hesitation.

Surround the story with brand experiences. Even if the story is the conveyor of the message, the audience is willing to establish a relationship with the brand through various experiences so they can choose how they interact with the brand and enjoy the story through many senses. This may be done through multiple means like providing branded items that they are likely to use in their daily lives or through multimedia devices. Providing the audience with various brand experiences builds a priceless opportunity to strengthen the emotional links with the brand and that pays off at least with increased recommendation and loyalty.

Use engaging images and headlines. Nowadays consumers are usually overwhelmed by the amounts of information they receive through multiple channels in such a way that is sometimes difficult for them to decide to which content they should pay their utmost attention. Like in most industries, in the tourism industry most consumer decisions are driven by emotions rather than logic, and therefore are usually taken based on first impressions that convey visual and emotional appeal. Images and headlines are the key elements to stand out among the content crowd.

Create admirable but realistic characters. The characters are the key elements that create the emotional connection with the audience. Characters should embed the destination 3.0 values of cooperation, solidarity, good leadership, effort, innovative mindset, fairness, honesty, etc. Storytellers reveal the integrity of the characters by showing them in conflicts, because the heart of humans is revealed in the choices they make under pressure; and when the character takes admirable decisions he becomes admired. Moreover, characters have to be realistic by showing their vulnerability, as this is also a powerful empathy generator.

Convey energy and passion. When telling a story, emotions are transferred not only through the character’s personality but also through the enthusiasm and contagious passion that the storyteller uses to tell the story. To do so, the teller has to put himself in the character’s shoes, as this is the way to transmit authenticity and provide a sense of integrity to the story. Authenticity and passion are key drivers of successful storytelling.

Listen to your audience. Beyond the initial research to craft the adequate story and plan its delivery, marketers need to know what the audience thinks about the story, the way it is delivered and the related brand experiences. Not even the best marketers do it perfectly at the first attempt, so there is always a need to monitor the reactions and behaviors of the target audience in relation to all the marketing messages and activities, to reorient the strategy and the tactics whenever necessary. Further, the audience may change their mind in some aspects that affect the marketing strategy in some way; therefore it is necessary to detect trends at the earliest.

Would you consider adding any other key principles?

Marketing 3.0Tourism marketing

How storytelling turns into effective marketing

Beyond the engaging power of compelling stories, there are many important aspects to take into account when intending to use storytelling for marketing purposes, in order to optimize the impact of the brand story in terms of reach, image conveyed and conversion. How the message is delivered is as equally important as the content of the message itself.

The paradigm of story marketing is that the focus of the story is neither the product nor the brand, but the main character or hero with whom the audience is to feel identified. The primary goal of stories is to connect emotionally with the audience through the story characters, who share similar values and challenges with the listeners and therefore they regard the characters as a representation of themselves.

The destination is only the scenario where the story takes place and sometimes it may also play the role of mentor or facilitator, but the hero is the customer. It is critical for marketers to understand how the audience gets inspired through stories to shape their identities.

The story is primary and so the marketing message sounds much more genuine. Marketers have to understand that they have to first provide value with the story and only after the value is delivered they can introduce the call to action. People want to establish relationships with brands through meaningful storytelling.

The value provided may be entertainment, education or even amusement. The story is to establish the emotional connection with the audience and arouse the desire for more information to support the purchase decision. Once the audience has connected emotionally, the product is very likely to be sold.

Do you think of case examples for destinations where the story value provided is any other than entertainment?

StrategyStrategy planning & executionSustainability

The 5 Competitive forces: the threat of new entrants. Initial barriers to entry

The entrance of new competitors in the industry expands the overall offer and challenges the market share of the incumbents, pressing on prices, costs, value added and investment needed to keep their position in the market.

In the tourism industry, the new entrants tend to be the focus of attention of many travelers, at least those who are always willing to explore unknown destinations. Needless to say that there is an almost unlimited number of potential new entrants, if we consider the entire tourism industry, though we will carry out this analysis for each tourism sector separately, thus reducing significantly the number of potential entrants. In general, new destinations have to face some particular challenges or initial barriers to enter the market:

Product differentiation: a new entrant has to have a unique selling proposition and enjoy a credible image as a tourist destination. This is not easy to achieve in a few years, given that brand image is a result of consistent communication efforts over a long period. Positive image development takes time and should be followed by substantive action.

Capital investment: any territory that wants to develop tourism needs substantial investments in hotels, roads and other infrastructures to meet demand requirements. To do so, it will have to convince investors proving political stability and offering a business friendly environment.

Access to distribution channels: most destinations will need well-established distribution of their new products via tour operators. In that respect there has been a process of concentration in the tour operating industry, thus playing a key role and strengthening their force. Despite the increasing role of the internet as a direct distribution channel, tour operators still play a major role and tend to promote only easy to sell destinations due to high demand.

Government policy: Governments often regulate the industry including limiting the entrance of new operators through a licensing system to protect the heritage or the environment. Many kinds of regulations may limit the development of tourism, such as those related to either natural or cultural heritage protection, environmental protection affecting the development of ski or golf resorts, regulation against gambling, etc. Governments may also subsidize some incumbents thus creating a disadvantage for potential entrants.

The threat of entry –and not the fact that new entries actually occur- puts a cap on the profitability potential of the industry, as if the threat is high, incumbents have to hold down their prices to deter new competitors. This threat will depend on the extent of entry barriers and the retaliation that new entrants may expect from incumbents.

Would you consider other key challenges as initial barriers to entry?

Business model innovationCo-creationCollaborative business modelsEnvironmental sustainabilityInnovation

Story innovation concepts: added value & crowd game driven experiences

Beyond the explained details of the four prototypes, there may be many other added value experiences to support the main one in fostering its popularity and conveying new contributions both in virtual and real world platforms. Some of these story related experiences could be video games (in the case of the prototypes 3 and 4 the video game is an essential component), comic based stories, theater plays, board games, movies, spin-off stories, merchandise products, etc. This is actually what film series such as Harry Potter, Star Wars or Lord of the rings have done to some extent, trying to satisfy the desires of their followers for more story related experiences.

With regards to the crowd game driven experiences, the environmental challenges would be driven by volunteers, usually entailing some kind of field work to achieve a certain goal in relation with the environment protection in the form of a game driven experience to make it more fun and stimulating. In the case of the creativity & cooperation challenge, it would be driven by contributors willing to prove their creative skills, in the form of a game driven experience where participants also have to prove teamwork capacity by solving one or more innovation challenges related with the mission purpose, which also serves as an educational experience in collaborative innovation. Finally, the educational fun experience is for tourists willing to entertain while taking away some significant learning outcomes related to skill development or social consciousness, for instance.

In the case of contributors in creativity & cooperation challenges and also in the case of story making contributors, there should be a system that not only facilitates but also rewards contributors based on a reputation and incentive system, in order to stimulate talented followers to bring in their passion and imagination to build the story world. This is not only crowd sourcing but also providing the audience members an opportunity to live a life-changing experience by exploiting their skills. The Whitepaper “Envisioning Open innovation in destinations” is to further develop the idea of the incentive and reputation system for contributors.

Do you envision other story innovation concepts to enhance the aforementioned ideas or to inspire new story based experiences?

Business model innovationCo-creationInnovationMarketing 3.0Open innovation

Story innovation concepts: story platform

A key idea to understanding the aforementioned prototypes is that of the story platform. In this concept there is one principal author who drafts the main guidelines of the story, like the location, the value proposition, a basic plot, and some of the main characters. This could also be called the story backbone or the story constraints.

 Taking this platform story as a starting point, the free contributors –working individually or in groups- may create their version of the story by filling all the gaps that the backbone leaves to develop the contributors’ imagination, adding new characters and sub-stories that shape its uniqueness. As a result, there end up being many different stories with a common purpose related to the mission for which tourism is being developed in the destination. This is the case of prototype 2.

In the case of prototypes 3 and 4, there would also be a platform story with constraints and pre-determined ingredients. But the difference is that they are game driven experiences applicable to many kinds of missions that are created to draw flows of contributors, volunteers or tourists in taking real action in benefit of the mission purpose.

 Further, in these cases the roles of the participants are all pre-determined and every individual decides what type of role he or she wants to play in the story, with freedom to develop the role with his or her skills, ideas and knowledge.

Do you envision other types of story platform to develop story based experiences?

Marketing 3.0StrategyTourism marketingTourism trends

Key tourism industry players

There are 3 groups of players: first level suppliers, service operators and marketing operators:

1st level suppliers. Human resources, land owners, infrastructure operators, utility operators, government as license supplier and the construction sector are the basic suppliers for the tourism industry operators. As we have seen in the five forces model, they play a key role in defining the industry’s profitability when tourism is not so developed in a territory or we are analyzing the attractiveness of a tourism sector that would require the construction of new facilities and services. We may take into account Governments as active players in the industry whenever they are in charge of marketing the destinations.

Service operators. Food & beverage, accommodation, transport and activities providers are the key operators of the industry, as service providers. Whenever we analyze the attractiveness of tourism business that would be based on existing services and facilities, we will consider them as suppliers, except for the activities’ operators, which could be considered as incumbents in this case.

Marketing operators. Here lies the complexity of the tourism industry, where we define several kinds of operators, which may be either competitors or partners.

  • Booking centers & portals: online and/or telephone based commercial platforms managing bookings for one or more kinds of services operators –mostly focused on accommodation and also activities-, usually gathering the tourism services offered within a local or regional territory. They usually get their profits by keeping a percentage of the business they bring to their local service suppliers. In this concept we can also include new business models like Airbnb, whose service suppliers are local householders marketing their spare rooms.
  • Incoming agencies: operators located in the destination in charge of creating packages including accommodation, transportation and activities. These are the most genuine marketing operators, as they are in charge of product development, combining services and experiences available in the destination for the satisfaction of every target. They may sell their packages to tour operators, travel agencies or directly to the final customer. In many cases, they are also the activity providers.
  • Tour operators: operators located in the outbound market in charge of creating packages, usually marketing several destinations and several kinds of products. However they may be tour operators specialized in one destination and more often in one kind of product (golf, ski, sun & beach, cultural touring, incentive trips, etc.). These may deal directly with the service operators or with the incoming agencies, and then sell their packages to the travel agencies or directly to the final customer. They usually buy service capacity long in advance to the service operators or incoming agencies at a lower price ensuring them business, and then have to sell this capacity to the outbound markets.
  • Travel agencies: service retailers usually located near to the customer, selling either incoming agencies’ or tour operator’s packages, or directly booking to the services’ operators. Many travel agencies sell through the internet. Their value is based on the confidence of the customer, offering packages from different operators and sometimes specialization in certain products.
  • Travel social media sites: even if they are not included in the previous scheme as business players, sites like Tripadvisor and many similar models are key influencers in the decision making process of both the chosen destination and mostly the chosen operators within, therefore they deserve a relevant mention as key players in the tourism industry.

In this table are summarized the main features that define each of the marketing operators:

Marketing operators conceptual features
 

Location

Product development

Dealing with final customer

Marketing focus

Booking center

Destination

No

···

One destination. One or many products
Incoming agency

Destination

Yes

·

One destination. One or many products
Tour operator

Outbound market

Yes

·

Many destinations.  One or many products
Travel agency

Outbound market

No

···

Many destinations.  One or many products
Travel social site

Internet

No

···

All destinations.

All services

 

Being that this conceptual outline is representative for most of the industry operators’ models, we should also note that many operators have developed business models integrating several concepts and functions altogether, in most cases as a result of a forward integration process.

Would you consider other key players when analyzing the tourism industry structure?

Business model innovationCo-creationCollaborative business modelsInnovationMarketing 3.0

Destination story based experience prototypes

Needless to say that many more possibilities for each variable may be envisioned, but these are just some examples to help the reader understand the innovation method. Based on these ideas, we have drafted four story driven prototype experiences to illustrate the type of result that the innovation method may produce.

  1. Personal awareness & Spiritual development journey, in line with pilgrimages and similar experiences. This is usually a journey that is carried out alone as of a process of self-reflection and discovery. The role of the protagonist is that of a tourist, so long as he or she is the only beneficiary of the experience, and may encompass both walking routes and static setting stays. In this case, the tourist is to write the story at the end of the experience, ideally with the support of a training workshop, but the protagonist should work on drafting the story from the beginning of the experience. The goals of writing the story are completing the self-awareness and discovery experience, and to inspire others in living their own transformational experience.
  1. Story driven development of a theme route, as in the cases where some novels or films have inspired the development of tourism routes for the fans of the story. This would consist of a story contest launched by the destination management organization (DMO) based on some constraints or even a story backbone. In any case, the story has to be developed based on the destination as the story platform. The contest should be open to both individual creations and group co-creations. At this point, many formulas could be envisioned to encourage the contribution of as many people as possible. The value proposition of the story driven experience should be in line with the tourism 3.0 principles, which means that it should have at least an educational or cultural transformation goal, without disregarding the fun or entertaining value.
  1. Crowd gaming ongoing experience consists of an ongoing story driven experience that takes place in a certain setting without a time limit. This experience takes the form of a mission driven game or challenge, and so the mission accomplishment is what keeps on driving the development of the story game. There is no foreseen end, as long as the mission is not fully accomplished. Such story would work like an MMO game where everybody is entitled to participate both in the virtual and the real world platform in the destination. The location could be any type of destination and the protagonists could either play the role of tourists, volunteers or contributors, depending on the type of challenge: educational fun for tourists, environmental protection challenge for volunteers, and creativity & cooperation challenge for contributors. In this story driven experience, the story plays the role of drawing tourists, volunteers or contributors to the story making and to visit the destination to participate in the real world experience.
  1. Crowd gaming event consists of a crowd sourced game driven story that is played like an MMO game with some real world experience along the story, but especially at the end of it. The events could take place in almost any type of location, including cities, nature settings, cultural destinations or theme parks –for instance- depending on the ultimate purpose and nature of the real-world experience. Such purpose could be for an environment protection challenge, creativity & cooperation challenge, or an educational fun experience. As in the case of the Crowd gaming ongoing event, the role of the protagonist is related to the purpose of the experience, and so could be a volunteer, contributor or tourist. In this type of story-driven experience, the story also plays the role of drawing attention, participation and contribution of individuals in the co-creation of the story, the contribution related to the purpose and in visiting the destination when the event takes place.

Out of the innovation parameters explained in the previous post, do you envision other story based experiences?

Business model innovationCo-creationInnovationMarketing 3.0Open innovation

Story innovation framework and guidelines

Based on the trends mentioned in previous posts, we have envisioned some innovation guidelines to integrate storytelling with real world tourism experiences. To do so, we have identified seven variables that define each of these story-driven tourism experiences. By playing with different combinations of values for each variable, we can develop an innovation method.

Type of experience refers to the variables that shape the way the experience is delivered, such as individual or group activity, ongoing availability or scheduled availability (the case of events), location based or route based, game based or journey based, etc. In this regard, there have been envisioned four main types of experiences:

  • Walking route, to be experienced by oneself or in group
  • Stay in a location, to be experienced by oneself or in group
  • Crowd gaming event
  • Crowd gaming ongoing experience (24/7)

Type of story authorship refers to how many people have contributed to the creation of the story. In this regard, there have been envisioned three main types of authorship:

  • Individual
  • Group co-creation, referring to a limited group of people
  • Crowd co-creation, referring to a story where everybody is entitled to bring in their ideas

Type of location refers to the kind of setting where the experience is to be delivered. In this regard, there have been envisioned five main types of settings:

  • Theme park or resort
  • City
  • Nature setting
  • Cultural or Theme route
  • Cultural destination (other than a city)

Type of value proposition refers to the core of the experience, its aim and its value. In this regard, there have been envisioned four main types of value proposition:

  • Environment protection challenge or rally
  • Educational fun
  • Creativity and cooperation challenge or rally
  • Personal development and awareness journey

Role of the protagonist refers to the type of role developed by the person who is to live the experience. In this regard, there have been envisioned four main types of roles:

  • Tourist
  • Volunteer
  • Contributor
  • Brand ambassador

Type of story creation refers to the creation process of the story, in line with the aforementioned trends. In this regard, there have been envisioned four main types of story creation process:

  • Contest and crowd or group co-creation based on backbone story, with location and value proposition constraints
  • The author writes the story at the end of the experience, with the support of a storytelling training workshop, though he or she drafts the story for as long as the experience takes place.
  • The story-game is co-created in digital platform –like an MMO game- and the real-world experience takes place when the virtual story-game is already advanced or right at the end.
  • Ongoing open co-creation by the crowd contribution –under established rules- both online and on the real site, like a never ending MMO game that takes place simultaneously in the real and virtual space.

Role of the story refers to the relationship between the story and the experience, in terms of cause-effect and temporary sequence. In this regard, there have been envisioned four main types of story role:

  • Inspire the development of a new tourism experience or product, like a themed route
  • Draw a crowd to drive an MMO game based challenge that ends with a real world event
  • Tell the personal journey experienced in relation to an existing tourism product
  • Draw audience to follow a story driven game or challenge, learn from it, and inspire them to live their related on-site experience and contribute to the story building

Would you consider any other story innovation parameter to this method framework?

IntelligenceIntelligence methodsStrategyStrategy planning & execution

Attractiveness assessment for the tourism industry

As with any other industry, the development of the tourism businesses requires a prior strategic assessment on the attractiveness of its various sectors to determine the optimum business portfolio to invest in. To do so, the 5 competitive forces framework analyses the structure of every sector through the five forces that shape its long term profitability:

  • The threat of new entrants
  • The suppliers’ negotiation power
  • The buyers’ negotiation power
  • The threat of substitutes
  • The competitive rivalry

These five forces determine how the generated value is to be distributed among the different types of players: how much is retained by incumbents, how much is taken by suppliers and customers using their bargaining power, and also how the profitability is limited by the threat of new entrants and substitutes.

The strength balance between the different forces is to determine the average industry profitability, and a key to formulate the adequate strategy. Hereby, we will analyze the application of the five forces model for the tourism industry.

Apart from the 5 forces analysis, there are some more factors to be considered when assessing the sectors’ attractiveness:

  • Market volume and main segments volume
  • Market growth trends and potential: current and foreseen market growth
  • Seasonality of demand, considering length of high, mid and low seasons.
  • Price elasticity of the demand: price sensitivity of all kinds of buyers, adjusted according to the share of everyone.
  • Expenditure in accommodation, food & beverage, activities and shopping (% of each).
  • Multiplying effect: strategic value of the business in terms of its capacity of fostering the prestige of the destination and marketing it for other businesses.
  • Loyalty potential: capacity of the business in retaining customers (%)

When composing the attractiveness matrix we will adjust the value of every factor according to its impact on the sector attractiveness.

Would you consider other factors when assessing a sector’s attractiveness?