Industry structures tend to be rather stable, though there are usually some adjustments and occasionally some radical disruptions. Change drivers may come from outside or from within the industry: technological disruptions such as the rise of internet and social media, changes in customer needs and rise of new segments, development of new business models, etc.

Shifting threat of new entry. Changes in the aforementioned barriers to entry are to shift the threat of new entrants. One of the most usual barriers to entry is the Government policy in urban planning and license concessions for building and operating tourism facilities. They are also decisive in the development and maintenance of communication infrastructures to facilitate a good accessibility to the destination. A lack of Government commitment and investment is a considerable barrier to entry for the destination’s operators.

Another common barrier to entry, at least concerning distant markets, is the flight connection. A good case study is that of the low cost airlines -namely Ryanair- that created flight connections with many unknown destinations in Europe. In this case, the Government policy is also decisive, as owner and operator of the airports in most of the cases.

Changing supplier or buyer power.  The factors influencing the bargaining power of both buyers and suppliers are to change over time in both directions. The rise of the internet as sales and communication channel and internet based business models –namely low cost airlines- changed significantly the negotiation power of many local operators in front of the tour operators, as it was much easier for the suppliers to market their services directly to the client, and these two factors also boosted the rise of FITs, who could easily organize their trip comparing many options “at a click” at very competitive prices.

However, despite the loss of market share by the tour operators, this setback was rapidly countered through a process of concentration affecting many big and middle sized tour operators to regain negotiation power in front of the destinations’ operators.

Shifting threat of substitution. The shifts in the threat of new substitutes come from new product developments that shift the price-performance comparisons between different options. In the case of the tourism industry, the rise of the collaborative business models such as Airbnb is a serious threat for the traditional accommodation suppliers. Other examples are the car sharing models taking business from the regular transportation services, and even some platform based models where locals offer special interest experiences to visitors. In all cases, non-professional services are competing with the destinations’ operators, and so are considered as substitutes rather than rivals.

Do you think of other case studies in which a force shift significantly reshaped profitability?

Posted by Jordi Pera

Jordi Pera is an economist passionate about tourism, strategy, marketing, sustainability, business modelling and open innovation. He has international experience in marketing, intelligence research, strategy planning, business model innovation and lecturing, having developed most of his career in the tourism industry. Jordi is keen on tackling innovation and strategy challenges that require imagination, entail thoughtful analysis and are to be solved with creative solutions.

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