The Internet are ideal tourism partners

Tourism and the Internet are ideal partners. For consumers, when they are planning a trip to a new destination, they face the problem of making a costly purchase without being able to see the product. The Internet provides them with the means to gain immediate access to relevant information of greater variety and depth than has been available previously, about destinations throughout the world; and to book quickly and easily.

For tourism destinations and businesses, it offers the potential to make information and booking facilities available to large numbers of consumers at relatively low cost; it enables them to make large-scale savings on the production and distribution of print and on other traditional activities (e.g. call centres and information centres); and it provide a tool for communication and relationship development with tourism suppliers and market intermediaries, as well as end-consumers.

Tourism has a key difference from most other sectors of e-commerce – its consumer goes and collects the product at the point of production – i.e. the destination. Thus the tourism sector avoids the need to deliver products around the world – a task that faces real logistical problems that have been a major source of customer dissatisfaction.

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These factors, taken together, have resulted in the travel and tourism sector taking a larger and larger share of e-commerce globally – as documented in Section 1.2. As a result, the Internet is revolutionising the distribution of tourism information and sales. Not only does it provide tourism destinations and businesses with direct access to end consumers, but also it is becoming the primary channel for business to business communication.

1.2 The importance of the Internet and Internet-based e-commerce

1.2.1 The growth in Internet usage

The dramatic growth in the number of Internet users over the past five years and projections for the next five years are shown in Figure 1 – a nine-fold increase over five years. The top fifteen countries in terms of the absolute number of Internet users (predicted for year-end 2001) is shown in Figure 2, with the United States clearly dominating. The world’s top nine generators of international travel are included (except The Netherlands) and Pacific-Asia features strongly.

A different pattern – the top 15 countries in terms of the number of Internet users per thousand population. On this basis, smaller countries stand alongside the larger ones, with Sweden having the highest rate of usage. Other Scandinavian countries and Australasia also feature strongly, as do the smaller Asian countries. Of the world’s top ten major markets for outbound international travel, the following do not appear on this chart: Germany, UK, France, Japan, Italy, Spain and Belgium. Sweden Iceland Canada Denmark Norway USA Finland Singapore South Korea Switzerland Australia Netherlands New Zealand Austria Taiwan

Future growth in Internet user numbers is expected to vary markedly between the different regions of the world. Jupiter predicts (Figure 4) that:

• North America will have a relatively slow rate of growth, but still remain predominant in 2003 • The largest growth overall will be in Pacific Asia

• The largest percentage rates of growth will be in the ‘late adopter’ markets, particularly the Middle East (from a low base).

Another company, eTForecasts (Figure 5), projects much stronger growth in Asia, to the extent that it will have overtaken North America by 2003 and will have twice as many users in 2006. The assumption of rapid growth in Asia is based on rapidly increasing use of wireless Web devices. N. America W. Europe E. Europe Asia S/C America M. East/Africa

1.2.2 Internet user profile

Internet users tend to be relatively:

• wealthy

• well educated

• interested in independent travel

In other words, they relate very well to some or all of the target markets of many destinations. However, as the number of Internet users grows, particularly through increases in the use of new access channels (especially interactive TV and mobile devices), the user profile will change, broaden and become less up-market. In the United States, it is already the case that a very high proportion of people travelling internationally is, or will be soon, Internet users. The same will be true in other major markets within the next two or three years.

Thus, based on user profile, the Internet appears to be an ideal medium for marketing by tourism destinations and businesses. We shall see later in this chapter how this is, indeed, proving to be the case. First, however, we look at the key question of how far the Internet is being used as a medium for buying, as well as researching.

1.2.3 The growth of Internet commerce

Figure 6 contains a key analysis provided by Jupiter, showing how, in the US, the propensity to purchase increases directly with length of time as an Internet user. Those who have been Internet users for three years or more, are more than twice as likely to buy than a first year user.

Thus, as the market has matured, there has been and will be substantial growth in both the number and the percentage of Internet users who are buying – see Jupiter figures again in Figure 7. Figures 8 shows IDC forecasts of the number of Internet users and of Internet buyers on a worldwide basis.

As a result of these factors, IDC forecasts that e-commerce revenue worldwide will increase approximately eight-fold between 2001and 2005, rising from $634 billion in 2001 to more than $5 trillion in 2005. The highest growth rates (percentage increases) are expected to be outside North America. As figure 9 shows, the US, Japan and the rest of the world are expected (by IDC) to have a reduced share of Internet commerce, whilst the share of Western Europe and the rest of Asia will increase.

1.2.4 Travel and tourism’s market share

For the reasons outlined in Section 1.1, travel and tourism have become rapidly the single largest category of products sold over the Internet. In 1998, Datamonitor estimated that their share of Internet commerce increased from 7% in 1997 to 11% in 1998 and they projected an increase then to 35% by 2002. Other sources have suggested that this forecast may have been achieved already.

Jupiter has forecast that, as a result of these trends, US on-line travel industry sales will increase from $18 billion in 2000 to $63 billion in 2006, of which nearly half will come from the corporate travel market. PhoCusWright’s projections for Europe are that online travel and tourism sales will increase from $2.9 billion in 2000 to $10.9 billion by 2002.

1.2.5 Travel products purchased

Travel Industry Association of America (TIA) research in 2001 has shown that a large majority of Internet using US travellers have bought air tickets and made hotel reservations online – see Figure 10. Because of the size and frequency of air ticket transactions, they have taken the largest share of the market, but that share is diminishing, from 80% in 1998 to a forecast 59% in 2003 (Jupiter).

1.2.6 The impact of Internet use on traditional channels

A key question for DMOs and tourism businesses is the way in which the Internet is affecting the use of traditional channels of marketing. A number of recent surveys cast light on this: • A travel & lifestyle survey for Concierge in 2000 (Figure 11) showed that, across the US population as a whole, the Internet had already become the number one source of information consulted when choosing or planning a vacation.

• Results from the “e-Travel tracker Survey”, prepared by MORI on behalf of the Scottish Tourist Board, on the UK market, which tends to follow 18-24 months behind the US market, showed that in March 2001, the Internet and brochures were used in similar proportions, as sources of information for booking holidays or other forms of travel, by Internet using travellers- see Figure 12. In May 2000, when interviewees were asked which source provided the most complete information, the Internet was rated much more highly than brochures or any other source – see Figure 13.

• TIA research in 2001(Figure 14) showed that about 70% of Internet using travellers were using travel agents and state tourism offices less often. A similar proportion was calling airlines less often, whilst nearly 60% were using other travel call centres less.
In 2000, US on-line travellers reported that since they started planning their trips on-line, they were…  71% 68% 68%

Using travel agents less often

Calling or visiting state tourism offices less often Placing fewer calls directly to airlines Placing fewer calls directly to rental companies Placing fewer calls directly to lodging companies Ordering travel brochures by phone less often

Thus, over a period of only five years, the Internet has become a primary source of travel information for the more mature markets of Internet users, which are also major tourism generating countries. At present, the proportion of travel booked through the Internet is relatively small (between 6 and 15% in the US, according to sector, and less elsewhere), but will increase substantially, as the number of Internet users grows and the propensity to purchase increases. It seems reasonable to anticipate that transactions across the Internet may account for 20-25% of all tourism sales in the main markets, over the next four or five years.

1.2.7 Summary of main market trends

• Usage of the Internet is increasing dramatically

• Increasing proportions of Internet users are buying online

• Travel and tourism will gain a larger and larger share of the online commerce market

• Ground products will gain a larger share of online commerce in travel and tourism

• User profiles relate well to the target markets many tourism organisations

• The Internet is having a major impact, relative to other channels, as a source of information for choosing and planning holidays and other forms of travel, and increasing importance as a booking channel.

1.3 The concept of electronic business (e-business)

E-business has been defined as “improving business through connectivity” (PriceWaterhouse Coopers1) and “the use of Internet technologies to improve and transform key business processes” (IBM2). Taking these two definitions together, it is clear that for tourism destinations and businesses, e-business is about realising the opportunities of improved connectivity both externally, through the Internet, and internally, through intranets.

The external dimension is about transformation of the value chain, linking the tourism supplier (or service provider) to the customer, and of the supply chain, linking the tourism supplier with its own suppliers. This brings in e-marketing, e-commerce and eprocurement:

• e-marketing exploits the Internet and other forms of electronic communication to communicate in the most cost-effective ways with target markets and to enable joint working with partner organisations, with whom there is a common interest

• e-commerce is the sales activity undertaken through electronic distribution channels

• e-procurement streamlines the purchasing process by allowing a business to tie its inventory and procurement systems into the despatch and billing systems of its suppliers, or vice versa. Not only does this reduce costs through automation, it also facilitates identification of best value sources of supply.

The internal dimension is about transformation of the way in which the organisation functions, enabling it to work in a fully integrated way, through the use of common systems. The transformed organisation should:

• Be fully networked for internal and external communication

• Use a common set of tools, protocols and standards

• Share product and customer data as a common resource

• Have staff operating as teams, focused on maximising the synergies of sharing resources.

In other words, the staff of a DMO or tourism business can work together more effectively, both to compile information and to use it – in effect, pooling knowledge and expertise. The tools (applications) that may be shared include content management, customer relationship management (CRM), financial management systems (sometimes called Enterprise Resource Planning – ERP) and operational control systems.

The internal and external processes are, of course, linked intimately. Most simply, the enhanced internal e-business processes enable the organisation to maximise the benefits of the external opportunities. Also, the boundaries between internal and external business processes become more flexible. Buying services in (or outsourcing) becomes a more practical proposition as external connectivity improves.

Thus the benefits of e-business may be summarised as:

• More cost-effective communication with target markets

• Making it quicker and easier for the customer to buy and thereby increasing conversion and levels of spending

• Improved customer service and retention

• Reduced costs through more efficient internal operations and purchasing processes.

Later chapters of this report look at the implications of e-business for DMOs (Part B) and tourism businesses (Part C). There is, of course, a direct relationship. The various categories of tourism business are key elements in the DMO’s e-business network (see Section 2.1). The DMO has a particular responsibility to tourism suppliers – to act as the integrator of the many elements of the destination product and present them in the marketplace under the umbrella of the destination brand. E-business provides an ideal way of doing this more effectively.

1.4 The principles of customer relationship management (CRM)

A key aspect of e-business and of e-marketing is customer relationship management and/or marketing – normally referred to by the acronym CRM. CRM is a highly effective and cost efficient approach, some would call it a philosophy, based on the principle that knowledge of, and relationship with, customers is key to maximising sales opportunities, particularly through repeat purchase. It merits particular attention here, because it provides the basis for re-focusing and restructuring the whole organisation. The principles can be applied to customers of whatever type – whether end-consumers or intermediaries.

As for e-business generally, there are many definitions of CRM. The one used by Nykamp Consulting Group3, “optimising all contacts with customers or potential customers”, picks up the essence of it in a few words. Nykamp has also provided an excellent conceptual model for the CRM cycle, set out in Figure 16. Perhaps the best starting point is the understanding of customer needs (lower right hand quadrant), followed by the differentiation between customers in terms of those needs and their potential value and the type of relationship that may be most effective.

The Nykamp CRM cycle

The cycle then moves through product and channel development and customisation for different segments, customer interaction and delivery of increased value to them, customer acquisition and retention.

CRM involves building up in depth information about customers or contacts. In the case of consumers, this information would normally include their socio-demographic profile, interests and activities, past and possible future requirements, etc. With this type of information, it is possible to be:

• Knowledgeable and efficient in servicing enquiries

• Pro-active in targeting best prospect customers with products specifically appropriate to their needs

• Establish the basis for a lifetime relationship with the customer, and maintain it even where transactions are not involved.

Relationships should be developed over time, as a result of contact through different channels, requiring that all customer facing staff have access to the same customer database. In the context of tourism destinations or businesses, the aim should be to maintain the relationship with customers before, during and after the visit, through the Web, e-mail, call centre, kiosk, Tourist Information Office, etc. – see Section 2.3.

CRM is not a module that can simply be added on to an organisation’s activities. It must be integral to the whole ethos and method of operation, with customer (rather than product) focus to the fore. Marketing staff should be geared to addressing the needs of specific customer segments and their targets should be in terms of customer acquisition, retention, value and profitability, as well as satisfaction. This will require excellent monitoring systems, together with creative and focused market research.

As it happens, the Internet provides a good means for instant research (through email or surveys linked to Website usage) on customer requirements, interests, activities, attitudes, satisfaction, etc. This will need to be supplemented by market research through traditional methods from time to time.

Adapted from Copyright © 2001World Tourism Organization Business Council, “E-Business for Tourism – Practical Guidelines for Tourism Destinations and Businesses”

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