Tour Operator Marketing Strategies:

From “Made by Tour Operators” to “Made by Tourism”

Nevenka Čavlek,
(Faculty of Economics & Business, University of Zagreb)

Introduction

The aim of this paper is to analyse how successful the most influential European tour
operators have been in transforming their marketing strategies to stay completive not only on
the traditional tourism market, but more so in taking strategic positions and gaining
competitive advantage in the emerging markets of organised travel (BRIC countries). To fulfil
this aim, secondary data research was conducted using the annual reports and accounts of the
two mega European leisure travel groups, their websites, research reports of national and
international associations of travel agents and tour operators, specific tourism trade forums,
relevant articles in the tourism trade press and academic journals. All available data were
critically analysed and interpreted.

Major Development Trends on the European Market of Organised Travel

The development strategies of European tour operators strongly depend on global

development processes in the world economy. During the past two decades, the world
economy has undergone radical changes and so has the business of tour operators. The main
change has been caused by the rapid globalisation of the world economy that has resulted in
the increased internationalisation of the tourism business, which, at the same time, has
enabled the extensive internationalisation of tourism demand. These processes have forced
companies involved in tourism to create large corporations to use the advantages of the
spreading globalisation of the economy. As a result of these trends, Europe, as the most
developed market of organised travel, has gone through the most extensive consolidation
processes in its entire history. This has resulted in the creation of two mega leisure travel
concerns – the TUI Travel Group and Thomas Cook Travel group. These two giants alone
cater for over 55 million customers from over 30 different source markets and have over 230
brands (TUI, 2011; Thomas Cook, 2011). Vertical and horizontal integrations have enabled
tour operators to gain strategic competitive advantage, not only on tourism generating market,
but equally so on tourism receiving markets. Thanks to the most intensive consolidation
process that has happened on the European market of organised travel in the last 15 years, the
structure of the market has drastically changed. During these processes, the TUI Travel Group
alone has gained a 1/3 share of the European mainstream holiday market (TUI, 2011:12).

During the intensive processes of mergers and acquisitions, tour operators have learned how
to integrate different companies with different strategies into a leisure travel value chain.
They have also learned how to operate according to global strategies and at the same time
how to use local competitive advantages.

With the traditional source markets maturing, the rates of possible growth are diminishing and
tour operators are turning towards emerging markets that offer sustainable growth potentials,
like the BRIC countries. For example, due to the strong economic growth of China and the
benefits reflected in the increase in income levels, the middle class, as the main market
potential for tour operating business, is emerging and discovering travel and holidays abroad.
The leading European tour operators have been increasingly engaging themselves in the BRIC
counties, using the synergy effects of these new markets. With their increasing involvement
in these countries, the leading European tour operators will try to hold on to the customer
segment that is able and willing to spend money on high-quality tourism products. How can
models developed by European tour operators on traditional markets of organised travel be
transferred to the BRIC countries? They will use widely developed know-how in organising
holiday travel, tailor it to the needs of these emerging market structures, offer a very diverse
range of experiences they already offer and will use the synergy effects of these markets by
expending the organisation of inclusive holidays from these markets towards traditional
destinations in their programme. The “game” has already started with TUI’s strategic move in
May 2012 to become the first European tour operator to receive a licence to organise
outbound travel for Chinese holidaymakers.

Key Drivers of Change in the Tour Operating Business

In some academic as well as business circles, one often finds the opinion that tour operators in
the globalised and IT dominated world, with the increased digitisation of consumer behaviour
and the individualisation of tourist travel, do not have a future on the tourism market. This
opinion has been strongly powered by rapid changes occasioned by the appearance of Low
Cost Carriers (LCC), online travel portals like Expedia and Travelocity, bed-banks and hotel
portals, which are seen as great opportunities for consumers to bypass travel and tourism
intermediaries. Indeed, changes in how travel is marketed, booked and sold, not only on
traditional but also on emerging markets, have been quite radical. Due to the increased online
distribution and migration of consumers to online channels, the bypassing of tour operators
seemed to be a well-grounded reason for such predicted scenarios. However, in contrast to
these scenarios, the tour operators business and the practice of tourist behaviour suggest that
tour operators are here to stay.

Although the development of the “digital world” has made many things connected to travel
easier for consumers and providers of single services, at the same time it has brought even
more complexity to the world of tourism travel.

It is inevitable that business conditions on the tourism market alter, and the business
environment within which travel companies operate has become increasingly uncertain.
However, what is usually not taken into account is that tour operators have been accustomed
to different threats affecting their business almost on a daily basis. Being an intermediary
simply means that “someone is always trying to eliminate you” (Goeldner et al., 2000:196).
The tour operating business is a business of constant risk, change and innovation. Those who
are not successful in adapting to change are wiped out of the market. Tour operators are
therefore constantly monitoring the situation in the market and have been investing greatly to
stay at the forefront of innovation. Since the trend towards more individual tourist life is
becoming stronger every day globally, tour operators have to adjust their business models to
the changing conditions on the tourism market. The concept of the “average tourist” has to be
abandoned (UNWTO, 2006). To choose a hotel in a destination, connect it to a flight or other
transportation and care for customers in the destination is not enough anymore, even for the
mass market. In this respect, as addressed in Dwyer et al. (2009:63), research plays a major
role for tour operators in assisting strategy formulation. This is precisely why tour operators
have been increasingly investing in market research.
One of the main changes occurring in the tourism market has been a power shift from
suppliers to retailers, and currently to expert travellers. As tourists have gained more
experience in tourism travel, they have also grown more critical of tour operators and their
products. Online channels have played a crucial role in changing the attitude of tour operators
towards their customers. They have become aware that they have to move away from
commodity products that consumers could get from anywhere, and at the same time build a
direct relationship with consumers. This is again connected with huge investments that many
small and “me too” tour operators have not been able to make.

Since products are now consumer driven (Dwyer et al. 2009:70), tour operators have had to
change their mass market strategy to strategies that address the ongoing trend in the growth of
the independent travel segment. In this respect, tour operators, as experts in the creation of
leisure travel products, have not invented any new marketing strategies valid only for their
business activity. They have successfully been using existing marketing strategies in the
service industry and thus implementing a strategy of differentiation instead of the mass
market strategy.

Although many still perceive tour operators as producers of “off-the-peg” packages (Čavlek,
2000) with all the elements delivered according to a very similar pattern (from the means of
travel, the time, manner, through to entertainment and other holiday activities), the situation
has changed significantly since the development of ICT. According to PhoCusWright’s
Global Online Travel Overview Report (2012), it is estimated that the world online travel
market will be worth more than US$ 313 billion by the end of 2012. One has to bear in mind
that online travel sales include traditional travel retails, incoming travel agencies and tour
operators, as well as exchange service providers that have web platforms for sales. Following
this trend, tour operators have also been adapting their strategies for online travel retail and
have been investing heavily in the development of online production (dynamic packaging)
and online distribution. As a result, according to TUI data (TUI, 2011), online bookings in
Nordic countries already represented in 2011 as much as 61% of TUI’s mainstream bookings,
and in the UK almost 40%. However, tour operators must make clearer to tourism consumers
what the real worth of their products is, since package holidays as automatically produced
offers from a “web data shop” can also have many disadvantages for consumers. To sell
holidays on the web is not like selling some other products. Although technology offers many
options, and gives customers freedom to create their own individually tailored packages, one
has to take into account that such technically adequate systems offer components of the
package built together without an expert’s critical evaluation. In this way, the system might
create offers that will generate dissatisfied customers. Therefore, tour operators are aiming to
offer their special user-friendly access to multiple online platforms, using this also to build
brand awareness for customers, and based on their expertise in organising holiday travel.
Therefore, one could fully agree with the statement that the “success of tourism enterprises
will continue to hinge on their efforts to add value to products and services through the use of
technology producing competitive advantage” (Dwyer et al., 2009:66).

The situation on the market of organised travel already proves that ICT has forced tour
operators to shift away from their traditional role of wholesalers of simple products to creators
of a holiday with recognisable added value that customers appreciate and are ready to pay for.
Why otherwise would a considerable segment of consumers still stick to tour operators’
products? The change has not happened overnight; it has been a painful process for many tour
operators and has resulted in many bankruptcies. It was evident even before the turn of the
new millennium that, in order to survive in the market, tour operators would need to change
their mass market business model. Since the traditional generating market of organised travel
had reached saturation, tour operators have with more or less success been heading towards so
called “modern mainstream”, or a product-driven business model that focuses on
differentiated and exclusive products. This simply means that they have been adjusting their
matured industrial production on traditional generating markets to the needs of experienced
travellers by offering them greater flexibility in terms of travel duration, variety of options in
accommodation, flight, types of transfer, and multi-channel choices of booking holidays.

Although the main business philosophy of tour operators based on economies of scale stays
the same, i.e. concentration on product, distribution and operational efficiency, their
marketing strategies have been significantly changing. As proven by the business
performance of the TUI Travel Group, as the “trend setter in leisure travel supply” (TUI,
2011), tour operators have significantly extended their product portfolio and have used the
benefits of a strong online presence. For example, in the Introduction to the Annual Reports
and Accounts, TUI states: “We are on a journey to an online driven future”, thus clearly
demonstrating their commitment to take advantage of modern technology.

Tour operators have become aware that their long-term strategic goals can be achieved only if
they develop products with content that differentiates them from competitors. Thus, price-
driven models which include mainstream commodity packages and online accommodation
providers will need to be redefined. Although travel portals will remain very competitive, one
has to take into account that, due to accommodation overcapacities in destinations, holiday
hotels will be left with little space to present themselves. Hotels are usually presented
according to price ranking, and “price wars” are therefore very fierce. This ultimately results
in diminishing quality. Here, one could see another opportunity for high-quality hotels and
tour operators to benefit from close cooperation. On the other hand, one should never neglect
the emotional component of holiday packages that is essential in a valued set of experiences.
This is exactly where tour operators will need to increasingly build on cooperation among
different stakeholders in the whole value chain. Quality is what counts! The better the
portfolio of differentiated, specialised products tailored to consumers, the easier it is for
everybody in the tourism value chain to handle the increased individualisation of tourism
demand. Whoever has strong control of the best products on the market will have what is
needed to lead the business in the future. As the business practice of Thomas Cook on the UK
market has shown, if tour operators try to stick to the old volume-driven business model, they
are heading for a critical phase in their business.

Tour operators are facing an ever increasing risk of flying with empty aircraft seats because of
the rise in oil prices and the presence of the ever larger traffic network of LCCs. Overcapacity
in holiday flights is something that tour operators have already become used to. This puts
increasing pressure on prices, especially on short and medium-long haul destinations. Short to
medium-haul tour operations can almost not make any profit. This is another reason why the
leading European tour operators are heading towards the BRIC markets.

Therefore, it could be concluded that there has been a change in the understanding of the need
for ever closer cooperation. Tour operators are very much aware that they have to transform
themselves from being simple organisers towards being “designers of services” for their
customers and offering unique experiences through the whole vale chain. Thus, offering a
different experience from any of their competitors has become essential. However, tour
operators cannot achieve this on their own and especially not without close cooperation with
all relevant stakeholders in tourism destinations. In short, tour operators are moving away
from the old-fashioned production model of “made in” and “made by”, and are taking a
proactive role in creating products with a paradigm shift towards “made by TOURISM” –
cooperation which results in controlled quality delivery in the whole value chain. Therefore, if
tour operators want to secure their position on the market, they have to deliver exclusive
products through controlled distribution, and clients need to recognise their brand. However,
tour operators cannot let destinations produce what the tour operator has to sell. As one expert
clearly addresses the issue, only the one who can react to changes of prices, capacity and
product availability to the needs of demand in a real time can win the battle on the
increasingly competitive tourism market (FVW, 2012 (5):24).

Conclusions

The short overview of recent events happening on the European tourism market leads to the
conclusion that the right answer for tour operators to the growing individualisation of tourist
travel, the maturing of traditional generating market potentials, increased online distribution,
the growth of online travel portals, bed-banks and hotel-portals, problems related to financial
crisis, etc., are flexible business models that can address the evolving trends in leisure travel.
Diversification of the tourism product has become a must! Products based on a holiday
experience (new ideas, innovations and strong brands) cannot be delivered without a strong
distribution network (traditional and online). To execute this long-term requirement, huge
investments are needed, and this can be done only by the strongest in the market. Due to the
fact that the European market of organised tourist travel has matured, tour operators will use
the benefits that the emerging markets of the BRIC countries offer, both in economies of scale
and scope. The BRIC countries are seen as their main strategic move and the key driver of
their long-term travel growth. Since tour operators have the know-how in organising holiday
travel, they are heading towards demonstrating their ability in adapting to new market trends.
As in any business, newcomers experience a boom at the beginning and then they too have to
enter into a consolidation phase. Tour operators will increasingly be pressured to move from
their retroactive to proactive role on the market! Tour operators are now well aware of the
need to tailor their products to the needs of the new market structure on different BRIC
markets, respecting the different travel habits and traditions of these markets.

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