What business is NF in - Essay Example

What business is NF in? NF is in Tour Industry which falls in the hospitality sector. The Tour Industry comprises of four categories of business which includes Air Carriers, Inbound operators, tour operators and travel agencies. NF performs the dual roles as tour operator and travel agents. NF initially offered study tours with a third-world bent like working in villages in India. They also offered low-priced holidays where comfort was secondary. Their intention was to promote ‘intelligent holidays’ so that the travelers were more than mere customers. They wanted to be known as the cheapest tour operator in all segments including the budget and the luxury trips. NF offers services like accommodation, transportation and excursion along with services of a guide. It provides air tickets both on schedule and non-schedule flights and organizes cheap holidays as a tour operator. As air carriers, NG took over Corse Air and in the services sector it developed the Les Paladiens chain of 13 hotels and resorts. They also developed service offering trips and custom built services for corporate groups and associations. NF became a total solutions company as it also offered language courses as part of its holiday preparation program. Based in France, it started as a student association organizing low-priced holidays mainly to third world countries. The company witnessed phenomenal growth from 1000 customers in 1967 to 1,500,000 by mid 1990s. As the growth took place, the company started chartering large transport capacities and offering wide range of destinations. Following conflicts over commissions, it disassociated with travel agencies and developed its own network through out France and a few overseas, selling exclusively NF products which were not sold through any other outlet. This was an exclusive system of distribution for a tour operator and it was supported by the computerized reservation system. Initially NF concentrated on tour operation and direct distribution of its products. By 1990s NF’s network comprised of over 100 travel agencies in France and 35 abroad, out of which about half were franchised. In addition, NF also maintained with overseas tour operators and travel agencies who offered local ground arrangements for NF’s customers. Having consolidated its position, NF grew rapidly without owning any planes. It negotiated with airlines for preferential fares on schedule flights or even chartered planes when necessary. Identify the key external influences in NF’s task environment since its inception. Since inception, NF had wanted to be the cheapest tour operator in all segments – the budget and the luxury. In order to achieve its aims, a tour operator’s operations are influenced by the external environment. The external environment includes the input, process and the output. Quality management process should link the internal subsystems and transform the inputs into quality tourism products (Augustyn, 1998). Political, economical, social and technological changes also affect the task environment. Distribution channels are critical in the marketing mix and especially so in the tourism industry. The purpose of tourism distribution channels are to provide information to tourists as well as make it convenient for consumers to make, confirm and pay for reservations (Buhalis, 2000). NF, in its effort to enhance the service quality, following conflicts with travel agencies over commissions, developed its own network across France and also overseas. Using intermediaries like travel agents may enhance the provision of information as they are in direct contact with the customers. Channels can influence the pricing structure and manipulate and formulate tourism products. Travel agents can even block the access of tour operators to the market. In order to eliminate these external hurdles, NF appointed franchisees on an understanding over commissions. NF adopted the computerized reservation system as technology improve the service quality and contribute to higher guest/traveler satisfaction (Buhalis, 1998). Thus it could combat the external influence of the intermediaries and transform and deliver quality service to the customers. The tourism destinations and the enterprises need to adopt innovative methods to enhance their competitiveness. In order to outperform and overcome competition, NF started chartering large transport capacities. Various factors led to overcapacity in the air transport market. Many third world countries started their own airlines and sold seats at very cheap rates to obtain satisfactory passenger loads. Secondly, a large number of planes operating for military purposes were allowed to sell their seats to civilian charter companies at competitive prices. Thus charter flights started competing with scheduled flights to regular destinations. To remain the lowest-cost tour operator in the market, NF increased or lowered the prices depending on the market situation. NF realized that the margin derived from the services was higher than the air tickets even though the air transport accounted for 40% of the total package component. Thus the key external influences in the task environment of NF included the trade intermediaries and the competitors in the air transport sector caused by change in world events. This implies political and technological changes influenced task environment for NF. Assess the extent to which NF’s strategy has been deliberate versus emergent. Formulating company strategy through deliberate and analytical means implies assessing market structures and competitive strengths and weaknesses, in addition to the customer needs (Innosight, 2004). It is formulated through a fixed process and is approved by the top-tier management. Emergent strategy on the other hand is based on day to day events and is left to the middle managers or the sales people. Such decisions are tactical in character and are made despite intentions. NF’s strategy has been deliberate in all major decisions. It brought about a shift in its internationalization process when it realized that the society was marked by individualism. In an effort to modify its traditional image, NF turned to a different mature and socially integrated customer. They changed their promotional strategies and the product mix by introducing medium haul flights also. Its promotional strategy was emergent as it decided to distribute its catalogs and offered a wide variety of tours. Various factors led to overcapacity in the air transport market. The external environment in the travel industry is turbulent and unpredictable. Differential pricing is employed in the air transport sector. Consequently as demand increased process too soar. This requires being alert to the demands of the situation and adopt the emergent strategy. Air transport was a critical component of NF’s business but they added services to it as they derived more margins from the services than from air tickets. Depending upon the market situation they increased or decreased the prices of the total package there by demonstrating the emergent strategy in pricing its products. As far as product mix was concerned, it had a deliberate strategy as initially they concentrated on air tickets which amounted to over 90% of the sales but by 1990s the proportion of air ticket to holiday packages was almost equal. This implies they responded to the changed market situations and competition. Even when its sales and revenue increased, the overall growth in the industry slowed down. They acted on this and penetrated overseas market. They appointed subsidiaries to provide support and services to their clients traveling abroad. Its exclusive distribution network allowed it to have direct contact with customers and the market, thereby demonstrating the deliberate strategy. Emergent strategy gives recognition to the company. NF’s strategy is not merely profit maximization but lowest prices are what rule its decisions. Assess the extent to which NF’s strategy formulation has been ‘outside in’ versus ‘inside out’. House (2004) emphasizes that profits come from the outside – from the customers who buy the products and services and not from the technological innovation. Shifting to an external focus companies can increase profits by 5 to 10 percent. External focus does not simply imply gathering market and competition intelligence or having a customer focused approach. The corporate mindset has to change; the business model has to change. NF has a one-pointed focus – to be the cheapest in the market. They always follow the ‘outside in’ approach as they change their prices and strategies as per the competition prices. Attempting to increase the share holder value through cost cutting strategy is not sufficient. The growth must be sustainable and merely increasing sales and revenue does not mean growth in the industry. As per market trends, NF has been contemplating car rentals, booking sea cruises and entering the sea freight market. These are with a view to be a total solutions company and offer a one-stop solution to all of customer needs. This could be termed as the inside out approach. As far as their distribution channel is concerned, they are following the ‘inside out’ approach as in Porter’s words, strategies are about doing it better or doing it differently. Even as regards not owning any airline is an inside out approach as most major tour operators had their own planes and airlines. NF on the other hand expanded rapidly by negotiating with airlines for preferential rates because of its high volume of business. It mostly used scheduled flights. Different strategies have to be applied at different points and this is what NF is doing. Collecting market intelligence helps an organization to draw up its strategy but this requires creativity and innovation. The ability lies in not merely collecting data but using data in the right manner. It has been innovative in offering trips and custom built services for corporate groups and associations. It’s organizing the language courses as part of the holidays program also was an inside out approach strategy. Although initially this was meant for the customers, they later opened it for all those who were interested. This allowed this unit to be sustainable. An externally focused company would use standard problem-solving strategies but using outside data as key inputs is essential. It is essential to look at non-traditional competitors because they might give an insight to something different. Outline what you consider to be NF’s principal strengths and weaknesses. NF’s strengths are its overseas partners or the foreign tour operators or travel agencies that provide service to NF’s clients while they are abroad. In addition to its own travel agencies, NF maintains relationships with about 50 correspondents – foreign tour operators and travel agencies who service the clients of NF when they travel abroad. NF has initially set up these subsidiaries to provide services but subsequently they also started functions as their sales agents for their products. By eliminating the travel agencies and having its own distribution network, it has gained direct access to the market and the customers. It can change product at short notice to meet the demands of the customers. Its customer base ranges from over 25 years to up to 65 years of age. Hence it needs to have products that would cater to the entire segment and not just to the segment between 25 and 34 although that is the largest group. It has also shifted focus from long-haul flights to the medium haul flights which means it can cater to a larger customer base. It has ten different holiday packages on offer. It offers technical information about the country and it also publishes a travel guide for some countries. NF enjoys bargaining power with the suppliers or the different airlines. It can negotiate for a price 50-80% less than the normal coach fare. The growth strategy led the tour operators to aim for market share. There was always a pressure to grow which meant that seats would remain unsold till the last 48 hours when NF would have to sell it on special offers which may even mean below the cost. NF has been trying to put its hand in allied services without proper planning and data collection. Its weakness lies in the image or the perception that public have – the image of a student association operating low cost packages in third world countries. NF maintains good relations with its distribution channels and overseas correspondents; it enjoys good reputation with the airlines and has the strategic resources. Identify and explain the nature of NF’s apparent competitive advantage. According to Porter’s five forces model (12Manage, 2007), the competitive forces can be determined. It identifies the strategic moves that an enterprise can adopt to position itself better. Accordingly, NF’s customers bargaining power is high as they are price conscious but NF is well positioned because its tour operating activity is lower by 15-20 percent than the small competitors and about 3-5% lower than the major competitors. NF’s greatest competitive advantage is its exclusive distribution network where it has eliminated the travel agents. Even if its network has unsold capacity, NF can take it back in the last 48 hours and announce special offers. Because of its high volume of business, NF also enjoys bargaining power with several airlines. It has the power to negotiate fares 50-80% lower than the normal coach fare. Even in case of charter flights it can demand 10-15% cheaper than what its major competitors in France get. Because of its own distribution network, it can maintain direct contact with the market and the customers. Thus gives it an advantage because it can sense the changing needs of the customers and act fast, thus enjoying the first mover advantages. Another advantage that it claims is regarding cash flow – it collects in advance from the customers but pays after service delivery to the suppliers. This is not really a competitive advantage as the practice in the industry is applicable to all operators in the segment. Industry rivalry is definitely high because even though major players are only three, but there are quite a few small players in the market. The advantage with several smaller tour operators is that they offer specialized products while NF is considered ‘non specialized tour operator’. Most major and small tour operators concentrate either in trekking or some other adventure but NF has no such specialized offers. Competitors are diverse and the market has slowed down while fixed costs are high. The competitors use travel agents as distribution channels which is normally a very good platform to have exposure. Hence, even though NF thinks their distribution channel is exclusive, using travel agents is a better option as they are in regular touch. Identify NF’s key opportunities and threats. The environment facing the organization may be dynamic but predictable. It has to create an environmental fit between the opportunities and threats on the one hand and the organizational resources on the other (Henderson, 2007). Thus the environmental scanning has to be done via tools and matrices. The current trend has changed, the markets have changed. The attitude towards the third world has changed. Society is strongly marked by individualism. While come may be interested in adventure and trekking, there are always others interested in leisure, which is the segment that NF had ignored. It only tried to be cost conscious and cater to a defined segment. Great opportunities exist for growth and expansion as the concept of traveling and the perception of leisure changes in the society. NF has threat from the specialist tour operators in the market who have specialized products on offer which NF does not have. The industry requires low capital for entry and hence new entrants to the market pose a constant threat. Because NF has been concentrating on a few products and unspecialized in nature, product differentiation is not there. It is just another company providing the same products as do so many others. Threat of substitutes is also high as the leisure market ahs developed while NF has not penetrated that market. It continues with the same focus. It is not enough to concentrate on prices and the market players. It is essential to be different, have product and service differentiation. All the threats can be converted to opportunities to gain competitive advantage. Since it has easy access to distribution channels, it can introduce products specific to that market. Based upon your analysis of NF, outline and justify your recommendations for its future strategy development. NF has to change its strategy to the supply and demand scenario. For the sustenance of the tour industry, the United Nations Environment Program has been encouraging largest tour operators to come to terms with structural supply and demand changes taking place (Font, Tapper & Cochrane, 2006). NF should think in terms of appointing franchisees rather than opening new agencies for two reasons. The investment would be greatly reduced, and besides, the franchisee would be familiar with the local demands, culture, and requirements. Opening a new agency would tend to be under the control of the top-tier management. Marketing of services is becoming competitive and barriers are becoming insignificant as information technology reduces the physical distance. Under these circumstances, national culture has a significant role to play in determining the practices and operations that should be applied. Culture according to Hofstede (1997, p4) is “the collective programming of the mind which distinguishes the members of one group or category of people from another” (cited by Hope & Mühlemann, 2001). Societies have developed common set of beliefs and developed a set pattern of behavior which allows them to live harmoniously. Technology plays an important role in the tour industry. It is important to have real time information of the customers as well as disseminate information to the customers. Having a strong database of customers would help to market its products more efficiently. Information technology can be fruitful if certain prerequisites are fulfilled, claims Buhalis (1998). NF should employ long-term business strategy, innovative business process-reengineering, top management commitment and training through out the organization. NF’s strategy to offer free mileage and free vacation or credit facility may be detrimental in the ling run. If the target is the price-conscious group, such target segment would have no loyalty and could switch to another operator with even a marginal difference. The brand has to reflect the promise of performance, the value of reassurance, transformation of experience, social connotation and personality (Driver, 1999). By constant discounting or giving free offers, it would be a compromise on the brand image of the company. Relationship marketing emphasizes the need for firms to establish lasting relationships with customers, suppliers, employees and stakeholders through trust, relationship commitment and co-operation (Chenet, Tynan & Money, 2000). This industry is staff-intensive and attempting to manage the resorts and hotels directly would cause a shift in its main business. Going in for marketing collaboration with one of the chain hotels would relieve it from the operational hassles. International growth prospects may be promising but strategic management has to be applied as NF already has to recover the investment in Corse Air. References: 12Manage (2007), Five Competitive Forces, 29 March 2007 Augustyn, M. M., (1998), The road to quality enhancement in tourism, International Journal of Contemporary Hospitality Management 10/4 [1998] 145–158 Buhalis, D., (1998), Strategic use of information technologies in the tourism industry, Tourism Management, Vol. 19, No. 5, pp. 409-421, 1998 Buhalis, D., (2000), Relationships in the distribution channel of tourism: conflicts between hoteliers and tour operators in the Mediterranean, Tourism Management Research Group, International Journal of Hospitality & Tourism Administration Vol. 1, No. 1, 2000, pp. 113-139 Chenet, P., Tynan, C., & Monay, A., (2000), The service performance gap: testing the redeveloped causal model, European Journal of Marketing, Vol. 34 No. 3/4, 2000, pp. 472-495 Driver, J. C., (1999), Developments in airline marketing practice, Journal of Marketing Practice: Applied Marketing Science, Vol. 5 No. 5, 1999, pp. 134-150 Font, X., Tapper, R., & Cochrane, J., (2006), Competitive strategy in a global industry: tourism, Handbook of Business Strategy, pp. 51-55 Henderson, S., (2007), Becoming misrepresentations in strategy and time, Management Decision Vol. 45 No. 1, 2007 pp. 131-146 Hope, C. A. & Mühlemann, A. O. (2001), The impact of culture on best practice production/operations maangement, International Journal of management Reviews, Vol. 3 No. 3 pp. 199-217 House, D., (2004), Changing the corporate mindset: focus on the extern, not the internal, Handbook of Business Strategy, pp. 161-165 Innosight (2004), After the Gold Rush, 29 March 2007 Read More