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Table of Contents
1. Introduction.............................................................................................................................3
2. Historical strategic development of TUI................................................................................3
2.1. Multinational structure matrix.....................................................................................................4
2.2. Strategic Clock............................................................................................................................5
3. The underlying forces in the macro environment that drive the competitive forces in the
tourism industry..........................................................................................................................5
3.1. PESTEL analysis........................................................................................................................5
3.2. Porter’s diamond.........................................................................................................................7
4. Porter’s five forces analysis of the tourism industry..............................................................7
4. 1. Competitive rivalry:...................................................................................................................7
4. 2. The threat of substitutes.............................................................................................................8
4. 3. The Bargaining power of buyers:...............................................................................................9
4. 4. The Bargaining power of suppliers............................................................................................9
4. 5. The threat of new entrants..........................................................................................................9
5. TUI’s business model...........................................................................................................10
6. TUI’s strategies: challenges and choices..............................................................................12
7. References.............................................................................................................................13
8. Appendixes...........................................................................................................................14
8. Appendixes
1. Introduction
“The Service Sector is one of the three main industrial categories of a developed economy”.1
As services are defined in conventional economic literature as "intangible goods", it is rather
difficult to place, analyze and market service related companies.
Travel agencies and tour operators represent a large part of the tourism sector and play the
major role within the service industry. TUI is a service provider with diverse types of
ownerships involving most of the supply chain products regarding the tourism sector.
According to the Ansoff growth matrix, acquisitions are used as market penetration strategy3.
The acquisitions have some advantages representing a big strength to the company, which
makes it possible for TUI Group to grow fast. However, it is necessary for TUI Group to be
highly aware of how they do that, to make sure that it doesn’t create too many challenges.
TUI Group is the name of the overall company, but when acquiring companies, they become
brands that are a part of TUI Group and they still keep the name they had before the
acquisition, an example of that would be the Swedish Fritidsresor or British Thomson.
TUI Group has also done some joint ventures, for instance, with the cruise ship company
Royal Caribbean. In this joint venture, TUI Group and Royal Caribbean joined forces on
certain cruises (routes/ships) in spring 2009. The reason for doing a joint venture in the cruise
industry is connected with the high risks in the business (investments in expensive ships).
Besides acquisitions and joint ventures TUI has also made a few mergers. Mergers along with
acquisitions and joint ventures are market penetration techniques, because they deal with
existing markets and existing customers.
Even though market penetration has been TUI Group’s main growth factor, there has also
been some organic growth. TUI has entered several markets and made establishments within
the industry without buying other already-existing companies. Examples of this processes that
When TUI in 2004 opened its low-cost travel agency in Hamburg in Germany, they offered a
new product to a new customer segment. According to the Ansoff growth matrix that would
be associated with diversification (new product entering a new market).
TUI expanded their market by launching a virtual operator (toureruopa.com), where they
would sell tours online through travel agencies, television and call centres. This strategy
displays market development as TUI offers known products for new customers.
Throughout history of TUI Group the company has been focusing on market penetration, and
it has been the main method of their growth.
26 Gerry Johnson, Kevan Scholes & Richard Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall
2008, p. 63
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undiscovered destinations are still dependent on travel retail companies and do not hold the
same power.
4. 5. The threat of new entrants.
• Scale and experience: Tour operators are using economies of scale – they buy large amounts
of components in advance in order to assemble their travel packages. It might be very
expensive for new entrants to match major tour operators’ volumes. Experience might be
another factor that is required in travel retail industry in order to manage the company
efficiently and come up with successful strategies.
• Access to supply or distribution channels: Major tour operators are vertically integrated
companies, meaning that they own some of their suppliers. Other supplier might already have
long-term contracts and established relations with the main travel retail companies. Therefore,
it might be hard for new entrants to set up a vast supplier base. On the other hand, new
entrants can easily establish distribution channels through e-commerce, which gives a new
company the opportunity to get a direct access to customers and cut back on the costs.
• Expected retaliation: As travel retail is a highly competitive industry with many players on
the market, it might discourage new companies from entering the industry. Major competitors
are well prepared and ready to launch a price war or a marketing blitz.
• Differentiation: It is hard for a new company in the tourism industry to provide a service with
a higher perceived value then competitors. New entrant would need to come up with a totally
new strategy to market its services and develop a strong brand in order to deferential itself.
27 One of the methods to explore the business model is to apply a value chain (see Appendix 7)
28 TUI Group – at a glance, TUI AG Group Presentation, Feb 2010
29 Normann, Richard, Service Management: Strategy and Leadership in Service Business, 3rd Edition, p. 146
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For the purpose of describing and evaluating the business model that TUI applies, it has been
chosen to display a Service Management System diagram. (See Appendix 4).
The Service Concept: For TUI it is important to align all functions of the company and focus
on customers’ needs in order to understand the company’s profit margin and generate new
values. The Service Concept can be divided into two groups: core and peripheral. TUI’s core
service has been display as been the travel experience and the peripheral services as the
service warranties, the quality of the experience, the customer care and the means their
product are delivered to travellers.
The Market Segment: TUI’s overall target group are young people, families and empty
nesters. Their target group is understood to be relatively wealthy travellers who are part of a
regular holiday basis that allow them to experience new cultures and traditions as well as new
trends for perceptive lifestyles.30
The Delivery System: TUI delivery system is responsible for providing a unique and
innovative service. Their delivery system elements consist of four features: personnel, client,
technology and physical support. These components participate together to produce and
contribute in the service performance.
Image: Image plays a big role within the tourism industry. TUI aims to achieve a first-class
image, in order to attract and maintain their travellers and overcome the barriers brought up
by the diverse financial recessions along the years.
TUI it has been set to generate a high-quality image. The company has an attractive and
functional homepage on the Internet; therefore it is a great prospect for people to book trips
online. TUI has become trendier due to their successful advertising strategies, as TV,
brochures, newspapers, agencies and etc. Another important factor for TUI’s image is having
the proper attire at work and a standardized way of welcoming their travellers.
The Culture and Philosophy: When the culture in the company is functioning well and
employees are considerate to each other, it creates a pleasant working atmosphere. Personnel
are a part of the product in the travel sector. Therefore, TUI spends a lot of time and effort on
training their employees, customer care assistance and selection process to them provide their
customers with first class service.
30 Global Travel and Tourism – A fast-changing Landscape, Euromonitor International, Nov 2008, p. 11
31 See Appendix 5
32 Johnson Gerry, K. Scholes & R. Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall, 2008, p.
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developed within the company.33 TUI owns an airline company, shares in hotels and cruise
lines, and travel agencies. Such strategy guarantees better management of costs and helps to
keep profits, which would otherwise go to third parties. “TUI’s fully-integrated tourism
business model provides operating advantages which enable the Company to optimize the
load factor of its airlines and the occupancy rates of its hotels.”34 Horizontal integration means
expanding the company through mergers or development of by-products. TUI is using
horizontal integration strategy by acquisitions, mergers and joint ventures. In short, a
vertically and horizontally integrated tour operator is better prepared to adjust to changes
within the industry, to perform efficiently and to maintain leader’s position.
6. TUI’s strategies: challenges and choices
As seen from the SWOT analysis of TUI (See Appendix 6), possible strategic challenges of
TUI might be connected with the ongoing economic recession and thus lower consumer
demand, late booking patterns and smaller travel budgets. TUI management should find a
strategy to adjust to the new industry landscape and minimize its dependency on economic
fluctuations.
Some of the key strategic objectives and challenges for TUI in the future are:
• Maintaining competitive offerings through lower prices and more exclusive deals.
• Eliminating duplicate costs and focusing on its under-performing businesses (synergies
and cost-cutting in order to maintain profit levels)
• Finding the right approach for competing with online travel agencies, which can offer
cheaper dynamic packages
• Finding ways to cope with rising fuel prices and banking crisis (TUIfly has recorded huge
losses and has to look for ways to reduce its operation costs)
Strategic directions of TUI in the future
Niche markets: One strategy that TUI could adopt is a more focused strategy on specific
niche markets. A niche market that TUI could choose to focus on in the future is adventurous
tourism. Currently TUI already has offers for adventure-travellers. However, travellers
become more experienced and crave for new excitements, as what used to be thrilling no
longer fulfils the “thirst for adventure”. TUI already has some brands that focus on adventure
travel, but the focus could be enhanced and they could, for example, offer specific adventure
packages for backpackers. Usually backpackers are on a very tight budget, but they still want
to experience the thrill of adventure travelling. Therefore, an option for TUI could be to
develop low-cost adventure trips.
Emerging markets: Another future strategy for TUI could be the development of upcoming
markets. For example, India represents a great opportunity due to its fast growing economy,
8. Appendixes
Appendix 1. Some TUI’s brands placed on Strategy Clock.
• TUIfly: TUIfly is a low-cost carrier and offers both charter and low-cost flights. Source
market is Germany. http://www.tuifly.com/
• SpringBreakDiscounts.com: provides students and travel agents with reliable travel packages
at affordable prices. Source market is North America. http://www.springbreakdiscounts.com/
• Signature Vacations: Signature Vacations offers innovative and popularly priced package
holidays. Source market is Canada. http://www.signaturevacations.com/
• Star Tour: Star Tour Denmark offers package tours to the Mediterranean and destinations
worldwide. Tour operator and retail business. Source market is Denmark.
http://www.startour.dk/
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• TEMA: TEMA is a Nordic company that focuses on quality rather than quantity. Source
market is Denmark, Sweden, Norway and Finland. http://www.temarejser.dk/
Appendix 2. Tour operator market share in Europe.
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TUI
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Hotels
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TUI
Northern
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TUI
Central
Backward TUI
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Horizontal
Forward Accommodation
andTour
Europe
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operators
Russia
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Appendix 6. SWOT analysis of TUI
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Appendix 7. The value chain for the service industry
A customer’s perception about a whole package of benefits, being tangible or intangible, is
what satisfies the needs of the customer right, effectively and efficiently. “Customers are not
and will never be buying products but values”.35
In most cases, TUI’s travelers will seek out a completely different customer experience
altogether. However, there is remarkable value to understand why they think this way.
Developing a profile of the most and least profitable customers can be the way of reaching
full customer’s awareness. TUI needs close links with their customers so that they can deliver
the right value for them. Therefore, value needs to be connected (marketers and customers
together).
As the business world has now changed and has become more sophisticated especially within
the service industry, it doesn’t have the real operation of inbound or outbound logistics. The
operations in the manufacturing sector are far different to those in the service industry.
Within the service industry, production and usage of the service occur simultaneously. The
supporting activities might be similar in most cases, yet the way of managing the supporting
activities might be different consequently there is a need for considering various elements as
for example the expanded marketing mix for the service industry.36
Due to the nature of services and their providers, there has been a need to have a different
version of the value chain. It should be yet clear that a generic value chain can be useful but
not in all cases as it has its limitations.
35 http://www.docstoc.com/docs/3638198/Value-Chain-for-Services-A-new-dimension-of-Porter-s
36 http://www.learnmarketing.net/servicemarketingmix.htm 19
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The value chain for services has been introduced by a few researchers37 as having five
primary attributes and four supporting attributes. These characteristics are used consciously
since other components of the value chain for services might not be activities but attributes.
37 Professor Elisante Ole Gabriel – Lecturer and Head of Entrepreneurship Centre – Faculty of Commerce 20
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