A travel agency is a business that sells travel related products and services to end-user customers on behalf of third party

travel suppliers, such as airlines, hotels and cruise lines. Customers of travel agencies include tourists and business travellers. Some agencies also serve as general service agents for foreign travel companies in different countries. What they do Travel agencies have been organized mostly since the development of commercial aviation from the 1920s, although Thomas Cook was a notable early, pre-flight pioneer in 1841. The Portuguese company Viagens Abreu is the oldest travel organization, founded in 1840. Some operate with a chain of stores and others are one store operations. A few of the larger travel agencies sell their own products. Agencies without their own product are arguably more impartial and more likely to offer something to suit the traveller; they are known as independent agencies. there are three different types of agencies: these are Multiples, Miniples and independent agencies. Most travel agencies do not sell airline tickets only; their services vary, and many of them sell more cruise ship packages than airline tickets. Most travel agencies also arrange car rental deals for their customers, and many concentrate on arranging charter or group trips to different destinations. For this, they deal with regular airlines, but many times, they also hire charter airlines. Many travel agencies exclusively represent a small group of supplier airlines, cruise and car hire companies and, often, the logos of the supplier companies are displayed on the windows of the agency's office. Travel agencies also market and sell train and hotel products. Generally, their goal is to try to fit an ideal schedule onto the requirements of each specific customer. The phrase travel agency has changed meaning since the emergence of companies like Thomson or Thomas Cook, who are now considered to be tour operators rather than travel agents. The difference is that tour operators manufacture and sell their own holidays whereas independent travel agents sell holidays from all the tour operators without limiting the range they offer to just their own product. The best travel agents deal honestly with a wide range of customers. In the UK a group of just such travel agents formed a consortium which became known as Worldchoice. Each agency was independently owned, bonded members of ABTA and Worldchoice was the vehicle for both commercial negotiations with the tour operators and also a forum for best practise. In 2006 there were 700 agents in the Worldchoice consortium of independent travel agents The Internet threat Many agencies feared their services would no longer be needed when many airlines and other travel companies began to sell directly to passengers over the Internet. They were afraid they would be victims of what management science experts call disintermediation [1][2]. Another worry was over the fact that airlines have been cutting back the commissions paid to travel agents on each tickets sold; the airlines feel that they are perfectly capable of dealing directly with their own passengers and do not need travel agents as much as in the past to fill seats. Since 1995, many travel agents have exited the industry, and relatively few young people have entered the field due to a collapse in salaries [3]. However, others have abandoned the "brick and mortar" agency for a home-based business to reduce overhead, and those who remain have managed to survive by promoting other travel products like cruise lines and train excursions, or by promoting their ability to aggressively research and assemble complex travel packages on a moment's notice (essentially acting as a very advanced concierge). Many travel agencies have developed an internet presence by posting a website, with detailed travel information. Full travel booking sites are often complex, and require the assistance of outside travel consolidators. These companies such as Sabre and others can provide up to the minute, detailed data on tens of thousands of hotel vacancies. Some of the popular online travel sites allow visitors to compare hotel and flight rates with multiple companies. They often allow visitors to sort the travel packages by amenities, price, and or proximity to a city or landmark. TRAVEL DISTRIBUTION SYSTEM There is little theory available about information technology and its effects on distribution channels. Therefore, attempting to analyse the impact of Information Technology (IT) on travel distribution, and more specifically, global distribution systems, requires drawing on theory from other sectors, such as retail, to develop a useable framework for further discussions. The literature comes mainly from the world of manufacturing and physical distribution; however, much is applicable in the tourism industry if we consider the parallels of manufacturer to travel product supplier (producer). This chapter is a review of literature and social theories and trends which are pertinent to the analysis of global distribution systems. It is intended as a theoretical framework against which to explore the directions that have marked the development of GDSs. Although theory will be applied from the point of

view of the GDS, the whole distribution chain, from supplier through intermediaries (GDS, travel agents, the World Wide Web) must be examined in order to understand the motivations of the various players. In this chapter, basic distribution theory will be reviewed; this is the backbone of the travel industry supply process. The role of distribution channels and intermediaries, single and multichannel distribution, and distribution strategies will all be related to distribution in travel. Consideration will then be given to trends -- social, technology, and consumer -- which have marked and will mark the coming years. These are the environmental factors over which a firm has no control, but to which it must react to remain competitive. Finally, from the point of view of the firm, a review of competitive advantages theory, taken mainly from Porters body of work, will be examined. 2.1 Distribution Theory Bucklin (1966, p xi), underscores the critical importance of distribution channels when he stated that the "study of the distribution channel is basic to the understanding of the market process. It is basic because it focuses upon the essential nature of marketing: the interaction among commercial institutions and between these institutions and the consumer". Shapiro (1977) adds that the "service needs, in both the consumer and industrial fields, can be so important that they are the prime determinant of a useful distribution system" Middleton (1994) proposes that a distribution channel in travel and tourism is any organised and serviced system, created or utilised to provide convenient points of sale and/or access to consumers, away from the location of production and consumption, and paid for out of marketing channels. Travel agencies and the home PC (via the WWW) are examples of additional points-of-sale away from the location of consumption. This definition is more broad than Donnely's (1976:p 57), which states that "any extra-corporate entity between the producer of a service and prospective users that is utilised to make the service available and/or more convenient, is a marketing intermediary for that purpose". However, this definition is somewhat restrictive as we find many examples of distribution channels in travel and tourism which are not extra-corporate entities (i.e. the distribution channel is direct to the consumer, or is internal to the producer). Authors agree (see, for example, Christopher, 1986; Kotler, 1997) that a distributor effects an economy of effort. That is, by introducing a middleman (the distributor, or the global distribution system), the number of contacts compared to producers directly contacting each customer is reduced. Looking at Figures 2-1 a) and b), it is obvious how the introduction of the intermediary reduces the contact links required between supplier and buyer.

Figure 2-1: Introduction of an intermediary to reduce contact points adapted from Kotler (1997, p. 531) 2.1.1 Role of Distribution Channels and Intermediaries Alderson (1954) expressed the tasks to be fulfilled within the marketing (distribution) channel in terms of a number of gaps between production and consumption: Time gaps Consumers purchase items at more or less discrete intervals, whilst the majority of firms, produce on a continuous basis in order to reap production economies. This is the case in travel, where individual consumers purchase their tickets on a discrete basis, while the airlines and hotels produce seats and rooms continuously. Space gaps Consumers are usually dispersed throughout the market; producers are located in a few areas and are often separated by distance from their customers. This provided impetus for the creation of travel agencies to disperse the product (information) delivered from airlines and other travel suppliers through GDSs. The WWW has created another channel to fill in this space gap. Quantity gaps Firms usually produce large quantities at a time; consumers usually consume small quantities at a time; the plane seats and hotel rooms are produced in large quantities, but consumed only one seat or room at a time. Variety gaps The range of products manufactured by a firm is limited; consumers have many needs which require a wide variety of products to satisfy them. A vacation or business trip requires more than just the airline seat which only the airline can provide, or the hotel room which only the hotel can provide. The travel agent, through the GDS fills this "variety gap" in order to offer all the products required by the consumer. Offering the greatest variety/service is essential to remain competitive. To this list, Guirdham (1972) added the following gap: Communications information gaps Consumers do not always know the availability and/or source of the goods they want; producers may not know who and where are the potential purchasers of their products. Nowhere is this more true than in the information-sensitive sector of travel. The development of GDS helped make handling this information manageable. These gaps need not be closed by an intermediary; however, it is the usual case that this can be done most cost-effectively through such a distribution process. In other words, the use of an intermediary becomes appropriate when it is cheaper to close the gap with an intermediary than without an intermediary. Christopher (1986) warns, however, that the benefits gained by using an intermediary must be carefully weighed against the costs, for the marketing objectives of the intermediary may not coincide with those of the supplier. The benefits might include better coverage, lower selling costs, wider product range, customer convenience, and market knowledge and customer finance, while the costs can be loss of margin, loss of marketing control, low priority given, and inadequate customer service. In filling this production-consumption gap, the distribution chain can be looked at in terms of its final added value. Trade-offs are necessary between the number of intermediaries and the profit margin. An airline, for example, must decide how much it is willing to trade off in transaction fees to the GDS and commission margins to the travel agent in order to close these gaps.

According to Stern and El-Ansary (1996, p 3) , the intermediaries are necessary "to bridge the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer. The discrepancy results from the fact that manufacturers typically produce a large quantity of a limited variety of goods, whereas consumers usually desire only a limited quantity of a wide variety of goods". From an economics point of view, the role of the intermediaries, therefore, is to transform the assortments of products made by producers, into the assortments wanted by consumers. They match supply and demand. This definition is restricted to filling quantity and variety gaps only. Middletons (1994) definition of the role of distribution channels is more basic. It covers only the time and space gaps previously mentioned and claims two functions: 1) to increase points of sale 2) to facilitate purchase of products in advance of their production Christopher (1986) sees the supply and distribution channel as a number of intermediaries acting independently of each other and often with conflicting objectives and requirements. Christopher states that although the basic problem can be characterised as a "zero-sum game", i.e. where for one player to increase his profit, another must lose it; long-term relationships between channel members can result in "non-zero sum gains". This zero-sum gain of trade-off between travel agency commission, GDS transaction fee, and travel agency usage fees for GDS is potential for conflict in the travel agency - GDS travel supplier relationship. Although global distribution systems are usually thought of as intermediaries, acting as the information broker between the supplier (airlines and hotels), and the retailer (travel agent), they are also suppliers of information and of service. Therefore, they have a dual role as intermediaries and supplier. This is an important point to bear in mind, as various distribution chain players vie for strategic and competitive advantages in the distribution chain. 2.1.2 Single versus Multichannel Distribution Robert Weigand (1977) has argued that a single channel of distribution is not sufficient to counteract the many instances in which the channel is dictated by external forces beyond the control of the company. He cites the example of when a supplier raises prices, but there is no opportunity for the wholesaler or retailer (the travel agent in tourism) to pass the higher prices along to his customers. In such a case, the intermediary's margin is squeezed. In a freely competitive market, they may be squeezed out completely if there is not sufficient margin to make the investment attractive. This is the issue facing both travel agents and global distribution systems. In his analysis, Weigand points to some of the market forces which catalyse the development of multiplechannel distribution: (1) Different types of Markets. Customers wishing to buy direct from the factory (or supplier/manufacturer/principal), do so at such a low price as to preclude a middleman (intermediary). Here, Weigand refers to the idea of "bypassing the channel", where imaginative customers in high priced markets will scheme to qualify as buyers in the low-priced markets. One or several intermediaries may be bypassed. When they are all bypassed, this becomes known as direct-sell. The World Wide Web has added a widely-accessible, and far-reaching channel of distribution, allowing airlines (and hotels) to bypass GDS and travel agencies and sell direct to the customer. (2) Different Geographical markets. Weigand speaks of an inevitable spillover when different distribution channels reach the same customer, for this creates an inefficiency in the distribution system. To a large extent, for example, many potential travelers are using the WWW booking facilities to research the best flights, but still going to the travel agent to close the deal. This causes a spillover in the distribution channel, and additional cost for the owner of those multiple channels as they must pay for the different distribution methods. Wasson (1983, p 233) provides for the same forces, stating that "Because the same or similar offerings often are bought by quite diverse kinds of buyers, many producers must sell through multiple channels to reach their full potential....The segments served, the assortments desired, and the appropriate channel contacts of most...segments usually differ too widely for any line to be sold through a single channel, even for physically identical offerings". Frazier and Shervani (1992) define a separate channel to exist wherever a "distinct process can be identified through which a product can be selected, purchased, ordered, and received by the firm's customers". The process could be varied based on ownership of the channel, type of intermediary, location, or technology Some of the motivations for moving from single channel to multiple channels are outlined below: Demographic Trends Time-constrained customers should be willing to pay for value-added services within channels of distribution that conserve their time. Customers are no longer seeking value from goods, but from the

transaction itself. Poon (1993) writes that consumers are becoming more sophisticated and experienced, and as a result of their changing values, lifestyles, and demographic circumstances, there is an increased demand for more variety and better quality. Davidson (1992) states that "consumers, the real base of power, have made a massive shift in distribution in recent years by bringing about a multiplicity of channel arrangements". Technology Trends As previously stated, technology provides additional distribution options, and a cost-efficient means of contacting the customer. A firm can increase channel control by adding an additional in-house channel, while keeping cost efficiency high through the application of IT. Although the high development cost of CRS was an entry barrier, these barriers are now reduced, as new technologies enable firms to enhance market coverage while containing costs. Competitive Trends As Frazier & Shervani (1992) suggest, firms can no longer afford to stand idle while their competitors make inroads into market segments through the use of non-traditional distribution channels, such as the WWW; the use of multiple channels is a natural response to the issue of market coverage. There is a competitive vulnerability to firms who are highly dependent on any one distribution channel. Control will be low if the single channel is nonintegrated, but if it is integrated, the firm has low flexibility because of sunk costs. A multichannel distribution strategy allows the firm to reduce its dependency on one specific channel, while at the same time allowing itself to remain insulated from environmental volatility. Kotler (1997) explains that by adding channels, a firm can gain advantages in three areas: (1) increased market coverage, reaching customer segments the current channels cannot reach; (2) lower channel costs, including selling to existing customers through lower-cost channels; and (3) customised selling, fitting customers needs. Both the airlines and the GDSs have employed strategies to maximise their distribution channels, but this typically introduces channel conflict and control problems. Conflict arises when two or more channel members compete for the same customer. Control problems occur to the extent that the channels are more independent and make co-operation more difficult. Types of conflict and competition that exist include: vertical channel conflict, a conflict between different levels in the same channel (example: GDSs versus travel agents); horizontal channel conflict, a conflict at the same level within a channel, and multichannel conflict, when a firm has established two or more channels which compete with one another (example: airline selling through GDS and travel agent versus airline selling direct to customer via phone, or online). This conflict intensifies when the members of one channel get a lower price, or are willing to work with a lower margin. 2.1.3 Distribution Strategies Designing a channel system calls for analysing customer needs, establishing a channel objective or strategy, and identifying and evaluating the major channel alternatives. Channel strategy, according to Christopher (1986), should be considered in terms of channel length and channel breadth. Channel length concerns the extent to which intermediaries should be used, or whether firms should "direct sell" to the customer. There is an inevitable trade-off in losing control to the intermediary. The three intermediary options differ in the degree of control they exercise over the distribution channel: (1) corporate systems, in which a manufacturer owns and operates a vertically integrated "captive" channel system. This, in essence, is the relationship between the GDSs and their respective airline co-owners; (2) contractual systems, the most common manifestation of which is franchising. This contractual arrangement is used frequently online by some booking systems, which franchise websites using their booking engines; (3) conventional systems, which are the most accessible from the supplier point of view, but offer the most control problems. Channel breadth is essentially one of market coverage. The two extremes are intensive and selective distribution while Kotler (1997), also considers a third: exclusive distribution. At one extreme is selective distribution, where distribution is to more than a few but less than all intermediaries. This requires less distributors to dissipate effort and provides adequate market coverage with less cost and more control than intensive distribution. At the other end of the spectrum, intensive distribution targets as many outlets as possible and is the preferred scheme when consumer location convenience is required. In speaking of intensive distribution, we consider the GDS as the supplier to the travel agent; GDSs have tried to capture as much of the travel agencies as possible in order reach the greatest number of customers. Finally, exclusive distribution severely limits the number of intermediaries and thus allows for control of service level/output offered by the resellers. It enhances product image and

allows higher mark-up. The great power of the WWW lies in its ability to provide intensive distribution, reaching all consumers subscribed to online services, without the cost of a proprietary network. Kotler suggests that firms are tempted to move from exclusive/selective distribution to intensive distribution to increase coverage and sales, but that this strategy, though helping the firms short-term profitability, may hurt it in the long run. The decision to use one type of distribution over another is influenced by: (1) product characteristics: convenience vs. speciality; (2) buyer behaviour - where perceived risk is high and information is required before purchase, or where there is high brand loyalty, or the customer seeks individuality, then selective distribution is preferable; (3) degree of control . The supplier must tradeoff between the greater control afforded by selective distribution over intensive distribution. By selling direct to the consumer, the supplier (either GDS or airline) can exercise greater control over the chain; (4) marketing strategy- where a high level of distribution is required , then intensive distribution is preferable; this is the strategy of GDSs in providing as many travel agents with their GDS system. From the supply side, backwards integration can smooth logistical planning and can be achieved by means other than ownership. A close working relationship with a supplier can achieve these goals as well as outright buying of a supplier. Sabre, for example, purchased a 3rd party CRS software vendor, thereby obtaining greater control over the product and distribution chain. According to Kotler (1997), a firms overall distribution channel strategy should be guided by 3 considerations: economic, control, and adaptability: Economic Unless a channel can meet certain goals, it is likely to be abandoned in favour of a more efficient alternative. These goals can be broken down into channel cost efficiency and revenue generation capabilities. The channel should therefore be carefully monitored for its ability to deliver required output while staying cost competitive, and a trade-off made between the two. Control A firm will attempt to establish control over its distribution channels in order to guarantee the outputs (in the case of global distribution systems: service, in the case of airlines: tickets), provide channel support for its products, as well as acceptance of its promotion and pricing policy. Travelocity, the on-line reservation system, is owned by Sabre, for example. As in the case of economic considerations, control considerations can be further broken down into channel competence and channel compliance. The former is a measure of a channels ability to provide the level of support (service) while the latter is its willingness to provide this level of service. The extent to which this exists determines the extent to which the firm has control over the channel. If necessary, forward or backward integration should take place. Adaptability Considerations As customer requirements and competitive and market conditions change, so too should a firms channel strategy; it should be able to adapt to this change. The two dimensions Kotler presents of adaptability are growth and flexibility. Channel growth refers to the extent to which various entities in the distribution channel are open to growth, which can be a major area of conflict between suppliers and other channel members when goals and expectations diverge. Flexibility is the ability of the channel to adapt to changes in the channel environment. For global distribution systems, which rely heavily on electronic media to distribute its service, this flexibility is of utmost importance. Trade-offs exist among the three considerations when deciding between using a single channel of distribution, or multiple channels, and between in-house channels and third party channels. Kotler points out that no marketing channel can remain competitively dominant; therefore, unconventional channels should be explored, for the company using such a channel will encounter less competition during the initial move to this channel, giving it a competitive advantage over others. This was the strategy employed by Sabre, which, by unveiling the Travelocity online booking site early on, was able to establish an early lead and competitive advantage in the race for Web bookings. Revaluation is necessary in order to determine if the present distribution strategy is the most efficient and effective way of reaching customers at the lowest possible cost commensurate with quality of service required. This pressure for change sometimes comes from the intermediaries themselves. We can consider, for example, that the availability of information on all airlines provided by a global distribution system has shifted the balance of power away from the airlines into the hands of the consumer, who can now easily choose an airline with the most discounted fare.

2.1.4 Distribution in Travel & Tourism The major difference between traditional production and tourism production, is that in the tourism industry, customers are brought to the product, not the other way around. Unlike the distribution of physical goods, in travel and tourism, distributors do not purchase products in bulk and therefore do not share in the financial risk of production. The principals are responsible for generating and marketing demand. They are the risk takers. According to Middleton (1994), the lack of physical inventory makes tourism distribution channels all the more important. Producers are willing to pay high costs for these channels in order to gain competitive advantages by increasing their points of sale. It is therefore in the producers interests to find the most efficient, widely accessed, and cost effective distribution methods. This is the main selling point for the WWW. Figure 2-2 which shows some of the travel distribution channels commonly employed. The cloud represents the World Wide Web.

Figure 2-2: Distribution in Travel (authors own work) 2.2 Trends In discussing the evolution of a service such as travel distribution, one must consider the societal trends and their impacts. Written in 1982, John Naisbitt's Megatrends exposes the major social, economic, political, and technological changes gradually influencing and shaping society. Tourism is an extremely

information-sensitive industry - the links between and among consumers are provided not by goods, but by the flow of information (services and payments). "Change occurs so rapidly that there is no time to react; instead we must participate in the future". Naisbitt could be referring as much to individuals as to the large corporations (including GDSs) when he made the statement. In the business world, such reaction time is even more critical. Naisbitt points to several critical restructurings in society which are of interest to the topic of this dissertation: distribution of information, high tech / high touch, and the global economy. 2.2.1 Distribution of Information The industrial based society is giving way to an economy based on the creation and distribution of information. He argues that although it was believed that the post-industrial era would be serviced based, it is in fact information based. One has only to look at the increase in information-based jobs versus service-based jobs to realise to what extent this is true. In an industrial society, the strategic resource is capital; in the information society, the strategic resource is information. He who has it has an advantage over he who doesn't, but as information is more and more widely available, the advantage gained by such information can be short-lived. Information is now instantaneously shared. This makes gaining a competitive advantage all the more difficult and is why a race always develops to release ones product first. Naisbitt explains that information technology brings order to the chaos of information pollution, and gives value to data that would otherwise be useless. This is one of the main raison-dtre of the global distribution system; managing information in such a way as to bring order out of chaos, and to provide the airlines with information of value to management. The opposing point-of-view suggests that information technology can cause a glut in information; those seeking to profit from the online medium must seek to provide information to the customer which is of added value. As a result of this information-intensive trend, society is changing from one of emphasis of supply, to one of emphasis on selection. From the customer point-of-view, the society we live in has turned from one of few personal choices, to one of multiple options. Already back in 1982, Naisbitt spoke of an explosion of home computers. This has opened up another distribution channel for airlines, the effects of which are still largely uncertain. Therefore, with reference to travel distribution, the customer selects between conducting business with different suppliers through different distribution mediums. 2.2.2 High Tech/High Touch We are moving in the dual direction of high tech/high touch, where each new technology is matched by a compensatory human response. Naisbitt speaks of the rejection of electronic funds transfer for it lacks this hi-touch component. Society is beginning to accept electronic commerce, and companies are embracing it; however, there is still a long way to go before the average consumer (the one who does not fly frequently and who is not a regular online user) feels secure about making purchases electronically. This is one of the major stumbling blocks faced by GDSs or other suppliers selling directly to the consumer. The high touch aspect is what may allow travel agents to play an important role in the travel distribution process. Realising this too, several third party reservation system vendors are including travel agents in the supply chain role. 2.2.3 The Global Economy We are all part of a global economy. Telecommunications has made a global economy possible. No longer are economic events and strategies to be determined in isolation. A dependence on hierarchical structures is being given up in favour of informal networks, which is especially important in the business community, and is applicable to distribution channels. Networks can offer what bureaucracies can never deliver - the horizontal link, including alliances. The many alliances and mergers which have taken place, both in airline and among GDSs (most recently Galileo's plan to purchase Apollo), are indicative of this trend. According to Naisbitt (1990), financial services are the most involved sector of the global economy, and have more to do with electronics than finance or services, which have been around a long time. The "electronic" stumbling block of transaction security is the subject of much interest for the commercial world, for this will allow WWW commerce to flourish, with obvious consumer implications (securing more on-line sales). The development of the extranet may be an important step in that direction. The extranet is a collaborative network that uses Internet technology to link businesses with their suppliers, customers, or other businesses that share common goals. An extranet can be viewed as part of a company's intranet, or internal Internet system, that is made accessible to other collaborating companies. Middleton (1994), in speaking of the importance of CRSs realises that the major systems are international and becoming global in operation, and that there will be growing competition by the main players for market share. Such is the dynamics of business in the new digital economy. In Megatrends 2000, Naisbitt (1990) also speaks of global merchandising leading to global pricing. This, combined with ready access to

competitors products and services, means that the competitive advantage of one GDS over another can only be measured by the depth and breadth of its information. Megatrends 2000 also predicts rise of the pacific rim. This is true for airlines, which are looking at building high capacity jets to cover the demand in the pacific rim basin. Among the global distribution players, there are high stakes involved in tapping that market. Sabre recently made inroads into China, while Amadeus has recently created a presence in the Philippines and Macao (May 23, BTN On-line). 2.3 Consumer Trends Anderson (1992) muses that three things seem certain for the foreseeable future: "increasing quixotic customers, increasing exotic markets, and increasing neurotic retailers". The average consumer is changing. He is becoming more money-rich, but more time-poor, and more ethnically diverse. He is more accustomed to, and comfortable with information technology. As Poon (1993) remarks, travel agencies will have to use their CRSs (GDSs) creatively and provide the information that consumers want. CRSs will have to provide the capabilities to provide the services that customers want; this is the direction in which the GDSs are trying to head. Poon (1993) refers to mass marketing no longer being the dominant paradigm. The new competitive advantage will be the data collected on customers, the relationship that has been built with them, and the speed and richness of the information collected. For this the GDS is well-suited. There has been a gradual move from segmentation to relationship marketing (Achabal & McIntyre, 1988) and technology can be applied to track customers. Relationship marketing is a key way of treating customers differently. It is an attempt to establish a relationship with the customer and create a competitive advantage which is sustainable. It means treating them individually and catering more precisely to their specific needs in a timely fashion. Airlines have employed this strategy successfully with their frequent flier programs. However, such a relationship scheme is a little more difficult between a GDS and a traveler, for the former is usually transparent to the latter. This idea of customer profiling is already exemplified in some of the WWW reservation systems, which will recall, for example, that you have a preference for window seats in aeroplanes, or compact cars. Similarly, when certain deals fit one's criteria for cost or destination, and email may be sent to the customer automatically. There is a trade-off to be made between the decreasing costs of maintaining these relational databases, and the increasing benefits to consumers. Information and credit risk - the accuracy of the information delivered and the potential for security over the WWW, must also be considered. The authors (Achabal & McIntyre, 1992) also speak of the change from customer service to customer experience in order to gain competitive advantage: convenient hours of operation (consider that the WWW is "open" 24 hours a day), visual display (again consider the WWW and its multimedia capabilities), and access to all other relevant information, give the WWW an increasing edge over the intermediaries. Society is moving from store-based to distance-based retailing via interactive services. "Computer based experience with mouse-based and hypertext-media, remote-controlled "zapping" with the TV, catalogue buying, and experience with Automated Teller Machines are all developing the needed adaptation on the part of the potential customers that will make distance-based retailing a natural extension and thereby change it from a discontinuous to a more continuous innovation" (Achabal & McIntyre, 1992). 2.4 Technology Trends and Competitive Advantages Man is a clever animal. There is no way to keep him from devising new tools. The error lies in thinking that new tools are the solution. It could be a fatal error. --John Hess (GEO, March 1981) Technological advancements change the rules of competition, but many companies fall into the trap of believing that all technological change is valuable, that it is important for its own sake, and that new technologies always lead to increased profits. Technology creates a new basis for competition in the tourism industry and has become a key determinant of competitive success. Although it spawns both threats and opportunities, it is essential for business to apply these technologies where these increase efficiency and give them a competitive advantage. Although many of Acahabal & McIntyre (1992) arguments were written with the retail world in mind, they are applicable to travel and tourism as well. The authors suggest that because technology is available to everyone, it is the mixing and blending of different technologies together in application systems that constitutes the competitive advantage. It is the difficulty, in terms of capital and time, in developing such applications that constitutes the basis for generating sustainable competitive advantage, explaining why airline competition was so fierce in developing their CRS systems. The authors go on to elicit Porter's competitive advantages theory. Competition, according to Porter, comes not only from the obvious direct competitors, but from suppliers (principals in travel), from new entrants (i.e. new GDSs), and from substitutes for their services (GDS-like reservation systems).

There is always a trade off in the use of new technologies. Not applying technologies is risky; one ends up always being behind the most advanced competitor. Applying technologies too fast carries the risk of being on the "bleeding edge" of technological developments, which can be too expensive to be profitable. The key is to study emerging technologies as they become available and apply them appropriately at the right time. The WWW is a good example. The evolution of the WWW is so new that even as recently as 1994, Middleton (1994) makes no mention of its potential. However, he states that "if Minitel-style homeshopping takes off, even though it is a viewdata system, it can generate enough business to gain access to CRSs" and adds that "electronic information technology conveys enormous flexibility to producers, the full score of which has yet to be fully developed". In the three years since his publication, the WWW, with its multimedia capabilities, has caused this growth to expand to an extent unimaginable. As previously stated, technological change might not be important for its own sake, but is important if it affects competitive advantage and industry structure. Technology is used in the broadest sense in Porters (1985) work, and relevant points are brought forward here. 2.4.1 Technology and Competitive Advantage Technology can have a powerful effect on cost and differentiation. In fact, highly efficient technologies are drivers as powerful as economies of scale, advantages of timing or interrelationships. A firm gains a competitive advantage when it discovers a better technology than its competitor for developing an activity. Americans Sabre and Uniteds Apollo systems prove this point; they control over 60% of the US CRS market. Porter suggests that changes in the buyers technology will have a competitive advantage effect and perhaps force a change on the suppliers technology as well, due to their technology interdependence, and the suppliers desire to maintain its differentiation and competitive advantage. We can think of the penetration of the home PC - owned by the buyer - and how this has forced GDSs (and airlines & hotels) the supplier in this case - to consider changing technologies to permit WWW-to-GDS (CRS) interfaces. Technologies which allow companies to offer better services will give them a differentiated advantage in competition. This role of differentiation is a difficult one to achieve for GDSs, because the technologies are available to all players. Competitive advantage should therefore be sought by some other means; this is the real challenge for GDSs these days. 2.4.2 Tests of a Desirable Technological Change Some of the salient tests for desirability of change with respect to the emergence of new distribution channel technologies, such as the WWW are (Porter, 1995): (1) The technological change itself lowers cost or enhances differentiation and the firm's technological lead is sustainable. (2) The technological change shifts cost or uniqueness drivers in favour of the firm, such as CRS biases which originally favoured the owner airlines. (3) Pioneering the technological change translates into first-mover advantages other than those inherent in the technology itself. American Airlines pioneered the CRS, and as a result gained a competitive advantage in both cost and differentiation. (4) The technological change improves overall industry structure. This is the case of CRS/GDSs, which have, until now, opened up travel distribution. Relative to the last point above, technologies that become widespread can positively or negatively affect an entire industrys attractiveness. Even where it does not give one firm a competitive advantage, it can affect the potential for the industry as a whole. Conversely, if the change does give a firm a competitive advantage, its widespread imitation may worsen the structure of the industry. Finally, technological change can raise or lower entry barriers. Technological change can result in changes in bargaining relationships between supplier and buyer. Some of the consequences include: (1) Buyer power - technological change allows buyers to backwards-integrate for economies of scale. As travel agents or customers (both buyers) gain access to the WWW, they could conceivably bypass the GDS to buy straight from the airline Although not many airlines allow this at present, this accessibility is a growing trend. Still, the accessibility of technology is allowing travel agents to work on a GDS project of their own to compete against the airline owned systems; (2) Supplier power - a monopolistic industry means that one supplier can set the terms of purchase. To date, the airlines dependence on GDSs has meant a monopoly of transaction fees; (3) Substitution - technologies develop to offer cheaper alternatives to existing products, changing their relative values and prices. New 3rd party software vendors take advantage of advances in software technology to offer competition to GDS front-end products made available to travel agents;

(4) Industry boundaries - technological change can create, blur, or even eliminate industry boundaries (information technologies, for example, combine the telecommunications, computer, and television industries). The WWW has blurred the lines between intermediaries. With an almost standard interface, a customer could as easily book with an airline, a GDS-owned booking service, a private booking service connected to GDS, or a virtual travel agent. 2.4.3 Technology Strategy & First-Mover Advantages A firm deciding on technologies to develop must be aware of where they are in the marketplace - whether they have chosen to lead in cost or in differentiation. They should never assume that a technology is mature. Almost every product and value activity is made up of a combination of technologies. While one particular combination of technologies may be mature, a new technology could be substituted and the entire S-curve started again. Sabre has always adopted this strategy by pouring millions into research and development. With the rate of technological change being what it is, and the many competitors entering the foray, the importance of keeping on top of things cannot be underestimated. In choosing whether to lead or follow in the technological race, Porter (1985) indicates a firm must take into account sustainability; sustaining your lead means that competitors can't duplicate it. This can be achieved by "First-Mover Advantages". Among the advantages are the reputation and image and associated benefits of being regarded as a pioneer. By being first, a firm may shape the way a product is defined and marketed, and choose the best brokers, distributors or retailers. In so doing, and by saturating the market with its product, a firm may keep other competitors from joining in through high switching costs; switching systems or supplies costs money and time, which a customer may be unwilling to pay. Most CRS-travel agency contracts contain a penalty clause for switching to another CRS. Many of the largest companies today were the first-movers in their era, and have maintained that lead ever since (example Sabre). However, if a first-mover doesn't have adequate resources to follow through, other companies may take over the lead. This made early attempts at entering the CRS race difficult; lack of capital. Now, with software technology more accessible to all, the tide has turned. There are also disadvantages to being first. The pioneering costs include gaining regulatory approvals, educating buyers, developing an infrastructure, and developing needed inputs which can be major barriers to overcome. Only an airline-backed system like American Airlines Sabre has the necessary capital to design and maintain a system which for many years did not make any profit. The many disadvantages are being felt at present by the original CRSs. If a company doesn't adapt to changes in buyer needs, it may become identified with an old generation of technology. A first-mover can define standards for an industry. This can be an advantage, but in the case of CRSs, may actually be a disadvantage, as these systems were designed with airline reservations in mind, and are not as adept at handling reservations for other products. Industry critics argue that the legacy systems are not well suited to handling reservations for products other than airlines. First-movers may be unprepared to respond to a technological shift because it's deeply committed to an older technology, one which a follower may be able to duplicate without the high costs of R&D that the first-mover has invested. This the case with the suite of 3rd party booking products which are entering the marketplace. If a firm does not respond to these threats its competitive advantage may be quickly eliminated. 2.5 Summary This chapter has looked at the important roles that the different members of a distribution chain play in terms of filling a number of gaps between production and consumption. Among these are time gaps, space gaps, quantity gaps, variety gaps, and communication and information gaps. It was shown that the decision to move from a single channel to multichannel distribution is dependent on market forces - demographic, technological, and competitive trends. Once the number of channels has been determined, the channel length and breadth (selective, intensive or exclusive distribution) must be chosen and guided by economic, control, and adaptability considerations. These choices are equally applicable to distribution in travel and tourism. The important trends marking society today are the distribution of information, the dual importance of a high tech and low touch environment, and the globalisation of the economy. This, combined with the consumer who now demands more value and convenience, are among the forces that help to shape the role that the WWW will play in displacing the CRS/GDS as the main distribution channel for (air) travel bookings. Finally, firms must try and obtain first mover advantages and maintain technological lead and flexibility, if they are to succeed.

PRODUCT LINE OF TOURISM INDUSTRY

Product lining is the marketing strategy of offering for sale several related products. Unlike product bundling, where several products are combined into one, lining involves offering several related products individually. A line can comprise related products of various sizes, types, colours, qualities, or prices. Line depth refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. The number of different product lines sold by a company is referred to as width of product mix. The total number of products sold in all lines is referred to as length of product mix. If a line of products is sold with the same brand name, this is referred to as family branding. When you add a new product to a line, it is referred to as a line extension. When you add a line extension that is of better quality than the other products in the line, this is referred to as trading up or brand leveraging. When you add a line extension that is of lower quality than the other products of the line, this is referred to as trading down. When you trade down, you will likely reduce your brand equity. You are gaining short-term sales at the expense of long term sales. Image anchors are highly promoted products within a line that define the image of the whole line. Image anchors are usually from the higher end of the line's range. When you add a new product within the current range of an incomplete line, this is referred to as line filling. Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices. There are many important decisions about product and service development and marketing. In the process of product development and marketing we should focus on strategic decisions about product attributes product branding product packaging product labeling prodcut support services But product strategy also calls for building a product line. TRAVEL AGENCY OWNERSHIP & STRUCTURE Community-based tourism encourages local people to play a greater role in the management of tourism activities. This agrees with the key development models of participation, sustainable livelihoods and poverty alleviation. It has attracted the attention of governments, non-governmental organisations and communities themselves. As a commercial venture, it may also interest the private sector. However, in common with other rural livelihoods such as agriculture - producers are often isolated and lack access to markets. Research from the University of East Anglia, UK, studies the problems facing small-scale tourism ventures. One problem is distance from markets, both nationally and internationally. In addition, they have to deal with cultural distance, meaning that community-based tourism (CBT) providers may have little understanding of what tourists want and expect. To bridge gaps in market information, business skills and product design, intermediaries play a key role. Intermediaries belong to one of four sectors: Private sector companies operate in a competitive environment. They often have good market information, marketing skills and networks. They partner with CBT ventures to offer customers a new type of tourism and to improve their social responsibility. Membership associations of CBT groups form a collective group for the purposes of marketing and capacity building. The public sector may support CBT by marketing, training and providing market information through tourist boards, and by improving the policy environment. Some non-governmental organisations (NGOs) see CBT as an additional rural livelihood and support it with capacity building, resources, institution building and facilitating partnerships. Each sector has an important role to play, but each is also restricted in its potential as an intermediary. Private companies are profit motivated, so they are only likely to commit to CBT ventures making money. A private sector partner is likely to have power in comparison with the community, and the community will rely heavily on their integrity and successful marketing. NGOs are not profit motivated and so can commit to ventures with lower profit making potential. They are more likely to focus on equity and participation of the community, but often lack the commercial experience necessary for success.

Membership associations can be useful where several CBT ventures are established together, but since membership fees are often low, they are not always self-sufficient financially. Associations usually rely in part on donor funding, and like NGOs, often lack commercial experience and skills. Governments play an important role regarding policies, but tend to focus on large-scale tourism developments. There is not always a long-term commitment to CBT. In most cases, more than one intermediary will play a part. Who takes the lead role depends on the context: In ventures with good commercial potential, the private sector leads, while NGOs assist with capacity building. Where CBT is marginal in profit terms, and a slow process of capacity building is necessary, NGOs may be the best partner, bridging the gap to the private sector and its access to markets. Membership associations play a useful role in representing CBT ventures, but need the support of NGOs, the government and the private sector. Governments need to make resources (such as national tourist boards) accessible to CBT operations, while ensuring that systems of licensing or tourism standards do not act as barriers. CBT can potentially make a useful addition to rural livelihoods. To succeed, it must be linked to integrated rural development and considered part of a range of rural activities. A variety of intermediaries are necessary, who can provide different expertise and put the long-term interests of the community at the centre of their actions. THE ROLE OF INTERMEDIARIES IN THE TOURISM VALUE CHAIN Wynne, et al (2001) identify three main functions of intermediaries. Firstly, they minimize distribution costs through routinising and standardizing transactions. Secondly they adjust the discrepancy of assortment, and thirdly, they facilitate the searching process of both buyers and sellers by providing a place for both parties to meet each other. Suppliers are faced with a number of challenges. Tourists are numerous, diverse and are geographically separated from the suppliers and many live in different time zones. Likewise, tourist destinations are often secluded locations in underdeveloped regions with weak infrastructures. Because it is difficult for each supplier to obtain information on each customer, (large hotel chains would be an exception) intermediaries are there to build long-term relationships with customers. In response to these challenges, the industry has developed a complex value chain, utilizing the services of several intermediaries. There are (Wynne et al: 2001) five main members of the tourism value chain: 5.1 Destinations and Final Service Providers These include hotel and bed and breakfast operators, restaurants, safari lodges and game parks. In Africa, these destinations are often scattered. They are often characterized by small and medium enterprises with little marketing expertise, or technological know-how. Until the advent of the Internet, they had very little ability to directly contact the customer. 2. Inbound Tour Operators (IBTO) These specialise in a particular segment of the industry and often a specific geographical region. An example would be adventure tours on Southern Africa. IBTOs add value to the chain through their expert knowledge of local destinations, customers and culture. Because of this, they reduce search costs for other players in the value chain. They also package numerous activities into a single tour. An example of an IBTO is an organisation that arranges golf tours around South Africa, or Springbok Atlas, which organises coach tours for groups of foreign tourists from destination to destination (Wynne et al, 2001:424) 3. Outbound Tour Operators (OBTO) These make up the second intermediary. These are typically based in developed countries and offer packaged tours to many destination countries. These usually have well-developed and financed marketing departments and will often be the largest player in the value chain. Often they would be the main source of promotional information for prospective visitors, as they publish brochures containing details and comparisons on all their destinations, and in this way they reduce search costs for tourists. OBTOs do not cater for individual travellers. 4. Travel Agents Agents are geographically close to the tourist and do most of the searching on the customers behalf. Unlike the OBTOs, travel agents can cater to individual requirements of each tourist. Through access to the booking systems, they routinise transactions and payments and coupled with their experience and expert knowledge of the industry, facilitate searching. As the closest intermediary to the customer, they can best build long term relationships with them. However, they are the most

endangered organisations, as their job is increasingly being seen as replaceable by technology. (Wynne et al, 2001:424) 5. Reservation Systems Also known as Computer Reservation Systems, (CRS), these new players are not yet significant in the South African Tourism industry, but it is believed that their value would come from the information that they possess, rather than the technology they can implement across the world. The following diagrams (adapted from Wynne et al, 2001:429) illustrate the value chain members in this industry. Wynne et al, (2001) additionally claim that the value chain activities are not clearly distinguished from each other, and many transactions actually bypass some of the intermediaries. In reality, some tourists complete their own searching, while others may just use travel agents, or IBTOs. Many companies show evidence of performing overlapping roles. For example, an overland tour operator can exhibit the characteristics of both the destination service provider and the IBTO (Wynne et al, 2001:429).