Strategy for Tourism
Part 3, Lecture 8
Strategic Directions
and Methods
Professor John Tribe
© John Tribe
Learning Outcomes
© John Tribe
 After studying this chapter and related materials you
should be able to understand:
 Strategic directions such as consolidation, market
penetration, market development, product development,
diversification and withdrawal.
 Strategic methods of growth including internal growth,
mergers and take-overs, and joint ventures and alliances.
 Strategic drivers of development such as innovation and
entrepreneurship.
 and critically evaluate, explain and apply the above
concepts.
Case Study 8: Merlin
Entertainment
© John Tribe
 Merlin Entertainment is an international attractions based
organization.
 It operates midway attractions and theme parks
 Its strategy is
 ‘To create a high growth, high return, family entertainment
company based on strong brands and a portfolio that is
naturally balanced against the impact of external factors’.
 Its directions and methods are:
1 Growing its existing estate
2 Achieving strategic synergies
3 Resort destination positioning
4 Roll-Out of Midway Attractions
5 Roll-out of LEGOLAND Parks
6 Strategic acquisitions
Directions
© John Tribe
This section considers the strategic directions
an organisation might take in pursuit of its
overall strategy. The main directions are:
 withdrawal
 consolidation
 market penetration
 market development
 product development
 diversification
Directions: The Ansoff
Matrix
© John Tribe
Withdrawal*
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There are some cases in which an
organisation may withdraw from a
particular market. These might include:
De-cluttering (Thomas Cook)
Contracting out
Raising Money
Legal Compliance
Competition
Market decline / economic prospects
Liquidation
Privatisation
Consolidation
© John Tribe
Consolidation implies a period of
concentrating an organisation's efforts on
existing products and existing markets.
 It may result from a period of rapid change to
enable an organisation to settle down
 or may result from a lack of resources to pursue a
more active policy.
Market Penetration
© John Tribe
Market penetration involves increasing
market share and is an important aim of
generic strategies previously discussed.
 In the short term market penetration may be won
by reducing margins and prices.
 Sustainable market penetration can only be
achieved by price-based strategies that are
coupled with cost reductions, or by differentiation
or hybrid strategies.
 The exception to this is if a price war is successful
in forcing a weaker competitor out of business.
Market Development
© John Tribe
Market development generally involves an
attempt to take the existing product range into
new market areas which can include new
geographical areas and new market
segments.
It may be that some product development is
required to adapt the product range to the
new market areas.
Product Development
 Product development encompasses the
development of existing products and the
development of completely new products.
© John Tribe
Diversification
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Diversification involves an organisation
moving into completely new products and
markets which are unrelated to its present
portfolio.
The motives for this may be
 to take advantage of a new growing market particularly if an existing product has a static or
declining market
 to allow an organisation to spread its risks.
 economies of scope
Methods: Growth
© John Tribe
This section examines the main methods by
which a particular strategy may be developed
which include:
 internal growth
 mergers and take-overs
 strategic partnerships
Internal Growth
© John Tribe
Internal growth means that markets and
products are developed without recourse to
mergers with other organisations. This route
may be chosen because:
 owners and managers wish to retain control of an
organisation
 organic growth is less disruptive and can be more
readily accommodated
 finance may be limited
 there may be no suitable targets for mergers
 problems of cultural fit between merging
organisations can be avoided.
Mergers and Takeovers
© John Tribe
Whilst mergers represent voluntary
integration between organisations, take-overs
may occur without the consent of the target
company. Integration can be divided into
three main types:
 horizontal integration
 vertical integration, and
 diversification or conglomerate integration
Problems with mergers
© John Tribe
Some of the potential problems of mergers
can also be noted.
 First there is the potential problem of lack of fit in
terms of products, or processes ( information
technology system incompatibility can be a
problem here), or the culture of merging
organisations.
 Secondly diseconomies of scale may arise.
 Finally there is monopolies and mergers and antitrust legislation.
Strategic Partnerships
© John Tribe
This method of strategic development
represents a desire for the benefits of
collaboration without complete merging of
ownership and resources. It can take the
following forms:
 franchising and licensing
 joint ventures
 alliances
 networks and clusters
Methods: Innovation
© John Tribe
Innovation is a key method to achieve costs
reductions or differentiation.
Hall & Williams (2008) identify a number of
key drivers of tourism innovation that include:
 competition and protection
 knowledge and creativity
 innovation policies
 firm-led strategies
 entrepreneurship
Review of Key Terms 1
© John Tribe
 Strategic Directions: How an entity should develop its products
and services as well as the markets
 Consolidation: Concentrating an organisation's efforts on
existing products and existing markets.
 Market penetration: Increasing market share in exiting markets
using existing products or services.
 Market development: Taking an existing product range into
new market areas.
 Product development: The development of existing products
and the development of completely new products for existing
markets.
 Diversification: Moving into completely new products and
markets which are unrelated to an entity’s present portfolio.
 Withdrawal: Removal of product or service or pulling out from a
market.
Review of Key Terms 2
© John Tribe
 Strategic methods: How a strategy may be developed by
growth, development, innovation and entrepreneurship.
 Internal growth: Development of markets and products without
recourse to mergers with other organisations.
 Merger: Integration between organisations.
 Horizontal integration: Merger between firms operating at the
same stage of production in the same industry.
 Vertical integration: Where two organisations at different
stages of production in the same industry merge.
 Diversification: Taking over a firm in a different line of business.
 Franchise: New owners and businesses are recruited to
replicate a successful business model.
 Joint venture: Where two or more parties agree to cooperate in
business activities.
 Strategic Alliance: An agreement between two or more parties
to co-operate on some aspects of mutual interest while
remaining independent organizations.
 Innovation: Bringing newness or positive change to products,
processes, thinking, or organizations.
Discussion Questions
© John Tribe
1. Examine the advantages and disadvantages to producers and
consumers of the strong vertical integration that is evident in the
package holiday industry.
2. Locate two recent examples of horizontal integration in the tourism
industry and critically evaluate the success of each.
3. Discuss the relative merits of mergers versus alliances for airlines.
4. With reference to a tourism organisation of your choice explain
which of the following methods would be most appropriate for a
programme of international expansion:
• internal growth
• mergers
• franchising
• joint ventures
• alliances
5. How can successful innovation be encouraged on tourism
destinations or business organisations?
Strategy for Tourism
Unit 8
Strategic
Directions and
Methods
The End