Strategy for Tourism
Part 3, Lecture 7
Strategic Options
Professor John
Tribe
Part 3: Strategic Choice
© John Tribe
 The next stage of strategy for tourism is strategic choice and by
the end of part 3 it should be possible to propose and justify a
particular strategy for a tourism entity. Strategic choice follows
logically from the previous two stages. Strategic analysis resulted
in a summary of the opportunities and threats evident in the
tourism organisation's external environment and of its internal
strengths and weaknesses and it is in the light of this analysis that
strategy can be formulated, guided by the organisation's mission.
A framework for strategic choice is developed to assist tourism
entities in the development of an appropriate strategy.
 Chapter 7 introduces the main types of strategy, using Porter's
(1998) generic strategies as a starting point.
 Chapter 8 considers the directions methods by which an
organisation can pursue its strategy.
 Chapter 9 offers a template that can be used to evaluate
competing strategies so that an appropriate strategy can be
chosen.
© John Tribe
Learning Outcomes
© John Tribe
 After studying this chapter and related materials you
should be able to understand:
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Porter's generic strategies
Critiques of Porter
Price-based strategies
Differentiation-based strategies
Hybrid Strategies
Focus strategies
Elasticity and margins
Sustaining competitive advantage
Game theory
 and critically evaluate, explain and apply the above
concepts.
Case Study 7: Accor
Hospitality Worldwide
© John Tribe
 Accor Hospitality is a global player with more than 40
years of expertise in its two core businesses of
hotels and services. Accor operates in 92 countries
with more than 180,000 employees and its brands
represent around 3800 hotels and provide 500,000
rooms. Accor covers all the main market segments.
The three segments and associated hotel brands
are:
 Luxury and Upscale: Sofitel Legend, Sofitel Luxury,
Pullman, MGallery
 Midscale: Novotel, Mercure, Mama
 Economy: Ibis, Ibis Budget, Hotel Formule 1
Porter's Generic Strategies
© John Tribe
 A generic strategy is a strategy of a particular type or
form designed to promote a lasting competitive
advantage for an organisation.
 Porter (1980) identified three generic strategies that
organisations could use to achieve competitive
advantage. He argued that it was important for
organisations to be clear about which strategy was
being followed and that lack of a clear strategy could
result in muddle and confusion. Porter's generic
strategies are
 cost leadership
 differentiation, and,
 focus
Problems with Porter 1
© John Tribe
 Poon (1993; 239) concludes that "Porter's generic
strategies have little value in today's tourism
industry." Poon identifies four principles for an
effective tourism strategy:
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be a leader in quality
develop radical innovations
put customers first
strengthen the firm's strategic position within the value
chain
 However these principles can be accommodated in
an adapted version of Porter, and price remains an
important part of strategy which Poon ignores.
Problems with Porter 2
© John Tribe
Cost leadership is a problematic concept for several
reasons.
 First, many of the routes to lower costs are easily followed
by competitors and therefore leadership may be elusive. It
is perhaps only where a firm can achieve economies of
scale by market leadership that costs may be reduced
without compromising the quality of output.
 Second, where cost leadership is achieved by strippeddown products, consumers are unlikely to pay industryaverage price. Price may well follow costs down thus
reducing any extra margins.
 Third there is a tendency for Porter to use the terms cost
and price interchangeably. But they are very different terms
- the first measuring input costs (paid by firms) and the
second measuring market prices (paid by consumers).
Problems with Porter 3
© John Tribe
 Differentiation may be misinterpreted by managers
as being merely a matter of improved technique of
production. What is more important in terms of
selling a product or service is the notion of consumer
perception - does a particular product offer improved
quality or value added over the competition in the
eyes of the consumer?
 Porter's typology also polarises costs leadership and
differentiation. There is evidence that many
organisations seek to operate in a hybrid region
which encompasses both low costs whilst attempting
to market a distinctive product.
Porter Adapted
© John Tribe
 Bowman (Bowman & Faulkner, 1995) and Johnson
et al. (2008) et al. have sought to rework Porter's
typology of generic strategies to take into account
some of the issues raised above. have sought to
rework Porter's typology of generic strategies to take
into account some of the issues raised above.
 The typology is adapted to reflect the consumer view
of things.
 Consumers are more sensitive to prices than costs
 Consumers consider perceived quality or value added
rather than differentiation
Price / Quality Matrix
© John Tribe
Price-based strategies
© John Tribe
Price-based strategy is similar to cost
leadership, but emphasises the fact that low
costs are passed on to the customer in the
form of lower prices. Products are thus likely to
be standardised, and unnecessary but costly
extras will have been stripped away.
 Value chain analysis can be a useful tool for
highlighting extras which can be removed (eg.
Ryanair)
Differentiation-based
strategies
© John Tribe
This is similar to Porter's differentiation
strategy, but with an emphasis on providing
extra qualities which are valued by the
consumer. This value added may be provided
by:
 design
 exploitation of the value chain
 advertising
Hybrid strategies
© John Tribe
 A hybrid strategy is an attempt to provide quality
products and services at low prices.
 It seems contradictory because adding value adds to
costs which should preclude low prices.
 The key to a successful hybrid strategy is therefore
to reduce average costs.
 The first route to this is achieving of economies of scale.
Economies of scale are therefore open to firms which can
achieve high market share, and a virtuous circle may
become established.
 The second route, important to service providers such as
tourism organisations, is to ensure high load factors.
© John Tribe
Route to
Hybrid
Strategies
Focused strategies
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Price-based and differentiation strategies may
each be focused on a particular market
segment and it is increasingly common for
organisations to seek to serve a number of
different market segments.
Examples in the tourism industry.
 In the hotels sectors IHG operates both
InterContinental and Formule 1 hotels.
 In the airline industry Qantas offers four different
classes of travel – Economy, Premium Economy,
Business Class and First Class.
 At the destination level the island of Mallorca, Spain
offers holidays to both mass budget tourists (e.g.
the resorts of Magaluf and Palma Nova) as well as
to the upscale segment of the market (e.g. Deja).
Zone X
© John Tribe
 Zone X (Tribe, 1997) represents a combination of
high prices and low quality and will generally
therefore lead to failure. However there are
exceptions to this.
 First, where an organisation has a monopoly it can operate
in zone x without fear of loosing customers
 Second, where consumers have lack of information about
quality, or competitive prices, zone x strategies may persist.
Tourist areas represent a potential site within which
organisations may operate such strategies since new and
naive tourists are continually arriving. Restaurants, hotels
and taxis may be able to operate zone x strategies under
such conditions.
Sustaining Competitive
Advantage
© John Tribe
 Becoming the industry leader.
 Protecting invention and innovation through patents.
 Maintaining leadership through innovation and organisational
responsiveness.
 Cross subsidization from elsewhere in an organisation’s
business portfolio where competition is less.
 Exploiting “deep pockets” that is substantial surplus financial
resources.
 Concentrating on a set of organisational capabilities that are
difficult to replicate..
 Collaboration to obtain competitive advantage
 Seeking the benefits of clustering.
 Revolutionizing the business model
Review of Key Terms
© John Tribe
 Generic strategy: A strategy of a particular type or form
designed to promote a lasting competitive advantage.
 Cost leadership: Becoming the lowest cost provider in an
industry.
 Differentiation: Seeking product or service uniqueness.
 Focus strategy: A strategy tailored towards a particular market
segment.
 Price-based strategy: Reducing costs and prices.
 Hybrid strategy: Providing high quality products and services at
low prices.
 Zone X: A combination of high prices and low quality.
Discussion Questions
© John Tribe
1. "Market share is crucial for a hybrid strategy."
Explain, using examples from tourism, what is meant
by this statement.
2. Explain how a hotel brand could achieve price
leadership.
3. Explain how a no frills airline could maintain
competitive advantage.
4. Explain how the concept of elasticity of demand
helps to understand the logic of price and
differentiation strategies.
5. Under what circumstances is it possible for a tourism
organisation to survive by charging high prices for
low quality services?
Strategy for Tourism
Part 3, Lecture 7
Strategic Options
The End