StrategicManagement Analysis of The Package Holiday Company Thomas Cook - Assignment Example

?Strategic Management Analysis Table of Contents Table of Contents 2 Introduction 3 2. Task A 5 2 PESTEL Analysis 5 2.2 Porter’s Five Force Analysis of the Package Holiday Industry 7 2.3 Critical Success Factors of Thomas Cook 8 2.4 Opportunities and Threats 8 3. Task B 9 3.1 Value Chain 9 3.2 Competitive Advantage 11 3.3 Financial Capability 12 3.4 Sustainable Competitive Advantage 12 3.5 Strengths and Weaknesses 13 4.0 Task: C 14 4.1 Strategic Direction of Thomas Cook 14 4.2 Strategic Fit With Environment of Thomas Cook 15 4.3 Ansoff Matrix of Thomas Cook 17 4.4 Final Thoughts 19 References 20 Bibliography 23 1. Introduction A strategic management analysis is intended to be conducted in the research paper on the package holiday company named Thomas Cook. The potency of the company will be judged and determined by applying various tools of analysis. Thomas Cook is an international operator of tours. The company stands out because of the participation of vacationers and tourists in order to ensure the vision of the company “The Whole World of Travel”. A publicist of English origin named Thomas Cook commenced the business operations back in the year 1841. The company accomplished growth at a quite higher rate in the industry of tourism through continued strategies of business. Strategies of group tourism and package tours are implemented by the company to make certain soaring share in the market and growth. The company with employee strength of 23,300 and sales of €7.7 billion is counted in the best three companies of travel services all over the globe and is the second best travel company in Europe (SAP, n.d.). The growth of the industry of package holiday has been quite rapid. The earlier decade has given immense chance to a lot of people to visit, travel and avail holidays at such places that were formerly accessible only by the privileged and affluent. The industry of package holiday has become an industry of multi-million pound that is operated by handful big players and numerous smaller ones (High Beam Research, 2011). The holiday packages are structured by ‘tour operators’ who ‘bundle together’ the assorted elements of a holiday into a ‘package’. The packages are available directly as well as through travel agents as well (Holiday Bargains, n.d.). The industry can be aptly expressed as oligopolistic meaning ‘competition among the few’ (High Beam Research, 2011). There are essentially four companies in the industry of package holiday in the UK that carry over a million people every year (High Beam Research, 2011). The segmentation of the package holiday industry of the UK is shown in the model below: Category %Population Groups Wealthy Achievers 25.1 1. Wealthy Executives 2. Affluent Greys 3. Flourishing Families Urban Prosperity 10.7 1. Prosperous Professionals 2. Educated Urbanites 3. Aspiring Singles Comfortably Off 26.6 1. Starting Out 2. Secure Families 3. Settled Suburbia 4. Prudent Pensioners Moderate Means 14.5 1. Asian Communities 2. Post Industrial Families 3. Blue Collar Roots Hard Pressed 22.4 1. Struggling Families 2. Burdened Singles 3. High Rise Hardship 4. Inner City Adversity Source: (Williams, 2008) The reason behind choosing the company Thomas Cook is its international popularity. 2. Task A 2.1 PESTEL Analysis Political Severe laws of immigration and tight security as an outcome of terror attacks If few of the destinations are kept off-limits by the Foreign and Commonwealth Office, then the people visiting there will be refused insurance by the travel insurers Political instability affects package holidays Policies of taxation on tourism imposed by other countries affect the industry of package holiday (Scribd, n.d.) Economical A critical role is played by the exchange rates in the trade of package holiday. Greater stability in the exchange rates would have a constructive impact on the package holidays Globalisation has a good impact on package holiday as more companies are entering new markets Recession affects the industry of package holiday positively as well as negatively (Scribd, n.d.) Social Customised packages of holiday are offered to the customers after considering their life style Brand consciousness is also a factor. Consumers rely on the intangible assurance of the company that is associated with the brand name Altering outlooks towards environment and safety also has a crucial role in the decision process of the customers. Consumers who are conscious about the environment prefer companies with a good environment policy (Scribd, n.d.) Technological Easy accessibility to internet and online sales facility are becoming a threat as it makes the entry easy for newcomers who become a part of the competition Substitutes for instance television and video games poses threat Degree of physical mobility is reduced by modern technologies Technological devices help the companies to efficiently maintain their relationship with customers (Scribd, n.d.) Environmental Package holiday industry will have a negative effect if ‘air flight rationing’ is implemented by the UK government Health problems are a chief reason of concern for the industry of package holiday. Outbreak of viruses or diseases can restrict the scope of package holiday Natural disaster also poses threat to the industry (Scribd, n.d.) Legal Regulations on Aviation Safety and Trade Laws are a significant part in the business world and have a crucial impact on package holiday as airlines are prime mode of transport for package holiday (Scribd, n.d.) 2.2 Porter’s Five Force Analysis of the Package Holiday Industry Source: (Scribd, n.d). 2.3 Critical Success Factors of Thomas Cook The business of Thomas Cook in the UK has become stronger as a result of the merger. The company will gain from the synergies of the merger as it will form the largest network of high street travel. Restructuring the organisation is also a factor as it will cut down on complexities and provide more clarity and accountability of the operations. The company keeps on improving the combination of the product mix (Thomas Cook Group plc, 2011). 2.4 Opportunities and Threats There has been predictions made by experts about the immense prospects of growth of Thomas Cook in the coming few years. The recent recession has proved to be beneficial as people as well as businesses are becoming more conscious about the costs. There are chances of withdrawal of the full-service airlines from the provincial markets in order to shift focus on more lucrative long-haul routes thereby, leaving the operations of the market to the low-cost companies. Thomas Cook is supposed to face threats because of the increase in the intensity of the competition as a result of the market reaching the point of saturation and the dearth of variety in options. Increase in the competition is expected to direct towards more difficulties by way of claiming inducements from communities. Moreover, companies tend to reduce the frequency of travelling for business purposes in the period of economic dip and owing to adaption of measures to prevent time-consumption, alternatives for travel, for instance videoconferencing are being introduced and practiced (Duong & Et. Al., n.d.). 3. Task B 3.1 Value Chain Source: (Scribd, n.d.). Inbound Logistics The products are purchased from Thomas Cook Group Plc. The moment a customer places an order, an affirmation will be received via an email. While making a booking of a holiday, a certain deposit needs to be paid. The remaining of the payment is made after completing the booking. The buying process is done online. The customer can make the purchases from the local office or through website (Scribd, n.d.). Operations Once the purchase of the products is made, the customers are given confirmation after retaining the details of the particular customer. The rest of the payment is acquired after reconfirmation. Outbound Logistics Thomas Cook makes sure that the product deliverance is made on time (Scribd, n.d.). Marketing and Sales Direct techniques of marketing as well as campaigns of mass marketing are implemented by Thomas Cook and it has helped in accomplishing high rates of conversion. The company also stresses on online marketing. Service The company offers training to those travel agencies who are not specialised to carry on their businesses. These activities are provided support by the human resource management, procurement, development of technology and the firm’s infrastructure (Scribd, n.d.). Support Activities Infrastructure of the Firm There are many offices of Tomas Cook located across the UK and the company has a website through which online bookings are made. This system is quite convenient as a good deal of information can be gained. The company’s software is proficient and secure which ensures fast service to the customers. There is a dedicated team of people who are specialised in customer dealing through email, walk-in and phone (Scribd, n.d.). Human Resource The company has a dedicated team of quite a number of employees who are specialised in their respective fields of work (Scribd, n.d.). Thomas Cook had in excess of 30,000 employees in the year 2010 (Thomas Cook Group plc, 2010). Technological Development The software used for the purpose of online booking is proficient and secure as it is makes the booking procedure fast and keeps the private information of the customers secured (Scribd, n.d.). Procurement The company makes online purchases and purchases from local airline or travel agencies under necessary circumstances (Scribd, n.d.). 3.2 Competitive Advantage Threshold Vs Unique Resources The above diagram provides us an idea about the resources of the company. From this, an analysis regarding the resources can be made. The difference between the resources that provide the company an added advantage and acts as a competitive advantage and the resources that just merely meet the threshold level can be made out from the above diagram. Intangible resources means the value attached with the brand name and human resource refers to the employees of the company who work hard and ensures utmost customer satisfaction. 3.3 Financial Capability Thomas Cook is quite sound in terms of financial capability as the company has quite good margins of profit. The company has made good profits in the last few years. The return on total assets of the company looks good as well. The company shows a superior performance on stockholder’s equity return. The company is quite good at reinvesting the earnings in order to produce extra earnings. This makes the company quite lucrative to the investors (Duong & Et. Al., n.d.). In 2010, turnover of Thomas Cook was around ?3431.2m, Pre-tax profit was ?-269.4m, EPS (undiluted as well as pre-exceptionals) (p) was -21.93 and dividend (p) was 3.75 (Thomas Cook Group plc, 2010). 3.4 Sustainable Competitive Advantage The company Thomas Cook continues its competitive advantage by paying attention on certain important areas that are a vital part of their business. The value associated with the brand name of the company serves as a sustainable competitive advantage. The company gives priority to satisfaction of customers. They believe that without satisfying customers they can not grow and flourish. Since the moment someone enters their shops or visit their websites, they start providing great service in order to keep up their reputation. The company goes that extra mile when it comes to serving the customers. The next priority is given to the employees. The company believes that motivation and engagements of their employees will provide them sustainable competitive advantage to a greater extent. Thus, priority is given to promote employee excellence. They also pay great attention to the suppliers. They take the chance to manipulate their suppliers in order to make their sustainable performance better along with taking the task to assist them in achieving that. Another sustainable competitive advantage of the company is their concern towards the environment. The company raises awareness regarding biodiversity and ensure wellbeing of the animals in the tourist destinations where they operate. Their contribution towards the communities in their home country as well as the destinations where their customers visit for holidays has also provided them competitive edge. The company believes that the future of their business is to a great extent dependent on the success of the communities where they operate. And, that is why they contribute with the help of time, money and gifts in kind. Therefore, taking all theses factors contribute greatly towards sustainable competitive advantage (Thomas Cook Group plc, 2011). 3.5 Strengths and Weaknesses The strengths of Thomas Cook are its large number of customers, strong brands in the portfolio, fast decision making ability and executing those, they lead in margins in the industry, customised models of business suiting each market, exclusivity in hotel concepts, encouraging feedback from customers, strong partnerships and constant improvements in the financial position. The weaknesses of the company include lack of policy of retaining customers, limited scope in Europe, only two prime growth drivers, price focus and convenience focus are touching the normal limits, lack of elasticity, service and spotlight on business prevents appealing the business travellers towards its models of low-cost, not easy to employ and train staffs fast enough (Duong & Et. Al., n.d.). 4.0 Task: C 4.1 Strategic Direction of Thomas Cook The strategy of Thomas Cook is to strengthen the package holiday business and empower the areas of future expansion. Thomas Cook focuses making holiday better which can fulfil the expectations of customers. Thomas Cook maintains a long-term relationship with the stakeholders. The strategic direction of Thomas Cook is to perform towards the vision and amend with the changes according to market environment. The strategic directions of Thomas Cook are as follows: Maximising The Package Holiday Business: The core trade of Thomas Cook is tourism business where it sells several package holiday products. The package holiday is a collection of several components of travel such as airline, hotel, and transportation, reception services that are sold to the customer through leaflets, websites, telephone and agents. Thomas Cook lets customers the simplicity for selecting from several attractive packages. The strategy of Thomas Cook is to maximise the value of package holiday in future by offering inexpensive package, high worth product such as staying in four or five star hotels with standard haul tourism site (Thomas Cook Group plc, 2010). Independent Travelling Service Provider: Thomas Cook seeks to provide independent travelling services where, a customer can make holiday trip either by himself or with the assistance of travelling agents. Thomas Cook has already become admired by providing greater online access and unique technologies which let customer to make tourism package according to their choice. The strategic direction of Thomas Cook includes planned tourism where customer can customise the tour or purchase pre–packaged tour provided by Thomas Cook. Thomas Cook plans to make additional modification and speculation in e–commerce competence to fortify the position as package tourism provider (Thomas Cook Group plc, 2010). Financial Service: In package holiday industry, the financial services includes travel money, cost of services, foreign money exchange, travel insurance among others. There are several risks while making a holiday trip and the financial services of Thomas Cook help travellers to finance the holiday trip. Besides the holiday packages, Thomas Cook sells other holiday elements. The strategy of Thomas Cook is to enhance the financial service division of its holiday business. Merger and Acquisition Strategy: For expanding the business, Thomas Cook uses the merger and acquisition strategy. In the year 2007, Thomas Cook had combined with My Travel which made the company one of the biggest travelling company groups (Thomas Cook, 2010). Cash flow Management: Sustainable development in cash flow is another strategy of Thomas Cook. Thomas Cook had achieved strong cash flow through superior working capital management. Thomas Cook had boosted the package holiday balance payment and successfully synchronised the supplier payment provisions. As a consequence, Thomas Cook had accomplished a significant development in cash flow regardless of the difficult business condition (Thomas Cook Group plc, 2010). 4.2 Strategic Fit With Environment of Thomas Cook As the economic environment recovers, it is expected that the package holiday industry will increase. The rate of economic upturn differs across several environments. A few economies are rising more assertively from recession compared to others. Thomas Cook’s package holiday market is mainly situated in four regions which are Middle East, Europe Continental, North America and Germany. These markets account for almost 33% of Thomas Cook’s revenue (Thomas Cook Group plc, 2010). Table 1: Strategic Fit of Thomas Cook Opportunity/Threat Fit? Comment Potential of Future Growth Thomas Cook expects high potential for growth of package holiday industry and it has good performance in this sector High Competitive Rivalry ? There is strong competition in the package holiday industry and in future the rivalry can limit the unique offering of package holiday of Thomas Cook Recession Because of recession people became more conscious about cost and thus they will tend to purchase inexpensive holiday packages of Thomas Cook Customer Satisfaction With regard to customer satisfaction, Thomas Cook has good performance on an average, almost 75% of customer are satisfied with the services of Thomas Cook Critical Success factors Fit? Comment Merger and Acquisition The major critical success factor of Thomas Cook is expansion of business through merger and acquisition which can make it an independent package holiday travel service provider Differentiation Thomas Cook can differentiate its package service by offering unique program such as entertainment or price promotion on early purchase among others which make the product distinctive than other competitors Cost Leadership ? Though Thomas Cook provides inexpensive travelling package, the continuous increase in fuel prices will impact on the price of holiday package of the company (Scribd, 2011) 4.3 Ansoff Matrix of Thomas Cook Ansoff Matrix is a marketing instrument which describes the strategy that a company follows to expand the market. According to this model, a company can develop its business by four ways which are: Market Penetration: In this method, a company emphasises on selling ‘existing product in the existing market’. The simple way for using market penetration strategy is to attract traveller who have not yet used the package holiday services of Thomas Cook (NGFL, 2009). Market Development: In this method, a company ‘develops new market for existing product’. In two ways market can be developed which are recognising customer of new market with comparable requirements or classifying new customer who would prefer to utilise a product in other way (NGFL, 2009). Product Development: In this method, a company ‘develops new product for existing market’. At times, a company seeks to enhance profitability and growth by initiating new product by targeting to the old customer segment (NGFL, 2009). Diversification: In diversification strategy, a company ‘develops new product for new market’. At times, a company seeks for new prospects and thus expands it business and devotes money in other profitable activities (NGFL, 2009). Ansoff Matrix Model Existing Product New Product Existing Market Market Penetration Product Development New Market Market Development Diversification Source: (NGFL, 2009). Thomas Cook had employed market penetration strategy to expand its market. It emphasises on existing product i.e. package holiday to be more entertaining and fun. Thomas Cook had introduced perceived pricing model. According to this model, customers who will book holiday trip earlier will get cheap prices for package holiday. To sell the package holiday product more, Thomas Cook had also introduced several entertaining programmes in its packages. The market penetration strategy was successful as it had attracted almost 30,000 customers. The unique product feature had increased the sales in West as well as East Europe from 41% to 45% in 2010. In the UK, the package holiday sales had increased from 32% to 35% in the same year (Thomas Cook Group plc, 2010). 4.4 Final Thoughts Thomas Cook is very effective in pursuing the growth strategy. Alongside the existing markets, Thomas Cook attempts to enter in the emerging markets. Thomas Cook is strategically fit in the package tourism industry as it has the capability to merge or make a joint venture with other companies to enter in the new package holiday market. Besides, it has good strategy for providing good service to the customers and potential to accomplish in the Online Travel Agent (OTA) service business (Thomas Cook Group plc, 2010). References Duong, P. 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