Analysis of the Existing Strategy of the TUI Group - Essay Example

ESSAY: Management; Analysis of the Existing Strategy of the TUI Group Executive Summary In the globalmarket, the tourism industry is gaining more prominence in the overall economic development of countries. The use of integrated sales and marketing strategies by TUI group helps in expanding the market and operations of the company globally as discussed. The main purpose of this paper is to carry out the critical analysis of the primary strategies that are employed by the TUI Group in improving the sales of their products and services in the domestic and global market. The primary focus of the strategy carried is the current strategy direction of the company, and this includes the Vertical Integration and the ASnoff’s Matrix strategies. From the analysis of the current strategy of the company, it is noted that the company enjoys a larger market share in the global tourism market. Through the use of integrated vertical strategy, the company has been able to expand its market share. The Ansoff matrix has highlighted that the company employs the penetration strategy to promote its services in the current market and also invest in the new markets. These have further expanded the market making the firm enjoys the economies of scale. In the conclusion, the study points that despite the success of the business due to its vibrant strategies, the company needs to intensify its online marketing as this will enable it maintain its market control besides creating more awareness to the new customers in the global market. Analysis of the Existing Strategy of the TUI Group The modern critics of the modern forms of planning and management postulate the notions that the modern world is dominated by uncertainty, complexity and widespread of ambiguity. Moreover, they also argue that in the modern world, myopic events may have vast and unpredictable results that can either be positive or negative. In the event of such condition, the very best strategies are always prone to being invalid and inefficient due to the changing environment (Litvin et al. 459). It is therefore noted that in such dynamic environment, there is need of being flexible to respond swiftly to the changing conditions and this often calls for the alteration of the already established organization’s strategies to suit the current market structures (Weaver & Oppermann 45). Business and organization strategies offer the illustrations on the activities that the managers and stakeholders undertake as designed to achieve the firm’s objectives either in the short run or long run. Every organization has a purpose to accomplish and a defined direction of achieving it and these are always clearly articulated and embraced in their mission statement thereby acting as a guiding principle (Holloway 65). In a broader sense, business strategies are considered to be game plans that enable an organization to execute its activities that are geared towards achieving their objectives such as the expansion of market share and sales. Definition according to Ansoff takes business strategy as the common thread among firms, activities and the product markets that are aimed at defining the fundamental nature of the business that the organization has planned to be in the future (Litvin et al. 460). He, therefore, introduces the Ansoff Matrix that gives four main strategies that when implemented by an organization helps in the attainment of business growth. These strategies are market penetration, product development, market development and diversification (Ritchie 44). The matrix is represented as; Source: (Ryan 17) TUI Group is considered the leading tourism industry in the world operating under a chain of various companies that offers a variety of travel and hotel services globally. The company’s main objective is geared towards the creation of superior shareholder value due to its global market scope in the tourism sector (Bowen & Kotler 98). The company provides their customers with a wide range of choice of differentiated products and services. The products and services provided by the TUI Group are very flexible and have adapted to the ever-changing demand and market structures (Holloway 75). The amalgamation between TUI and TUI Travel have enhanced their management system due to the combined marketing and sales abilities and through this, the company has been able to enhance their travel brands. They have been able to offer efficient airline fleet together with inbound services network thereby leading to a well-integrated tourism business model (Ryan 17). TUI Group has employed five major strategic priorities that have facilitated a sustainable development, and these are climate change, the customers, Embedding, Destinations and The People. The company’s services are aimed at addressing the mentioned pertinent issues (Litvin et al. 464). As noted by Ritchie (53) the main emphasis of the TUI Group between the periods of 1998 and 2005 was to achieve cost control in the market and the differentiation of the firm’s products. To arrive at this objective, the company decided to adopt the Hybrid Strategy, which is the combination of price, differentiation and cost control in the market. Through the adoption of this strategy, the company was able to create an enhanced margin in their quality through product differentiation. Product differentiation enabled the company to produce unique services that provided the customers with comfortable and world-class travel experiences. Bowen & Kotler (121) further noted that the creation of a unique brand of travel services enabled TUI to achieve competitive advantage in the market and brand loyalty, and this had the effect of enhancing the cost control thereby reducing their operation costs and increasing their flexibility. Under this strategy, the company’s essential basics include the expansion of their core tourism business, exploiting the synergies and the efficiencies in the operation costs across their global market (Weaver & Oppermann 55). Moreover, TUI focuses on the leverage of the vertically integrated tourism benefits and distribution logistics, expanding their freight transactions and also to identify new marketing trends as they exploit their opportunities in the tourism sector (Ritchie 58). Vertical Integration Strategy For several decades, the TUI Group has maintained its extended market position as the primary leading firm in the tourism industry through its vibrant value chain that is composed of qualified agencies, airlines and cruises (Holloway 95). The overall success of the firm has been due to its suitable position in the market whereby it has its suppliers and concrete target group of buyers thereby enhancing its vertical integration strategy. This strategy increases business growth through both backward and forward movements of the business activities with the focus of its objectives (Adriana 1386). In many instances in several organizations, the use of vertical; integration strategy has not yielded complete success in their value chains, but this is different in the TUI Group. Using this strategy, the company has been able to construct and expand its business through proper selection of the travel agencies in the European airline markets (Ryan 19). It is noted that the company has approximately 100 aircraft with Thomas cool airlines and over 3000 travel agencies (Weaver & Oppermann 66). Moreover, the use of vertical integration strategy has enabled TUI Group to expand its customer base and differentiate its products in the tourism market thereby gaining more market control and power. Through this expansion, the company enjoys the economies of scale through the reduction of operation costs, provision of a wide variety of choices and also limiting the profit margins of their intermediaries (Bowen & Kotler 125). According to the management of TUI Group, the use of vertical integration has created inspirations among the workers and thereby enhancing their inbound services, booking, and accommodation that are vital in capturing a larger market share (Ryan 19). Such services have made their products to be unique in the market and differentiate them from the stiff market competition in the industry. Moreover, the strategy provides an avenue for information and the capability of providing the desired holiday experiences that tend to satisfy the customers’ wants, and this leads to increased sustainability and profitability through the rise in customer volumes and their retention (Adriana 1387). According to the works of Weaver and Oppermann (78) having their hotel and freight, ships gives the firm the ability of product differentiation which thereby gives them the ability to have absolute control on the product quality and client satisfaction. This, therefore, enables the firm to be able to satisfy the demands of their customers by providing their desired experiences and destinations (Bowen & Kotler 128). Ansoffs Matrix Strategic Analysis of TUI Group The Ansoff matrix was developed by Ansoff a Russian/American mathematician to be applied in business organizations to help the management in the company growth through the expansion of their existing products or investing in new areas. The matrix provides four marketing strategies that hinge on whether products are already in the systems or new. According to Ryan (22), the Ansoff product/market growth is vital in the analysis of the possible implications of corporate strategies in identifying the best opportunities to take advantage of in the market. Through its four main quadrants, the matrix provides possible methods by which a business develops either through the use of the already existing products or new products in the market. The penetration strategy aims at giving the company an opportunity to expand its market share using its already existing products to counter the market competition. The product development strategy, on the other hand, enables the firm to gain an increased market share of the already existing product market by offering new and upgraded products (Holloway 99). The market development strategy in the Ansoff matrix indicates that a company expands its market share by offering the already existing brand of products to new markets. This includes creating new market segments in new areas such as investing in new countries. Lastly, diversification involves the process whereby the company creates a new brand of products and sells the products in new markets (Bowen & Kotler 130). TUI Group started operating in the tourism industry in the early 1997 and during the beginning of the periods; the company identified an opportunity of penetration into the German tourism market with its existing tourism brands with the aim of expanding its market share and gaining the market control (Ritchie 64). Using this segment of the Ansoff matrix, TUI expanded its operations into the larger European market by the year 2000, and it dominated the market having the largest market share. This wide market share gave the company control over other tourism firms in the market such as Thomson travel group and Fritidsresor (Scandinavia). Having penetrated the European tourism market, the company was able to produce cheap airlines services and pay much attention to their product development. The overall effect of the successful penetration of the market was the increased cash flows for the organization, and the launching of the virtual tour operator and these enabled the firm to clinch the helm of tourism industry having successfully created a brand image globally (Holloway 102). TUI Group has been able to expand its markets widely in most parts of Europe alongside other countries like China and India. Due to its economies of scale, the company has been able to diversify geographically and in their logistics both inbound and outbound. Besides the geographical diversification, the company has also been able to diversify its business segments so as to provide a variety of services especially the diversification of the logistics in the container shipping (Ritchie 66). This market expansion was geared towards achieving the economies of scale that comes with significant operations. It is further noted that TUI Group decided to merge with other firms to ensure long-term growth and for the development of its brand to attract more cash flows from the already established markets. This in the view of the management would provide a suitable hedge during the periods of economic downturns when the business is doing very poorly globally (Weaver & Oppermann 81). Conclusions From the above strategic analysis of the TUI Group, it is clearly evident that the company enjoys a larger market share in the tourism industry. Through the employment of the vertical integration strategy, the company has been able to expand its market share making it enjoy the economies of scale. As noted, the use of economies of scale TUI Group has been able to reduce its operation costs while improving its supply chain management and logistics. This strategy has remained one of the fundamentals baselines for the success of the TUI Group. Moreover, the company has employed the use of Ansoff matrix strategies to expand its operations in the markets. Through the use of penetration strategy of the matrix, the organization has been able to improve its products brand thereby being able to penetrate new markets and expand its operations in foreign markets. Additionally, the penetration strategy also increased the company’s market control in the tourism industry thereby increasing its capital inflows. It is, therefore, imperative to note that the use Ansoff matrix has contributed to the success of the industry making it acquire new markets and increasing its customer base globally. Recommendations The use of vertical integration in the business has a great impact on the overall performance of the business. Its use in the organization is very critical in expanding the operations; however, the excess use of it may cause corporate failure and poor market performance (Adriana 1389). The concept of backward integration may lead to the achievement of short-term objectives giving rise to temporary and windfall rewards to the organization. These rewards may help meet the temporary needs of the firm but may not contribute to the fulfillment of the long-term goals (Weaver & Oppermann 82). Too much use of such measures may often make the managers of the organization to restrict their operations to exploit opportunities that are innovative in the future which can further expand their market share and customer base. From this observation, therefore, it is prudent to state that the use of vertical integration by the TUI Group should be moderated and should be geared towards achieving the long-term objectives of the firm. They should not just the short run as this will ensure that the firm remains a going concern for the unforeseeable future (Holloway 111). The use of backward vertical strategy should also be minimized since it gives short run illusions of profits. The firm should focus on the use of vertical integration to expand both their inbound and outbound logistics as this will increase the strength of their supply chain and the overall cash inflows (Bowen & Kotler 133). TUI Group is one of the major leading tourism companies globally having over 250 products brands that have gained market loyalty in over 180 states. Its customer base is approximated to be high above 30 million (Holloway 116). The majority of the company’s businesses are grouped into four different sectors, and these are the Mainstream, Accommodation & Destinations, Specialist & Activity and Emerging Markets and the firm’s brands vary in sizes depending on the desire and taste of the customers (Ryan 22). Due to the wide market base of the company, it is fundamental that the firm engages in profound and intensive online marketing and product promotion so as to expand its capital and revenues base. This strategy will further create awareness of the presence of their products and services to the new markets that have not yet identified with the company. To further ensure profitability, investing in the online marketing reduces the costs of production promotion since the use of online platform has a wide base that can access several target groups with minimized costs (Bowen & Kotler 140). List of References Adriana, B., 2010, Environmental supply chain management in tourism: The case of large tour operators. Journal of Cleaner Production, 17(16), pp.1385-1392. Bowen, J.T. and Kotler, Ph. 2014, Marketing for Hospitality and Tourism, Prentice Hall Holloway, J. Ch. 2010, The Business of Tourism, Fifth Edition, Financial Times / Prentice Hall, Harlow Litvin, S.W., Goldsmith, R.E. and Pan, B., 2013, Electronic word-of-mouth in hospitality and tourism management. Tourism Management, 29(3), pp.458-468. Ritchie, B. J.R. 2013, Tourism: Principles, Practices, Philosophies, Eleventh Edition, John Wiley & Sons Inc., New Jersey Ryan, C., 2012, Equity, management, power sharing and sustainability—issues of the ‘new tourism’. Tourism Management, 23(1), pp.17-26 Weaver, D. and Oppermann, M., 2010, Tourism Management. John Wiley and Sons Read More