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Accompanying the technological revolution of the 1990s there are many new opportunities and challenges for the tourism and hospitality industries. Since tourism, global industry information is its life-blood and technology has become fundamental to the ability of the industry to operate effectively and competitively. Poon (1993) suggests that the whole system of information technologies is being rapidly diffused throughout the tourism and hospitality industry and no player will escape information technologies impacts.
The report below gives an insight into the importance of application of information technologies and the use of Internet in tourism and hospitality industries. Two given strategic frameworks provide the analysis of the Internet and its impact on these sectors. This paper also aims to show how technological innovations and information systems can be beneficial for the hotel companies, by using the example of Hilton Hotels Group.
II IMPORTANCE OF TECHNOLOGY IN TOURISM AND HOSPITALITY SECTORS
Market wisdom today suggests that hospitality companies must embrace technology to compete against traditional competitors, as well as entrants that build their businesses with the latest technology. In this changing environment, new models of distribution must be designed to lead the charge. A strategic information management function should facilitate the business mission of its enterprise through managed information, managed processes, and managed Information Technology (IT).
Broadly, current applications of computer technology in the tourism and hospitality industries can be grouped into three main areas, operational, guest services and management information. The overall functionality of these applications is similar across a range of different hospitality organisations though the technology used to support them may vary. Large, city-centre hotels, for instance, tend to use minicomputers for their property management system (PMS) work. Microcomputers are employed elsewhere.
The diffusion of the system of information technologies in tourism and hospitality will increase the efficiency, quality and flexibility with which travel services are supplied. It has already led to the generation of new services, such as online brochures and interactive videotext. Technology has the greatest impact on the marketing and distribution of travel but leaves relatively untouched the human-intensive areas of guest-host relations and supplier-consumer relationships. Information technologies applied to the tourism system will increase the efficiency and quality of services provided and leads to new combinations of tourism services. All this could not be achieved without changing the manifest human high touch content of travel. It is the systematic use of the system of information technologies by all tourism suppliers, together with its profound impact on the travel industry, which creates the foundation for a new tourism best practice and a total system of wealth creation.
Information and communication technology can be used not only for operational purposes, but also for tactical and strategic management. This empowers tourism and hospitality enterprises to communicate directly and more efficiently with prospective customers and suppliers as well as to achieve competitive advantage.
One of the most established ways to analyze and develop complex systems (such as e-business) is to organize them in a meaningful structure. The four Ps model provided in Appendix A fully addresses the Internet product in relation to the shifting consumer expectations.
III IMPACT OF INTERNET ON TOURISM AND HOSPITALITY INDUSTRIES: STRATEGIC FRAMEWORKS
With the advent of the Internet, marketers have access to the technology to customize products and communicate directly with smaller target markets. The Internet is now firmly established as a marketing tool. It serves as an integral part of the marketing mix, serving as a digital distribution channel as well as an electronic storefront.
Consumers in the Internet medium are more than just passive recipients in the marketing process. The Internet is an interactive medium as opposed to traditional marketing which usually allows only one-way communication from marketer to consumer
1.0 PEST ANALYSIS
1.1 POLITICAL / LEGAL
Government policies can have a dramatic effect on the Internet and its potential development, by introducing new policies and limitations. The privacy and security issues are also very significant. Therefore, Internet providers have to consider ethical matters and the usage of personal data stored within the networks. For the full commercial potential of electronic commerce and Internet to be exploited by the tourism and hospitality industry and its consumers, several issues have to be considered, which include an increase of security of transmissions, copyright issues, reduction of user confusion and dissatisfaction, establishment of pricing structures for distribution of information and reservations and enhancement of the standardisation of information and reservation procedures. Credibility and accountability of the information needs to be secured and equal access for smaller and larger partners should be developed.
Tourism organizations deploying IT and Internet for competitive advantage can also face legal risks due to possible violation of anti-trust laws and violation of privacy. Policies and procedures should be created to promote the understanding of potential legal risks. This understanding will encourage organizations to obtain help from legal experts to design controls to subdue such risks.
Other political changes, for instance increasing unemployment, competition laws and planning policies, would only have an impact on tourism and hospitality organizations if they are using technological advances and Internet distribution channels.
The Internet is not severely sensitive to the economic cycles. However, it is considered that the tourism or hotel sales from the Internet will be much affected by economic changes in those countries, from which the customers are booking or reserving the product. These include changes in economic growth, interest rates, inflation or currency fluctuations that can eliminate tourism organisation’s cost advantage and can have an adverse affect on the margins.
1.3 SOCIAL / CULTURAL
Demographic changes and changes in customers’ attitudes towards new technology and Internet, in particular, will have a direct impact on Internet and tourism and hospitality industries respectfully. Nowadays customers are becoming more skilled and advanced in the use of technology. The social system dimension must include the larger social and political processes through which the interests of the different social groups interact with one another and with the technology.
The computerised networks and electronic distribution systems developed in the 1970s led to dramatic structural changes within the tourism and hospitality industry. According to Klein and Quelch (1996) A CRS is essentially a database that enables a tourism organisation to manage its inventory and improve accessibility to information within and between its partners. Airlines pioneered the CRS technology in the 1980s, by expanding geographical coverage and integrating horizontally and vertically to embrace the entire range of intermediaries and principals. Individual product suppliers became aware that systems integration, and the subsequent creation of a “shop window” that allowed products to be displayed and purchased anywhere in the world, would be a crucial determining factor in the competitiveness and profitability of operations. As a result, the vast, new all-encompassing GDSs matured from their original development as airline CRSs. GDSs are one of the major drivers of information technologies in tourism and hospitality industries, as well as being the backbone of these industries. GDSs are the single most important facilitator of the globalisation of ITs.
Developments in GDSs were complemented by the introduction and expansion in the mid-1990s of the Internet. (Peters, 1997) This development facilitated an unprecedented opportunity for distribution of multimedia information and interactivity between principals and consumers. This is especially so given the Internet’s interlinking structure which enables the provision and packaging of themed information, products and services. The information on the Internet, however, is chaotic and loosely structured, mainly due to its immaturity and the lack of any type of standardisation.
It is anticipated that eventually GDSs will take advantage of the openness of the World Wide Web (WWW) and develop suitable interfaces for consumers and the industry. Sabre has already launched Travelocity, an electronic travel agency, while other GDSs have announced similar actions or cooperations with travel providers on the Internet. These include Worldspan with Expedia and Amadeus with the Internet Travel Network.
IT and the Internet have transformed distribution of the tourism product to form an electronic market-place where access to information is instantly achievable. Principals and consumers continue to experience unprecedented interactivity. The dramatic ongoing development of the Internet has resulted in the re-engineering of the entire production and distribution process for tourism products. As a consequence of this technological explosion, the packaging of tourism is becoming much more individualistic, leading inevitably to a certain degree of channel disintermediation, a process that will offer new opportunities and threats to all tourism partners.
2.0 PORTER’S FIVE FORCES ANALYSIS
2.1 THREAT OF NEW ENTRANTS
New entrants tend to bring new capacity, the desire to gain market share and substantial resources. The seriousness of the threat of entry depends on the barriers present and on the reaction from the existing providers. The Internet as a distribution source has relatively high entry barriers, constraining all new comers.
Lashley and Rowson (2005) suggest that recent IT developments, offer new opportunities for tour operators. For instance, several tour operators distribute electronic brochures and booking forms through the Internet directly to consumers. This approach provides a number of important benefits to tour operators. This includes concentration on niche markets by offering customised packages and an ability for tour operators to update brochures regularly. It also significantly reduces the costs of incentives, bonuses and educational trips for travel agencies.
Government’s policies for reducing buyers’ power and pricing wars can limit entry to this distribution sector with such controls as license requirements and limits on access to technical tools.
2.2 BARGAINING POWER OF SUPPLIERS
In respect of tourism providers, the Internet provides an infrastructure for the global distribution and inexpensive delivery of tourism-related multimedia information. It also empowers the consumer though the provision of tailor-made products which meet their individual needs, so bridging the gap between the consumer and destination/supply in a flexible and interactive way. The Internet allows organizations to skip over parts of the value chain. A more successful strategy would be to enter into joint ventures or expand a supplier’s website to offer competitors’ products.
2.3 BARGAINING POWER OF CUSTOMERS
The Internet as a channel of distribution has become one of the most successful channels used by consumers to research travel options, compare prices and make reservations for airline tickets, hotel rooms and car rental. Therefore, the provision of online travel services is the single most successful business-to-consumer (B2C) segment on the Internet.
Collins, Buhalis and Peters (2003) state that the overall percentage of hotel rooms booked online grows tremendously each year and will be increased by 20 per cent in 2005. Moreover, the Internet is also having a profound effect on the internal and external operating procedures within the hospitality industry (Cheng and Piccoli, 2002)
The Internet helps to access new customers on a global basis and enables to streamline operating procedures. Integrating daily operations such as sales, marketing and distribution as well as aggregating demand to drive down prices on the procurement side are some of the major benefits of the Internet. The majority of large tourism and hotel organizations are currently present in the global distribution systems (GDSs). GDSs serve more than 50,000 travel agents world-wide (Collins, Buhalis and Peters, 2003). The Internet is one of the mains distribution channels, which enable tourism and hospitality companies to overcome their challenge of being globally represented.
2.4 THREAT OF SUBSTITUTE PRODUCTS OF SERVICES
Travel agencies are the main substitute to the Internet sales, when it comes to buying hotel bedrooms or tourism packages. Direct advertising and other sources of media also serve as a promotional or informative mean, which can be used instead of the Internet. With the Internet it is possible to gain permission to discuss the products, as opposed to interruption marketing, such as television commercials.
2.5 BARGAINING POWER OF COMPETITORS
The competitive environment of Internet and its impact on the tourism and hospitality industries is widely recognized as being complex, dynamic, and highly segmented. Increasingly hotel chains are competing directly with one another in the same locations. This is a notable change for an industry reliant on specific locations to limit the threat of competition. All major hotel chains are currently entering the Internet market of sales and communications. As organizations are dependent on their environments for resources, they will attempt to manage their dependency by developing and maintaining strategies. Hotel groups are being forced to follow other sectors by implementing marketing strategies, often based on product differentiation, growth in new markets, high value for money, or emerging brands. Such strategies are formulated and implemented within the context of environmental uncertainty and require an understanding of industry structure and environmental change.
IV EFFECTIVE IMPLEMENTATION OF IT/IS TO HILTON HOTELS GROUP
Whichever major city you find yourself in; you have a big chance to come across a Hilton Hotel. Hilton International Group is a leading global hotel brand and the Company, with an expanding portfolio of hotels, mainly Hilton Brand (own the rights to the trademark), Scandic, Conrad and Vernon Hotels. The company operates 380 hotels worldwide and is represented in 66 countries. Its 80,000 strong workforce looks after an average of 8 million guests every year. (Annual Report, 2003).
The ability of computers to store, process, manipulate and distribute information has greatly improved the efficiency of Hilton hotels. By releasing staff time from the ordinary paper-pushing functions within the hotel, computers can greatly enhance the opportunities for staff utilisation in the quality of service that hotels offer their guests can be greatly improved.
TECHNOLOGY USAGE IN HILTON HOTELS
Hilton International use computers in their core-information processing centres of marketing and distribution, front-office, back-office and food and beverage control. Information technologies are diffusing in eight key areas of hotel operations:
- marketing, distribution, reservations and sales;
- guest accounting;
- room management;
- back office;
- food and beverage control;
- energy management; and
- safety and security.
Product distribution is a critically important function of Hilton International. Information technologies, such as computerised reservations systems and video brochures, assist hotels in marketing and distributing their bed-nights. For Hilton, the employment of information technologies to link together their front-office, back-office and off and beverage departments may be necessary for the efficient and cost-effective delivery of their services. However, it will not be sufficient to guarantee the sale of hotel bed-nights. Without links to international marketing and distribution networks, hotel bed-nights cannot be sold.
Reservations are a key to the sale of hotel bed-nights. Reservation systems, depending on the software and sophistication, contain information and generate various reports on rooms availability, cancellations, etc. In addition, the database can generate forecasts on expected arrivals, departures and rooms sold. Information contained in, and generated by, hotel reservation systems is an invaluable source of marketing information and can generate mailing lists, client profiles and preferences. It can also monitor hotel performance through the development and processing of guest questionnaires. Reservation systems also allow hotels to carry out travel-agency and tour-operator analyses in order to determine which agencies and operators consistently generate business for the hotels.
There are two principal areas in which information technologies are helping hotels to improve their communications in their internal inter-departmental communications and in their external links with agents, suppliers, reservation systems and data networks. The internal inter-departmental links of the hotel are facilitated by computers and communications technologies, which serve to integrate the front-office, back office and food-beverage operations. This is facilitated through computer-to-computer communications. Cooper and et al. (1999) believe that the external hotel communication links are necessary between hotel and head office, between hotels and their national environment, such as stock market information.
Communications technologies used by Hilton International include digital telephone systems, teleconferencing, satellite broadcasting, videotext and audiovisual information tools, image communication and various communication networks for reservations and communications.
Telephone systems used at Hilton Hotels have been substantially improved to incorporate features such as call accounting systems. Automatic call-accounting systems now help to transform their telephone calls into important profit centres of the hotels. As marketing technique, for instance, hotels can offer long-distance telephone calls at discount rates to their guests and still find it profitable. (Cooper and et al., 1999; Lockwood and Medlik, 2001)
Room-management systems can give updated information on room occupancy and status and they assist in scheduling housekeeper duties for maximum efficiency. Rooming lists, arrivals, stay-overs, extended stays, departures and room preferences can all be handled by room-management systems.
Electronic data interchange (EDI) is an open and essentially cooperative technological infrastructure. While it is possible to gain short-term competitive advantage from embracing EDI ahead of competing organisations, it is now generally accepted that there is no scope within the inter-organisational system for the kinds of barriers to competition suggested by the work of Porter and other. (Porter, 1980).
Large hotel chains, as Hilton Hotels Group, have considerably more ability to control the way in which they implement EDI. Cooper (1989) points that EDI’s ability to support inter-organisational processes forming part of a multi-organisational value chain as part of business process redesign. Many companies tend to view EDI merely as a way of transmitting formatted data across organisational boundaries.
The integration of computers and communication technologies allows hotels to control their internal operations and external operations from a single integrated management system. (Kandampully and Duddy, 1999; Allen and Fjermestad, 2001) This comprehensive system of information management can become a very powerful toll for wealth creation for the hotel industry. With a comprehensive system in place all levels of management are supposed to be involved in it and to depend on it to inform most decision-making.
It is beneficial for a hotel chain to integrate appropriate new IT into their entire operation. It is generally accepted that IT and Internet should be treated as strategic tools than tactical issues, and as concerns of general management. Senior management of the hotel chain must drive the process which determines the extent and direction of business re-engineering and take responsibility for the implementation of the plan.
Additionally, technology cannot be considered as acting alone. It is a product of society; it is also part of a larger environment in which other forces are at work. We rely on information itself, not necessarily its facilitating mechanisms, to assist decision making and guide actions. It is important to be knowledge base, so that to find a use of information.
Internet provides unprecedented and affordable opportunities for the global representation and marketing for both large and small tourism suppliers and for hotel operators as Hilton Hotels Group.
MARKETING MIX ANALYSIS
A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. In an e-commerce marketing strategy it is important to remember that information is now its own viable product. The Internet can serve as a platform for new product innovations. Companies can use the direct access to consumers to collect information that will help them better develop products to meet the consumers’ needs. For international hotel chains this can provide adaptations and customizations for local markets or create niche products. Companies can also leverage their reach to consumers to sell advertising during transactions.
Collected Internet information would provide hotels with the ability to spot entirely new markets. By developing an online customer base and ensure that its products are offered on sites that have all the products consumers want. Information has become its own product on the Internet. The Internet serves as a platform for new product innovations.
For most companies the place aspects of the marketing mix involve marketing channels. Marketing channels can be defined as interdependent organizations involved in the process of making a product or service available for use or consumption. Due to the size of its marketplace, the Internet will have the most profound effect on place in the marketing mix. E-commerce puts the purchase decision anywhere a connection to the Internet exists.
It is critical to quickly develop a large customer base in e-commerce. Bersnstein and Awe (1999) claim that customer loyalty must be first gained in the context dimension. The first mover advantage is very important because Internet standards could make the competitive advantages of a particular context difficult to sustain. By their very nature, standards will allow organizations to duplicate the design and features of competitors’ Web sites.
Price is the only element of the marketing mix to generate revenues. Internet pricing decisions will be just as important as they traditionally have been. The Internet will lead to increased price competition and the standardization of prices. Klein and Quelch (1996) point out two counteracting effects of the Internet on price. First, a supplier can use the technology to discriminate pricing between consumers, for example, in different countries. However, if they do not take precautions the consumers may be able to quickly find out about the price discrimination and object to it.
Organizations will have to employ new pricing models when selling over the Internet. The ability of technology to offer services at a cheaper cost would make it difficult to determine the appropriate price for a consumer. Voicemail, for example, is solely an information-based service, which provides the consumers with a replacement for the traditional answering machine. Any hotel chains should be prepared to respond to increased price pressures on the Internet and high level of competition.
Promotion encompasses all the various ways an organization undertakes to communicate its products’ merits and to persuade target customers to buy from them. Advertising, research, sales, promotions, coupon distribution, and customer support can all be done on the Internet. The Internet provides a low cost way to hospitality companies to build a direct link with the consumer. Incumbents can use their traditional sources of consumer information (e.g. product testing, focus groups) in addition to the information that is easily collected from e-commerce sites (e.g. sales information, customer demographics).
Driver (1999) claims that the use of the Internet by airlines to communicate information is becoming prevalent. This relates both to hard information, in the form of schedules and the availability of fare information, and to the softer areas of more general company information. Web presence is itself significant but the design of the site even more important. From a consumer perspective it must be relevant and useful, with easy navigation features so that the time spent on a visit is fruitful. Moreover, the site should invite revisiting for there is a critical difference in the initial motivation to visit and to contact again.
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