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In this assignment, we’ll discuss the strategic analysis of the package holiday company “Expedia”. Expedia, Inc. is an online travel company. Upon reflection of the industry, critical success factors will be drawn, and the core competencies will be analysing to see if Expedia can be a success in the future.
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Expedia’s products are primarily designed for upper income and luxury seeking customers the individually customized products of this segment include services such as flight and hotel bookings, limousine transfers, restaurant reservations, and event tickets bookings. Besides, the company also offers concierge services in Switzerland, the UK, France, Italy and Spain under this segment.
The market in which Expedia operates in is hugely diverse and challenging. The current market is mainly dominated by two major companies (TUI ltd and Thomas Cook). There are many issues within the industry that could be used to the companies advantage which this report sets out to highlight, but adversely there are also many threats that could potentially hinder the future success of the company. It is imperative to be aware of the factors in both macro and micro environments than act upon the findings.
By using the PESTEL analysis, we can analyse the many different factors in a firm’s external macro environment. It is important to be aware and understand all of the issues facing Expedia.
Any political change in US can have an impact on Expedia. Though the company has a strong and diversified presence within the US, it still derives maximum of its revenues from the US market which underlines it’s over dependence on the US. In fiscal 2006, US accounted for 72.2% of the total revenue of the company. This increases the risk of negative financial impact due to events that could affect the company’s business. This high dependence on a local market increases the company’s exposure to local factors, such as poor economic conditions, labour strikes, and changes in regulations that could affect its operations and profitability of the company.
Economic slowdown in the US could adversely affect the company’s business. According to the Organization for Economic Cooperation and Development (OECD), the GDP growth of the US is expected to slowdown from approximately 3.6% in 2006 to 3.1% in 2007. The profitability of the company’s businesses is affected by local economic conditions such as the liquidity of the financial markets, the level and volatility of interest rates and equity prices, investor sentiment, inflation, and the availability and cost of credit. Economic slowdown in the US could adversely affect the company’s financial position.
Social and Secruity:
Social factors include health consciousness, population growth rate and emphasis on safety and security. Travellers could refrain from booking trips online because of mistrust of the ability of travel companies to keep their financial and personal details secure. Due to these fears about security, more consumers are using the internet for researching than actually booking their travel online. Security fears hamper the adoption of the online medium as a means of planning and booking holidays. For Expedia, which conducts a vast majority of its business online, these perceived fears could considerably affect its revenues and margins. Any loss of data by any online firm, it need not be Expedia, could significantly undermine the public’s trust in online transactions.
Expedia has an established tradition of technology innovation, from Expedia.com’s inception as a division of Microsoft, to their introduction of more recent innovations such as Expedia.com’s TravelAds sponsored search product for hotel advertisers, Hotwires Air Price Protection, hotels.com’s slider tools for improving search results, hotels.com’s iPod and iPhone applications and the TripAdvisor Media Networks offering of travel applications for download on social media sites, including Facebook.com and MySpace.com.
In order to determine the competitive climate within the industry, competitive analysis can be used to identify competitive positions in relation with the product and resource market. It is important for a company to be constantly reviewing the nature of the competition as the factors are directly affected by changes within the macro environment.
The method outlined by Porters 5 forces model, is based upon the principles that corporate strategy should meet the opportunities and threats in the organizations external environment. In particular, perceptions of the industry structures and the way they can be affected and changed need to be understood for a solid competitive strategy.
Power of suppliers:
The power transferred from the travel agencies to the suppliers (airlines companies) which now can reach the final users. Supplier power can be called as another image of buying power.
Expedia dependence on its travel suppliers and other intermediaries is very high which offers it a weak bargaining power. Over the last several years, Expedia has experienced downward pressure on remuneration from its suppliers. A substantial portion of Expedia’s revenue is derived from compensation negotiated with travel suppliers and global distribution system (GDS) partners for bookings made through its websites. Over the last several years, air and hotel travel suppliers have reduced or in some cases eliminated payments to travel agents and other travel intermediaries.
Power of buyers:
Now buyers are no more interested from whom they are going to buy as they tend to compare costs in order to find the best option. With the increase in internet use, the risk of switch is exceptionally high. Buyers have the ability and resource to simply compare prices and attributes of a holiday, and switch with virtually no switching costs.
Buyers have a wealth of information online, and trends show consumers shop around intensely before purchasing a holiday. Brand awareness has never been so important and imperative to a company’s success. Recently travel companies that have entered administrated have been heavily reported in the media, highlighting consumers left stranded on holiday, and lost money in bookings. This has lead to low consumer confidence, and a high perception of trust and reliance upon a company before booking a holiday.
Competition is high in this sector, at the present; almost all companies offer the possibility to book tickets online. Expedia’s leading market position is under pressure from a number of sources. The travel industry is very large and highly fragmented. The travel planning services market is rapidly evolving and intensely competitive. Expedia.com competes with other online and offline travel planning service providers, including aggregator sites that offer inventory from multiple suppliers and supplier sites that offer their own inventory. The company competes with airline, car rental and hotel suppliers that sell their own inventory directly to consumers through the telephone and websites, as well as consortiums of suppliers such as airline sites Orbitz and the hotel site TravelWeb. With the addition of the Classic Vacations business, its competitors include other wholesaler packagers. Also, with its entry into corporate travel, competitors now include American Express and Navigant International. It also competes with offline travel agencies and direct suppliers’ websites. High level of competition in the market place could erode the market share of the company.
Barriers to entry:
Barriers to new entry are low; a characteristic of the Internet is that it breaks down regional barriers. The company is large in size compared to its many competitors. Many of its competitors, such as Viad Corporation and Worldwide Xceed Group are smaller in size and face a competitive disadvantage in accessing financial, technical and human resources. Viad Corporation, for instance, recorded revenues of $856 million and had 3,620 employees in 2006 and Worldwide Xceed Group recorded revenue of $108.4 million and had 470 employees during the same period. Expedia, in contrast, recorded revenues of $2,237.6 million and had 6,600 employees in fiscal 2006. So it’s hard for new companies to compete with large firms in this competitive environment.
Availability of substitutes:
The threats generate by the availability of substitutes are high due to the large number of airlines companies which are doing the online booking. Trends highlighting the risks, all are derived from the economic conditions and limitations. For example money conscious consumers are leaning towards the trend of taking their holidays within the UK. Domestic tourism has been increasing popularity. In the business sector, facing tight cuts, the use of video conferencing and increased technology advances for important meetings have been driving down the need for professionals to travel.
Critical success factors:
The factors which are described above are important and are valued by the customers but reputation, after-sales service and reliable delivery can be called as critical success factors for the organisation.
In order to succeed in the market, all industry participants must…
From the above discussion, we have noticed that market conditions are changing. Sometimes it is very difficult to handle these changes. So these changes should be monitored and reacted upon to get success in the market.
In this market, brand awareness is very important to stay in competition.
The recent trends show, consumers increasingly favouring online bookings and using the resource to research their holiday and find the best deals. Without online presence, the opportunity could be underutilized and revenues could fall.
Not only is the issue important for consumers, it is also significant for the future of the company and the industry as a whole. Not showing awareness will be detrimental for the brand image.
Strong product base
To combat the threat of substitutes, diversification of the products offered such as late minuet deals, or economy packages.
Value Chain and Network:
The value chain describes the activities within and around an organisation which together create a product. Primary activities are directly concerned with the creation or delivery of a product or service and can be grouped into five main areas. Primary activities are:
Marketing and sales
Support activities include:
Human resource management
Porter suggests that each company’s value proposition must be supported by a distinctive set of activities. By mapping out and relating the value chain to the value proposition we could see that the activities within Expedia are aligned with the overall value proposition and therefore the value chain lives up to the simple fit consistency according to porter.
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Johnson G., Scholes K., and Whittington R. define strategic capability as “the ability to perform at the level required to survive and prosper. It is underpinned by the resources and competences of the organisation.
Resources can be divided into 2 types, Tangible and Intangible resources. Tangible resources are the physical assets of an organisation such as plant, labour and finance. Intangible resources are non-physical assets such as information, reputation and knowledge.
Expedia’s tangible resources satisfy our critical factor which is strong product base. Physical assets such as plant, labour and finance are Expedia’s presence in other countries. Expedia is one of the largest online travel agency with strong international presence in 60 countries. During FY2008-09, it launched ”the Egencia Global Alliance” to expand its network of strategic partnerships with leading local travel management companies (TMCs) and provide further global support to clients around the world. With this launch, Expedia expanded its geographical footprint to offer its services in new regions including Argentina, Hungary, Russia, Romania, United Arab Emirates, Singapore, Taiwan, Hong Kong and Uruguay.
While intangible resources meet the criteria of our critical success factors which are developing strategy, brand awareness, online presence and environmental awareness. With the help of information and knowledge, we can develop a strategy and increase brand awareness, where as we can increase our reputation with online presence and environmental awareness.
Johnson G., Scholes K., and Whittington R., define threshold resources as “the resources needed to meet the customers’ minimum requirements and therefore to continue to exist”.
There can be many factors which can be valued by the customers. Some of them will be taken for granted, for example, if we want to go for a holiday, we have to find a package holiday company to find a good deal. There are some factors which are seen important for customers for example, the reputation of a procedure, after-sales service, delivery reliability, testing facilities and technical quality.
Johnson G., Scholes K., and Whittington R. define unique resources as “the resources that underpin competitive advantage and are difficult to imitate or obtain. While threshold resources are important but they do not of themselves create competitive advantage. An organisation can get competitive advantage only if that organisation has some unique resources.
According to Johnson G., Scholes K., and Whittington R., core competence are the activities that underpin competitive advantage and are difficult for competitors to imitate or obtain.
Unique resources and core competence of Expedia:
Expedia’s unique resources are its international presence and its way of operation with the help of its strong bands. Expedia currently operates more than 90 global points of sale in about 60 countries, as compared to 60 global points of sale globally in over 40 countries in FY2008. The company’s international operations are spread across North America, South America, Latin America, Europe, Middle East, Africa and Asia-Pacific. Growing international business presence reduces the company’s exposure to country specific factors such as changes in economic conditions and most importantly, increasing competition from other players in the market. Portfolio of travel brands enables the company to appeal to the widest range of travellers, suppliers and advertisers, which in turn enhances its market position.
Strategic fit refers to the efficiency with which the organization’s resources and capabilities are aligned with the opportunities and threats the environment presents (Andrews 1980; Schondel and Hoffer 1979) and the effectiveness with which the organization implements a chosen strategy in certain environments (Chandler 1962; Galbraith and Nathanson 1979; Schwartz and Davis 1981).
The problems that Expedia may encounter are regulations and laws. The company operates in travel industry which makes it to comply with stringent laws and regulations without fail. These laws and regulations increase the company’s compliance cost structure. As the company operates in varied markets, it is subject to comply with both domestic and international regulations. For instance, Expedia’s operations are subject to regulation by the U.S. Department of Transportation and various other rules and regulations governing the provision of air transportation, including those relating to advertising and accessibility. With the growing international presence of the company, Expedia is also increasing its exposure to comply with the international laws and regulations applicable to travel agents in every market they operate. For instance, the European Economic Community Council Directive on Package Travel Package Holidays and Package Tours imposes various obligations upon marketers of travel packages like Expedia, such as disclosure obligations to consumers and liability to consumers for improper performance of the package, including supplier failure. The company’s heavy exposure towards both domestic and international regulations might increase its compliance cost structure, which in turn puts pressure on margins.
But Expedia’s wide range of technology, its strong brands and its global partnership agreements help Expedia to solve this particular problem. Expedia has made several agreements with other international brands which work according to the rules and regulations of their own country, leaving no effect on Expedia.
Porter’s five forces
Value Chain Analysis
From the main body it is clear that power of buyers, technology, online presence and brand awareness are very important factors. These factors are important because if buyers have more power than suppliers, it can affect company’s revenue. They will affect Expedia because the market conditions will change continuously. It can affect every package holiday company.
Latest technology is very important to achieve success in the market. Technology can affect the company as a whole. Without technology, it is very hard to stay in contact with the customers. Technology has an impact on all companies.
Online presence is very important for a company to get success in the competitive market. It also affects the revenue of the company, because if the company’s presence is not online customers will not buy any packages from that company. If will not only affect Expedia but also other packaging companies. The growing online travel market provides good opportunity for service providers such as Expedia to grow its business in the long term
Brand awareness is most important factor for the success of the company. Brand awareness is increased by advertising. If the brand is well known only then you can stay in the market. Expedia has spent a lot of its revenue to increase its brand reputation. Brand awareness can affect any packaging company because it will tell the customers about your presence in the market.
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