THE NEED FOR A COMPUTER-BASED CENTRAL RESERVATION SYSTEM FOR SMALLER HOTELS, GUESTHOUSES AND RESORTS
A dissertation in partial fulfillment of the requirements for the
MASTERS DEGREE IN BUSINESS MANAGEMENT
in the
FACULTY OF ECONOMIC AND MANAGEMENT SCIENCES
at
THE RAND AFRIKAANS UNIVERSITY
by
P. PRETORIUS December 1997
STUDY LEADER: PROFESSOR J. A. BENNETT ABSTRACT
South Africa has become an accepted tourist destination since the 1994 general elections and the successful presentation of the 1995 Rugby World Cup event. The increase in the number of overseas visitors is reflected in higher arrival figures at our airports.
Overseas tourists initially booked into the higher star rated hotels, but this trend quickly changed when they indicated a preference for the smaller hotels and the more personalised guesthouses. The recent establishment of hotels of well known world brands such as Hilton, Hyatt and others saw an increase in supply. These hotels were established with their links to the global reservation networks through which their reservations are accepted.
The South African lodging industry now has to cope with management of the changes in demand in the face of world-wide computerised distribution. The guesthouses, smaller hotels and resorts tend to still utilise the printed media, mail or telephone bookings to communicate with prospective tourists. Although information technology is improving and becoming more accessible, only a few of the bigger South African hotel groups have utilised it to improve productivity and efficiency and to manage demand.
A number of central reservation systems are in operation elsewhere in the world which allow the participants to present their establishments through the global travel agent networks such as Galileo and Worldspan. Trends in distribution of the lodging industry make it imperative to participate in such a system or face isolation from the world of tourism.
The aim of this study is to establish the need for an integrated computer-based central reservation system for the smaller lodging establishments in South Africa. Depth interviews were conducted with a selected number of experts in the industry and the most important results of this empirical research were: The South African government has effectively withdrawn from the development of the tourism industry. The South African banks should be approached to establish such a system since they have proven expertise and knowledge of the operations of similar systems and would be in a position to make adequate funds available to allow the system to succeed. The system should be established with the capacity to link into world-wide distribution systems such as Galileo. The travel agents should be the first group to have access to this system since they are accepted as the driving force when implementing new solutions in the industry. Access through the Internet could follow. The cost of making a reservation at a lodging establishment is for the account of the hotel or guesthouse. The cost of accepting reservations from overseas tourists must be negotiated to be within the affordable range of the smaller lodging establishments.
The establishment of such a central reservation system is of vital importance if the South African tourism industry wants to compete internationally in this highly competitive, but very lucrative market. ACKNOWLEDGMENTS
Special thanks to my wife who encouraged and supported me through the many months of working towards my lifelong goal. Also to my two daughters who had to accept and realise that their dad was busy with studies - again!
To ABSA my employer, for access to the library and the opportunity of numerous discussions with various wonderful employees of the organization about study related matters and the leave I was allowed to pursue this goal.
Leatitia van Staden patiently suggested alterations to my initial efforts. Thank you for a document that most people can now understand.
To Professor Bennett for his guidance and unusual understanding of this topic. His direction served as the prime motivation to focus me and in being able to compile this material in a presentable format. CONTENTS
Page
CHAPTER 1 INTRODUCTION, AIM AND LIMITATION OF STUDY 1.1 Introduction 1 1.2 Problem definition 3 1.3 Objectives of this study 8 1.4 Method of study 9 1.5 Limitation of the study 9 1.6 Announcement of chapters 9
CHAPTER 2 MANAGING DEMAND FOR LODGING THROUGH CONTROL OF THE DISTRIBUTION ELEMENT 2.1 Introduction 11 2.2 Characteristics of services and the marketing management of service establishments 13 2.3 Marketing strategy and the 7P's in the marketing, mix for services 15 2.3.1 The target market 16 2.3.2 The marketing mix 18 2.4 Distribution in the tourism industry 21 2.4.1 Location 22 2.4.2 Distribution (accessibility) 22 2.5 Managing demand for lodging services 27 2.6 Summary 31 CHAPTER 3 RESERVATION SYSTEMS AS THE SUPPORT MECHANISM FOR DISTRIBUTION 3.1 Introduction 34 3.2 Central reservation systems to support the distribution element in the marketing mix 35 3.2.1 World-wide move to computer-based support for distribution 36 3.2.2 Support functions to be provided by a computer based system 40 3.2.3 Contribution by the vendor to participate in such a system 41 3.2.4 World-wide experience in establishing global reservation systems 43 3.3 Position of smaller vendors with regard to participation in central reservation systems 47 3.4 Some business functionality of other central reservation systems 50 3.5 Summary 54
CHAPTER 4 METHODOLOGY AND RESULTS OF THE EMPIRICAL RESEARCH 4.1 Introduction 57 4.2 Research methodology 57 4.2.1 Empirical research 57 4.2.2 Research objectives 58 4.2.3 Sample for research 59 4.2.4 Depth interviews for qualitative research 60 4.3 Demographic information on the organisations that participated in the depth interviews 63 4.3.1 SATOUR 63 4.3.2 FEDHASA 63 4.3.3 Galileo travel agent network 63 4.3.4 ASATA 64 4.3.5 Karos Hotels 65 4.3.6 The Don Apartments 66 4.3.7 Aramis and Utell central reservation systems for hotels 66 4.3.8 Pretoria guesthouses 67 4.3.9 Jacana - Fannstays & Countryroads 68 4.4 Results of the study 69 4.4.1 Integration of market segmentation into the marketing strategy of the guesthouses, smaller hotels and resorts 70 4.4.2 The means to access the identified target market for the owners/managers of the smaller establishments 73 4.4.3 The level of understanding of demand management and of the supporting role of a reservation system 76 4.4.4 The need for a computer-based system for the smaller vendors in the South African market 78 4.4.5 The option of any existing or possibly a new system operator to fulfill the need for a reservation system 81 4.4.6 A computer-based reservation system must be implemented to allow world-wide distribution 83 4.4.7 Functionality expected of such a system 84
CHAPTER 5
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary 87 5.2 Conclusions 91 5.2.1 The industry faces a perceived oversupply of accommodation facilities 91 5.2.2 Vendors are yet to accept the position of intermediaries for reservations 92 5.2.3 Functionality of the system 93 5.2.4 The role of the travel agents 93 5.2.5 The need for strong central coordinating body 95 5.2.6 Lack of professionalism amongst the vendors and the labour force 96 5.2.7 The vendors to implement information technology solutions or face isolation from the global tourism market 96 5.2.8 Affordable distribution to bring South Africa in line with world standards 97 5.3 Recommendations 97 BIBLIOGRAPHY 100
APPENDIX A : INVITE TO THE DEPTH INTERVIEW 103
LIST OF TABLES
Page
2.1 Options in addressing the demand issue 32 4.1 Organisations selected to be interviewed and the reason for their inclusion 61 CHAPTER 1: INTRODUCTION, AIM AND LIMITATION OF
STUDY
1.1 INTRODUCTION
The South African tourism industry has recently been receiving much positive attention. The country seems to be regarded as a more "acceptable" tourist destination after the April 1994 general elections and the successful hosting of the Rugby World Cup tournament in 1995. The South African tourism industry must position itself in the global tourism market where competition to attract tourists is fierce. The country's vendors' must use their new-found popularity to present themselves as an attractive destination to overseas and domestic tourists. Every possible means, including integrated reservations systems, should be utilised to attract business from this lucrative potential market.
The increase in the number of international tourists is clearly demonstrated by the improved arrival figures of overseas visitors since the December 1994 season (Cloete, 20 January 1995:26). Already there seems to be a shortage of hotels and resorts to cater for the increase in visitors (Cloete, 11 November 1994:60). This trend was supported throughout 1995 and 1996. The annual report of SATOUR tabled in Parliament, indicated that 1,2 million tourists from overseas visited South Africa during 1996 (Swart, 23 April 1997:1). The number of tourists from other African states during the same period was 3,7 million.
The focus seemed to have shifted from finding tourists to fill beds, to finding beds for the tourists. Durban, specifically, had to establish a hot line facility to assist tourists to find accommodation since they were experiencing crises at peak times (Kobokoane, 1995:4).
For the purpose of this study a vendor is regarded as an owner or manager of a hotel, guesthouse or resort. A vendor presents lodging services to the tourism industry. 2
A change in the accommodation pattern of international tourists was detected when the daily press reported that less international tourists book into the higher rated hotels. Statistics indicated that 21,2 percent of international tourists booked into 5 star hotels in September 1994, compared to only 14,2 percent in September 1995. During the same period the increase of bed-nights sold to international tourists into no-star hotels increased from 7,8 to 29,4 percent (Beeld, 5 December 1995:3).
Another exciting development is the increase in the "new" domestic market, the non- white tourists. The contribution from the domestic market segment is growing and will pose interesting challenges to the providers accommodation facilities (Cloete, 20 January 1995:26).
Tourism is identified as a growth area for the generation of overseas currency income. Breytenbach, Mijburgh, Roux & Roux (1994) reported that the national income from tourism only reached one percent of South Africa's Gross National Product (GNP) during 1993, while the accepted figure in world economic circles is between 9 percent and 12 percent for comparable countries. The recently published White Paper on the Development and Promotion of Tourism in South Africa (1996: 2) supported the argument that tourism could contribute more to the South African economy. According to the White Paper, contribution of tourism to the Gross Domestic Product (GDP) was estimated to be less than 2 percent in 1994, compared to 13,4 percent in the European economy and as much as 31,5 percent in the case of the Caribbean economy. The target for tourism in South Africa, as stated in the White Paper, is a three-fold increase in its contribution to our national income and at least a doubling of the foreign exchange earnings by the year 2000 as compared to the 1995 base.
The importance of tourism as a contributor to the national income has also been recognised by the African National Congress (ANC) before the 1994 general elections. In the Reconstruction and Development Program document (ANC, 3
1994:106-107) the ANC targeted the tourism industry to address certain strategic issues such as:
Earn external revenue.
Create sustainable employment opportunities.
Involve the local communities and educate them in the skills and attitudes conducive for tourism.
Enforce the development of tourism potential at provincial government level.
In support of this policy direction, SATOUR provided figures that indicated that the increase in the expected overseas tourist numbers should create a further 125 000 jobs in the period 1994 to 1997 (Booyens, 17 July 1994:4). The annual income for South Africa from overseas visitors would increase from R6 000 million in 1994 to more than R9 000 million during the same period.
The White Paper on Tourism (1996:39,42) mentioned the possibility that infrastructure provision should "creatively and aggressively utilise modern computer and communications technologies to effectively market, promote and distribute travel and tourism products, services and information domestically and internationally". No further mention was made of how to implement this, nor what could be achieved when the infrastructure is made available to the industry.
1.2 PROBLEM DEFINITION
Wainer recently stated in an interview with Finansies and Tegniek (Cloete, 31 January 1997:60) that there is a definite need amongst corporate clients to have access to a computer-based system for countrywide reservations. This requirement was not specifically addressed (nor even mentioned) in the White Paper, despite the fact that South Africa's tourism industry does not have an effective central mechanism to facilitate reservations. Wainer's plea for such a central reservation system has to do 4 with the specific need of guesthouse, hotel and resort owners (vendors) to be in a position to manage and predict demand for accommodation. The tendency of foreign visitors to rather opt for non-star rated lodging requires of the smaller vendors to be able to manage the increase in demand for their accommodation more effectively.
Middleton (1994:205) claims that services can be split between reserved and non- reserved services. The non-reserved services are museums, much of car rental, pubs, popular catering, country parks and other services for which supply generally exceeds demand. Reservations are not made and the point of sale is usually the reception desk of the relevant service supplier. The second category refers to those services where advance booking is the _norm and the point of sale is often at a distribution outlet separate from the supplier's venue. These services include hotels and other accommodation providers, most airlines, inclusive tours, theatres and shows.
One problem facing the South African tourism industry is to manage changes in demand. Service businesses such as lodging suppliers are unable to inventory their finished products. The possible wide swings in demand that the local tourism industry will have to manage, will require proper understanding of demand management and the infrastructure to manage demand to level which will enable tourism principles (suppliers of services) to survive. Among the affected services in this category are transportation, food services, repair and maintenance and of course lodging (guesthouses, hotels and resorts). Managers in the industry have to note that financial success is, to a large extent, a function of management's ability to use productive capacity - staff, labour, equipment and facilities - as efficiently and as profitably as possible (Lovelock, 1991:128).
Although information technology is improving, becoming less expensive and more accessible, only a few of the bigger South African hotel groups and resorts have extensively utilised information technology to improve productivity and efficiency. These hotel groups have established computer-based reservation systems to assist in demand management, accept reservations and update information on the tourists who 5 visit their facilities. These systems are generally utilised to not just react to requests for reservations, but also to pro-actively target prospective tourists who would meet the criteria of the market segment targeted by these hotels. This form of marketing is generally referred to as database marketing. Other techniques applied to manage demand is to market "specials" during times of low occupancy. The Sun City "midweek special offers", which are booked through their central reservations office, is but one example of how demand for their services can be created. By using information on their reservation system, management can predict accurately when they will experience low occupancy
The smaller vendors in South Africa do not have access to these computer-based reservation facilities and tend to utilise the printed media, mail bookings or telephone bookings to communicate with prospective and existing tourists. They are therefore not in a position to manage or respond to possible changes in demand as easily as the major groups. Nor can they accurately predict changes in demand. They also do not seem to realise, or are incapable of capitalising on, the opportunities presented by technology such as database marketing. These smaller establishments cannot counter seasonal demands nor present packaged products to prospective tourists which they can offer in conjunction with other suppliers of tourism products (White Paper on Tourism, 1996:39,42).
The White Paper on Tourism highlights some development areas for the industry. The White Paper mentions marketing and promotion as one of the key policy areas that should receive national attention to "ignite the tourism engine of growth in South Africa". It is pointed out that efforts should be made to market destinations other than the few well-known ones and to develop tourism packages that would attract tourists with specific interests such as hiking holidays. The White Paper makes no mention of the utilisation of information technology to assist the marketing effort with integrated reservations systems - although several success stories have been published. One such case in point is the success that was achieved by using a database of prospective tourists for direct marketing by the tourism department of Aruba, an island in the 6
Caribbean Sea. They achieved tremendous success when they targeted tourists who had visited the island before for repeat visits. The target segment was a selection of the American population (Bono, 1995:18-21).
Wainer's plea for a central reservation facility should be read against the background of the lack of understanding of the 'advantages such systems has to offer to its users. Middleton (1994:209-210) goes as far as to claim that hotels and resorts which do not provide access to a computer-based reservation system, will in future experience a competitive disadvantage. Nolan (1991:27) remarks that management of service establishments will have to become more knowledgeable regarding the application of information technology if their organisations are to survive in the global marketplace. They should either themselves have a good understanding of the advantages of information technology, or form strategic business alliances with partners that could add that dimension to the management of their organisations.
The application of information technology can offer more than just basic support for distribution and demand management. It can also provide a number of positive secondary benefits to service providers such as:
Creation of new or improved services - for example better accessibility through a reservation system.
Increased involvement of tourists in operational tasks by providing self service systems - such as own selection of destinations and the combination of facilities to be utilised by those tourists with the correct equipment to access the system.
Creation of centralised tourist service departments which may lead to multi-site service operations to maintain higher standards of providing information, taking reservations and handling problems and complaints.
Recording tourist information in easily accessible data banks. The knowledge of tourist usage patterns may suggest new ways of grouping customers into market segments, help improve pricing decisions and lead to better targeted selling and advertising efforts. Better segmentation should lead to higher profitability. 7
Targeting the tourist better implies a better fit of services rendered to prospective tourists and therefore a perception of a better quality of service experienced.
Tourism, being a global industry, could utilise information technology to break down the barriers among cultures, countries and continents by providing the best fit of tourist to service outlet (Lovelock, 1991:5 and Nolan, 1991:21).
South African travel agents have access to the world-wide reservation system, Galileo, which serves the tourism industry. Galileo is an example of an integrated system. These integrated systems link two or more participants in the various service industries to provide a package or a combination of services which could involve airlines, hotels, guesthouses, car rental, tour busses, restaurants, seat bookings, leisure or recreation sites (Cowell, 1986:189). The Galileo comprehensive travel reservation system provides access to a few prestigious South African hotels and is only accessible to travel agents with the appropriate equipment.
Where the previous White Paper on Tourism did mention the need to utilise information technology for the tourism industry (Roux, 1993: 48), the 1996 version does to not mention the specific requirement for an information management system to support the efforts of the vision for tourism in South Africa.
The South African tourism industry is not optimising its potential for the financial benefit of the country and loses out on productive capacity management. The White Paper (1996:4) notes that "tourism development in South Africa has largely been a missed opportunity". The secondary benefits of a well established industry could even present new opportunities, better awareness and understanding among different culture groups, growth in light manufacturing, curios, and entertainment, to mention but a few. To capitalise on these opportunities, the industry has to come in line with world standards. This includes effective utilisation of capacity by utilising the benefits offered by information technology. 8
1.3 OBJECTIVES OF THIS STUDY
This study aims to establish the need for a computer-based central reservation system for guesthouses smaller hotels and resorts and to make recommendations in this regard. Such a system should provide better support for the distribution element of the marketing mix, but could also facilitate the added benefits derived from the usage of information technology. It is recognised that the distribution element of the marketing mix in the tourism industry has two main focus areas (Middleton, 1994:200-211 and Holloway & Plant, 1992:117 - 139). The first focus is to bring the tourist to the point of consumption and has to do with transport services. The second is to provide a means to attract reservations from tourists.
The specific objectives of this study are:
To describe the role of distribution in the lodging industry.
To describe how central reservation systems can improve demand management.
To describe some functionality of current computer-based central reservation systems.
To determine how these central reservation systems contributed to the understanding of the support for demand management in the lodging industry.
To assess whether there is a need for a computer-based central reservation system for the guesthouses, smaller hotels and resorts.
To determine the extent to which the Galileo system answers to this need.
To determine by whom the system should be established and operated.
To establish what minimum functionality should be provided by the system to support better marketing. 9
1.4 METHOD OF STUDY
This study consists of a literature study followed by an empirical survey. The literature study covers two important issues. The first issue has to do with tourism marketing with the focus on the distribution element of the marketing mix. The focus is on reaching the target market segment through distribution. The second issue addresses the functionality required of a central reservation system.
The literature study was followed by an empirical survey, conducted amongst nine experts working with or involved in guesthouses, smaller hotels and resorts. Structured depth interviews were conducted with the nine experts.
The results, deductions and conclusion of these interviews were documented and recommendations made.
1.5 LIMITATION OF THE STUDY
Time and financial constraints limited the study to the above set of objectives. Further studies should verify the findings with guest houses, smaller hotels and resorts on a national basis.
1.6 ANNOUNCEMENT OF CHAPTERS
The study consists of five chapters. The subsequent four chapters will cover the following topics. 1 0
The marketing mix elements for services are discussed in chapter 2 with special reference to the distribution element. The management of demand for lodging through distribution to the identified target market segment in the tourism industry is also highlighted. The role of reservation systems to "inventory demand" concludes this chapter
Reservation systems, one of the methods of supporting communication to tourists, is discussed in chapter 3. The main aims of reservation systems are to manage distribution to the tourists and to assist vendors with demand management. Some experiences with central reservation systems in the tourism market are summarised. Functionalities that central reservation systems should provide, are presented in the final part of this chapter.
In chapter 4 the research methodology followed with regard to the empirical survey is explained, followed by the findings of the survey.
Chapter 5 concludes with a summary of the study, it's conclusions and recommendations. 11
CHAPTER 2: MANAGING DEMAND FOR LODGING THROUGH CONTROL OF THE DISTRIBUTION ELEMENT
2.1 INTRODUCTION
Marketing to prospective customers in the service industry is very different to the marketing of consumer goods. Service products has to do with intangibility, inseparability, variability and perishability (Kotler and Armstrong, 1991:605) which need to be considered by the marketers of services. Added to these differences is the challenge to market tourism as a relatively expensive service in advance of consumption (Holloway and Plant, 1992:8).
The marketing strategy for service companies has lagged behind manufacturing firms (Kotler and Armstrong, 1991:607). Many service businesses are small and consider marketing unneeded or costly.
Almost ten years ago, Wilson (1988:11) warned that companies involved in the provision of services should prepare themselves for the restructuring of the service industries. Growth in services will no longer be automatic, but be driven by those who can survive under intensifying competition in a market that is globalising and where new players and new technologies are changing the rules of the game. These remarks were specifically aimed at the use of information technology, such as computer-based reservation systems, to improve both efficiency (productivity) and effectiveness (improved customer service and improved levels of demand for that service). Middleton (1994:209) remarks that computerisation in the tourism industry has served to create customer convenience, improve operational productivity through speed of access to products, reduce the number of staff involved and reduce the cost of making individual bookings. 12
Cowell (1986:36) classifies tourism as a service, while Wilson (1988:11) states that travel and holidays is the epitome of the service industry. The marketing strategy for a supplier in the tourism industry should be designed along the lines of marketing strategies for service companies.
A specific challenge for the providers of lodging services is the marketing of their accommodation. Accommodation not utilised today cannot be stored and made available to tourists the next day. An empty room today implies lost opportunities to produce income. Guesthouses, hotels and resorts are specifically sensitive to swings in demand. Even modest improvements in capacity utilisation can have a significant effect on the bottom line. To enable proper management of demand, the service provider must plan to deal with changes in the demand for lodging (Lovelock, 1991:132).
The approach of this chapter is to build on the design of a marketing strategy for services. This chapter will highlight that the distribution element of the marketing mix in the marketing strategy can be manipulated to influence and manage demand. The areas of focus will be:
To highlight the unique characteristics of services and its implications for the design of a marketing strategy.
To present a marketing mix as it pertains to a service organisation.
To show that the distribution element of the marketing mix of tourism products needs to be directed towards providing access to information about the tourism product to the specific target market segment.
To point to the influence of distribution to the target market segment on demand for lodging services.
To list some challenges of demand management for lodging establishments. 13
2.2 CHARACTERISTICS OF SERVICES AND THE MARKETING MANAGEMENT OF SERVICE ESTABLISHMENTS
The American Marketing Association's definition of services is: "Services are those separately identifiable, essentially intangible activities which provide want-
satisfaction, and are not necessarily , tied to the sale of a product or another service. To produce a service may or may not require the use of tangible goods. However when such use is required, there is not transfer of title (permanent ownership) of these tangible goods" (Cowell, 1986:22).
Services are characterised by: Intangibility - it is often not possible to taste, feel, see, hear or smell services before they are purchased. Services are therefore considered low in search qualities and high in experience and credence qualities. Inseparability - services can often not be separated from the person or the seller (people part of the product). Creating or performing the service may occur at the same time as full or partial consumption of it. Lovelock adds that consequently the difference between service businesses often lie with the quality of employees who deliver the service. In a similar way will the type of tourist who patronise a particular facility help to define the nature of the tourist experience. Heterogeneity - it is difficult to achieve standardisation of output in services. From the tourist's viewpoint too, it is difficult to judge quality in advance of purchase. Tourism as a service is consumed as it is produced (game viewing on a safari). As a result mistakes and shortcomings are more difficult to make good. Further variability is introduced by the presence of personnel and other tourists. Perishability - services cannot be stored for later consumption. There could be fluctuating demand which may aggravate the perishability feature. When demand exceeds capacity, tourists are likely to be sent away disappointed. Key decisions have to be taken on what maximum capacity level should be available to cope with surges in demand before service levels deteriorate. Smoothing of demand levels is an important task for service marketers. 14
Ownership - tourists have to be present to receive service from airlines or gain access to or use a facility such as a hotel room. Payment is for the use of, access to, or hire of items. Demand management for services must endeavour to deliver services expeditiously so that tourists do not have to wait longer for a service than expected. Structure of distribution channels differ - Lovelock refers to this characteristic of services to focus on the fact that service managers have to manage the consumption behaviour of tourists who enter the service environment. The aim is to ensure that the operation runs smoothly since the behaviour of tourists can influence the quality of the service experience of the other tourists (Cowell, 1986:23-37 and Lovelock, 1991:8-9).
Cowell (1986:37) distinguishes among different "categories" of services and classifies tourism as "recreation and leisure". Tourism is exposed to the same distribution (delivery) challenges as most other services, namely the "where", "when" and "how" the service product is delivered to the tourist.
Cowell (1986:45-49) noted that the quality of marketing management in services is not on par with that of consumables since management may not understand the importance of marketing to the service organisation's success. Management in service organisations may not have a complete marketing approach, may fail to recognise marketing problems or even to act when they realise a problem exists. Holloway and Plant (1992:ix) state that marketing activities are often not effectively coordinated by the management in the services industry. Small businesses - and the travel industry is still made up largely of small businesses - generally are unaware of marketing principles, tending to equate marketing to the sales function. However, larger corporations, especially in transport, hotels and tour operations, borrowed liberally from marketing expertise of consumables and have been quicker to recognise the need for more professionalism in management generally, and in marketing in particular. Lovelock (1991:9) remarked that even for the smaller vendors, higher level management should also be involved in integrating marketing and operations in ways calculated to deliver consistently high levels of service and customer satisfaction. 15
The components of all tourist contact points during distribution (reservation) and operations all add up to the service marketing system. It is how tourists perceive the organisation that determines their decision to select one service rather than the other.
Cowell (1986:53) concludes that service firms' approach to marketing may reduce the effectiveness of the total marketing effort since they are less likely to: Have marketing mix activities carried out by the marketing department. Perform analysis in the target segment. Have an overall sales plan. Develop sales training programs. Use marketing research firms and marketing consultants. Spend as much on marketing when expressed as a percentage of gross sales than their counterparts in consumables. Rather handle advertising internally than go to outside agencies.
2.3 MARKETING STRATEGY AND THE 7P'S IN THE MARKETING MIX FOR SERVICES
A marketing strategy requires the analysis of alternative opportunities and risks to the organisation, as influenced by the external environment and by internal information which could lead management to choose a particular set of goals related to the target market segments of tourists and the service offerings (Powers, 1997:114).
Kotler and Armstrong (1991:293-294) list elements of a marketing strategy as: Know the target market by describing where the service is positioned, the organisation's sales and market share and profit goals for the next few years. Then follows the outline of the service's planned price, distribution and marketing budget for the first year. The third part of the marketing strategy describes the planned longer term sales, profit goals and marketing mix strategy - how the seven P's will be applied to reach the goals. 16
2.3.1 The target market
Tourists are individuals or groups who purchase a number of diverse travel and tourism services. The vendors in the industry must have a clear understanding of why their services are in demand. This will not only enable them to tailor their services more closely to the needs of their tourists, but to also better select the advertising and sales communication methods used to inform and persuade those prospective tourists that the vendors prefer to attract (Holloway and Plant, 1992:49-56).
The vendors should target their products to offer specific benefits to potential tourists, thereby making it more distinctive from its competitors. This is known as market segmentation.
One such target market in the tourism industry - broadly categorized as the psychocentrics - prefer well-packaged routine holidays to popular tourist destinations - mainly "sun, sea and surf". They still enjoy group travel. Newcomers to this market segments are the over-55's of the world - who are blessed with good health, good pension plans and new-found freedom (Naisbitt. 1994:122).
Another target market, the allocentrics, are more outgoing; have specific interests; are keen to explore new places and find new things to do - they are also branded as the adventure travellers. Allocentrics tend to travel more independently (Holloway and Plant, 1992:52). This segment already accounts for 10 percent of the total USA domestic travel market (Naisbitt, 1994:124). The allocentrics market is constantly searching for new destinations. They are likely to have travelled before, they know where they want to get to and what to do at their destinations. They seek to fulfill specific desires rather than take a country by storm and absorb as much as possible as quickly as possible.
Another approach to segmenting is according to the benefits of the products being offered. Hotels are perceived to be ideal just for stopping overnight or as a base from 17 which leisure activities, such as playing golf, can be undertaken. Resorts with facilities are, on the other hand, in themselves the target destination with the facilities that are available.
The vendors should understand what segment is being targeted with the service on offer and should direct the distribution efforts towards obtaining sales from that specific target market(s).
Within a segment, the vendor could use the branding technique as a useful way to identify a particular service and distinguish it from those of competitors. The brand becomes associated with the particular benefits offered by the service, acting as a "cue" to tourists in their decision making. The specific benefit for vendors in the intangible service market is that branded services help tourists to avoid risk. The distribution channel selected should support the brand and prepare the tourist from the point of deciding to travel (Kotler and Armstrong, 1991:228).
The decision to target a specific segment could also be based on information as to why tourists travel. An understanding of the reason why people travel could be the key to the differentiation of the market segments. It could add to the insight as to why people who travel for a specific reason tend to prefer to utilize a specific service to other services on offer.
Laws (1991:49) identified segments in the mass travel market. Some of these segments correspond with the reasons identified by Holloway and Plant (1992:57) as to why people tend to travel: Holiday travel' or relaxation and physical recreation. This will include nature lovers and tourists who prefer "sea-and-surf' holidays. Business travel. Visiting friends and relatives. Travel for economic benefits (e.g. to do specific shopping). Travel for educational purposes - such as study tours. 18
Sightseeing and culture - the nodal mode travel based on one touring center or preference for a linear tour - moving from hotel to hotel. Special interests - including study, sport, health, religion and conventions.
2.3.2 The marketing mix
In compiling the marketing strategy of service organisations, the 7P's should be considered in their marketing mix. The next step in the development of the marketing strategy could be the marketing mix formulation.
Kotler and Armstrong (1991:45) defines the marketing mix as "the set of controllable marketing variables that the vendor blends to produce the response it wants in the target market segment. The marketing mix consists of everything the vendor can do to influence the demand for its product". Cowell (1986:70) identifies the major task of marketing management in any enterprise as the blending of these elements of the marketing mix in such a way that they fulfill the marketing needs of selected target markets. The blending process has to take many uncontrollable variables into account. Typically they would include the resources and objectives of the vendor, the political, legal, social, cultural and economic environment and the actions of competitors.
Kotler and Armstrong (1991:45) designs marketing strategies around the 4P's marketing mix. These are the four elements suggested by McCarthy and include product, price, place and promotion. Cowell (1986:69-73), however, supports the set of seven elements for the marketing mix of services proposed by Booms and Bitner. Rafiq and Ahmed (1995:4-15) produces a strong case for the Booms and Bitner's 7P's framework to replace the McCarthy's 4P's framework as the generic elements for a marketing mix. The Booms and Bitner 7P's present a marketing mix not just for services, but also for specific types of marketing such as for consumer goods, retail, international, strategic, industrial and non-profit markets. Another proposal for the hospitality industry was to use a three-element marketing mix: the product service mix, the presentation mix and the communications mix as proposed by Renaghan (Rafiq and Ahmed, 1995:5). 19
The framework for this study is the 7P's of Booms and Bitner. They are: Product - The range of services provided, the quality of the service, and the level of service provided (a steak bar offering a limited menu range versus a four star hotel offering a wide range of meals). Holloway and Plant (1992:13) warn that competition exists for disposable income to be spent on consumer goods. Tourist and travel products are often substituted with well advertised consumer goods. If the product or service does not answer to what the market wants, it will not sell. Price - This refers to the levels of prices, discounts, allowances and commissions, terms of payment and credit. The tourist's perception of value obtained from a service and the interaction of price and quality are important considerations. Place (distribution) - This element refers to location and accessibility, not just physical accessibility, but also other means of communication and contact. Thus the types of distribution channels used and their coverage are linked to the crucial issue of service accessibility. In the recreation-tourism-hotel and motel- transportation of services, time and place utility appear to be the essence of the product itself (Rathmell, 1974:105). Promotion - Promotion includes the various methods of communication with markets through advertising, personal selling activities, sales promotion activities and other direct forms of publicity and indirect forms of communication such as public relations. People/participants - The people perform a production or operational role in service organisations and thus contribute to the service product. In the consumption of a service a tourist may have access to all parts of the service organisation: operations, sales and marketing. This is a matter of inseparability: services are highly personalized; the product being the outcome of the performance of the provider.
The vendor's social skills in dealing with the tourist are an essential part of the product (Holloway and Plant, 1992:4). An associated people aspect is the relationship between tourists. A tourist's perception of the quality of a service product may be formed and influenced by other tourists (Cowell, 1986:73). The 20
example quoted by Cowell was that of the particular 'chemistry' of a tour group or the behaviour of diners in a restaurant who can influence the shape and quality of the service product on offer. The tourists' behaviour at the facility has to be managed discreetly so that they will act in ways consistent with the vendor's strategy. Physical evidence - The physical element of the marketing mix refers to the components that could influence a tourist's opinion of a service. Physical evidence includes items such as the physical environment (furnishings, colour, layout, noise), the facilitating goods that enable the service to be provided (the cars used by a car rental company), and other tangible clues such as staff uniforms. Process - The process element refers to the "how" of service delivery. Cheerful, attentive and concerned staff can help alleviate the tourist's problems of having to queue for service or soften the blow of a breakdown in technology used in the service production. Well motivated staff can assist tourists in developing an understanding and acceptance of the policies and procedures adopted and the degree of mechanization used in the service provision. Care should be taken with staff to support the tourists in their involvement with the process of service performance, the flow of information, the appointments and waiting system and the capacity levels available.
The marketing mix elements are dependent on each other. A change in any of the elements can result in a perceived change of service to be provided. An example is a vendor who employs people to attend to the young children of tourists. The vendor will have to provide space for the children to be cared for, refer to the facility in the promotion of the establishment and see to it that the procedures and processes are in place to maintain the service to tourists. The vendor will then have achieved a change in service offering which will target a market segment of tourists with young children.
The rest of the study will focus on the distribution element of the marketing mix and more specifically the relationship between distribution and demand management. 21
2.4 DISTRIBUTION IN THE TOURISM INDUSTRY
A key challenge for the designers of distribution systems for the services industry is to match the nature of the delivery system to the needs and preferences of the target customer group given the mixture of the product on offer. The approach to distribution in the services industry, therefore, requires a fair understanding of the principles of marketing and specifically of the fact that: The nature of distribution systems and processes differs in the marketing of services to the marketing of goods - service products are sold in advance of their production. Distribution processes vary considerably between the sectors of the travel and tourism industry. The place of the distribution agents is often not the same as the location where the service is utilized (Middleton, 1994:200).
The place, distribution or access element of the marketing mix has two distinct components (Middleton, 1994:200). The first refers to the location where the service is produced and presented and the second with accessibility to the venue where the service is produced and presented. The latter also implies accessibility to information about the service organisation. In the case of lodging; the tourists would want access to information about availability of rooms, price and facilities at the lodging establishment.
Middleton (1994:201) notes that there are many similarities in the methods to manipulate the marketing mix elements such as product formulation, pricing and promotion for all types of travel and tourism products, except for distribution and the provision of access. The inability in travel and tourism to create physical stocks of products adds to the importance of the distribution element of the marketing mix to not only generate sales, but also to support demand management. 22
2.4.1 Location
According to Middleton (1994:201) the choice of location is still one of the most important business decisions that a business with only one production unit such as proprietor-owned guesthouses, hotels and resorts, can make. Location for these organisations is both the place of production and the primary point of sale. Middleton (1994:201) warns that a proper location seldom provides a sufficient source of sales. Supplementary points of sale away from the place of production and consumption are still required.
Although the attitude of some buyers is the key to deciding where a service is to be performed, some tourists will go out of their way to stay in a particular hotel. Some locations have even become symbols of status, particularly in the area of recreation (Rathmell, 1974:105-108). Over time, however, the consumer classification of services can change as their age, life style, and income change. At these locations the problem of spare rooms at the guesthouses, hotels and resorts poses an inventory problem of the same characteristics as that of a car rental company. Services which are not appropriately located may not even attract enough tourists.
South Africa, as a target destination, has much to offer to the international tourist. The advent of 'adventure travel', the 'culture' experiences, the call of the wild and other eco-tourism motivators put South Africa in an advantageous position to capitalize on the world travel markets (Naisbitt, 1994: 124-131).
2.4.2 Distribution (accessibility)
Since the point of production generally does not provide enough sales to support a lodging establishment, some form of supplementary points of sale has to be created to generate sales revenue. The diversified nature of the tourism market, both in supply and demand for tourism, leads to a need for distribution channels to overcome the gaps of distance and knowledge which make it difficult for most tourism principals 23
(such as vendors) to identify and recruit potential tourists. The latter by definition, seldom live nearby. Hotels increasingly utilize indirect channels of sale, through sales agents or intermediaries, in spite of the traditionally direct nature of their services (Cowell, 1986:187).
These indirect channels of sale are applied by the vendors to: Generate sales that would utilize capacity available, or fill expanded capacity. Increase the number of distribution points within the same group or chain or within the same marketing cooperative. Provide access to tourists long distances away from the establishments - such as international tourists. Draw possible first time visitors to the lodging establishment. Counter growing competition of other lodging establishments in the market. Provide access to new forms of distribution such as those that would reduce day-to- day dependence on sales by selling ahead of production through a reservation system ( Middleton, 1994:201).
The optimum distribution channel is perhaps the most fundamental contribution to marketing as a discipline (De Bord, 1984:33). Management of guesthouses, hotels and resorts should constantly consider or create new channels of distribution. A definition of a distribution channel is given by Middleton (1994:202) as being any organised and serviced system, created or utilized to provide convenient points of sale and/or access to potential tourists, a distance away from the location of production and consumption, and paid for out of the marketing budgets of the tourism principle (the vendor). Innovative ways to access the target market should never be overlooked whether through the establishment of the vendor's own distribution channel, through cooperation with other establishments or through the appointment of an intermediary to act on behalf of the vendor.
The distribution channel structures available to vendors can vary considerably and can take the form of: 24
Direct marketing by the vendor to the target market through advertising, sales promotions, mail or even personal selling. The indirect response route would involve some intermediary between the vendor and the prospective tourist. The difference here is that communication from the vendor's perspective, is targeted at the intermediary who should respond with bookings or reservations to boost sales revenue. Given the high cost of commissions paid to intermediaries and the cost of providing information to intermediaries to reach the target market, the scope of utilizing modern direct response marketing techniques should certainly be carefully considered by vendors in the tourism industry. The intermediary would communicate with the target market through promotional material, information about the target destinations and even confirmation of accepted reservations through the printing of vouchers (Middleton, 1994:216-218).
Distribution channels are complex. Direct marketing certainly is common in some service markets (for example in professional services); but many service channels contain one or more intermediaries (Cowell, 1986:183). The most frequently used channel by service organisations, however, is that which operates through intermediaries. Agents are the most common form of intermediaries for markets such as tourism, travel, hotels, transport, insurance and employment services. The problem still remains how to handle last minute specials to promote sales if capacity is still available. This issue was effectively solved by the airline industry through their central reservation systems where last minute top-up sales are a common feature.
Providing access to prospective tourists has both a transport component to reach the physical location where the service (lodging) can be experienced, but also accessibility to outlets of the service (distribution) where the tourist can obtain information about the lodging facility and make reservations to use the service.
The outlets where the intermediaries operate from, are the first points of contact where the tourist will start to experience the service. When considering the importance of people in the use of services, the choice of these distribution outlets could be the point 25 of contact where the tourist starts to form an idea of the quality of the service to be expected at the location of production.
South African vendors generally utilize the printed media, telephone bookings or mail bookings to make reservations. Some larger groups have their own reservation offices, but the guesthouses, smaller hotels and resorts tend to appoint intermediaries who could produce booklets of accommodation available - such as the range of booklets on guesthouses, hotels or resorts produced by the South African Automobile Association.
The vendor who selects to market to the target market segment through some intermediary has to consider some key strategic factors when selecting an alliance with the intermediary to form the distribution channel: What outlets to select to perform the distribution function. The physical location of the outlets. The provision of information to enhance both the tourism experience and the service rendered to tourists (Wilson, 1988:11). The better the information on which a purchasing decision was based, the more likely it is that the features of the service will prove acceptable to the client (Laws, 1991:61). Holloway and Plant (1992:8) provides a further dimension for the need for information in tourism since this is a product which is purchased in advance of its consumption and which must be described rather than be demonstrated to prospective tourists. The commission to be paid to the intermediary and how the commission should be structured.
If an appropriate distribution system can be implemented, it would take on new significance to business planning as a competitive advantage. The vendor that can target and reach the ideal segment of potential tourists, can obtain demand and occupancy levels that would boost the bottom line. Bruce (1991:246-247) states that the implementation of such an integrated system should lead to effective competitive strategy by lowering the cost of distribution and improving the service provided to the tourist. 26
Intermediaries are generally accepted as the true representatives of the vendors (Rathmell, 1974:109). The test would be: Whose interest will be presented in the market by the intermediary? The interest of the vendor, or the tourist? De Bord (1984:32) notes that intensified concern over the actions and future of the intermediaries is the result of a vendor who becomes dependent on intermediaries.
While the vendor is primarily responsible for the risk of producing the tourism experience, he also remains responsible for the distribution function to create the sales and create demand for the services on offer. The vendor is expected to carry the bulk of the marketing costs. The intermediary, on the other hand, needs not purchase products such as his counterpart in consumer distribution, he is only responsible to obtain some sales on behalf of that vendor (Middleton, 1994:206).
Vendors could expect of distribution channels to assist them in increasing market share in the target market. The intermediary therefore should be willing to assume some of the burdens of the marketing activities of the vendor - such as tracking changes in the distribution conditions and feeding these back to the vendor to allow him to react to these changes before they become a burden to the vendor (Middleton, 1994:200). Intermediaries have an important role to fulfill in that they have to apply their knowledge of the tourism experience in preparing the sale to present the tourist with the appropriate package - or lose commission on a possible deal. The expansion of world-wide global reservation systems into all possible markets, is creating a tendency to choose intermediaries who have access to these systems (Middleton, 1994:222).
Since the intermediary can reach target markets and find new ways to achieve sales from those target markets even when conditions change, the vendor has to nurture the relationship with the vendor to be successful. Magrath (1990:38-41) concluded from two case studies that successful vendor/intermediary relationships have three characteristics in common: • The vendor needs to know what motivates the intermediary. 27
What market segments do the intermediary serve and value. How do these markets affect the intermediary's profits. An intermediary will only care about a vendor brand if the vendor can further the intermediary's own objectives. Adapt to the intermediary's culture. Only if the vendor can relate to the intermediary, can the relationship succeed. The vendor needs to realize that the intermediary represents a pathway to the target market which is based on a network of interpersonal contacts. Even the best marketing mix cannot compensate for inappropriate intermediary support. Intermediaries are the strategic allies of the vendors. Vendors assess tourist needs through the intermediaries. Intermediaries allow the vendors to gain valuable potential tourist coverage, market share and even trade contacts - although it may be at some loss of control over the distribution channel. Vendors should accept that intermediaries can outperform them in the distribution channels, because they appear to be fast on their feet and astutely tuned to their customers' needs.
2.5 MANAGING DEMAND FOR LODGING SERVICES
Financial success in the capacity-constrained industries is, to a large measure, a function of management's ability to use productive capacity as efficiently and as profitably as possible (Lovelock, 1996:204). In a well-designed, well-managed service operation, the capacity of the facility, supporting equipment, and the service personnel will be in balance. Vendors who regard service quality and customer satisfaction as important measures for the professionality of the service on offer, will apply some form of demand management. A random, free for all situation will not be acceptable in a well managed service operation (Powers, 1997:12-13).
The central task for marketing managers in the capacity constrained industries is to manage demand by managing capacity of the establishment, influencing potential tourists in their purchasing decisions for its services by using marketing strategies to smooth out the peaks and fill the valleys to generate a more consistent flow of 28 requests for their lodging services (Laws, 1992:60) or inventory demand through a reservation system (Lovelock, 1996: 212).
According to Lovelock (1996:206) management's options to adjust capacity to highly fluctuating levels of demand are: Schedule downtime - such as repair and maintenance activities - during periods of low demand. Low demand periods should also be the preferred time for employee vacations. Use part-time employees - hire extra workers during the busiest periods. Rent or share extra facilities and equipment. To limit investments in fixed assets, this option should be investigated. Cross-train employees. At certain points some employees may be under-utilized. If the employees are cross-trained, they may be shifted to alleviate pressure on bottleneck points.
The second option available to management to smooth out demand, is to implement a marketing strategy that aims to influence the potential tourist's decision to utilize the services offered. This can be achieved by stimulating or discouraging a particular market segment on a selective basis (Lovelock, 1991:132-136). It implies that the vendor knows the target segments and the actions to be taken to attract each segment. The optimum level of demand will be the desirable goal. This will require an investigation into the market segment(s) that ought to be accommodated. The preferred market segment that the vendor should attract, should comply with the organisation's mission, match the professional skills and interest of staff members or just be more profitable. Only during low demand, should the vendor select to market to another segment. As much capacity as possible should be utilized by the most profitable or the most manageable segments that the vendor can handle. For this reason, various conditions may have to be laid down to discourage willing, top-of-the- line prices from trading down to less expensive versions of the product. 29
The decision to implement a marketing strategy is based on an understanding of the factors that govern the demand for the service at any given time. Some of the issues that need to be understood are: Does the level of demand for the service follow a predictable cycle? Such variations could cause daily, weekly monthly or even seasonal changes. What are the underlying causes for these variations in demand? Could cyclical variations be due to salary payment dates, school holidays, seasonal changes in climate or even religious holidays? Laws (1991:36) calls these the push factors for demand. Is there a random change in demand which could be attributed to changes in the weather, e.g. the effect of a widespread snow fall? Can it be attributed to special events that were arranged? Laws (1991:36) identifies these as pull events where the vendor can influence the demand for the service. Does a particular market segment determine its own pattern for demand? (Lovelock, 1996:207).
An analysis could reveal a change in the patterns of demand. What seemed to be random demand for a service might be attributable to the accepted demand patterns of a specific segment. The variations in demand could then be explained on a segment- by-segment basis and models can be compiled using the factors that could influence demand for lodging (Lovelock, 1996:209-211). The segments need to be identified that would utilize the service when a specific combination of factors can be satisfied. This would assist management to make an informed decision about the expected demand under a specific set of conditions. Vendors should then apply this knowledge to attract that market segment. They could identify the best times to market conference facilities, pleasure travel or to market to groups such as sport tours.
The maximum demand for lodging may not be the optimum demand for that service. The following can happen: Demand may exceed maximum available capacity with the result that potential business may be lost. 30
Demand may exceed the optimum capacity level. No one is turned away, but all customers are likely to perceive a deterioration in the quality of service delivered.
Demand and supply are well balanced at the level of optimum capacity.
Demand is below minimum capacity and productive resources are under-utilized. This poses the risk (in some instances) that tourists may find the service disappointing or have doubts about the viability of the chosen destination (Lovelock, 1996:210).
The third option available to vendors to manage demand is to "inventory demand" through a reservation system (Lovelock, 1996: 212). Major developments in inventory management in the tourism industry have been achieved through the establishment of integrated central reservation systems. The full functional scope and added advantages such as direct marketing capabilities and flexibility to producers who utilize these systems, have yet still to be developed (Middleton, 1994:209-211). The vendors who allow reservations of their services will present the potential tourists with the option to pre-sell the service. It could be argued that the downside of participation in these systems is that tourists can easily switch to an alternative vendor, should the tourist find the attributes of the other vendor more attractive. Through participation in such a reservation system, the vendor can address the preferred target market segment, balance capacity and guarantee service availability at the specific time.
These systems are generally utilized to achieve broader distribution for the vendor. Middleton even claims that the inability to transfer and store products physically, which used to be thought of as a disadvantage in tourism marketing, has become a powerful asset since product capacity can be accessed across continents and across months or years; at the touch of a button.
Traditional reservation systems such as the airline reservation systems of the 1980's had to expand their role. They changed from merely reservation and information systems to systems that supported marketing and distribution (Collier, 1991:252-256). The development during the 1980's resulted in these systems becoming the world's 31 largest private computer-based systems. The functionality of modern reservation systems in the lodging sector, will provide historic information on requirements for lodging, provide access to the reservation patterns of the preferred target market segments and even assist in the prediction of the expected occupancy levels at specified times (Laws, 1991:60).
Ultimately, therefore, the vendor has choices in addressing the demand issue listed in Table 2.1 - adopted from Lovelock (1996:212) and Laws (1991:60). The vendor can influence demand by changing the price, change the service offering (add or take away meals or access to facilities on offer) and change the distribution and advertising methods applied.
According to Lovelock, the vendor should be willing to change two or more marketing mix elements to have an effect on demand (Lovelock, 1996:213). The issue remains whether the vendors of smaller establishments have the knowledge or even access to the appropriate marketing research to guide them to change the marketing mix elements in such a way that the objectives are achieved.
2.6 SUMMARY
The fundamental role that the application of information can play in enhancing both the tourism experience and the service rendered to tourists, should be a key strategic approach in planning business services.
With the application of information technology such as that utilized in computer- based reservation systems, distribution, specifically, is taking on new significance to business planning, as a possible source of competitive advantage. The vendor that can target and reach the ideal segment of potential tourists, can obtain demand and occupancy levels that would boost the bottom line. The implementation of such an integrated system should lead to effective competitive strategy by lowering the cost of distribution and improving the service provided to the tourist. 32
TABLE 2.1: OPTIONS IN ADDRESSING THE DEMAND ISSUE
Irisuffkient capacity ...... capacity (Excess dethand) (Insufficient demand)
Take no action - Tourists will turn away and may Capacity is fully Capacity is wasted and leave the demand not even use the facility again. utilized. The tourists may have a to find its own issue remains disappointing experience levels. whether this is due to low service levels. Management the most Management need to focus should focus on profitable mix on delivery of a high reminding for the business. standard of service. tourists of the brand. Take steps to Increase price and profits No need to take Take no action. reduce demand. (especially for the non-preferred action. Still the Management target market segment). issue whether should focus on Communication can be used to this is the most maintenance of encourage usage in other time profitable mix high standard of slots - or the segment need to for the business service delivery. change to only encourage the need be more profitable segment to use investigated. the facility. Management should be aware that the behaviour of some tourists can negatively influence the experience of the service of other tourists. Take active steps No need to take action unless a No need to take Reduce price to the level to increase more profitable segment can be action unless a where the business can demand. identified and demand for that more profitable still be maintained. Try a segment stimulated. segment can be different approach to identified and distribution, product demand for that combinations and commu- segment nication. stimulated. 33
"Inventory Consider to prioritize for the Try and target Communicate that space is demand" through most desirable segment. the most available through the a reservation Encourage other tourists to shift profitable mix of reservation system. Work system. to off peak times. business. with other providers of tourist attractions to present packages that could attract more tourists.
The better the information on which a purchasing decision was based, the more likely that the features of the service will prove acceptable to the client, since tourism as a product is purchased in advance of its consumption and must be described rather than demonstrated to prospective tourists.
An efficiently managed service establishment in the capacity constraint industries such as lodging, should run as close as is possible to optimum demand levels. These demand levels are set by considering the personnel availability, physical capacity of the establishment, service levels at which the service will be rendered and all such factors important to support the mission of the establishments.
Here, vendors have three options available to manage demand. The first is managing the physical capacity (schedule renovations during periods of low demand), the second is to launch a marketing strategy that will target the ideal market segment. The last option is to "inventory demand" through participation in a reservation system. Modern reservation systems will provide the vendor with feedback information on the reservation patterns of the target market segments, provide input into the process to change to another target market segment, provide a means to communicate specials and even support combination product offerings with other providers of tourism attractions. The growth in the availability of central reservation systems resulted in these systems becoming the de facto method of distribution available to vendors. The vendors who do not participate in these systems might find themselves isolated in this very competitive industry. 34
CHAPTER 3: RESERVATION SYSTEMS AS THE SUPPORT MECHANISM FOR DISTRIBUTION
3.1 INTRODUCTION
Many internationally franchised groups or hotel chains implemented computer-based centralised reservation systems. In South Africa such systems were implemented by Sun International, Protea Hotels, the National Parks Board and even Aventura Resorts. These systems allow immediate access to room availability, information about facilities on offer and confirmation of a reservation.
In the previous chapter the need for the implementation of some form of distribution was explained as the motivation to obtain more sales separate from the geographical point of production of the lodging service. The choice of the distribution channel development is whether to stay independent where the vendor has his own channel for distribution or whether to become involved in a combined distribution channel (Cowell, 1986:188). Independent distribution channels emerged to fulfill a specific need and are not necessarily associated with another service or product. Large hotel chains such as Days Inns believe they should use their own reservation system. Days Inns would link up each newly franchised hotel to their central reservation system located in the USA (Sake-Beeld, 1995:4). A combined distribution channel would emerge when a service is integrated with other players in the industry, such as other lodging establishments or when the service is integrated with other sectors in the tourism industry, such as transport or tourism events.
The explanation of Cowell (1986:190) is that the emergence of the independent versus the combined distribution channels could be attributed to the product life-cycle. Initially the distribution channel choice will be independent, then move to intermediary distribution and finally to integrated. These vendors' pre-occupations, interests, objectives and strategies change as they move through the life-cycle from the entrepreneurial stage with mostly independent distribution channels to eventual 35 decline/regeneration where the options of intermediaries or even combined distribution channels could be selected.
In the distribution process, vendors' services have to be presented to tourists. This is achieved in the most economical way through the utilization of information technology which should facilitate informational flow giving location, price, room availability and reservation verification (Rathmell, 1974:116).
The objective of this chapter is to investigate where else in the broader service industry were centralised computer-based reservation systems implemented and if so, determine whether that experience can be applied to the tourism industry. Specific experiences need to be identified that could be applied to demand management for the smaller vendors in South Africa's tourism market.
The primary and the possible secondary business advantages of participation in such a system will be investigated. Special attention will be given to the advantages of applying such a system to support the distribution element of the marketing mix with the aim to enhance demand management for smaller vendors.
The business functionality obtained from literature that such a system should provide to participating vendors, will also be listed.
3.2 CENTRAL RESERVATION SYSTEMS TO SUPPORT THE DISTRIBUTION ELEMENT IN THE MARKETING MIX
Rathmell (1974:114) describes the hotel industry as a fragmented service industry dependent on a dispersed market and which has to link supply and demand efficiently. Vendors operate with service providers in transportation such as airlines to form vertical integration in the tourism industry. In the horizontal integration, the vendors take on the role as the providers of catering operations, conference facilities or leisure activities. 36
The distribution strategy for a hotel or resort should support communication with the potential tourist as to what amenities can be expected at the location. It should at least provide answers to the following issues: Does it satisfy the informational needs of the vendors' target market segment? If lodging is not provided at a convenient location, will the purchase of the lodging service be postponed or the use delayed? Are accessibility and physical convenience critical factors in choosing lodging? What other trends exist within the market sector in which the vendor operates? Are competitors reaching out into new markets? Could some competitive advantage be obtained by going against the norms of operating in this market segment? How flexible is the lodging service and can it adjust to the changing needs of tourists? What new systems, procedures, processes and technology can be harnessed by the vendor to improve the service provided? How critical are complementary services to the location decision? Are tourists seeking service systems or service clusters, such as provided in a package of events and activities? Can services reinforce each other to attract more tourists? (Cowell, 1986:199).
Smaller vendors should note another trend. Naisbitt (1994:141) expects that the 21st century will see few barriers to international travel. Tourists will be courted by developed and third world countries alike for the enormous infusion of capital that comes with tourism and the benefits from a heightened awareness and appreciation of global cultural diversity. To capitalize on this trend, smaller vendors must provide information about their services at convenient locations separate from the place of production. Central reservation systems can facilitate this.
3.2.1 World-wide move to computer-based support for distribution
In Britain, the history of the application of information technology in the tourism industry started with the very successful implementation of interactive videotex in the 37
1980's. This changed the travel industry in Britain. A dramatic improvement in productivity was achieved in the British tourism industry with the application of videotex. During 1986, for example, Thompson Holidays doubled their income and increased their market share of the British packaged tour holidays from 20 to 30 percent and kept the average holiday prices at the levels of 1984. Bruce (1991:243- 251) suggests that videotex technology should now make way for new information technology developments.
Videotex is a basic system of interactive information technology that allows the user to retrieve information on a television screen through a telephone line connected to a central computer. The South African equivalent is Telkom's Beltel service. Only a limited amount of information can be provided on the screen. The big advantage of videotex systems is the ease of operation and the short training time required for a new user. Another advantage is access on a country-wide basis through the telephone network.
Keen (1988:100-120) provides a number of case studies in the tourism industry on the initiatives of airlines to establish integrated reservation systems which also offered lodging reservations.
Naisbitt (1994:103-145) writes about very successful case studies where information systems in the world-wide tourism market used market segmentation and reported dramatic bottom line improvements for participants in these systems.
Cowell (1986:189) reports on the considerable innovations in distribution methods in recent years. Integrated corporate systems and integrated contractual systems are developing and beginning to dominate certain fields. Systems such as those for Holiday Inns and Best Western are of increasing importance in supporting their demand management. Hyatt Hotels deemed their reservation system of such importance, that they budgeted $1.5 million for an upgrade of their then current system during 1993. These huge sums' of investment into systems are acceptable for those in the industry who understand and have experienced an improved bottom line 38 when using information technology to manage their service businesses (Halper, 1993:55). These integrated systems are pivotal in the composition of the complete package offered to the tourist or holidaymaker through control over horizontal and vertical service channel systems.
As stated earlier, the British tourism industry reported remarkable successes with the videotex technology. In 1986 over 85 percent of all package bookings were made through videotex systems (Bruce, 1991:244). The best known of these systems were the private enterprise initiatives of Thomson Holidays, Istel and Fastrak. Videotex has become such an integral part of the communications infrastructure of Britain's travel industry, that it became impossible for any particular group of the industry to work effectively without interactive videotex.
The main advantage of videotex was cost savings in communication, faster flow of information, less loss of potential customers and the capability to confirm bookings. The productivity of the distribution element of travel improved vastly. These systems were integrated and allowed users to obtain information about availability of airline seats and hotel accommodation - and to confirm reservations electronically.
Integration, so often thought of only in the manufacturing systems, is also an important feature of modern service systems. Systems are required for the speedy dissemination of reliable travel information to accommodate both the growing demand for and the increasing complexity of lodging, meals, recreation and leisure and transportation arrangements. In travel and tourism, the integrated services systems link two or more service sectors and provide information, particularly reservations, to each of the target sectors in transport, accommodation, meals and leisure and recreation. Integrated systems such as Galileo, Amadeus and Apollo have included in their offering, access to a variety of airlines, hotels, guesthouses, car rental, tour busses, restaurants, leisure and recreation sites and shipping lines. Moves are afoot to link these massive central reservation systems and provide open access to all interested (and capable) parties. Those participants who can gain access to provide information will be part of the global tourism information system. The rest will hardly 39 survive (Lenorovitz, 1990:37). The motivation behind the mergers and cooperation of these integrated systems is the need of each system to serve customers from more than one continent. Their target is to support a global tourism market through sophisticated reservation systems.
Even Naisbitt notes that the demand for information, following the explosive growth in tourism and the travellers' increasing sophistication, will encourage the growth in consortia to eventually form a complete information network for a truly global industry. "To remain competitive, independent operators and international companies alike will have to be linked to one or more reservation systems" (Naisbitt, 1994:143). Middleton indicates that vendors who do not participate in these systems might not survive the modern world of tourism (Middleton, 1994:209).
Kevan (174:114) defends the customers' need for information to support travel decisions since "the endless combinations and permutations of alternative routes, transportation modes, times and lodging selections make travel decisions difficult even for the initiated. Seasonal changes in rates and schedules add to the confusion".
Laws (1991:61) analyzed the decision process of potential tourists before choosing a destination. He stresses that the vendor should understand how his potential clients make their decisions to spend their resources of time, money and effort and the benefits they expect from their investment in the tourism activity. The concerns in purchasing holidays could be: No financial return is obtained on the investment made. These purchases account for a high proportion of disposable income. Money has to be saved for a travel purchase. Tourists do visit the site of production of the service - and expect the vendor to be prepared to receive them and meet their expectations.
The majority of travel purchases are planned rather than spontaneous. Tourists consider risks and will deliberately take risk reduction steps. The better the 40 information on which a purchasing decision was based, the more likely the features of the service will prove acceptable to the prospective tourist.
The question remains whether vendors themselves have the understanding and capacity to provide tourists with the information they need and whether they can establish and support systems to address the ever-changing needs of the information technology requirements of prospective tourists.
3.2.2 Support functions to be provided by a computer-based system
The direct distribution channel between a vendor and the tourist is responsible for selling the services offered. The purchasing decision of tourists, whether past, present or future, are crucial to vendors. The existing tourists who frequent the vendor's establishment, generate flows of both revenue and information about current tourist perceptions, attitudes and preferences. A reservation system should support these information needs of the vendor and assist him to anticipate the needs and preferences of potential tourists so that he can target the correct market segment. Historic reservation and occupancy information which the vendor (or the industry) has generated from his past trading experiences, should be available to vendors who decide to subscribe to a central system. The system should also support the vendor in developing integrated tourist packages that could consist of a lodging and leisure activity and render support to contract related services (Laws, 1992:60).
The reservation system should primarily support the sales function in the more traditional reactive sales by contributing to: Reservations made by the vendor's regular patrons. Intermediaries such as tour operators, travel agents, representatives and even transport companies. Organisations in the community who attempt to obtain lodging reservations.
The system will, however, also support the vendor's pro-active sales activities when database marketing from the captured information of tourists is utilized to target a 41 specific market segment. This last requirement is becoming a natural extension for those vendors who are willing to place their inventory of rooms on such reservation systems. This trend started with the airline reservation systems who developed their databases around their more regular customers and evolved to the lodging sector of the tourism industry. Holiday Inns succeeded with a similar marketing exercise with their 'Priority Club' campaigns (Middleton, 1994:212-223). The 'Priority Club' campaign pro-actively enhanced their product offerings to this identified segment.
The importance of making contact with the correct market segment is illustrated by the Promus Companies of Hotels, who broke away from the Holidex reservation system of Holiday Inns to establish their own system. The motivation to go alone was due to the added functionality which Promus built into their new system. These included: maintaining detail information on each hotel's location and amenities and addressing the need for an on-line reservation capability for customers. Apart from providing support to each site as far as business operations are concerned, the Promus system also provides access to guest information and marketing support, amongst others. The main reason for the system was to profile their guests better than before. Promus is able to manage their product mix since they are in a position to sell by rate, room type or both (Salomon, 1992:33,36).
Rathmell (1974:116) emphasizes that the functionality of such a distribution system for the industry should support the growing number of indirect distribution channels: intermediaries such as travel agents, vendor representatives, may-be representatives from other vendors in the same group, tour operators, airlines (also international airlines) and central reservations which franchised the sales role for the vendors. Rathmell stated that the American experience indicated that there was often more than two agents or intermediaries involved in making reservations.
3.2.3 Contribution by the vendor to participate in such a system
The vendor should be willing to pay a fee for the services rendered by the reservation system and should be willing to put inventory of rooms onto the system. This would 42 be countered by greater economies of scale, increased speed and economy in the flow of information as well as bringing the point of sale closer to the tourist. The system used to achieve broader distribution, must also deal with the method of matching demand with supply. The activities of the supplier of the central reservation system and the inputs required from the participating guesthouses, hotels and resorts, should justify the payment of fees by the vendors to the supplier of the system. Long-term strategic benefits should be clear to all involved.
The market power developed by the intermediaries may have little effect on the vendor's room rate, but may manifest sharply in the vendor's net rate after commissions. This could become a constant depressant to the vendor's net price for rooms. If the commissions paid are for increased occupancy over and above the numbers that the vendor could attract on his own, these commissions will be considered a worthwhile marketing expenditure.
Rathmell (1974:108-109) warns that the downside of such a system is that the marketing strength of this intermediate distribution channel can grow to a point where many vendors will no longer be captains of their distribution channels. These vendors may not only face horizontal competition with each other for the tourist's patronage, but may face vertical competition with the channel intermediaries for a share in tourist expenditure. To gain control over the distribution channel, Rathmell suggests that the vendor use toll-free reservation numbers as an attractive option for the domestic tourist and bypass travel agents. This could be costly and would require an adequate range of marketing skills to make up for the loss of the dedicated inputs from the intermediaries.
The downside for the established players in the tourism industry, such as the travel agents, is that the traditional role of travel agents could come under pressure as other sales agents gain access to these systems. Other sales agents could be hotels who would make forward reservations on behalf of their tourists to hotels in the same group or their counterparts in cooperative marketing ventures. The implementation of major systems could lead to greater rationalization and even centralization of the 43 travel industry (Bruce, 1991:248). Vendors and intermediaries who participate will be locked in and those who do not, will be excluded out with the prospect of going under if the benefits of the system cannot be utilized. Travel agents can, however, react creatively to the opportunities offered by the new applications of information technology. They can focus on a particular market segment and develop marketing opportunities with innovative offerings. As information technology expands, travel agents may well find themselves in a position to make hotel arrangements outside their country borders and therefore open new markets.
3.2.4 World-wide experience in establishing global reservation systems
Much can be learned from the experiences in the airline industry. The battle amongst the world's largest airlines to gain access to or to establish proper reservation systems in the late 1980's, recognized central reservation systems as important in competitive positioning of the airline's route control. During these developments, marketing and distribution have become almost interchangeable terms (Keen, 1988:112). The new opportunities to the tourist world-wide, together with the deregulation of markets (free travel over the borders of Europe) have placed new demands on retailers (tour operators), intermediaries and vendors. These systems were enhanced to service the tourist needs at the point of departure, during transport, as well as at the destination or the lodging phase of the trip.
When British airways took the initiative in 1987 to set up a joint venture to create Galileo, the aim was to establish a new central reservation system designed for the new marketing, selling and operating environment that would challenge the airline industry of the 1990's. The existing system had to catch up and investments had to be made for more user friendly interfaces in a bid to increase agent productivity. A mere improvement in the reservation agent's interface to the complicated SABRE reservation system of American Airlines, marketed as "Qik-Res", not only improved productivity by 7 to 8 percent, but also cut agent training time by at least a third (Henderson, 1993:68). The duration of the agent training course was kept the same to allow training on sales techniques and customer interfacing. These mature systems are 44 still being fine-tuned to improve the user's experience with the system so as to attract a bigger user market. Large sums are invested even for a marginal improvement to these systems.
The race for the first effective central reservation system in the airline industry started when American Airlines first allowed travel agents access to their SABRE central reservations system. The system became so flexible that up to 106 000 price changes a day could be accommodated to meet the needs of tourists or to sell seats not taken up through "special late arrival offers" (Keen, 1988:113).
American Airlines enhanced their reservation system to support other product developments. This was achieved by expanding the system's functionality based on the captured tourist information to develop secondary utilities. American Airlines introduced their Aadvantage frequent-flyer program and captured further database information on the 400 000 people who made up 70 percent of full-fare travel. This became the cornerstone for follow-up service to all tourists, specific marketing efforts and campaigns and even product development. So successful was American Airlines with this integrated system, that they made almost twice as much profit in 1986 (around $400 million) from their SABRE system as from their airline operations (Keen, 1988:8).
Key to all the moves by the airlines to gain access to a central reservation system, was gaining occupancy in travel agent business, and the launching of differentiating services such as car hire, insurance, hotel accommodation and the airline's own marketing database programs including the "frequent flyer" promotions. The primary system was enhanced to become a fully integrated offer to sales agents, combining related needs with the primary need of airline reservations. The distribution support was enhanced from airline reservations only, to later include distribution (sales) support and the full range of travel needs of their customers.
Another excellent, but different, example of an integrated system which benefited the participants greatly, was created for the tourism industry of Aruba, an island in the 45
Caribbean Sea. This island relies heavily on income from American tourists. Aruba mailed "visitors guides" to would-be tourists who responded to their advertisements in American magazines. In this advertising campaign the names of potential tourists were generated through toll-free numbers. The callers who qualified received the Aruba Holiday Traveller Magazine (Bono, 1995:18-21).
Four months after the initial inquiry or after a tourist's actual visit, the second issue was mailed. This included a survey on the "ideal" vacation destination. The third issue was mailed one year later, but before the time that the Aruba officials estimated that tourists would start planning their annual vacation and selecting a destination. This time, the would-be visitors received a glossy magazine and a personal invitation. The invitation was tailored to the individual's perception of vacation strengths and weaknesses. Using information technology in an integrated system, the follow-up marketing resulted in a 26 percent inquirer rate, 14 percent higher than before the campaign.
Another industry that had to invest extensively in information technology, is the retail banking industry. Today, banks have to implement information technology solutions to survive. Any retail bank without ATM's will loose it's customers. For banks, information technology is: An investment they must make to survive. A means to gain access to information that will assist them in predicting future customer trends. Information technology is used to analyze customer's requirements for financial products and the combination of financial products which will ensure the bank's survival. All these are based on the development of strategies such as life-style marketing. The means to develop new services, products and access to those services. Banks will increasingly have to invest in related services to support their long-term relationships with customers. Offering travel services to their vendor customers combined with access to the retail customers, could very well be the next frontier for banks. Banks might have to investigate establishing such a central reservation system in the same way that they moved into retailing through the provision of 46
point of sale (POS) devices to their retail customers (Morrall, 1995:43-46). This statement is supported by Middleton (1994:210) who claims that banks could easily expand into the travel and tourism industry since their infrastructure is in place and since they have developed sophisticated credit cards systems which could serve as a client base from which to market tourist opportunities.
American Express led the way for financial institutions in the tourism industry when they developed from services offered by travel agencies, to also include travellers cheques and eventually credit cards (Naisbitt, 1994:121). Banks will have to develop related services to survive. Banks in South Africa have access to an incredible information infrastructure which could be used to support the smaller vendors in the tourism industry.
The use of information technology by the financial institutions to target specific market segments, is well documented. Examples of how banks use information technology to become more efficient and more productive in addressing the needs of their target markets, are described by Morrall (1995:44-46). Some examples are: Banks use computers as part of the sales process instead of something that takes the sales person away from the customer. Banks have developed systems that reach out to customers and have built a sales culture within their organisations that can take advantage of benefits offered by new information technology solutions. Building relationships with their customers put the Bank of Boston in a position to provide appropriate pricing. The more a customer makes use of their products, the less he or she pays. Union Bank applied technology to automate information intensive procedures with their customers and so ensured a reduction in operating cost and improved productivity. The storing of specific customer information and bank's knowledge about customers, indicate future needs and products. 47
3.3 POSITION OF SMALLER VENDORS WITH REGARD TO PARTICIPATION IN CENTRAL RESERVATION SYSTEMS
The South African lodging industry is fragmented with most owners operating a single "production unit". These owners are responsible for all management functions, including the marketing of these establishments.
Smaller vendors should prepare themselves for innovative and competitive distribution methods to secure their survival, ensure growth and above all, stay profitable. The provision of integrated services to tourists must be considered.
The White Paper on Tourism (1996:28-46) does not specifically address the distribution needs of the smaller vendors, but focuses more on the physical development of the amenities and the incorporation of the community in providing the full tourism experience. The message from the White Paper (1996:23) to smaller vendors, is that the South African government believes that infrastructure development, such as a reservation system, is the responsibility of private enterprise. This was clearly indicated in the summary of the "guiding principles".
The smaller vendors can benefit from the pioneering work done by the financial sector, the world's first fully globalised industry (Naisbitt, 1994:30). The South African torusim industry should therefor latch onto the well-established infromation technology infrastructure of the banks.
Future society will have a greater quantity of information technologies at home, in the community and in the workplace. These changes will generate new distribution channels for travel products (Bruce, 1991:250). Not only will the consumer's role change with the provision of more self-service ticketing facilities but so too, will the vendor's and sales agent's roles change. 48
Bruce (1991:250) predicts that the quantity of travel information will increase. The main developments will be improvements in travel products by the principals (vendors) as well as carriers to agents and directly to potential tourists. To survive in these changing conditions, the suppliers of services such as lodging and transport, will have to form strategic alliances (Naisbitt, 1994:18). The smaller vendors could, for example, collaborate with a sport retailer and so provide special offers for diving equipment for those tourists accepting the offer of a diving trip arranged by the vendor (Bruce, 1991:250).
A greater degree of specialization within the industry is expected with many vendors and agents focusing on particular market segments and providing tailor-made products for tourists in these market segments. A new type of agency may emerge which moves away from the current understanding of straight selling to perform more of a travel consultancy role and providing individualized travel packages made up of a 'mix and match' of available travel offerings. Vendors should be aware of these changes and position themselves to capitalize on the opportunities presented by these 'travel consultants'. Although travel arranged by the individual is normally much more expensive than travel arranged with groups, this development of the target market travel consultants could see the reduction of cost to the individual since a specific target market is addressed and 'group' rates can be negotiated by the agent.
Players in the industry should prepare themselves to participate in the joint development of future information systems to be utilized and underwritten by industry players. Any developments to incorporate future enhancements to information technology utilized in the distribution system, should be such that costs could reasonably be shared amongst all the participants in the system (De Bord, 1984:39).
The development of the airline reservation systems saw an increase in tickets sold through these- systems. In 1976 only 50 percent of tickets sold were done through these systems. This increased to 70 percent in 1989 and to over 95 percent by 1991. The advantage to the vendor is that information on the prospective tourist is available. The systems cater for demand management and added value enhancements which will 49 facilitate direct marketing to prospective tourists (Collier, 1991:255). Vendors participating in this system, can expect to see the same increasing trend in reservations made through the central reservations system.
Collier (1991:256) observes that national tourism industries should be concerned if their vendors are not linked to these world-wide distribution channels. The North American experience saw a substantial growth in independent travel. These tourists will expect of their agents/consultants to put packages together through central reservation systems which can address their needs for transport, lodging and local tourism information. For frequent travellers, the system will store details on the client's preferences, whether they prefer a window seat on the flight, a room with a sea view, the booking of a non-smoking hotel room, or have a preference for specific food.
Vendors who made an inventory of rooms available on these systems will find themselves represented in new markets and being able to switch marketing and reservation efforts to accommodate fluctuations in demand created by, for example, currency movements (Naisbitt, 1994:141).
Vendors should also be shielded from developments such as the move by business to curb traveling cost (Bartram, 1995:26-27). If the vendor knows the regular business travellers and is in a position to predict/budget a certain income from these established business travellers, advantageous rates can be offered. These rates would benefit the vendor and the target business market alike.
In the UK, Hiline and the Bournemouth Tourist Board are at the forefront of creating opportunities for their regions through the use of information technology (Collier, 1991:254). The British Vendor Industry, with the support of the British Tourist Authority, launched Project Bravo which had as its aim to create a significant boost for inbound traffic to the UK. Project Bravo examined the opening-up of access to the vendors' establishments by providing information about these through on-line communication links with the established international central reservation systems. 50
A very successful venture was the establishment of the "Grand Strand Tee-Time Network". The owners of 45 golf courses and 17 hotels hooked up to a golf tee-off booking system with preferential bookings made for guests from the participating hotels (Johnson, 1992:47-49). The next phase of the project intended to link the tee- off system to the reservation system of the hotels and so automate the combined hotel and tee-off time reservation procedure. This is a typical example of value added services where two complementary products, lodging and sport, is combined to successfully satisfy the needs of a specific market segment.
3.4 SOME BUSINESS FUNCTIONALITY OF OTHER CENTRAL RESERVATION SYSTEMS
An industry system should address the primary functionality needs of processing reservations, but should also be flexible enough to support the growing secondary needs of participants in such a system. The main business functionality of such a system must be to enable vendors to reach their target , market by effectively providing enough information to the prospective tourist in a way that convinces him not to substitute the travel option with a purchase of consumer goods (Holloway and Plant, 1992:59). Information should be packaged to address the primary and secondary motivation to travel.
The primary motivation to travel could be: To escape from the work environment. To obtain a break from the responsibility of caring for children or dependent family. To escape the normal daily existence. To make new friends and establish social contacts.
The secondary motivation could address the need for fitness, status or romance (Holloway and Plant, 1992:59-62). 51
The adoption of information technology should also improve the productivity in the tourism industry (Bruce, 1991:250). Guesthouses, smaller hotels and resorts can demand that certain accepted functionality be provided to ensure that they as principals in the industry can survive in the long-run. Some of these specific items are: Be cost-effective, mainly because a greater volume of business should be handled by the sales agents or other intermediaries without incurring substantially greater costs. Facilitate the process of booking, confirmation and the latest prices of travel offerings - even to the prospective self-service tourist with the correct equipment to gain access to the system. Reduce the cost of educating a new user of the system due to the use of modern approaches to user interfaces in these systems. Speed up the process of addressing marketing needs of the sales people since speed supports faster sales and more filled rooms, booked per sales person (Greene, 1987:15). Support segmentation. Correct market segmentation is the key to increased sales. Greene (1987:16) strongly believes that the marketing strategy should direct the vendor to prepare his facility to attract the target segment - be it a specialist tourist facility, an exclusive business establishment or a conference venue. The 1995 survey of the world's best business hotels highlighted several items of importance to the business traveller. Hotels targeting the business market should not, for example allow tour groups. The tour group and business segments seem to be mutually exclusive. Hotels should also keep detailed records of their tourists. Business expect hotels to know their personal detail requirements after the fifth visit (Reamy, 1995:220-223). The needs and preferences of potential tourists have to be anticipated in developing tourism packages and contracting for these services. A major source of understanding of information on what will attract tourists is the historic data which the organisation or the industry has generated from its past trading experience (Laws, 1991:60). Modern systems do not only support reservations, but also search for alternative products on offer (Middleton, 1994:205). 52
A reservation system should be linked to printers to produce travel documents, confirmations and invoices (Middleton, 1994:205). Continuous marketing research data should be produced for use by the vendors who participate (Middleton, 1994:205). The application of modern information technology systems should support direct marketing between the vendor and the prospective tourist. From the information stored about tourists who made reservations through the system, the vendor should be able to perform target market segmentation and measure the effectiveness of marketing to these segments by measuring the response (Middleton, 1994:213). Sales agents/intermediaries should have access to ticketing facilities - especially for late bookings. Deposits should be taken. Print-outs must be given to tourists to prevent misunderstandings. Leading the sales agent/intermediaries through the system should be done in such a way that bottlenecks are avoided. Access to information should be quick and direct. This requirement should save the agent time so that he can focus on selling travel products, rather than fulfilling the administrative requirements of the system. The requirements of certain segments of the target population should be taken into account. The travel requirements of females are different to that of their male counterparts and should be catered for. The tourist needs should be considered in designing the system. Religious preferences should be noted. The system should be flexible to obtain a balance between technological focus and tourist orientation. The system should take cognizance of the move towards self-service for certain tourists. Some tourists are more computer literate and could easily be allowed to make reservations on the system. The tourist should be confident that the information provided to go through with the transaction is comprehensive, accurate and reliable, and that liability is guaranteed if something goes wrong. This will inevitably lead to changes in product liability. 53
New developments such as 'expert systems' should be incorporated to allow for faster searches and matches to the specifications of a travel destination by the agent, intermediary or self-service tourist. Virtual travel should be considered as a long-term option. This will allow the prospective tourist to "taste, see and feel" the destination before finalizing the decision to confirm a reservation (Bruce, 1991:247).
Collier (1991:255) identified a requirement of the future minded vendor who participates in these systems. These vendors need access to a facility where they can invest in their own 'electronic brochures' or even make a video available of the facilities and the surroundings.
Belmonte (1992:38-39) elaborates on advantages for those vendors participating in a proper central reservation system. These systems should include information about the tourists that utilized the vendor's facilities. Belmonte identified a number of opportunities to pro-actively manage demand and even improve income for the vendor. All these actions rely on more than the basic booking information being available on the system. They include: Indications by the vendor to . increase the rates when special events in the environment create peak demands. Lower the room rates in times of low demand. The opportunity to experiment with the room type mix to determine what works best. This could be done by improving the property to provide more of the profitable room type mix. In other words, the system should record information that could be used to support decisions to revamp the product. Provide information support for the sales agents trained on the system to ensure that they find and present the lowest rates available. Collate the denial reports on full nights for review on the opportunities of service improvements. These could also provide insight into future opportunities. Assist with the review of inventory on a regular basis which could lead to more regular rate adjustments. A pattern could be that 80 percent of reservations are made within 30 days of arrival. The system could be programmed to follow the 54
tempo of reservations received and adjust the rates accordingly. When more reservations have already been made for a certain period, the rate can be adjusted to be higher for the remaining reservations to be made. The capability to oversell responsibly. It is a known fact in the lodging industry that the only way to run a full facility is to oversell. Ensure that the screen presented to the sales agents sell the facility properly. Regular changes to these screens should be requested, especially when it can make a difference in reservations accepted. Ensure that all the amenities are indicated. The newly added swimming pool should appear on these screens. The system should be able to forward information on special sales packages to the sales agents. This functionality is similar to the capability of airline reservation systems which will allow forward booking at favourable rates when the demand is normally low. The reduction in rates should attract more sales. Ensure that sales agent commissions are paid on a timely basis. The reservation system should definitely improve communication with prospective tourists. Sales agents should have access to information to be able to tell prospective tourists of special offers, changes in amenities and packaged products with other suppliers.
According to Belmonte (1992:39), vendors who participate in these reservation systems should present their facility to the intermediaries. This can be done by inviting the intermediaries to the facilities. Everything the vendor needs the intermediaries to know about the facility could be shown and explained to them. Belmonte believes that the more information intermediaries have of the facility, the better they can sell it.
3.5 SUMMARY
The concept of central reservation systems have already been implemented by industries other than the lodging industry. In the 1980's the establishment of 55 successful central reservation systems for airlines were at the forefront of the development of this concept of support systems to manage demand.
Whilst travel is becoming more of a global activity with the expansion of international business giants into more countries and the opening up of borders between countries, the international hotel groups had to establish some systems to manage demand. These systems are sophisticated in that they also allow the owners to launch direct marketing campaigns to attract prospective tourists. The modem systems support information flow to support the reservation process, but also promotional flow which could be the distribution of literature about travel opportunities.
Much can be learned from the experiences of the airline reservation systems that grew from single function systems (making bookings) to sophisticated and integrated marketing systems that will support reservation requirements for airline seats, for lodging and even the necessary bookings for sport activities. These systems do not just store the information of the first-time tourist, but build a portfolio of the specific preferences of the more frequent tourists. This personalized information is used to prepare the airline or hotel to be in a position to cater for the special needs of the individual.
The industry can also gain from the experience of banks which had to develop sophisticated client information systems. These systems enabled the banks to keep track of current needs of their clients and to develop new financial products to fit the changing needs of their clients. The analogy will be for the vendor to know the market segment requirements so well, that the physical characteristic of the establishment can be changed to accommodate the target market segment better. The banks developed information on trends about their clients needs that enabled them to present new financial products to their clients as they progress through life.
A central reservations system for the lodging industry should take cognizance of the functionality provided by already established systems in the world. Much can be learned from existing systems in areas such as shortened sales agent training on the 56 system, frequent updating of information on the facilities of vendors on the system, access to the system by individuals with the correct equipment and even the presentation of tourist packages of combined products such as sport and accommodation. Central reservation systems became an integral part of the distribution channels for the airlines and is bound to follow the same trend for the lodging industry.
The central reservation system should definitely be linked to the larger world-wide systems such as Galileo to provide access to the prospective international tourist who would want to explore South Africa. Apart from the obvious advantage of such a system, which could present the local vendor to an international source of tourists through an access mechanism such as Internet, some important secondary advantages for the support for demand management would require that the system also be flexible enough to support campaigns where a region would want to present itself to prospective tourists. The example of Project Bravo can serve as a model for promoting regional tourist attractions in South Africa. The system should store enough information for it to add value to participating vendors. The system must support the vendor to pro-actively create tourist opportunities through combined packages (accommodation and sport) and still market these packages to the target market.
System participants should be prepared to sacrifice some income for the potential of attracting international tourists. The owner/manager could feel threatened if they perceive that participation in the system makes him loose control over his sales channel to his target market. The contrary has proven to be true: participation in such systems open up windows of opportunities to the owner/manager if he is constantly willing to adapt to the changing need of the tourist in the target market segment.
The South African industry has to follow the examples of success stories in other countries and implement whatever information technology solutions are required to attract prospective tourists from across the world if we want to generate much needed foreign exchange and create more or sustain existing jobs. 57
CHAPTER 4: METHODOLOGY AND RESULTS OF THE EMPIRICAL RESEARCH
4.1 INTRODUCTION
The empirical research for this study was conducted amongst representatives of the tourism industry selected since it was felt they could provide insight into the research problem at hand. Interviews took on the format of depth interviews where seven issues were presented to the respondents. The invitation for the interviews requested inputs on these issues presented in the invite sent to them beforehand. An example of the letter sent to each respondent is shown in Appendix A.
Since the invitation stated that inputs from the representatives would be treated confidentially, no specific reference to names will be made in this discussion.
In this chapter the research methodology is described, a brief description of the respondents is given, followed by the replies and deductions regarding the issues discussed with representatives who granted interviews.
4.2 RESEARCH METHODOLOGY
4.2.1 Empirical research
Ligthelm (1996:431) categorizes the empirical research that will be conducted in this study as industrial research since the provision of a central reservation system is aimed at the provider of lodging services and not at the ultimate consumer. The provision of the reservation system is intended as a support function for the production of the lodging service. Only when access to the system through an Internet interface to the public is provided, will the service take on the characteristics of a consumer service. The techniques developed for consumer research can, however, be utilized if face-to-face interviews, mail surveys or telephone surveys are used (Ligthelm, 1996:447). The complexity of the industrial processes largely excludes the use of other methods such as observation and experimentation. 58
The parameters for industrial research should focus on objective factors such as quality, delivery, after-sales service and especially price (Ligthelm, 1996:431). The purchase motive for industrial buyers is different from the motive for consumers.
Industrial marketing research should be concerned about the ultimate satisfaction of consumers, but above all, with the efficiency of the business, the removal of guesswork from business decisions and the contribution to reducing business risk - in this instance the improvement of demand management (Ligthelm, 1996:438). The research should also be more detailed since more alternatives for the application of the industrial product/service can be presented and explored in the research. The information on alternatives should be given to the respondents during the interviews for comment.
The inputs from literature indicated that marketing, and specifically the issue of distribution for the guesthouses, smaller hotels and resorts, could be an unfamiliar topic for the owners and managers. Ligthelm (1996:433) indicates that the respon- dents approached for industrial marketing research should generally be more knowledgeable. The research for this study therefore focused on obtaining inputs from experts in the tourism industry. These experts were interviewed individually, thus taking the form of depth interviews. Data collected during these interviews were of a qualitative nature.
4.2.2 Research objectives
The literature study indicated that not only does the industry internationally make use of reservation systems, but the trend is to rely largely on the application of information technology to manage demand in lodging establishments. The results of the literature research did provide input to the functionality of such systems as well as the primary application (demand management) and secondary application (such as product development) of such systems. From the literature study a few issues were identified which needed to be verified for the South African industry. 59
The specific objectives of the qualitative research were: To establish whether market segmentation is integrated into the marketing strategies of the owners / managers of the smaller establishments. To determine whether the owners / managers of the smaller establishments have the means to access their identified target market segment(s). To establish whether demand management is understood and whether the owners / managers are aware that a reservation system can support demand management. To test the need for an information technology baed central reservations system for the South African tourism industry. To inquire whether Galileo or any other of the established global reservation systems can fulfill this need or whether such a system should be established by some other entity in South Africa. To determine whether the industry should heed the warnings of academics such as Middleton and De Bord, that non-participation in a computer-based reservation system could lead to isolation from the global tourism market. To investigate the most important business functionality such a system should provide.
4.2.3 Sample for research
In this study the recognised role players in the organised tourism industry in South Africa were targeted. The organisations were selected for their expert opinions on the issues presented to them. Ligthelm (1996:450) approves of this method in the selection of a sample of experts and advise that the selection of the sample should rather include the larger, more well-known opinion formers in the relevant market. The 80:20 (Pareto) principle applies - target the few organisations that account for 80 percent of the market activity, rather than try and involve everyone. Table 4.1 indicates which respondents were selected as well as the reasons for choosing them. 60
4.2.4 Depth interviews for qualitative research
The investigation into the establishment of a central reservation system for the guesthouses, smaller hotels and resorts, is of a primary nature. Primary research has two approaches. Qualitative research will uncover new ideas or inputs from the respondents (Bennett, 1996:134). Qualitative research should be followed by quantitative research. Quantitative research seeks to quantify the data, and should typically apply some form of statistical analysis (Malhotra, 1996:164). The time limitation on this study prevented quantitative research.
Qualitative research is conducted by disclosing the purpose of the research to the respondents (Malhotra, 1996:165) followed by depth interviews. The latter were used as a means to collect information from the industry experts involved with smaller vendors. Bennett (1996:124-125) indicates that verbal communication will allow a greater volume and a wider variety of data collection, although there is a risk of subjectivity which may lead to bias in the results.
Other motivations to utilize the individualized depth interview approach to obtain inputs from experts were: Interactions with the respondents had to add expertise value to the research of this study. The subject matter is sensitive to a degree. Literature indicated that the knowledge level on demand management through a central reservation system, could be low and the respondents could be sensitive to a situation where more people could be involved. Strong norms might exist and respondents may be swayed by group response. They might not be comfortable to speak openly about the topic or to express a different view from the group. Although cost is generally higher with depth interviews, the need to obtain quality inputs outweighed the cost of the interview. This was an effort to obtain expert opinions of the organisations directly involved with the vendors in the industry. 61
TABLE 4.1: ORGANISATIONS SELECTED FOR THE INTERVIEWS AND REASONS FOR THEIR INCLUSION
Organisations Motivation for selection of role player interviewed
SATOUR , • Represents the total industry South African Tourism Organisation • Market research by SATOUR should indicate the need and even the functionality of a central reservation system • SATOUR should be able to comment on attempts in the past to establish such a system • Possible role players involved in establishing such a system could be identified by SATOUR FEDHASA • Represent the hotels & restaurants in the industry Federation of Hotels • Work in the interest of their members in South Africa • Their members could benefit from the establishment of such a system • Could contribute to the functionality required to support their members SAA • SAA established an airline reservation system locally South African Airways • They have the experience of running such a system • SAA is the local representative of the Galileo system • Could provide input into the value added for participants in such a system ASATA • ASATA is affiliated to the international travel agents organisation Association of South African • Should be in a position to contribute to the added value to Travel Agents participants in such a system from the international tourism perspective • They have experience in working on such systems - ASATA agents have access to Galileo • Could comment on the functionality required for such a system • ASATA should be able to indicate the value added for the participants (saving operational costs, etc.) Hotel group with their own • They should own/operate hotels country-wide reservation system • The benefits/weaknesses of utilizing such a system to manage demand should be clear to them • Experience in utilizing a reservation system to support demand management should be obtained from them Mr. Wainer • Mr. Wainer expressed the need for such a system in Finansies en Chairman of Don Apartments Tegniek of 31 January 1997 • He should be able to comment on the value added for participants • The contribution to support participants' demand management should be highlighted • Functionality required of such a system should be provided Jacana and Pretoria Guesthouses • Provide valuable experience in the automation of the reservation Organisations that undertake process reservations for guesthouses, smaller • Benefits of participation in such a system should be provided as far as hotels and resorts demand management is concerned • Role players involved in the establishment of such a system should be identified • The knowledge level on demand management of the managers and owners of the guesthouses, smaller hotels and resorts should be indicated 62
Logistics was a major consideration. The organisations were all in Gauteng. The respondents, however, have no common cause at this stage as far as the topic of the study is concerned. Until such common understanding exists, the technique of depth interviews (Bennett, 1996:141) should be used. Focus group interviews could be used once common cause was established. Detailed probing of the respondents is required. Detailed understanding of the topic is required. The interviews are conducted with experts. Interviews are conducted with competitors and they may be reluctant to reveal information in a group setup (Malhotra, 1996:177).
The advantages of utilizing depth interviews are various. These include: They are ideal in situations where all possible answers to a given question are not known. The researcher can usually deduct the reason for a particular response. They compel the respondents to think and to consider their answers. It could be the only method to use when the possible number of responses are too great (Loubser, 1996:229).
Loubser also mentions a number of disadvantages of open-ended questions used to guide the discussion during depth interviews: They elicit much irrelevant information. They lengthen the interview with the possibility of deviating from the original question or issue under discussion. Eventual processing of the data is more difficult. Responses could be invalidated by the interviewer in an effort to probe for relevant information. 63
4.3 DEMOGRAPHIC INFORMATION ON THE ORGANISATIONS THAT PARTICIPATED IN THE DEPTH INTERVIEWS
This section provides background about the organisations approached to participate in the depth interviews.
4.3.1 SATOUR
As. SATOUR was in a process of re-organisation, they did not grant any interviews despite several attempts to arrange interviews. The individuals contacted felt they should not comment on topics not falling within the scope of their new mission.
4.3.2 FEDHASA
Contrary to SATOUR, the representatives of FEDHASA were keen to discuss their role and position in the industry. They commented on their expanding role, responsibilities and future challenges. The possibility of them taking on the role of accreditation and grading lodging facilities and the possibility of a representative arm in their structure for guesthouses, were only part of their possible future role. FEDHASA is re-organising to take on more responsibilities and extend their role in assisting their member base to utilise opportunities presented in the industry.
4.3.3 Galileo travel agent network
The American-based travel agent distribution company is represented on a contract basis by SAA. Galileo, Southern Africa, is operated as a strategic business unit of SAA. The current managing director of Galileo, Gordon Wilson, comes from Britain and reports back to his superiors in Denver, Colorado through the Swindon office in Britain.
Galileo was primarily established as a reservations network with access by travel agents of the participating airlines. They boast share holding by British Airways, Aer 64
Lingus, Air Canada, Australian Airlines, KLM, Olympic Airways, Swissair, TAP, United Airlines and US Airways.
Galileo, however, realised that they needed to enhance the service offering to travel agents and added reservations capability for selected hotels and car hire companies to their system. They marketed directly to the South African hotel industry and Karos, Protea, Stocks Hotels and the Garden Court range of hotels from the Southern Sun stable offer reservations through Galileo. Galileo would actually prefer not to market and administer the inventory of the smaller hotels on the system, but would welcome a central reservation system representing the smaller hotels to link into their system.
Galileo is strategically well positioned with a market share of more than 90 percent among the South African travel agents. They provide extensive training to their network users and constantly enhance the functionality presented by the network. This investment by Galileo to keep travel agents technologically up to date makes it very easy for a new supplier to capitalise on a well educated base of users who can quickly provide access to and even guarantee a market share in a market where cost of entry could be very high.
4.3.4 ASATA
The registered travel agents in the industry are well established. The Association represents their members at every possible forum and is very active in enhancing their agents' knowledge of changes in the industry that could influence the agents' survival. ASATA is also keen to inform members about events that could directly or indirectly influence their well-being.
ASATA is assisting their members with an important recent development. Travel agents tend to contract with corporate clients to become their "travel consultants". Their income structure then changes from a pure "income-from-commissions-earned- on-accepted-reservations" basis to management fees charged to meet the travel needs 65 of their corporate clients. This provides them with a better cash flow and a more challenging, albeit closer, involvement with their clients.
The fact that Southern African travel agents all have access to either the Galileo or the Worldspan travel agents distribution systems, put them in a position to capitalise on new opportunities presented through information technology. They seemed to be computer literate enough to even accept Internet as a distribution mechanism. The representative of Galileo commented that the travel agents were quick to accept and even utilise the new Windows 95 based "Spectrum" facility which shows the position of the hotel on a map on the screen.
The training courses by Galileo and Worldspan for travel agents are well attended and present a platform for change in the industry if new information technology services are to be made available. The basic infrastructure and attitude towards learning by the travel agents, are therefore well established.
4.3.5 Karos Hotels
Karos Hotels own and operate all the hotels in the group. Each hotel has its own computer-based system for internal operations, but Karos does not have a central reservation system for access by travel agents or other prospective tourists. Karos allows reservations through their own telephone call centre as well as through Galileo and will also place rooms on one of the world-wide hotel reservation systems, Aramis.
Each hotel in the group targets its own target market. Karos did not develop all their establishments for a specific market segment such as City Lodge. Karos has access to information to effectively market to the target market of each hotel. They understand market segmentation and demand management and will change their market target to the more general public during periods of expected low demand. Karos would schedule communication to the target market to reach the potential tourist when the decision to travel is made. 66
4.3.6 The Don Apartments
The Don Group's target market is the business traveller requiring a well-equipped place of residence on business trips. Their clients, on average, stay over longer than hotel guests. The Don Group has an active sales force that markets their service to businesses with the aim to contract with corporate clients.
The Don Group clearly realizes the importance of electronic distribution and allows reservations through Galileo and Utell and even maintains their own Internet site. Mr. Wainer, Chairman of the Don Group, expects a change in the reservation pattern from his target segment and believes Internet will become an important access method to accept reservations. The corporate client is becoming knowledgeable enough to make his own reservations through Internet.
The travel agent will, however, have to remain in the reservation chain since businesses need a single point of service when a new destination is targeted or when travel arrangements are of a complicated nature - such as when arrangements for conferences or overseas travel for groups have to be made.
4.3.7 Aramis and Utell central reservation systems for hotels
During the interviews, reference was made to Utell and Aramis. Both Aramis and Utell are large hotel databases. Utell, for example, has more than 6 500 hotels on its database and can offer information and reservations for more than 270 hotels in Paris alone. These systems are operated from large computer-based systems in Canada and the United States respectively. Their sales agents in South Africa market the services and assist in the maintenance of information on the participating hotel on the overseas computer-based systems.
Since these services are directed towards promoting hotels, the functionality of these services are enhanced and improved to meet the requirements of the participating hotels. Hotels can regularly change their information on the system. Special price 67 reductions can be offered within minutes to all agents connected to the system. Feedback services such as statistics on occupancy levels, the target market of each hotel, general feedback on tendencies in the industry and even hotel specific feedback are part of the standard services for participating hotels.
Aramis and Utell are linked through some switch to the travel agent networks, such as Galileo and Worldspan. Their participating hotels enjoy on-line distribution to more than 40 000 travel agents world-wide.
4.3.8 Pretoria guesthouses
Since the first new guesthouses opened about eight years ago, some 330 guesthouses and bed-and-breakfast establishments have come into operation in the Greater Pretoria area alone. They were initially targeting the business market with a less expensive and more personalised lodging alternative to what the hotels could offer.
Many of these establishments were started by individuals who had a vision of their own businesses and of supplementing their income or pension with the profits from these establishments. Professional experience lacked and marketing expertise was non-existent. Many of these businesses obtained regular clients by marketing through word-of-mouth and providing excellent service for the tourists' / traveller's money.
The rapid growth of guesthouses created an oversupply in the market and to survive, the more determined operators had to find ways to attract more tourists from alternative segments to survive. One of the early methods was to form a guesthouse association and to negotiate as a group to achieve certain goals, such as accreditation with SATOUR. An effort was made to introduce service standards amongst the owners and managers of these establishments. They produced and distributed pamphlets that served as communication channels in their marketing campaigns. All these developments created more knowledge amongst the managers / owners of these establishments. Over the years the more "professional" managers have improved further and there is a clear cut between the experienced and the not so experienced 68 members. The more experienced members are now exploring the possibility of tapping into new market segments such as the lucrative overseas tourist market. They can comfortably provide cost-effective lodging to these tourists. The service they offer is more personalised and since they live closer to the tourist, they can adapt more quickly to their target market's changing needs than the larger groups. The problem they face in targeting a new market segment, is to bring their establishments up to the same standard and for the participating guesthouses to cooperate so as to give each a fair share of the tourists from the newly found market segment.
Another relevant issue for this new supplier is the lack of immediate reservations and knowledge of short-term opportunities in the market. They are investigating communication channels with travel agents who receive tourists from overseas that insist on the lodging services of the more personal guesthouses.
The threats to operators who are focusing on new target markets, start with the lack of infrastructure. Road signs to their own establishments and to tourist attractions are inadequate and below European standards. The operators of tourist attractions such as the Ndebele native village, are unreliable. They have to be flexible or have their facilities accessible for tourists. Other issues include the lack of access to easily readable maps indicating the different tourist attractions properly and the practice of favouritism of the local councils. In short, the industry needs a strong player who can • improve the environment to the extent that its inherent potential can be developed.
4.3.9 Jacana - Farmstays & Countryroads
Jacana was the only respondent who developed a tourism experience as a product and marketed that product to the identified market. The "Farmstays and Countryroads" concept was developed around the hiking trail and nature conservation issues. Eco- tourism provides a marketing opportunity to South Africans as well as overseas tourists. Jacana boasts more than 30 guesthouses which participate in the service. 69
Jacana selects the guesthouses that could participate in the "franchise" and determines the standards as well as the tariffs. This ensures a product well within the accepted affordable range of the target market. The owners of the guesthouses only provide the facilities and maintain the hiking routes to the agreed standards. The activities such as horse riding and other farm-like activities add to the experience. The products are being upgraded to include guided tours. The owners are remunerated on a monthly basis for the services rendered.
Jacana effectively acts as a franchise holder with the franchisees as the participating owners of the guesthouses. Jacana sets the standard of the product which, in this instance, is the total farmstay experience or the hiking trail experience.
Jacana has a computer-based office operation which handles reservations, fees and commissions, maintains a client database, assist with product quality control, new franchisees and even enhancement of the product through feedback to the franchisees. An Internet site was established and requests for the service have been received from Europe. The Internet service is currently an e-mail type operation with feedback provided to the tourist, again through e-mail.
4.4 RESULTS OF THE STUDY
The seven issues relevant to this research, were presented to the respondents during the interviews. These issues served as guidelines for the interviews. Except for obtaining background information on each respondent, the issues were the main topics for discussion. The feedback from the respondents on these issues is discussed in the ensuing sections of this chapter. 70
4.4.1 Integration of market segmentation into the marketing strategy of the guesthouses, smaller hotels and resorts
The literature indicates that a central computer-based reservation system will improve the market segmentation of the participating vendors by providing feedback on the tourists who frequent the establishment. The examples are the American Airlines Aadvantage development and the system implemented by the tourism authorities of Aruba island (see sections 3.2.4 and 1.2).
According to the respondents they have a need for segmentation. Consultants are available to assist the smaller vendors with inputs to optimally target their particular segments, but unless they work in groups, the cost to obtain such services would be an inhibiting factor. The common impression therefore was that market segmentation is not understood, nor is it a priority for the smaller vendors, specifically the guesthouses. Cost is the inhibiting factor to establish and manage such a focus in the marketing discipline for the smaller vendors. Unless the smaller vendor cooperates with others or they organise themselves into some association, they will not be able to afford to apply market segmentation.
The message is clear. Unless the vendors utilize a distribution mechanism that can support the application of market segmentation, they will not be able to achieve the occupancy levels required to sustain their businesses. The lodging sector of the tourism industry is constantly influenced by changing parameters in the market. The oversupply of lodging is the immediate threat they have to deal with, but other issues such as the lack of infrastructure and the changing needs of tourists who are willing to visit South Africa, must also be considered when approaching the target market.
4.4.1.1 Guesthouses
During the interviews it became apparent that the guesthouses do understand the importance of market segmentation. Many of them have developed their establishments with very specific market segments in mind. They are willing to 71 participate in efforts to reach the target market, but the financial resources are lacking. They often cooperate with individuals and marketing organisations who sell them the concept of reaching a specific target market. This was adequate to approach the domestic market. The overseas target market can, however, not be reached because of high marketing costs.
In the industry an impression was created that the "Portfolio of Places" would allow only the more professional guesthouses to advertise. The cost to have their establishments presented in the "Portfolio of Places", is seen as the necessary investment to reach the more affluent tourist. No guarantees exist that the target market is even aware of the existence of the publication. On the other hand, all players in the industry are of the opinion that the bed and breakfast (the informal B&B establishments) target the bottom end of the tourist market.
The guesthouses initially established themselves with a very specific market in mind and on a "shoe string" budget. They mostly managed to attract guests from the business sector and managed to build a client base of regular repeat clients. This allowed them to survive. The increase in the supply of lodging put pressure on these segments and the early stages of a price war is being experienced. Under these conditions, the smaller vendor will have to deal with the depletion of the regular flow of visitors due to more offerings.
The more knowledgeable smaller operators are re-organising themselves to target different, and to them, new market segments. They draw from their collective experience and to address the needs of these market segments. They are even willing to change their establishments (product offering) to appeal to the new target market. They are financially sound and willing to move to the next phase in the product life cycle where their distribution is handed over to intermediaries.
The example in hand is the group of Pretoria based guesthouses. They formed a group of more experienced owners that are combining marketing efforts to improve segmentation. They will in future focus on the more lucrative tourist market since they 72 are further advanced in the product life-cycle development and are ready to exploit opportunities where lodging is combined with tourist attractions to provide a more integrated tourism product. The development of the integrated tourism package will require that they undertake an enhancment of the basic tourism infrastructure. These could include functions such as the development of a map of attractions; the education of participants who operate tourist facilities with attractions such as micro-lighting and horse-riding; the establishment of some form of reliable transport; and even the erection of proper road signs for the tourist to follow to reach the different attractions. Since the guesthouses will be the basis from where the integrated tourism experience can be enjoyed, the vendors will have to remain in control and look for a distribution channel that will fully support their package offering. According to literature, this group of vendors will have to accept some form of intermediary representation and a distribution mechanism that will provide access to the target market segment.
4.4.1.2 Hotels
All respondents were of the opinion that the hotels are fairly organised and that they are able to target their preferred market segments. The hotel groups such as City Lodge, Protea and Karos are known in the industry for targeting their segments well. They boast the highest occupancy figures. They target the visitor who would make repeat visits. They use inputs from consultants and can change their marketing approach as the patterns in the industry change. The larger groups are also linked to the global travel agent networks to allow reservations from the overseas visitors. They have evolved through the product life cycle and fully accept that their own sales outlets which would accept walk-in or phone in reservations, or even their telephone call centers are just not adequate to ensure the required distribution.
Feedback from Utell is that they have learned through the years that a destination should market itself to the overseas tourist trade on a personal basis. This is costly, but effective. Writing letters and providing brochures to travel agents may not convince these operators in the overseas wholesale market to persuade prospective tourists to 73 travel to South Africa - the industry works on personal contact. If the marketing is not acceptable, then alternative destinations will be presented to the prospective tourist.
4.4.1.3 Resorts
The position of the resorts is unknown. Respondents indicated that unless resorts belong to a group such as Aventura, they face the same problems of lack of knowledge or lack of funds to reach their appropriate target market segment.
4.4.2 The means to access the identified target market for the owners/managers of the smaller establishments
Access to the target market by the vendor implies that the vendor can provide information and preferably reservation services at the point where the prospective tourist makes the decision to travel. Since acceptance of reservations at the establishment of the vendor could limit the market reach, the vendor will have to accept that reservation services should be made available at the place where the tourist makes the decision to travel. These services are then handled through the sales agent that represents the vendor. The vendor should understand that the provision of the service commences at the sales point of contact.
The respondents indicated that the representatives from the larger organisations know how to reach their target segment in the domestic market. They achieve exposure to the target market through their sales force which visits corporate clients, through advertising campaigns in the media and through direct mail shots backed up by a telephone call centre. They also provide access to travel agents through the Galileo network. The larger organisations know that they have to appoint intermediaries to enable them to reach their target segments. These organisations reach the overseas market through marketing and presentations to the wholesale entities such as tour operators in Europe and the East. 74
Gaining access to the target market is the most frustrating factor to the smaller vendor. The cost is too high, the smaller vendors constantly have to rationalise all expenditures, the existing structures in the industry do not cater for the vendor with less than 30 to 50 rooms and the smaller operator cannot afford to undertake the personal marketing effort himself since it would imply time away from the "production unit". He is, however, willing to participate in such marketing campaigns if the return on the investment proves to be worthwhile.
The feedback from respondents indicates that the smaller operators are still fairly naive about how to go about in reaching their target market and the factors that could influence their return on investment to reach their target markets. The smaller vendors need to understand what the market potential is, but then also what the factors are that could prevent them from attracting tourists. They spend too little time considering the impact/effect of competition in the market. The competition could be from other vendors or the alternative service offerings that the prospective tourist could choose to spend his time and money on. Too little information is available about the overseas tourist visiting South Africa amongst these operators. The reasons for the visit and the expectations during the visit are not known. Without this kind of information, the product offering cannot be enhanced to fit the need of these tourists.
The smaller vendors clearly do not know who their tourists are, why they travel or how to reach them through marketing efforts to secure follow-up visits. To date, the cost of maintaining client databases and the marketing effort to contact the tourists for re-visits, are just too high. Even if they had the knowledge, they would lack the financial resources. If they do not generally cooperate with other vendors as in the case of the Pretoria guesthouses, they have no means to reach the more lucrative markets. Some of the smaller vendors have contacted tour operators and successfully managed to present their services to these operators who would include them in their product offerings if the groups are small enough to utilize the vendors' services.
Some smaller vendors make information available through the InfoAfrica kiosk at Johannesburg International airport, but found that they have to replace the brochures 75 constantly without real returns on their investment. InfoAfrica does not make the reservations, they merely refer prospective tourists to these establishments. InfoAfrica did however produce a "Travel Agent's Red Book" in which ideas on how to reach the target market are discussed.
Jacana provided a means for the would-be owners of guesthouses to cooperate with a marketing / franchise organisation that did and constantly does the market research on behalf of the franchisee. The type of service provided and the expectations of the target market segment are always communicated back to the franchisee. This service reminds of the Marriott service where close association ensured the success of the group through many years of operation. Initially Jacana worked off a base with no statistics or marketing type information since SATOUR did not develop this kind of research information. Jacana is the true pioneer breaking new ground, and succeeding - despite tremendous cost and effort. Jacana's information after seven years of operation indicates that the composition of the hiking and farmstay groups have changed. The early groups seemed to have visited Jacana guesthouses to follow the fashionable trend of a sudden "interest in nature". The groups now consist more of families or groups of close friends who really want to experience nature and who are keen to learn about nature during their stays. In the near future the visitors could expect guided tours on all the hiking trails. Jacana feeds this information back to the participating guesthouses which have already resulted in maps of the hiking trails being made available to the visitors.
Another factor that influences the capability of the smaller vendors to reach their target market, is their reluctance to change with the product life-cycle. According to the literature (see section 3.1) the vendors who develop along with the product life cycle, will accept alternative means of distribution and not only rely on marketing their establishment themselves. Opportunities such as presented by the adventure tourists should be capitalized on. The adventure tourists are mostly small groups or individuals who travel to see specific attractions or visit specific events, but who do not necessarily follow a pre-planned itinerary (see section 2.4.1). They are 76 experienced travellers who know how to utilize the travel agents in the industry to achieve their targets.
4.4.3 The level of understanding of demand management and of the supporting role of a reservation system
According to the respondents, demand management is clearly understood by the industry since it impacts directly on the bottom line of the operations. The industry prefers to use the term "yield management". Yield management might be the more appropriate term to use since it addresses the issue of the investment made for improved occupancy and therefore improved bottom line.
Most respondents from the larger institutions replied that the smaller vendors do not accept that a certain investment (a commission or a transaction fee per reservation) has to be made for improved occupancy. The respondents representing the smaller establishments defended their reluctance to pay for reservations because of cost. To them it is not just an issue of what advantages of improved demand can be obtained at what cost to the running of the establishment, but also the pure monetary value of what needs be paid to the provider of such reservation services.
The smaller vendors realize that the banks are too willing to make funds available to them without really understanding the industry. This exposes the smaller vendors to the risk of access to easy money when they want to improve their distribution without the backing of proper research data on how return on investment could be achieved. Smaller vendors are restricted by the lack of information in the industry.
The smaller vendors have the advantage that their families often share in the meals and other expenses of the establishments. This makes reasoning to spend money much more of an issue since it impacts directly on the available funds for the family. The vendors also take leave over certain periods and effectively close their operations during that period. The demand patterns for guesthouses are therefore different. 77
Occupancy figures of 65 to 70 percent for the months that they are in operation, normally allows them to meet the requirements of the business plan.
Jacana, on the other hand, knows exactly what occupancy figures the participating guesthouses can allow. Occupancy in this environment depends on events such as rain, drought and the ability of the environment to regenerate itself after fires or overgrazing or even due to the impact of the tourist on the environment.
All of the larger vendors indicated that the smaller vendors do not keep enough information on their occupancy to notice swings in demand, be it seasonal or due to other factors such as economic cycles. The smaller vendors tend to keep a manual system of registering tourists and cannot compile an accurate forecast of occupancy of their establishments from these manual registers.
The larger organisations do understand the issue of demand management and plan accordingly. They follow up on guests who visited before. They issue club member cards to those who visit their establishments frequently. They launch marketing campaigns to attract tourists from other segments and would even change their product offering by adding meals and usage of facilities or by changing their prices to attract more guests.
The application of reservation systems to "inventorying demand" (see section 2.5) to allow for advance bookings and to reach tourists who visited before, is well understood and is becoming an important issue with the larger groups. They realize that they have to secure advance bookings and they launch marketing campaigns when feedback from their computer-based systems indicate a future low occupancy period. Since the smaller players do not participate in these kind of management activities, the impression of the larger players in the industry was that the smaller vendors do not remotely understand the issue and consequences of demand - or yield management.
The general consensus amongst the respondents is that the industry would welcome a system that could provide support on demand management. The reason is simple - it 78 affects the bottom line. Systems such as Galileo which is available in South Africa, does provide some form of feedback which the vendors can apply to enhance their establishments and improve the demand for their services. Utell and Aramis have too small a user base in South Africa to significantly influence the market. It is, however, up to the vendors to apply the information to their own advantage.
4.4.4 The need for a computer-based system for the smaller vendors in the South African market
All respondents agreed that there is a definite need for such a system in the South African tourism industry. The systems available from overseas are too expensive and the need for proper information handling in the industry is real. The experience with the change in the tourism industry since the elections, have made the South African operators in the industry realize that they have to compete on an equal footing with overseas competitors. Only information technology can support the volume and complexity of information they require. The experiences of the airline industry is known to all in the industry. They accept that that is the direction to go. Those in the industry that do not accept the fast pace of change will soon find themselves outside of the race for survival. The average time for making a reservation through telephone calls and faxes, makes it a non-viable long-term option. Information technology is becoming less expensive and more accessible and the reason for the non-existence of such a system need to be questioned.
The larger players have their own computer-based systems. Although these systems are not necessarily on par with the systems' functionality as offerred by the sophisticated systems available overseas, they nevertheless realized that they simply cannot operate without computer-based systems. They realize that they have to keep a proper record of reservations received - even reservations of up to 18 months in the future. They also use their systems extensively to capture information about their guests and market from this base of information to obtain repeat visits. 79
According to the respondents, travel agents currently drive the implementation of information technology solutions in the market. Travel agents are keen to have access to a system that could also include reservations to hotels and guesthouses. They are in an ideal position to capitalize on short-term changes in the market - such as the increase in adventure travel where very small groups or even individuals need access to reservations. They are frustrated by not having access to these systems since they have to revert back to the time consuming methods of telephone calls and fax messages to finalize a reservation. The current travel agent systems are successful and all are information technology based. They have to have access to a system that would also be accessible through the computer terminals they currently operate on. They know it is possible since they have access to what is on offer from overseas accommodation suppliers.
All the respondents agreed that the ideal distribution solution should provide access to the travel agents networks and also provide access through Internet. The first test of the success of any such system, is that it should provide access to the travel agent distribution system.
During the interviews the respondents referred to efforts from South African organisations to establish a central reservation system. The current efforts in the industry are not seen by the respondents as an answer to the needs of the industry. Some success stories in establishing stand-alone systems include the Fidelio service, the InfoAfrica service which started off as a kiosk service at the Johannesburg International airport, the Cumputicket hotel bank service and the service supplied by Mervin van Staden. None of these services are in a position to be marketed as a service that could replace the likes of Utell or Aramis, nor do they provide access to the travel agent distribution systems.
Even the Internet solutions presented by some respondents are basic in functionality and are merely collectors of requests for reservations through the e-mail facility. This will then require of the vendor to transfer the information from the Internet mail received to the current reservation system of the vendor. The reply is via e-mail back 80 to the tourist. This is exciting, but definitely too slow and too cumbersome to serve as a method to solve the needs of the industry. The market expects an immediate reply to a request for a reservation and the amount of information required for a reservation is too much to work efficiently through a cumbersome facility such as e-mail.
The second pre-requisite is that the intermediaries, be it travel agents or other sales agents, will have to be educated to use this system. The current trend is that travel agents still prefer to use the telephone call centers or faxes to make bookings even to vendors such as Karos which offer on-line access through the Galileo network. Leisure reservations is still accepted directly by the vendor through telephone and fax reservations. An education campaign will be required to change the behaviour of the public when an on-line system is established. Direct bookings on the system must be encouraged to save cost and time and establish the reservation agents, travel agents and other reservation agents as the efficient entry points to the system.
The third pre-requisite is the feedback and education on the role that the system owner will have to fulfill to assist the vendors in improving their market segmentation and demand management.
The group of Pretoria-based guesthouses are moving to the next phase in the product life-cycle and are ready to accept information technology based solutions to satisfy their need to reach their target market. The other smaller operators indicated a willingness to accept the advantages of participation in such a system, provided they stay in control of their inventory. However, the issue of cost was mentioned as the most important consideration.
A major concern of the smaller vendors is that, when they cooperate and pay to market their services through some marketing organisation in the industry, they often fall prey to favouritism. Their experience has been that those vendors who play along with the marketer will get reservations - even if it is at such reduced rates that they cannot really afford to accept the tourists. Those who do not play along, will get no reservations, although they paid their fees to belong to the marketing organisation. To 81 these vendors, such a reservation system should level the playing field and allow everybody a fair share of the potential market - and the potential demand.
The general feedback is that an information technology solution should support those involved in the industry to more accurately handle the increasing amount of information required to support a reservation. These systems do not exist in the South African market, but the respondents are aware that these systems are available overseas.
4.4.5 The option of any existing or possibly a new system operator to fulfill the need for a reservation system
It became clear from the responses that the government does not seem to involve itself in any effort to set up support structures for the industry. Since government will not be the driving force to establish such a system, it could only be established and operated by an independent organisation or as an extenuation of an existing service provider in the industry.
This attitude of non-comment by SATOUR, became evident during the interviews and several respondents commented on the "disappearing act" of SATOUR off the domestic tourism scene. This poses a serious problem to an industry which should be driven by a central coordinating body in a country with a developing economy - and especially since the tourism industry was nominated a focus area for development by government.
The Galileo system does not and cannot answer to the need of such a system for the smaller vendors. All respondents agreed that cost was the inhibiting factor for participation in the Galileo system. The cost to participate in Galileo is determined in dollars and it works on a sliding scale. The vendor could pay as much as 10$ for the first reservation of the year. The cost per reservation is reduced with more reservations made and can become as low as 4$ per reservation if an adequate number of reservations is accepted for that vendor. On average, this cost structure makes it 82 impossible for a vendor with less that 50 rooms to attract enough bookings throughout the year to justify participation. The other limiting factor is that the Galileo operation in South Africa focuses to fulfill their main mission - to be a travel agent's network, not a hotel database.
The other alternative is the Aramis or Utell services. Both services were specifically established to allow vendors in the hospitality sector to present their establishments on a world-wide basis. These central hotel reservation services link into distribution networks such as Galileo and Amadeus which, on a combined basis, provide world- wide access to more than 40 000 travel agents.
Utell currently presents more than 6 500 establishments to the travel agent fraternity. Utell and Aramis opened Internet sites and experience a growing interest for this channel of distribution. It is estimated that up to 2 percent of reservations are currently accepted through this medium. The representative of Utell predicted that the number of reservations received through the Internet would equal those received through travel agents and the telephone call centers operated by the groups (roughly a third from each source) within 10 years.
Even Utell and Aramis have to charge a reservation fee in US $ for each reservation. The cost factor is becoming the limiting factor to them to operate in the South African environment. Utell and Aramis do not target vendors with less that 30 rooms to make it cost justifiable for the vendor to participate.
Some issues that the provider of such an information technology based service should consider are the following: The service will have to link up with the current travel agent distribution networks to allow access to the established distribution infrastructure in the tourism industry. The system must be large enough to handle the expected volume of transactions from reservation agents and from the vendors who would want to change their information on the system. 83
This central reservation system must be electronically linked to the Galileo system in a similar fashion that the Utell and "Aramis Global Reservations" systems are linked. It must undertake to reduce the cost of reservations to the vendor if travel agents make the reservation. The cost of paying fees in US $ per reservation is just too high. The Computicket "hotel bank" concept, was acceptable to all respondents. According to this system, Computicket would charge a commission fee per reservation. The concept of membership fees with no guarantee of receiving any reservations and the favouritism experienced in the industry, makes the fee structure of the Computicket initiative more attractive. It is perceived as a win-win solution. Assistance must be given to the vendors to manage their information on the system. The vendors are generally not computer literate enough to manage this kind of information driven systems. Enough investment capital should be available. The inhibiting factor for the establishment of such a service is the tremendous cost involved to the investor to develop such a service. The turning point for such a service is typically 30 to 36 months. Most investors are sceptical about such ventures.
4.4.6 A computer-based reservation system must be implemented to allow world-wide distribution
If the tendency world-wide is to utilize information technology for the improvement of communication with prospective tourists, then the understanding of the respondents towards the implementation of such a technology to facilitate the requirements of improved information provision had to be verified.
All respondents agreed that non-participation in such a system, should it be established, would result in the vendor being isolated from the world of potential tourists to a degree far worse than the political isolation of the "apartheid years". This would result in an "extinction" of the vendors who do not participate. 84
The larger operators in the market all agreed that the massive amount of information required to accept reservations and to manage demand properly, have forced them to invest in information technology solutions. The speed required to serve tourists effectively in an environment where the volume of information per reservation increases, cannot be achieved unless the vendor utilizes and subscribes to information technology solutions.
The information development in the industry is largely dictated by the travel agents. They are familiar with information technology systems and are willing to participate in an information technology based service. Any other method is too costly and too time consuming to be viable. The South African travel agents have access to the same delivery systems as their counterparts elsewhere in the world. If the South African tourism industry fails to obtain the buy-in of the travel agents, then the lucrative international tourist market will remain inaccessible to the South African hospitality industry. It is a matter of cooperating along the accepted norms or remain isolated.
4.4.7 Functionality expected of such a system
All respondents were asked to provide inputs to the functionality required from a central reservation system. The feedback provided is given according to the number of respondents who mentioned a particular item. The following were recorded during the interviews:
Speed of operation - the information needs to be accessible immediately. Global access - travel agents, reservation agents and Internet users need access to the information from anywhere in the world at a reasonable cost. Most reservations for lodging outside of the vendor's own reservation office, are received from travel agents. Therefore the system will have to provide access for travel agents. The system should lead the reservation agent through the system with guidance and questions in a fashion that is natural to reservation agents. Only when the criteria for a reservation are specified, must the available options be presented. The system must be agent driven. 85
Ease of operation - since many vendors are not computer literate, this is a must. To change the vendor data on the system should be easy. The vendor needs to feel in control of the information on the system, otherwise he will experience a loss of control over his own destiny. Certain vendors are involved in special arrangements with their corporate clients and they need to have enough control over the information on the system to enable them to honour these arrangements. The system has to provide selective access by the reservation agents to information relative to the preferred target market segments. The minimum information required to support a reservation should be carried on the system. This information should allow for the prospective tourist to select lodging to suit his needs, including the address and location of the establishment in relation to where the tourist wants to be to attend a business meeting or visit an attraction. This could imply that video snippets of the facilities on offer could be an accepted minimum requirement in the near future. Feedback to the existing client base is of utmost importance. The vendors will have to have access to their clients' information to enable them to secure repeat visitors. The system must be free from any favouritism. If a vendor qualifies to provide accommodation to the prospective tourist, then each vendor should have a fair chance of being selected. The administrative costs of vendors need to be reduced. The provision of support through telephones and fax services cost too much in time and personnel resources. The administrative items also include the payment of commission to the service and the reservation agent. This must be done automatically. The information on the system must be reliable. If a reservation is made, then the system must be able to honour it. Reservations need to be made and be confirmed on-line. The system must be available 24 hours a day. Reservations are requested any time of day, from anywhere in the world. The Marriott group of hotels do more reservations directly on their reliable internal system than through any other means. 86
The vendor should be able to change the attributes of the information on the system such as the addition of a new facility, the reduction in price, the closure of a portion of the establishment for maintenance purposes, and so forth. Statistics of usage of the system must be made available. These items include statistics on the number of times a vendor was selected and presented to the tourist, the length of time between the reservation and the actual stay of the tourist, the reservation agents who made the bookings to enable the vendor to make more information available to these specific reservation agents, and so forth. Information captured about the prospective tourist must be comprehensive enough for the vendor to know what the preferences of the tourist are. Preferred food, specific accommodation requirements such as room size and bath or shower facilities, restrictions due to religion or culture must be taken into consideration. Some vendors identified a need for two way communication with the reservations agent. Something like an e-mail type function was described. The issue of double or over booking must be able to be easily resolved through this system. Special discounts or variable rates must be accommodated by the system. When a prospective tourist wants to book more than five rooms, for example and thereby qualify for a reduced room rate, then the system must alert the reservation agent. The information of options presented to the reservation agent, but which were not accepted, need to be stored. The industry now realizes that much can be learned from the non-acceptance of reservations. 87
CHAPTER 5: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY
The aim of this study is to establish the need for a computer-based central reservation system for the smaller vendors in the South African tourism industry. Such a system should provide better support for the distribution element in the marketing mix, but could also facilitate the added benefits that could be achieved through the usage of information technology.
Currently South African travel agents have access to world-wide travel agent distribution systems such as Galileo and Worldspan. These integrated systems link two or more participants in the various sectors of the tourism industry to provide a package or a combination of services which could include airlines, hotels, car rental, tour busses or even restaurants. The Galileo comprehensive travel reservation system provides access to a few prestigious South African hotels and is accessible to travel agents with the appropriate equipment.
The fundamental role that the application of information technology can play in enhancing both the tourism experience and the service rendered to tourists, should be a key strategic approach in planning tourism services. With the application of information technology such as is utilised in reservation systems, distribution, specifically, is taking on a new significance as a possible source of competitive advantage. The vendor that can successfully target and reach the ideal segment of potential tourists, can achieve demand and occupancy levels that would boost the bottom line. The implementation of a computer-based central reservation system will contribute substantially to an effective competitive strategy by lowering the cost of distribution and improving the service provided to the tourist. 88
Since tourism as a service product is purchased in advance of its consumption, it must be described rather than be demonstrated to prospective tourists. The better the information on which a purchasing decision is based, the more likely that the features of the service will prove acceptable to the client.
Service establishments in the capacity constraint industries such as lodging, should run as close as possible to optimum demand levels. These demand levels are set by considering the personnel availability, physical capacity of the establishment, service levels and other factors important to support the mission of the establishment.
Managers of lodging establishments have three options available to manage demand. The first is managing the physical capacity (allow renovations during periods of low demand), which is a reactive approach and not necessarily recommended. The second is to launch a marketing campaign that targets a specific market segment in periods of low demand. The last option is to "inventory demand" through participation in a reservation system.
Distribution vendors in the industry generally follow the product life cycle. When the vendors establish their facility they want to be in full control of the product offering, but also of distribution. During the early phases in the operation, the vendor would only accept reservations from the point of operation, the "tourism plant". This limits the reach of distribution to tourists who can make the reservation at the vendor's establishment. As the vendor progresses through the product life cycle, the appointment of intermediaries for reservations tend to become a natural option. Most of the guesthouses are still in the phase where they have the need to fully control distribution. A Pretoria group of guesthouses has progressed through the product life cycle to the point where they are actively seeking an intermediary base to boost the demand for their establishments.
Modern reservation systems can provide the vendor with feedback information on the reservation patterns of the target market, provide information to modify the product to satisfy the requirements of the target market or even provide input to the vendor to 89 target another market segment. These systems can also provide a means to announce specials to reservation agents through on-line communications and can support combination product offerings with other providers of tourism attractions. The growth in the availability of central reservation systems resulted in these systems becoming the preferred method of distribution available to vendors. The vendors who do not participate in these systems might find themselves increasingly isolated in this very competitive industry.
The concept of central reservation systems has been implemented by industries other than the lodging industry. The establishment of successful central reservation systems for airlines in the 1980's was the forerunner of support systems used today to manage demand. Much can be learned from the experiences of the airline reservation systems that grew from single function systems (making bookings) to sophisticated and integrated marketing systems that not only support reservation requirements for airline seats, but also support reservations for lodging needs and even support bookings for sport activities. These systems do not only store information about the first time tourist, but compile a portfolio of the specific preferences of more regular tourists. This personalized information enables the airline or hotel to cater for the special needs of the individual - such as religious preferences.
The industry can also gain from the experience of banks which over the years have developed sophisticated client information systems. These systems enabled banks to keep track of current needs of their clients, and to develop new financial products to fit the changing needs of their clients. This enabled them to develop and present new financial products to their clients as they progress through the life cycle. The analogy will be for the vendor in the tourism industry to know the target market's requirements so well, that the physical characteristic of the establishment and services supplied by staff can be enhanced to better satisfy the needs of the tourist.
While travel is becoming more of a global activity with the expansion of international business giants into more countries and the opening up of borders between countries, international hotel groups had to establish some system to enable them to manage 90 demand effectively. The modern systems not only support information flow to support the reservation process, but also promotional flow which include the distribution of promotional literature about prospective travel opportunities. These systems are sophisticated in that they also allow the owners to launch direct marketing campaigns to attract prospective tourists.
Any central reservations system for the lodging industry should take cognizance of the functionality provided by systems already established in the world. Much can be learned from existing systems in areas such as shortened sales agent training on the system, frequent updating of information on the facilities of the vendors on the system, and the provision of access to the system by individuals with the correct equipment. The system must support the vendor to pro-actively create tourist opportunities through combined packages, such as accommodation and sport, and market these packages to the target market.
Central reservation systems have indeed become an integral part of the distribution channels for airlines and is bound to follow the same trend for the lodging industry. A central reservation system should ideally be linked into the larger world-wide systems such as Galileo to provide access to the prospective international tourist who would want to explore South Africa as a potential destination. The obvious advantages of such a system is that local vendors will be presented to the international source of prospective tourists through these sophisticated travel agent networks. Access through Internet should also be provided since it is becoming an alternative distribution channel for the more mature traveller.
Some important secondary advantages for the support for demand management would require that the system also be flexible enough to support campaigns where a region could present itself to the prospective tourists. The example of Project Bravo (see section 3.3) could serve as a model for promoting regional tourist attractions in South Africa. The system should therefore store enough information for it to add value to the participating vendors. 91
Participants in such systems should be prepared to sacrifice some income in exchange for larger market exposure. However, the owner/manager may feel threatened if he perceives that by participating in the system he could lose control over his sales channel. The contrary has proven to be true. Participation in a central reservation system opens up windows of opportunities to the owner/manager provided he is constantly willing to adapt to the changing needs of the tourist in the target market.
5.2 CONCLUSIONS
5.2.1 The industry faces a perceived oversupply of accommodation facilities
The suppliers of lodging in South Africa are experiencing severe pressure on demand due mostly to the decrease in the number of tourists, but also due to the increase in the supply of lodging. Sandton alone saw eight hotels open during the last twelve months. Most of these hotels are linked to well known international brands - such as the Hilton, Hyatt, Sheraton, Tulip and others. They brought their reservation systems with the new hotels and are ideally positioned to attract the overseas visitor who would prefer to make reservations through a well known, well established system at a destination where the quality of accommodation is known. All these hotels are also linked to the established international reservation systems such as Utell or Aramis and even allow inventory to be sold through the travel agents distribution networks such as Galileo, Worldspan, Amadeus or SABRE.
Although the South African industry gained by the establishment of these overseas groups, the lodging industry has suffered in particular, since the overseas tourists are generally not aware of the service offerings of the existing hotels, especially those of the smaller, independent ones. The change in the market prompted Holiday Inns and Sun International to change the names and the services of their hotels on offer to accommodate the business traveller and the overseas tourist. They now boast "regency" type services and other categories of service known to the international traveller. 92
The dramatic increase in alternative accommodation provided by the newly established guesthouses proves to be a new dimension in the market. The full nature and scope of this trend has yet to be understood by the strategic planners of established hotels and other accommodation suppliers. Sandton and Pretoria have more than 120 and 300 such establishments respectively.
The drop in occupancy in the lodging sector is bound to result in a price war which may see some smaller establishments disappear from the market. This potential loss of lodging establishments is unnecessary since the tourist market is still not being developed to its full potential.
5.2.2 Vendors are yet to accept the position of intermediaries for reservations
Most of the vendors are still in the early phases of the product life-cycle development. They want to market their establishments themselves. They utilize old methods of communication and often miss out on the opportunities presented through information technology, such as world-wide distribution. The transition from self marketing to marketing through some global distribution network has yet to take place.
The more established smaller vendors and the groups such as Karos and Don Apartments have already accepted that they have to rely on the large distribution systems to achieve the required market penetration and accept the associated cost of participating in these systems.
This move through the product life cycle requires much more information about reservations made and the source of these reservations. The only method to obtain access to this information is to implement information technology solutions. All the more mature vendors have accepted that they will have to invest in information technology solutions or participate in such systems if and when they are established. 93
5.2.3 Functionality of the system
All respondents had clear-cut ideas about the functionality to be provided by a central reservation system. The system should be built to firstly cater for the reservation approach of the travel agents and then the Internet users. In addition to this, the specific needs of the vendors must be considered. This include:
Global access through the established travel agents networks such as Galileo, Amadeus, Worldspan. Ease of operation by the vendor who must be able to change the information of his/her establishment quite easily. Feedback on the client base. The system must have the capability to do database marketing with the information of the tourists on the system. Improve market segmentation through analysis of the profile of the tourists who previously visited the establishments. Affordable cost of participation in the system by the vendors - even if reservations by international travel agents are made. Statistics need to be available to assist in demand forecast and assessment of the profile of tourists who visit the establishment. Support of certain specific requirements of the vendor such as the capability to offer access to amenities, to allow tourists to specify their food and accommodation requirements and to add tourist attractions as part of the product offering.
5.2.4 The role of travel agents
Travel agents currently play a prominent role in the South African tourism industry. They are the established intermediaries who specialize in finding travel solutions for their clients. They have intimate knowledge of the industry. Through their networking and lobbying in the industry, they have access to the peculiarities of travel options. Their association, ASATA, is very strong and they always work towards improving 94 the income and opportunities for member travel agents. They are very well organised and have proved to lobby with great success.
Their access through the massive networks such as Galileo to all suppliers in the industry - from airline to hotel reservations, restaurant and theatre bookings to car hire and arrangements for sport activities - place them in a powerful position in the industry. One respondent felt so strongly about the role of travel agents, that the advice was to build the central reservation system to the travel agent's requirements since they are the driving force in the industry.
The acceptance of any new system for the industry will therefore firstly have to "pass the travel agent test". Fortunately, their capability to assimilate new services or changes to current services, has been well developed through education provided by Galileo. Galileo is constantly updating their system with new information technologies solutions such as using the mouse to point to items on the screen and enhanced graphic presentation of maps on screen of where hotels are located. One respondent felt that travel agents will adapt very quickly to an Internet type presentation of a service with video snippets of the lodging establishment presented on screen.
The fast expanding Internet services will allow some of the travel agent's traditional clients to make their own reservations and effectively by-pass the travel agent. This trend is noticed - but is currently at the early stages. The reason for this is twofold. The first is that the number of Internet users who commit sales type transactions of high monetary value on the Internet is still relatively small. The other reason is that the number of services which offer an option other that an e-mail type service in the South African tourism industry is very limited. All predictions are that Internet utilization will increase and that it will force travel agents to become travel consultants where they will be in a position to present tourism packages with flights, accommodation, leisure activities such as mountaineering or sport and even some educational activities as part of the package. Their income will be derived from commission paid by the supplier of services for attracting tourists. 95
5.2.5 The need for a strong central coordinating body
The total breakdown of established tourism structures actually privatized the industry. The constant effort of central government to withdraw from any tourism structures previously funded by government, makes the industry even more fragmented. There simply is no organisation which can take the lead to manage the industry into the future. This leaves the opportunity for a strong player to take the lead and effectively shape the future of the organised industry. According to the respondents the domestic market is in turmoil at this stage.
Respondents agreed that central government, local government and government organisations such as SATOUR no longer play a role in the promotion of tourism. Consequently the players in the industry have to support themselves. Marketing of South Africa to overseas tourists, which is the accepted mission of SATOUR, is no longer effective. The efficiency of SATOUR's operations in the European market is questioned. Vendors who want to market themselves internationally through SATOUR initiatives have to provide brochures (up to 10 000 at a time) for SATOUR to distribute at overseas tourist exhibitions. The rate of return on this technique is too low since SATOUR makes no effort to target specific marketing outlets interested in promoting South Africa as a destination. The marketing of specific tourist destinations to tour operators overseas is not receiving any attention from government funded operations.
The responsibility of the larger international groups is toward their superiors in Europe or the USA. They are not necessarily involved in the alignment of the South African industry to meet world standards. It is not their responsibility to develop the local industry. Many of their senior management are sent from overseas to obtain exposure to management in South Africa before they are called back to where the business really happens. 96
In short, the industry needs a strong player who can coordinate activities so that South Africa's tourism potential can be fully developed.
5.2.6 Lack of professionalism amongst the vendors and the labour force
There is evidently a need for professional behaviour in the industry. This implies that the vendors will have to ensure that their services are always maintained at an acceptable level and should maintain the differentiation between the more informal bed and breakfast establishments and the true guesthouses where the owner's family activities do not interfere with the guests at all. Bathrooms, kitchens and private rooms are separate in a guesthouse. Guesthouses targeting the overseas, mostly white collar tourist market, will also have to provide en suite bath rooms for each bedroom.
The vendors who advance further in the product life cycle will have to accept that they have to maintain facilities at a level expected by the overseas market if they elect to expose themselves to these markets through a global distribution system. Part of the facilities of an operation of international standard is to be linked to a globally accessible reservation system.
The current labour situation characterized by a decrease in working week and other demands on management by the unions, actually forces an increase in the running cost in the industry. If this trend does not stop and the reality of the situation is not understood, then South Africa will price itself out of the world market with too expensive accommodation of too low a quality, measured in terms of international standards - despite the constant devaluation of the Rand.
5.2.7 The vendors to implement information technology solutions or face isolation from the global tourism market
The slow speed and cost of fax and telephone reservations currently applied in the reservation process, is a serious inhibiting factor in the industry. All respondents agreed that the industry should adopt information technology solutions. They are 97 however not knowledgeable enough to successfully implement such solutions. There seems to be a willingness to accept an information technology solution, although the initial investment may be high.
All the respondents agreed that the South African vendors should participate in a global reservation system or face isolation from the global tourism market at a level worse than experienced during the "apartheid years". It is a case of linking into such a system, or disappear from the global tourism industry.
5.2.8 Affordable distribution to bring South Africa in line with world standards
The utilization of existing internationally based central reservation systems for hotels (Utell and Aramis) makes the cost of reservations too expensive for the smaller South African vendors. Galileo, the travel agent network, charges a reservation fee in US $. The next player in the link is the switching company that links the hotel reservation system (Utell and Aramis) with Galileo. The switching company derive their income from a switch fee of at least 1 US $ per transaction. The central hotel reservation system (Aramis and Utell) then have to derive their income in some form or another. Together, that could present a final cost per reservation to the owner/manager of the smaller vendor of between 30 and 50 rands per night. Although the cost structure reduces as the volume of transactions increase, it still presents a threshold of more than 50 rooms that need to be made available through the systems. This immediately places these systems out of reach of most of the smaller establishments.
5.3 RECOMMENDATIONS
Based on the findings and conclusions presented in the proceeding sections the following recommendations can be made.
• Ideally, a South African bank should take the lead to establish such a system which will render support to the guesthouses, smaller hotels and resorts. The 98 banks are the only institutions with enough information technology expertise and with the necessary infrastructure to support the settlement of fees to be paid when reservations are made. The system should be compatible with the world-wide distribution systems such as Galileo, Worldspan and the others. This is required to enhance the distribution capabilities and place South Africa on par with the rest of the world. Travel agents must be the first group of reservation agents to have access to such a system since they are the driving force in implementing new solutions in the industry. Travel agents should also be involved in the design and specification of the functionality of such a system. Internet access to allow the more mature tourists to make their own reservations could be the next user community after travel agents. Adequate funds should be made available to support the system during the period of establishment up to the point where return on investment will be achieved. The implementation of an integrated central reservation system could contribute substantially to an effective competitive strategy of the participating vendors by lowering the cost of distribution - given that acceptable reservation fees (to be paid by the vendors) for international reservations is negotiated. The service provided to the tourist could be improved by implementing some form of qualification or categorization of the vendors on the system to allow the reservation agents to match the tourist requirements with the product offering of the vendors. This is necessary to prevent unnecessary disappointment of tourists who had made their reservations through the system. High priority must be placed on educating the vendors since they are not necessarily computer literate and may experience the system as a threat to their existence. The system should support the minimum functionality as indicated in section 5.2.3. Follow-up research is required to verify the acceptability of such a central reservation system as a solution to the owner/manager of the guesthouses, smaller hotels and resorts as well as determine how far the vendor has progressed in the product life cycle. 99
By designing and implementing a computer-based central reservation system the guesthouses, smaller hotels and resorts can improve their competitive advantage in an increasingly globalising industry. This will contribute towards improved margins, higher customer satisfaction and a levelness (or smoothness) of demand for the services. Ultimately this will lead to increased earnings of overseas currency for the country, improved bottom line for the vendors and more constant employment in the industry. 100
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APPENDIX A: INVITE TO THE DEPTH INTERVIEW
The example of the letter sent to the respondents before the interviews. The seven issues were presented to them in an open ended question format.
Date of invite
Respondent Organisation presented
Dear Mr. Respondent
I am completing a thesis which is required to finalise a degree in M.Com Business Management at RAU.
The topic of the thesis is:
"The need for a computer based central reservation system for the guesthouses, smaller hotels and resorts".
The study is of an empirical nature and the specific topics which I would like to address are: How well is market segmentation integrated into the marketing strategies of the owners or managers of the guesthouses, smaller hotels or resorts. Do the owners or managers of the guesthouses, smaller hotels or resorts have a means to access their identified target market? A reservation system can be applied to support demand management. Is demand management understood? Is there a need for such a system in the South African tourism industry? Is an information technology solution the correct option? Will the Galileo system not provide an answer to this need? If not, who should establish such a system? Should we heed to the warning by academics such as Middleton and De Bord who indicated that the tourism industry should implement information technology 104
solutions or face the possibility of isolating themselves from the international market? • What, in your opinion, are the most important business functionality that such a system should provide? I would appreciate your view on these topics as possible inputs to the thesis. Your comments will be treated with the strictest confidentiality.
Attach please find a letter of introduction and authenticity from Professor Bennett.
I will contact you shortly for an appointment.
Thank you for your co-operation.
Paul Pretorius Student NR. 74/0310/3 Tel : 082 458 7887.