TUI: achieving and maintaining leadership

in the European tourism industry

Table of Contents

1. Introduction.............................................................................................................................3

2. Historical strategic development of TUI................................................................................3

2.1. Multinational structure matrix.......................................................................................................4

2.2. Strategic Clock..............................................................................................................................5

3. The underlying forces in the macro environment that drive the competitive forces in the

tourism industry..........................................................................................................................5

3.1. PESTEL analysis...........................................................................................................................5

3.2. Porter’s diamond...........................................................................................................................7

4. Porter’s five forces analysis of the tourism industry..............................................................7

4. 1. Competitive rivalry:.....................................................................................................................7

4. 2. The threat of substitutes...............................................................................................................8

4. 3. The Bargaining power of buyers:.................................................................................................9

4. 4. The Bargaining power of suppliers..............................................................................................9

4. 5. The threat of new entrants............................................................................................................9

5. TUI’s business model...........................................................................................................10

6. TUI’s strategies: challenges and choices..............................................................................12

7. References.............................................................................................................................13

8. Appendixes...........................................................................................................................14

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1. Introduction

“The Service Sector is one of the three main industrial categories of a developed economy”.1

As services are defined in conventional economic literature as "intangible goods", it is rather

difficult to place, analyze and market service related companies.

Travel agencies and tour operators represent a large part of the tourism sector and play the

major role within the service industry. TUI is a service provider with diverse types of

ownerships involving most of the supply chain products regarding the tourism sector.

The report will investigate the strategic and historical development of TUI, the evaluation of

the macro environment for the tourism industry as a whole and the competitive analysis of

TUI and the industry. In addition, TUI’s business process has been evaluated and strategic

challenges indentified, concluding with suggestions for future strategies.

2. Historical strategic development of TUI

When Preussag, now TUI Group, started it was a company whose key activities were coal and

oil2. Due to the coal mines in Germany closing, the company made some adaptions and

entered the tourism business which was a completely new industry for Preussag. The group’s

first step into the industry was through acquiring Hapag-Lloyd AG in 1997, which was a

global player in transport and tourism. This strategy was one that the TUI Group followed in

the coming years. TUI Group has been growing in the past 10 years, mainly by acquiring

existing companies, and in that way increasing market shares.

According to the Ansoff growth matrix, acquisitions are used as market penetration strategy3.

The acquisitions have some advantages representing a big strength to the company, which

makes it possible for TUI Group to grow fast. However, it is necessary for TUI Group to be

highly aware of how they do that, to make sure that it doesn’t create too many challenges.

1 Tertiary sector of the economy, Wikipedia.org, http://en.wikipedia.org/wiki/Tertiary_sector_of_industry (22 March 2010)

2 TUI – Journey through time, http://www.tui-group.com/en/company/heritage (retrieved 22 March 2010)

3 Johnson G., K. Scholes & R. Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall, 2008, p.258

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TUI Group is the name of the overall company, but when acquiring companies, they become

brands that are a part of TUI Group and they still keep the name they had before the

acquisition, an example of that would be the Swedish Fritidsresor or British Thomson.

TUI Group has also done some joint ventures, for instance, with the cruise ship company

Royal Caribbean. In this joint venture, TUI Group and Royal Caribbean joined forces on

certain cruises (routes/ships) in spring 2009. The reason for doing a joint venture in the cruise

industry is connected with the high risks in the business (investments in expensive ships).

Besides acquisitions and joint ventures TUI has also made a few mergers. Mergers along with

acquisitions and joint ventures are market penetration techniques, because they deal with

existing markets and existing customers.

Even though market penetration has been TUI Group’s main growth factor, there has also

been some organic growth. TUI has entered several markets and made establishments within

the industry without buying other already-existing companies. Examples of this processes that

have been happening since 2003 are TUI China, TUI Austria Holding AG4, where TUI Group

didn’t acquire another competitor, but established a new company. According to the Ansoff

growth matrix, that would be market development, where existing products are introduced to

new markets.

When TUI in 2004 opened its low-cost travel agency in Hamburg in Germany, they offered a

new product to a new customer segment. According to the Ansoff growth matrix that would

be associated with diversification (new product entering a new market).

TUI expanded their market by launching a virtual operator (toureruopa.com), where they

would sell tours online through travel agencies, television and call centres. This strategy

displays market development as TUI offers known products for new customers.

Throughout history of TUI Group the company has been focusing on market penetration, and

it has been the main method of their growth.

4 TUI – Journey through time, http://www.tui-group.com/en/company/heritage (retrieved 22 March 2010)

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2.1. Multinational structure matrix

TUI Group would fit in the category of transnational corporations when applying the

Multinational Structure Matrix5. The company has a very well established overall global

coordination. For example, they manage all of their brands in four business sectors depending

on what the brand’s focus is. In addition to that, the cooperation between the brands in TUI

Group’s different regions seems high. An example of this is the brand TEMA6 that is present

in TUI Nordic. Finland, Sweden, Norway and Denmark all have the same website for TEMA,

and when choosing what destinations and trips to go on, there are also the same options. TUI

Group’s local independence and responsiveness is high due to the fact that their acquired

brands had already been present in the market and had the knowledge and the experience with

their local customers.

2.2. Strategic Clock

Based on the strategy clock model of Cliff Bowman7, it is clear to observe that TUI has

chosen to follow different strategies for different brands worldwide (see Appendix 1). For

instance, the brand TEMA in Denmark applies focus differentiation (the niche market where

travellers are interested in cultural experiences and nature), while another brand, Star Tour,

uses the differentiation strategy (they have high perceived services at medium/high prices).

3. The underlying forces in the macro environment that drive the

competitive forces in the tourism industry

3.1. PESTEL analysis

In order to analyse the underlying forces in the macro environment the PESTEL model can be

used with the focus on tourism industry.

Political factors : Few years ago the growing feeling of insecurity was enhanced by terrorist

attacks, which targeted tourist destinations8. However, people are getting used to the new

security measures and return to the destinations that were affected by terrorism9. The EU

enlargement made new countries more attractive for the European tourists. Moreover,

5 Johnson G., K. Scholes & R. Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall 2008, p. 258

6 http://www.temarejser.dk/

7 Johnson G., K. Scholes & R. Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall 2008, p. 225

8 Tourism Trends for Europe, European Travel Commission, Sep 2006, p. 5

9 Travel and Tourism – Germany, Euromonitor International, Aug 2009, p. 8

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governments of many countries are promoting tourism by advertising and tourism fairs in

order to develop and/or maintain economic growth.10

Economic factors : The current economic crisis has had the major influence on tourism

industry. As a consequence of the crisis, manufacturing decreased, which lead to world

unemployment reaching 7,4% of the workforce in 200911. Unemployment causes consumer

spending to reduce and an overall expenditure on travel and tourism to lower. As a result,

budget constraints make price one of the primary factors in choosing one company over

another. On the other hand, due to loss of work some people use their unemployment as an

opportunity to travel.12

Social factors : The major driving factor of growing consumption in cultural tourism in Europe

is likely to be increasing education levels. As a result, new consumers will come from areas

where education and personal wealth are improving, such as Central and Eastern Europe and

Asia13. Leisure time is becoming more pressured for the wealthy customers, meaning that

people will tend to take shorter but more frequent trips. In the future there will be more single

people and holidays will need to cater for single people and offer better services for them.

Moreover, by the year 2020 people who are over 50 will outnumber younger generations:

they will be wealthy, active and well travelled.14

Technological factors : Apart from the Internet, which has become a universal communication

and marketing tool, mobile phones and digital TV has also experiences technological

advances. It became cheap and easy to contact relatives and friends while travelling.

Consumers have a better ability to compare prices and the products and obtain richer product

information (with the help of GDS – Global Distribution Systems, Google Maps, blogs, etc).

Consumers are also using the Internet to search for events and activities after their arrival at

the destination. The Internet has also led to a rapid increase in self-packaging of holidays.15

GPS (Global Position Systems) and other new technologies allows to track the movement of

tourists in the destination in real time, observe the effects of promotional activities and detect

emerging consumption trends.16

10 Travel and Tourism – Germany, Euromonitor International, Aug, 2009, p. 3

11 Travel and Tourism Forecast Update: One Year On, Euromonitor International, Nov 2009

12 World Travel Market Trends, Euromonitor International, Dec 2009, Page 9

13 Tourism Trends for Europe, European Travel Commission, Sep 2006, p. 5

14 The Thomson Future Holiday Forum, Thomson, http://www.ahp-monitor.pt/?data=download_file.obj&fid=111 (retrieved 23 March 2010)

15 Tour Operator, Wikipedia.org. http://en.wikipedia.org/wiki/Tour_operator (retrieved 23 March 2010)

16 Tourism Trends for Europe, European Travel Commission, Sep 2006, p. 7

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Environmental factors : Safety concerns in connection with natural disasters will affect travel

demand17. Environmental awareness is increasing and influences the way people travel and

choose tourism companies. Airlines are pressured to be green (introducing programme such

as the purchase of carbon credits or investing in more fuel-efficient aircraft).18 Hotels are

introducing eco-programmes to reduce their impact on environment (i.e. Scandic hotels19).

Legal factors : The subjects of security, health and immigration become top priority for many

countries. Therefore, government will increase controls on travel. Security measures be

standardised around the world and their cost will increase airfares.

3.2. Porter’s diamond.

TUI AG is the most dominant tour operator in the European market (21% market share 20). For

that reason, this region will be investigated closely with the help of Porter’s diamond model.

Factor conditions: Europe is a popular destination for tourists because of the variety of

countries, cultures and nature. Everything is close, yet so different from each other. There is

also a huge historical and cultural legacy in Europe. Well-developed infrastructure, stable

political environment, the vast choice of hotels, restaurants, and sightseeing companies make

Europe attractive for many tourists.

Demand conditions: Europeans are seeking advice from other consumers through the Internet

and “skilled consumers” tend to know more about niche products than many travel

professionals. Tourists are also searching for different experiences and “safe danger”

(adventure travel and thrill experiences). There is also an increase in the demand for spiritual

experiences, which gives the boost to health and spa products.21 However, the current

economic recession makes some tourist stay close to home and choose cheap tour packages.

Related and supporting industries: Fashion, film, art and events industry are important

complementary factors for tourism. Numerous fashion shows, festivals, and cultural events in

Europe help tour operators to enhance their packages and find an interesting seasonal angle on

destinations.

Firm strategy, structure and rivalry: The major strategy of tour operators is to be constantly on

top of new trends and demands of the market. In order to be competitive in tourism industry, a

tour operator should offer a variety of products for competitive prices. TUI manages to hold

17 Tourism Trends for Europe, European Travel Commission, Sep 2006, p. 5

18 Global Travel & Tourism: A Fast-changing Landscape, Euromonitor International, Nov 2008, p. 38

19 Sustainability and the environment, Scandic, http://www.scandichotels.com/About-Us/Responsible-living/ (retrieved 23 March 2010)

20 Appendix 2

21 Tourism Trends for Europe, European Travel Commission, Sep 2006, p. 6

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the leader position because of its constant development of new products and efficient

management control of the company.

4. Porter’s five forces analysis of the tourism industry

4. 1. Competitive rivalry:

Indus try competitors : In Europe TUI has the biggest market share (21%22). The closest

competitor (Thomas Cook) has 13% of the market share. In general, there are not so many

competitors on the market. The existing ones are smaller than TUI23, meaning that TUI Group

is very strong and this is a significant advantage for them.

Industry growth (rate) : In general the growth in tourism has been increasing steadily during

the past 60 years24. The growth within the tourism industry kept the competition down and

generated larger revenues for travel retail companies. However, the recent economic recession

slowed down the growth and led to greater rivalry.

High fixed costs : The tourism industry in general has high fixed costs, because they require

high investments. For TUI’s an example of that would be their planes.

Exit barriers : For vertically integrated tour operators exit barriers are high. Exiting the market

is time consuming and complicated for such companies, because they have high investments

in assets. For instance, it is likely that TUI has already booked hotel rooms in advanced. If

they plan to exit one year in advance, it is simpler to work out the way out of the market.

Degree of differentiation : TUI is trying to differentiate itself by offering more specific

products, through their 4 sectors (Mainstream, Specialist & Emerging Markets, Activity and

Accommodation & Destinations)25 in order to be more focused on what the essential products

are. The degree of differentiation for tour operators in general is rather high.

4. 2. The threat of substitutes

Relative price and performance of substitutes: There are several ideas that would be

considered substituting in this case. In general there are a lot of things that a family could do

instead of going on a trip (what TUI call “Mainstream”). This could be going to the family’s

summerhouse instead of going on a trip, going camping, etc. TUI also has brands that focus

on planning vacations for young people and students. Substitutes for them could be going to a

music festival instead, doing volunteer work etc. In general there are a lot of substitutes that

22 See appendix 2

23 See appendix 2

24 Page, S. & J. Connel, Tourism – A modern synthesis, South-Western Cengage Learning, 2009

25 TUI Group – at a glance, Group Presentation, Feb 2010, p. 9

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the target group could choose to go on, instead of TUI products. However, the relative

performance of these alternatives depends only on what the substitute is, but also on what the

customers are like.

Switching costs: The cost of switching to substitutes is not very high in TUI’s case, but of

course it depends on what the alternative is. The options mentioned above are all most likely

to be cheaper than buying TUI’s products, but another alternative (for example for young

people going on an interrail) would be a lot more expensive, and would increase the overall

costs for the customer.

Buyer’s propensity/willingness to substitute: It depends on who the buyers are, and how

interested they are in doing something else during their vacation rather than taking one of

TUI’s trips.

4. 3. The Bargaining power of buyers:

Low switching costs: There are very low switching costs; since choosing another company or

a substitute is very simple and cheap (the buyer might even save money by switching).

Substitute products: Like mentioned above, there are products that could be substituted to

TUI’s products, however the relative performance of that is likely to be smaller, and if not

then more expensive.

Products are standardized : When using TUI there are a lot of different options of products to

buy, and the customer can get almost the exact type of vacation he/she wants.

4. 4. The Bargaining power of suppliers.

Concentrated suppliers : There are major hotel chains and airline companies’ alliances, which

can influence the travel market. However, there are also numerous small, independent hotels

and low-cost airlines that provide a wide choice for tour operators.

High switching cost : A tour operator can switch to a low-cost supplier with low or no cost.

Supplier competition threat : Since airlines got the direct access to customers through e-

commerce, they got more power over the tour operators and managed to negotiate tough

contracts26. Hotels, cruise companies and car rentals are in the same situation. They do not

depend solely on tour operators anymore. On the other hand, suppliers in unknown or yet

undiscovered destinations are still dependent on travel retail companies and do not hold the

same power.

26 Gerry Johnson, Kevan Scholes & Richard Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall

2008, p. 63

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4. 5. The threat of new entrants.

Scale and experience : Tour operators are using economies of scale – they buy large amounts

of components in advance in order to assemble their travel packages. It might be very

expensive for new entrants to match major tour operators’ volumes. Experience might be

another factor that is required in travel retail industry in order to manage the company

efficiently and come up with successful strategies.

Access to supply or distribution channels : Major tour operators are vertically integrated

companies, meaning that they own some of their suppliers. Other supplier might already have

long-term contracts and established relations with the main travel retail companies. Therefore,

it might be hard for new entrants to set up a vast supplier base. On the other hand, new

entrants can easily establish distribution channels through e-commerce, which gives a new

company the opportunity to get a direct access to customers and cut back on the costs.

Expected retaliation : As travel retail is a highly competitive industry with many players on the

market, it might discourage new companies from entering the industry. Major competitors are

well prepared and ready to launch a price war or a marketing blitz.

Differentiation : It is hard for a new company in the tourism industry to provide a service with

a higher perceived value then competitors. New entrant would need to come up with a totally

new strategy to market its services and develop a strong brand in order to deferential itself.

5. TUI’s business model

In order to explain the course of actions TUI has chosen in relation to creating, delivering and

capturing value27, it is necessary to examine TUI’s business model and its core business

aspects. As described in one of their reports28, their current model generates the value

proposition from a wide variety of product choices, which are created from components

(flights, hotel beds, car hire, transfers, excursions) and specialist input. Services are then

transformed into flexibility for the customers, meaning that TUI offers its customers a

diversity of holiday packages, which can cater to various tastes. The communication with

customers is carried through several channels (online, retail, call centre), which allows

reaching each customer in the relevant way (see Appendix 3).

5. 1. The SMS - Service Management System29

27 One of the methods to explore the business model is to apply a value chain (see Appendix 7)

28 TUI Group – at a glance, TUI AG Group Presentation, Feb 2010

29 Normann, Richard, Service Management: Strategy and Leadership in Service Business, 3rd Edition, p. 146

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For the purpose of describing and evaluating the business model that TUI applies, it has been

chosen to display a Service Management System diagram. (See Appendix 4).

The Service Concept: For TUI it is important to align all functions of the company and focus

on customers’ needs in order to understand the company’s profit margin and generate new

values. The Service Concept can be divided into two groups: core and peripheral. TUI’s core

service has been display as been the travel experience and the peripheral services as the

service warranties, the quality of the experience, the customer care and the means their

product are delivered to travellers.

The Market Segment: TUI’s overall target group are young people, families and empty

nesters. Their target group is understood to be relatively wealthy travellers who are part of a

regular holiday basis that allow them to experience new cultures and traditions as well as new

trends for perceptive lifestyles.30

The Delivery System: TUI delivery system is responsible for providing a unique and

innovative service. Their delivery system elements consist of four features: personnel, client,

technology and physical support. These components participate together to produce and

contribute in the service performance.

Image: Image plays a big role within the tourism industry. TUI aims to achieve a first-class

image, in order to attract and maintain their travellers and overcome the barriers brought up

by the diverse financial recessions along the years.

TUI it has been set to generate a high-quality image. The company has an attractive and

functional homepage on the Internet; therefore it is a great prospect for people to book trips

online. TUI has become trendier due to their successful advertising strategies, as TV,

brochures, newspapers, agencies and etc. Another important factor for TUI’s image is having

the proper attire at work and a standardized way of welcoming their travellers.

The Culture and Philosophy: When the culture in the company is functioning well and

employees are considerate to each other, it creates a pleasant working atmosphere. Personnel

are a part of the product in the travel sector. Therefore, TUI spends a lot of time and effort on

training their employees, customer care assistance and selection process to them provide their

customers with first class service.

5. 2. The Integration of TUI31

30 Global Travel and Tourism – A fast-changing Landscape, Euromonitor International, Nov 2008, p. 11

31 See Appendix 5

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Large tour operators like TUI are typically vertically and horizontally integrated (related

diversification32). The vertical integration provides the possibility for a tour operator to source

its supplies not only from third parties, but also from the tourism-related businesses that it has

developed within the company.33 TUI owns an airline company, shares in hotels and cruise

lines, and travel agencies. Such strategy guarantees better management of costs and helps to

keep profits, which would otherwise go to third parties. “TUI’s fully-integrated tourism

business model provides operating advantages which enable the Company to optimize the

load factor of its airlines and the occupancy rates of its hotels.”34 Horizontal integration means

expanding the company through mergers or development of by-products. TUI is using

horizontal integration strategy by acquisitions, mergers and joint ventures. In short, a

vertically and horizontally integrated tour operator is better prepared to adjust to changes

within the industry, to perform efficiently and to maintain leader’s position.

6. TUI’s strategies: challenges and choices

As seen from the SWOT analysis of TUI (See Appendix 6), possible strategic challenges of

TUI might be connected with the ongoing economic recession and thus lower consumer

demand, late booking patterns and smaller travel budgets. TUI management should find a

strategy to adjust to the new industry landscape and minimize its dependency on economic

fluctuations.

Some of the key strategic objectives and challenges for TUI in the future are:

Maintaining competitive offerings through lower prices and more exclusive deals.

Eliminating duplicate costs and focusing on its under-performing businesses (synergies

and cost-cutting in order to maintain profit levels)

Finding the right approach for competing with online travel agencies, which can offer

cheaper dynamic packages

Finding ways to cope with rising fuel prices and banking crisis (TUIfly has recorded huge

losses and has to look for ways to reduce its operation costs)

Strategic directions of TUI in the future

Niche markets: One strategy that TUI could adopt is a more focused strategy on specific

niche markets. A niche market that TUI could choose to focus on in the future is adventurous

tourism. Currently TUI already has offers for adventure-travellers. However, travellers

become more experienced and crave for new excitements, as what used to be thrilling no

32 Johnson Gerry, K. Scholes & R. Whittington: Exploring Corporate Strategy - Text and Cases, 8th Edition, FT Prentice Hall, 2008, p. 265

33 Transat – Our vertical integration strategy, http://www.transat.com/en/media/backgrounders.aspx (retrieved 23 March 2010)

34 New Shares,TUI AG, Aug 2005, p. 3, http://www.tui-group.com/uuid/f57cdd1fd6b681de038f005247fed662 (retrieved 24 March 2010)

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longer fulfils the “thirst for adventure”. TUI already has some brands that focus on adventure

travel, but the focus could be enhanced and they could, for example, offer specific adventure

packages for backpackers. Usually backpackers are on a very tight budget, but they still want

to experience the thrill of adventure travelling. Therefore, an option for TUI could be to

develop low-cost adventure trips.

Emerging markets: Another future strategy for TUI could be the development of upcoming

markets. For example, India represents a great opportunity due to its fast growing economy,

large population, rising Indian incomes and strong domestic sector. TUI could focus on

supplying new destinations for the Indian market.

New markets: Entering new markets (such as Australia) could provide the necessary growth.

Raising brand awareness: Due to increased competition in travel retail, it is necessary for

TUI to have a strong brand image to build customer loyalty and long-term growth.

Social networking: TUI should make the most of social networking. Facebook, Twitter,

blogs, etc. represent a great opportunity to get more personalized interaction with customers.

7. References

Global Travel & Tourism: A Fast-changing Landscape, Euromonitor International,

Nov 2008

Johnson G., Kevan Scholes & Richard Whittington: Exploring Corporate Strategy -

Text and Cases, 8th Edition, FT Prentice Hall, 2008

New Shares, TUI AG, Aug 2005, p. 3,

http://www.tui-group.com/uuid/f57cdd1fd6b681de038f005247fed662 (24

March 2010)

Normann, R., Service Management: Strategy and Leadership in Service Business,

3rd Edition

Page, S. & J. Connel, Tourism – A modern synthesis, South-Western Cengage

Learning, 2009

Sustainability and the environment, Scandic, http://www.scandichotels.com/About-

Us/Responsible-living/ (retrieved 23 March 2010)

Tertiary sector of the economy, Wikipedia.org,

http://en.wikipedia.org/wiki/Tertiary_sector_of_industry (retrieved 22 March 2010)

The Thomson Future Holiday Forum, Thomson, http://www.ahp-monitor.pt/?

data=download_file.obj&fid=111 (retrieved 23 March 2010)

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Tourism Trends for Europe, European Travel Commission, Sep 2006

Tour Operator, Wikipedia.org. http://en.wikipedia.org/wiki/Tour_operator (retrieved

23 March 2010)

Transat – Our vertical integration strategy,

http://www.transat.com/en/media/backgrounders.aspx (retrieved 23 March

2010)

Travel and Tourism – Germany, Euromonitor International, Aug 2009

Travel and Tourism Forecast Update: One Year On, Euromonitor International, Nov

2009

TUI Group – at a glance, Group Presentation, Feb 2010

TUI – Journey through time, http://www.tui-group.com/en/company/heritage

(retrieved 22 March 2010)

World Travel Market Trends, Euromonitor International, Dec 2009

8. Appendixes

Appendix 1. Some TUI’s brands placed on Strategy Clock.

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TUIfly: TUIfly is a low-cost carrier and offers both charter and low-cost flights. Source

market is Germany. http://www.tuifly.com/

SpringBreakDiscounts.com: provides students and travel agents with reliable travel packages

at affordable prices. Source market is North America. http://www.springbreakdiscounts.com/

Signature Vacations: Signature Vacations offers innovative and popularly priced package

holidays. Source market is Canada. http://www.signaturevacations.com/

Star Tour: Star Tour Denmark offers package tours to the Mediterranean and destinations

worldwide. Tour operator and retail business. Source market is Denmark.

http://www.startour.dk/

TEMA: TEMA is a Nordic company that focuses on quality rather than quantity. Source

market is Denmark, Sweden, Norway and Finland. http://www.temarejser.dk/

Appendix 2. Tour operator market share in Europe.

Sources: FTDetschland, annual reports, FVW

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Copied from the case of Eric Viardot: “TUI: achieving and maintaining leadership in the

European tourism industry” (Exploring Corporate Strategy, p. 623)

Appendix 3. TUI’s business model.

Source: TUI Group – at a glance, Group Presentation, Feb 2010

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Appendix 4. Service Management system – SMS model

This appendix displays explanatory parts of the models, which were relatively long to be

placed within the assignment.

The Service Management Model (SMS) consists of five single elements, that when linked

together can assist companies to have a better control of the internal environment and monitor

how the organization functions in a whole.

The Service Concept is a service company’s offer to the customers. The travel

agencies in general, have as centre of attention their customer’s needs before

developing a new product or carrying on with re-launching an old one.

The Service Concept can be divided into two groups: core and peripheral.

The Market Segment can be used as a tool for service companies to identify their

target group.

Conclusion of TUI model Analysis

The SMS analysis of TUI helps to discover the company’s market segment and other important

factors that are extremely relevant when suggesting the new tendencies of the market and the

demands that changes can brought up within in the tourism industry. It also facilitates to

comprehend the company’s delivery system and to learn about their target group. This analyse

will be related with the suggestions to be placed on the new strategies for the company

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Travel agencies

TUI CIS

TUI China

TUI Mostravel Russia

Online Accommodation Retailing

TUI AG

TUI Hotels and ResortsTUI Airlines

TUI Western Europe Tour operators

TUI Central Europe Tour operators

TUI Northern Europe Tour operators

Cruise lines

Backw

ard Integration

Horizontal

IntegrationForw

ardIntegration

Appendix 5. Related diversification options for TUI

Appendix 6.

SWOT analysis of TUI

Source: TUI AG in Travel and Tourism, Euromonitor International,

Jan 2010

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Appendix 7. The value chain for the service industry

A customer’s perception about a whole package of benefits, being tangible or intangible, is

what satisfies the needs of the customer right, effectively and efficiently. “Customers are not

and will never be buying products but values”.35

In most cases, TUI’s travelers will seek out a completely different customer experience

altogether. However, there is remarkable value to understand why they think this way.

Developing a profile of the most and least profitable customers can be the way of reaching

full customer’s awareness. TUI needs close links with their customers so that they can deliver

the right value for them. Therefore, value needs to be connected (marketers and customers

together).

As the business world has now changed and has become more sophisticated especially within

the service industry, it doesn’t have the real operation of inbound or outbound logistics. The

operations in the manufacturing sector are far different to those in the service industry.

Within the service industry, production and usage of the service occur simultaneously. The

supporting activities might be similar in most cases, yet the way of managing the supporting

activities might be different consequently there is a need for considering various elements as

for example the expanded marketing mix for the service industry.36

35 http://www.docstoc.com/docs/3638198/Value-Chain-for-Services-A-new-dimension-of-Porter-s

36 http://www.learnmarketing.net/servicemarketingmix.htm

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Due to the nature of services and their providers, there has been a need to have a different

version of the value chain. It should be yet clear that a generic value chain can be useful but

not in all cases as it has its limitations.

The value chain for services has been introduced by a few researchers37 as having five

primary attributes and four supporting attributes. These characteristics are used consciously

since other components of the value chain for services might not be activities but attributes.

Illustration. Value Chain for the service industry

37 Professor Elisante Ole Gabriel – Lecturer and Head of Entrepreneurship Centre – Faculty of Commerce

20/21