A Comparison of offline and online Travel Companies

E-business

According to Pavic et al (2007) today’s economic environment is the most tumultuous ever encountered by organisations and is dominated by three powerful influences-globalisation, organisational structure and the information revolution (Hamilton, 2002). This information revolution is concerned with how information is gathered, stored and shared within organisations and it has transformed the competitive terrain within which business now operates (Sprano and Zakak, 2000). As a consequence of this transformation companies have come to the realisation that to maintain their competitiveness and economic viability they must implement a successful e-business strategy (Rodgers et al, 2002).

Wang and Cheung (2004, p.) define E-business as �the use of internet technologies to manage business processes’ and crucially it enhances the connectivity of the business to include its employees, business partners and other stakeholders (Koh and Maguire, 2004; Martin and Matlay, 2001). E-business is now ubiquitous within contemporary business (Waters, 2000) but despite its omnipresence, the implementation of e-business is complex (Wang and Cheung, 2004), with many companies undertaking e-business activities without acquiring any evident business value (Barua and Mukhopadhyay, 2000). However Rodgers et al (2002) postulated that without an e-business strategy, companies will fail to compete as it facilitates improved business solutions (Pavic et al, 2007) and increased efficiency (Follit, 2000). Indeed a plethora of multinational companies, such as Dell, Wal-Mart and Capital have all achieved tangible benefits by incorporating e-business into their business models (Zhu et al, 2004).

Online and Offline Travel Agencies

The travel industry has perhaps become one of the most successful proponents of e-business in recent years (Wang and Cheung, 2004) as Zellner (2002) purported that travellers are increasingly embracing the internet as the conduit for arranging their travel engagements. As a result consumers now spend more capital on online travel than on any other online retail sector (imedia.com, 2006), with the European online travel market alone being worth in excess of 12 billion pounds, an increase from 2.2 billion dollars in 2000 (bbc,2006). For the purposes of this assignment, travel agencies such as Thompsons, Lastminute.com and Magicbreaks.com will be analysed rather than the travel industry as a whole.

This substantial growth in online travel agencies has come at the detriment of the traditional �bricks and mortar’ retail travel agencies which are confronted with acute challenges ensuing from uncompromising online rivals (Wang and Cheung, 2004) and dwindling commission revenues (Heartland, 2001). Conventionally, the function of the �physical’ travel agency was to counsel and inform potential customers on travel destinations and operate as a liaison in the convoluted and time-consuming process of booking a holiday (Gasson, 2003). However, consumer sophistication and market awareness augmented as a consequence of increased access to the internet which resulted in an amplified demand for value and convenience. These demands were combined with a general increase in economic affluence of consumers and subsequently customers were able to wield more influence on the travel-industry in terms of pricing and choice (Gasson, 2003).

These increased customer expectations are ideally suited to the fundamental competencies that the internet imparts as it offers direct consumer interaction with travellers (Wang and Cheung, 2004) and critically affords superior ease of comparison and convenience. E-business has substantially reduced operational costs for online travel agencies and Gasson (2003) dissects these operational benefits to include increased security and reduced transaction cost due to improved technologies and this reduced cost is contrasted by the costly purchase transaction executed by a human salesperson. Additionally, the ever-increasing adeptness of data capturing techniques and customer relationship management results in a much more sophisticated, personalised marketing strategy that facilitates detailed market segmentation which Chad (1996) deemed to be imperative for securing increased sales. Furthermore, e-business hastens the shopping process (Tse, 2007) and enables consumers to no longer be geographically constrained, increasing competition to a global-scale and subsequently reducing cost (Evans and Wurster, 1999). Finally, e-business enables a much more transparent marketplace in which increased information exchange effectively ensures the marketplace is buyer orientated and thus reduces the likelihood of unethical selling practices (Lucking-Reiley and Spulber, 2001; Downes and Mui, 1998).

However, despite the online travel agencies’ apparent benefits and remarkable growth rate, it still requires significant increases in consumer purchases if it is to conquer the traditional retail travel agency. This failure to fully dominate conventional travel agencies is attributable to a variety of reasons. Firstly, Evans and Wurster (1997) asserted that intricate travel packages are often impractical for generic internet searches and so face-to-face consultation is required. Additionally, the sheer magnitude of information available on the internet denotes that organising travel can be excessively time-consuming and this �time’ cost is unappealing to consumers and so they prefer to have their travel prearranged for them (Tse, 2007). Finally, the most prevalent reason for customer reluctance to utilise online retail travel agencies is concerns regarding financial security (Tse and Soufani, 2003). This concern is not exclusive to the travel industry but due to the high cost associated with travelling, especially package holidays, consumers are much more reluctant to purchase holidays online that they are when purchasing less expensive goods, such as DVDs or CDs. In reality research has indicated that consumers are more prone to explore their travel arrangements online but actually book their holiday through face-to-face or telephone communication (bbc, 2007).

Value Creation and the Resource Based View

These limitations of the e-business capabilities associated with online travel agencies indicate improvements can be implemented to encourage increased purchasing online. These improvements are concerned with creating value for the customer and customarily value is fashioned by decreasing cost, increasing performance or both (Craighead and Shaw, 2003) and Amit and Zott (2001) postulated that this value is crucial for success in any service industry. This value, within the context of online travel agencies, can be determined