HOW MIGHT A TRAVEL AGENCY USE THE 5 FORCES MODEL TO DEVELOP A STRATEGY?
Travel Agency is a retail business where the retailer sells supplier's products and services related to travel. Here the suppliers are the companies such as airline, cruise line and car rental etc. Some travel agencies specialize in dealing with special type of customers and make all necessary arrangements to facilitate their travel.
Application of Porter's five forces model on Travel industry
- Rivalry among existing firms:
The rivalry among existing firms is high because of cut throat competition in this market. Travel agencies are trying to take a step further than their competitors to gain a competitive advantage. And they do so by continuously providing value in more valuable ways.
The overall threat of new entrants is relatively low. The reason is unattractiveness of the market position. It is true that travel agents remain dominant in some areas such as cruise vacations. So, we can say that the trend of new entrance is not equal in all the categories of travel agencies. In modern days, competing in this business is not easy because of higher costs in time or money to enter your market and compete effectively. The reason is the need for strong network of supplier-retailer relationship.
- Bargaining power of suppliers
Supplier's power to bargain has increased due to increased chances of direct contact to the customer. Bigger suppliers have immense power over the travel agencies and can influence them. Previously, suppliers were more dependent upon the travel agencies and huge commissions were sought from suppliers for promoting their products or services and terms were dictated by travel agencies. Now the suppliers have got better access to their customers and enhanced bargaining power.
Threat of substitutes is very high because of online systems. Now, travel suppliers can access their customers easily and by providing competitive prices they have attracted customers to get travel information from the suppliers directly. So, the cost of change or shift is low.
- Bargaining power of consumer
The bargaining power of consumer has increased because of easy access to variety of options at the same time. The facility of comparing hotel and flight rates with other companies for free by some online travel websites have increased the power of consumer to bargain because now he has better access to knowledge.
Travel agencies can use this model to spot trends in this market. They should focus on creating competitive advantage to cross the existing barriers to new entrants and create barriers for others. They need to develop strong customer relationships by effective promotions. Their competitive advantage should offer an enhanced costumer service to get enhanced customer retention. If they will be able to see these trends and the power of these five forces before actually entering into the business, they can better make their strategies and direct their efforts accordingly.