Travel Agency

Distribution
Porter’s Five Forces
Porter’s Five Forces: Travel Agency
Industry Rivalry : Highly Fragmented
Industry with Intense Rivalry
– Highly Fragmented Industry.
• Organized players would barely have 15-20% of the
marketplace
• Most of organized players are present in metros & mini-
metros
• Large disposable incomes in towns like Lucknow, Jaipur,
Coimbatore etc. serviced by family run unorganized
players
– Industry rivalry is intense but not cutthroat
• Rivalry Intense because of low switching costs, low levels
of product differentiation, perishability of products
diversity of rivals
• Rivalry is not cut throat since exit barriers are not high,
fixed costs are not high, market growth is good
Porter’s Five Forces: Travel Agency
Threat of Substitutes: Low Threat of
Substitutes, as travel moves up the list of
household priorities
 Lot of Possible Substitutes , Threat of
Substitution Low
◦ India is witnessing a growth of discretionary spend as % of
income
from 30% in 2005 to around 70% by 2025. Travel , being a
discretionary spend poised to gain.
◦ Travel has moved up the list of household spending priorities
Unlikely to be substituted by a durable purchase or investments
Education & Recreation will occupy 9% share of wallet in 2025
as compared to 5% now.
◦ Travel Industry currently at $16 billion, is expected to touch
$26 billion by 2010
Porter’s Five Forces : Travel
Agency
Buyer Power: While buyers are fragmented,
their diminishing brand loyalty and ability to
switch (for most products) gives them
reasonable buying power
 Buyers are fragmented
◦ Diverse retail buyer and corporate buyer profiles
 Switching costs for buyers is not high as brand
loyalty is low/diminishing
 Credible threat of backward integration
◦ Buyers can directly buy from suppliers (hotels, airlines etc)
 Luxury segment is brand conscious to and
willing to pay a premium for great experience
and service quality
Porter’s Five Forces : Travel
Agency
Supplier Power: Supplier usually sell commodity
products . Concentration & ability to sell direct gives
power to suppliers like airlines. Other suppliers are
fragmented
 Forward integration by suppliers like airlines selling
direct
 Attempts by suppliers to sell packages and complex
itineraries not very successful
 While suppliers concentrated in some areas like
domestic airlines, there is widespread fragmentation
in hotels, tour operators, car rentals etc.
 There is no significant cost to switch suppliers and
products like airlines, car etc. are fairly commoditized
 Travel agency cannot typically buyout suppliers like
airlines
Porter’s Five Forces : Travel
Agency
Barriers to Entry & Exit : While entry and exit
barriers are low, difficult to build scale
because of lack of ready distribution
channels
◦ Government regulation of direct FDI in retail restricts entry
of foreign retailers
◦ There are low level of proprietary travel knowledge and
asset specificity. This makes it relatively easier for new
players to enter industry and does not provoke very
aggressive rivalry from existing players
◦ Low minimum efficient level allow entry of small startups,
however significant scale is necessary to negotiate profitable
deals
◦ Due to a fragmented market , travel agencies do not have
access to ready distribution channels
◦ Online channel is growing at a rapid rate but is primarily
selling air and rail
Implications of Analysis on
Distribution
Implications of Porter Analysis for
Distribution
 While buyers are fragmented, their diminishing brand loyalty
and ability to switch (for most products) gives them reasonable
buying power
Companies that thrive will not just meet travellers’ needs, but
also please their tastes and sensibilities – and do it for less
 Supplier usually sell commodity products . Most suppliers are
fragmented. Multi-linked channels and product offerings
continue to proliferate
The explosion of product offerings and channels continues to
erode profit margins and fragment markets
Distribution Strategy Imperative
 Strategic Imperative : To serve this
segment, Travel Agencies must drive out
costs and build efficiencies
◦ Build on products that fit well with core competencies and create
customer delight
◦ To out source low-cost, off-the-shelf packages for frequent destinations
◦ Improving technology and sharing routine functions with other players
◦ Leveraging data to increase accuracy, build volume or purchase bulk
inventory at discount
Call Sapphirez: Rajjeet Chandra
Mobile : +91 9867974602
Email : rajjeet@sapphirez.co.in