Reference no: EM133233085

Assignment:

Overall Industry Background

The safari luxury travel industry tended to function in three layers of operation: (1) tour operators, (2) destination management companies (DMCs), and (3) safari camp managers.

Tour Operators: Travelers can consult different companies and ask tour operators for estimates to find the best deal for their specific interests. Tour operators earn gross profits from sales commissions from safari camps and lodges. These commissions typically range from 12% to 25% of the total travel price, excluding airfare. For example, if a camp is priced at $2,000 per person per night, tour operators will typically charge customers $2,000 and then pay the hotel a wholesale price of $1,600. They then take the remaining $400 as gross profit. Tour operators need at least three key resources, including industry knowledge, appropriate funding, and skills in managing marketing and branding campaign.

Destination Management Companies: Tour operators worked directly with DMCs to set up the difficult operational logistics of a custom safari in a specific region. They helped tour operators book the difficult and time-consuming elements of the trip, such as arranging local car transportation or chartering planes. DMCs filled a gap in skills and capabilities between tour operators, safari camps, and lodges. DMC activities were typically white-labeled, so the client saw DMC services such as ground transportation, luggage transfer, and local troubleshooting. DMCs typically had little pricing power in their area of operation. As direct suppliers to the tour operators, they competed by offering a mix of good service and a reasonable price. Some DMCs were part of vertically integrated companies. For example, a well-known large vertically integrated safari DMC and camp manager also had a competitive tour operator subsidiary in the United States.

Safari Camps and Lodges Managers: The business of managing safari properties is highly specialized and capital intensive. The industry has been highly fragmented, with companies owning small hotels and camps. Some companies, especially those catering to high-end luxury customers, are starting to build international brand reputations that allow them to move in new directions. One of the leading camps had pushed partially into the tour operator space by enabling consumers to book their safaris directly, charge a full retail price, and retain the portion of gross profits that would usually have gone to tour operator partners.

Incumbent Competitor's strategy

• Customization safaris with elements of both luxury and adventure

• Both creativity in trip planning as well as high-end level of attention to detail at every step of the process, regardless of price

• Matching client interests to both safari lodges and the overall travel route

• The sales team never directed clients towards high-priced accommodations for a higher commission

• Do a lot of training to ensure the sales team is up to date

• Growing brand reputation and rapid growth based on public relations (PR) campaign targeting high-end travel publications, referrals from past clients to their friends, and repeat bookings from past clients

• known for its high-quality customer service and creative safari planning

Question : Using Michael Porter's FIVE forces, for each force, please identify whether that force is encouraging to earn excess sustainable and above-average profits as a potential new entrant to the Safari Tour Operators industry. Also, define each force in terms of the threat level (High vs. Low) from vertical integration from either buyers or suppliers, which it poses to the profitability of a potential entrant. A short summary of whether an courageous business explorer should enter this industry or not and what force(s) helped to make this decision.