Reference no: EM131254037

TUI Deutschland Uses Information Systems to Gain a Competitive Advantage To succeed, a business needs an edge over its competitors: a competitive advantage.

A big part of creating a competitive advantage is using information systems effectively, meaning a business can't simply buy computers and expect good results. As Oscar Berg puts it in his blog The Content Economy, "What [creates] competitive advantage is how we use technologies, how we let them affect our practices and behaviors.... If technologies are carefully selected and applied, they can help to create competitive advantage."

This chapter discusses the five forces that define any competitive situation: rivalry among existing firms in an industry, the threats of new competitors and of substitute products/services, and a firm's relationships with suppliers and customers. Firms use these forces to achieve a sustainable competitive advantage, which is one that others cannot copy immediately to eliminate the edge an innovator can have.

TUI Deutschland is Germany's leading tour operator. Targeted pricing is vital in its market, with the travel company that sets prices to accommodate customers' preferences and habits gaining a competitive advantage. For a large tour operator like TUI, setting optimal prices is not easy. Each season, the employee responsible for a particular tour must set around 100,000 prices for each destination region. The factors that affect the final price of hotel rooms, for example, include facilities, types of rooms, arrival dates, and expected demand.

"In the past, decision-making processes were not clear," explains Matthias Wunderlich, head of Business Intelligence at TUI Deutschland GmbH. "There were too many gaps in the system, since the information needed to make pricing decisions was hidden in different places. The result was a pricing process that was complex, laborious, timeconsuming, and occasionally inconsistent."

Wunderlich's team developed a new information system to make this process more effective. Used for the first time for the destination of Tenerife, it organizes historical booking data, making relevant information available to pricing specialists. They define the desired margin for a destination and specify parameters for results. The system calculates combinations and dependencies until the optimum result is achieved. It forecasts which group of customers will drive demand for particular accommodations at each point of the season, from coastal hotels for families during the school holidays to luxury hotels with first-class amenities for premium customers during the low season.

"We have to ensure that a four-star hotel, for example, is always cheaper on a given date than a five-star hotel in the same customer segment," explains Wunderlich. "With the new solution, this is guaranteed. There is no need for a timeconsuming manual procedure to ensure it is done correctly." Because the new pricing process is based on customer data, it reflects the needs and habits of customers. A pricing specialist can set prices that are attractive to customers while still achieving desired margins.

"Traditional pricing methods are no longer appropriate for today's travel and tourism market," says Wunderlich. "In the past it was practically impossible to set prices in a way that was flexible and customer-focused. This has all changed. The pricing specialist in effect becomes an expert in a particular customer group and knows exactly what a certain customer is prepared to pay for a certain travel service. This increases profits, but not at the expense of our customers."

Critical Thinking Questions
1. What online travel sites have you used? Do you think they make good use of their data? Why or why not?

2. Consider a bookstore that gives customers a card to be punched for each book they buy. With ten punches, they get a free paperback of their choice. This low-tech system leverages the force of customer power: By promising customers future benefits, it reduces their motivation to switch suppliers even if another store sells books for less. How could a bookstore use technology to make this loyalty program more effective in retaining customers?