Figure 4.1 Traditional Mass Media Model of One-to-Many Marketing Communications Figure 4.2 New Model of Marketing Communications for the Web (Hoffman & Novak, 1995)
The interactive nature of the Web is conducive to forming closer relationships between producer and consumer. Compared to traditional media, the Internet offers very low barriers to entry, and an exceedingly cheap way to provide additional information on to the point of detail. These details can often be tailored "on the fly" specially for each request using CGI interfaces, while feedback can also be solicited through use of forms. Sales can be made automatically on line, as well as by conventional means, through use of credit cards or 'virtual cash' as payment methods.
Such an enviroment places the consumer in a new position to initiate and control the marketing process. Irrelevant material can be avoided as the web allows them to dynamically survey and gather information of their choosing; following links to fields which they have the most interest. The benefit cuts both ways to aid the producer to disseminate information. No longer will they be sending material out to people who don't care, but will be reaching a core group of people who want the information and can look at it at will.
In a nutshell, the concept of hypermarketing suggests this unique enviroment will require the companies to develop new strategies for marketing. Specifically, the firm will not only attempt to uncover and satisfy customer needs at a profit, but also engages in marketing activities that contribute positivly to the development of the hypermedia CME itself, by developing new paradigms for electronic commerce. (Hoffman & Novak, 1995) This is echoed by industry consultants such as Strangelove, (1995) editor of Internet Business Journal, who explain that it is not enough to merely transfer traditional marketing material straight to the Internet. "Success will go to those who enter fully into a new paradigm and transfer their marketing messages into an interactive, dynamic community prescence."
With a high level of information reliance within the value chain, and high information content of the product, the travel industry is a prime example of an "information intensive" industry. As such, industry players will be forced to compete on the basis of information, and those who adapt to this new method will gain substantial competetive advantages. The airline industry has already fought on this battleground during the implementation of the CRS, and the WWW looks set to bring in the next change.
P1 : Travel related businesses of all types will move to develop a prescence on the Internet for the purpose of marketing and sales.
The Internet is causing a radical transformation for the electronic exchange of information. Previously Electronic Data Interchange, (EDI) shared databases, and other co-operative information systems have been implemented only between firms. The obvious case is the CRS, where airline information is shared with the travel agent. With the advent of on-line services and the Internet, travel producers have the ability to share complicated information directly with the individual consumer.
Economic theory and actual market behavior assert that firms will choose transactions that economize on costs of co-ordinating distribution. For many industries including travel, IT will allow producers to internalize activities that have traditionally been performed by intermediaries. (Benjamin & Wigand, 1995; Poon, 1993; Steinfield et al, 1995) Producers will "capture value" and in the resultant redistribution of profits along the value system, intermediaries will disappear. With estimates of airline distribution costs between 18-25% of sales, it would be financially preferable for both the firm and consumer to take advantage of IT and deal directly through the GII.
Sarkar et al. (1995) critique this "threatened intermediary hypothesis," and proposes that transaction cost theory can equally be applied to suggest that companies may still find it cheaper to out source intermediary functions, and come to rely on them even more. Indeed new intermediaries may be required to help consumers handle the new choices available on line
To resolve the paradox, they propose a simple model on which the threatened intermediary hypothesis can be tested. [Figure 4.3] The costs of distribution for a company will either be T1 if the company sells directly, or T2 & T3 if the company works through an intermediary. So, in an industry where it is cheaper to go through an intermediary, T2 + T3 < T1. The change arising from the introduction of a GII, is dependent apon which method costs more before and after its introduction.
Figure 4.4
Four Outcomes Possible When the Availability of a GII Impacts the Costs of Transactions between Producers & Consumers (T1), Producers & Intermediaries (T2), and Intermediaries & Consumers (After Sarkar et al, 1995)
The threatened intermediary hypothesis is relevant only where the companies involved find it cheaper to sell directly, only after the introduction of a GII. However, if there is little or no difference, Intermediaries will remain using the net to their advantage. If after the introduction of a GII, it actually becomes cheaper to go through an intermediary, than direct, then theory forcasts a new generation of "Cybermediaries." These are simply intermediaries which take advantage of the GII to create new economies of scale and of scope.
Owing to the different cost relationships of travel agents between hotels and airlines, it would be reasonable to see different approaches to their development on the Internet. While airlines currently find it cheaper to go through an intermediary, hotels still find the majority of customers coming to them direct. The advent of a GII, may make it even easier for hotels to trade direct, or may make it feasible to work through a "cybermediary."
P2 : The Internet, as a fledgling GII, will present new paradigms for intermediation for the travel industry.