Archived Research

INVESTMENT IN OVERSEAS MARKETING BY THE IRISH TOURISM INDUSTRY

SUMMARY FINDINGS & CONCLUSIONS

Marketing Investment Grows:

Total investment in overseas marketing by the Irish tourism industry continues to grow as it adopts new marketing channels and techniques. The commercial sector’s aggregate marketing activities and expenditure is increasing as firms invest heavily in new information and communication technology (ICT). The industry has invested at least €160 million in marketing, spending €50 million on new on-line channels of distribution, in addition to an estimated €110 million spent on traditional marketing activities in 2004. The investment shows an industry that is increasing its efforts to remain competitive by making greater use of more effective and cost efficient methods of reaching the consumer. There continues to be a marked shift by the commercial sector away from some traditional marketing channels such as advertising, especially on the part of carriers, in favour of more direct consumer communications - a global trend.

Businesses have become smarter and more effective in their overseas marketing in response to changed market conditions and new means of reaching the customer. The efforts of the commercial sector strongly complement the state’s expenditure on destination marketing.

Over the past two to three years the tourism industry has responded with significant changes including:

• a trimming of costs and a redirection of marketing expenditure to achieve greater effectiveness and efficiency; and
• a greater focus on the customer, aimed at defending and improving its market position.

Investment in technology is evident across all sectors and businesses within the Irish tourism industry, with the carriers and larger businesses in the hotel and car hire sectors being the leaders and top spenders. The survey results suggest that:

• at least €35 million has been invested by Irish based carriers;
• a number of branded hotel groups have invested upwards of €1 million each in technology in recent years;
• small businesses, most characteristic of the tourism sector, have typically invested at least between €20,000 and €50,000 in technology;
• industry associations and marketing consortia have also invested heavily in technology to provide the capability to member businesses; and
• the majority of businesses are spending an annual minimum of up to €20,000, with larger operators incurring annual costs in excess of €100,000, on skills training, licensing fees and maintenance, in addition to the capital costs.

Embracing the Internet

Ireland’s tourism industry is ahead of its competitors in embracing the new opportunities and adapting their business models to the new market environment. The current level of connectivity to the Internet is very high at over 90% as the industry uses new, and more cost efficient, promotional and distribution channels. An estimated four out of every five tourism businesses in Ireland currently have a presence on the WWW. Access is greatly helped by linkages from high visibility sites such as those of Tourism Ireland, Fáilte Ireland, the Irish Hotels Federation and a number of on-line travel merchants.

The Internet, as a new channel or medium for interactions between suppliers and customers, has fundamentally re-shaped the tourism sector’s value chain. Promotion, distribution, and sales functions and players within the value chain are becoming more integrated offering improved economies of scale and greater control over the sales process and price for the supplier of travel and tourism services. The Internet has enabled the industry to become ‘smarter’ marketeers.

Price followed by direct promotion are now seen as the major influences on the prospective visitor. The tourism and hospitality industry in Ireland recognise the improved effectiveness and increased margins offered by the new channels. Dynamic pricing, made possible by the Internet, is becoming an almost universal marketing tool. 40% of Irish tourism businesses report an increase in profits despite discounting in recent times.

The changing marketing environment and the redirection of marketing effort is amply demonstrated by a number of developments over the recent past. Sales via the web are growing fast. While airlines lead the way with a growing dependence on the web for sales, ferry companies and major hotel groups are building their web-based sales. The use of 3rd party sites for listings and booking engines is a widespread practice enabling most Irish businesses to maximise their e-commerce marketplace exposure. Overall it is estimated that:

• almost 9 out of every 10 businesses in Irish tourism now have the capacity to engage in on-line sales compared to only 6 out of every 10 back in 2000;
• on-line sales are accounting for an increasing share of business, with almost two out of every three firms now dependent on-line sources for more than 10% of sales, whereas only one out of every seven had 10% of their sales from online sources four years ago.

Changing Marketing Mix

Air and sea carriers combined continue to be the top investors in marketing and technology and are leaders in the e-commerce marketplace. New marketing strategies have resulted in changes in the marketing mix, with a greater concentration on direct communication with customers and less of an emphasis on traditional forms of destination and product advertising and in-market sales functions. Accommodation and other tourist service providers are also turning to new channels of promotion and sales, although as yet the shift is less marked than in the case of the carriers.

The allocation of marketing expenditure between the main source markets has shown little change in recent years, the use of new channels to penetrate geographic markets and market segments is improving the effectiveness of the industry in targeting its best potential markets.

The extent of investment in ICT and its ‘take-up’ by businesses in the tourism sector would appear to be dependent on a number of factors, including:

• the type of business and service and the extent to which it is a commodity or highly customised;
• the size of the enterprise;
• the customer base (defined by purpose of visit, source market, historical channel of sale, etc); and
• management sophistication and awareness.

The Internet is an enabler is helping businesses to communicate better with their customers; provide more focused responses to enquiries and do so in a more efficient way; gather profile information on potential and actual customers; and offers the facility to immediately close the sale by use of a booking engine. Even in the business-to-business sector the use of the Internet, through password protected site entry or private exchanges, is increasing as a means of communications and transacting business.

The shifts in marketing mix seen in recent years are set to continue as service providers adjust to new business models. The forecast is for the commercial sector to expend more of its marketing budgets on direct marketing and promotions with a corresponding decline in traditional advertising and brochures.

Future Challenges

Continued developments in information technology as an enabler together with the application of innovative technologies and the dynamics of the e-marketplace present some challenges if Ireland is to leverage the new channels for competitive advantage. These challenges include:

• The changing roles and relationships between destination marketing organisations (Tourism Ireland; RTOs, etc.) and the commercial sector in the new environment.
  
  How best to maximise the synergies between the marketing programmes of Tourism Ireland and the industry given the trends in expenditure and shifts between channels?
  
• The multiplicity of sites, suppliers and booking engines. A critical issue is the effectiveness of Ireland sites provided by the public agencies in meeting customer needs and providing platforms for the industry.
  
  How best to maximise the competitive exposure and ease of access to the Ireland product?
  How can Ireland ensure it has the best web based marketing platforms and capture increased sales for the industry?

Need for skills training and education, together with professional guidance for SMEs and micro-businesses.

How best to provide advisory services and best practice models for small business?

The high capital and operating costs and slow return.

How best to ensure adequate funding to maintain competitiveness?

Recommendation

In view of the critical importance of the application of information technology to marketing and its current stage of development it would be opportune to review the current situation within the Irish industry. The review would ideally examine and make recommendations in regard to:

• best practice;
• the effectiveness and efficiency of the public and private sector investments and applications;
• the synergies between the generic Ireland sites and those of individual product and service providers.

The primary purpose of the proposed review would be to improve the competitiveness of Ireland by ensuring accessibility of Ireland products and services to the consumer.

The above findings are based on in-depth information collected in June/July 2004 from a selected sample of businesses drawn from most sectors of the industry. The data has been supplied on a confidential basis for aggregation and analysis by TTC on behalf of ITIC. Comparisons are drawn from data collected in similar exercises 2001 and 2003.

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