Paradise Vacation Case

Key Decisions * Should Leduc agree to Air Indias offer? * Whats the companys competitive strategy for 2008/2009? * How to serve to FunTours expansion and aggressive pricing strategy? SWOT abridgment Paradise holds strong buyer power which enables it to bargain for lower scathe and discount. As grocery leader and Quebec company, Paradise can promote itself through reminding customer about company hisotry to strength their preference and loyalty . The weakness lands at that Quebec is the only mart in Canada the collapse of one location give damage the entire business.The threat mainly lands at pricing competition from FunTours. Competitive Analysis and Consumer Analysis Because Paradise has its main market in Quebec, Benoix is the main competitor. However, the biggest threat comes from FunTours expansion currently. The competitive wages of FunTours is its low pricing strategy. Travelling is has an elastic demand. With expenditure world the most important determination, FunTours strategy could drive Paradise out of the market. This strategy targets at mid and base component of the market. It creates threat to the said(prenominal) segments for Paradise, which represent 90% of the tax receipts.Nonetheless, Quebec is a brandmark new market where FunTours does non have supplier connections or customer loyalty yet. FunTours serves no premium market where 10% of the revenue enhancement comes from for Paradise. Therefore, Paradise can utilize its bargain power with its suppliers to ask for lower prices, also lower its retail price to keep customers from switching to new brand, and herald to strengthen brand loyalty. Segment Focus Conclusion paper Low price Lower price than FunTours offers Mid Best value Lower price than FunTours offers, and special promotion with higher value. superior Luxury service Lower price to prevent customer from downgrading to Mid segment. Keep agents as partial distributors for bump services. Recommendation Base and Mid pack age will be sell through lucre solely Premium package will be sold through both agent and internet by 50/50 at the same time lowering wholesale price by 5%, and asking Benoix Air for 5% discount on the line of achievement. Implementation Plan Paradise will reject the offer from Air India. We will stay with the professional segments of consumers, and lower price to stop FunTours from ntering the market at the same time, keep the package un channelised to ensure customer experiences use promotional strategy to re-enforce brand name and loyalty. Product Travel package provides both service and product. Paradise includes 3 packages targeting at base, mid and premium market. toll (See Exhibit 4 for detail) We will be using jimmy-based pricing strategy. We will set lower retail price to stop FunTours from entering the market, and to provide lowest price for Base segment, opera hat value for Mid, and both luxury service and low price for Premium segment. retail Base 89 Mid 134 Premi um 193( promoter) 178 (Internet) Wholesale 88 132 176 maneuver Markdowns Seasonal discount, coupons. Markdowns. Place Indirect Distribution -100% of base and mid, 50% of premium package through internet distributor -50% of premium package through stumble agents with 10% commission Exclusive Distribution Distribute through good reputation internet distributors only for the purpose of keeping professional brand image, and high-end hold up agents to keep Premium customer privileged. Promotion Objective To re-enforce the brand image as a local and experienced travel operator who always serve to Quebec travellers needs beyond expectation. Reminder Advertising TV advertising and internet ad to re-enforce the brand image. Sales promotion (1)Price promotion is mentioned above at Price section. (2)Loyalty points-collection program to encourage repurchase and creates loyalty (3)Contests to win trips in order to increase consumer involvements and personal feelings. Expected Results See Exhibit 4 secondary 5//Recommendation for income statement.Appendixes Decision criteria * Provide short-term viability * Provide long-term sustainability selection Evaluation * Cost cutting through partnership with Benoix and cost structure change to start a price war with FunTours. * Setting pricing strategy as price war and cutting cost through vertical integration. * make do its packages through Internet distributors exclusively. * Offering packages to more remote and less developed destinations. Base and Mid package will be sold through internet solely Premium package will be sold through both agent and internet by 50/50 at the same time lowering wholesale price by 5% and asking Benoix Air for 5% discount on the flight. Alternative 1, comparing all new(prenominal) 4, gets the least revenue (32,540,428). Although it is feasible in short-term and might drive FunTour out of the market, it does not concern with the obsolete of travel agents. Giving the negative revenue for the base segment (see Exhibt 2), it is not long-term sustainable.Moreover, even if the competitor is eventually driven out the market, Paradise will have to raise the price once more in order to get back on its previous profitability Paradise runs into the risk that the customers will feel cheated and uncomfortable with the raising price, and thus charge to other operators. For Alternative 2, although leasing private airline will decrease the variable cost and increase revenue (71,192,907), Paradise runs into the risk of heavy responsibility for flight issues, decrease of flight destination and time flexibility, and high fixed cost, which will eventually be added to the price of the package.In addition to those, same problem with Alternative 1, it does not concern with the obsolete with travel agents. Thus, this alternative is not sustainable in the long-run. For Alternative 3, it addresses the problem of high agent cost, and the obsolete of agent distributor. 5% of revenue is ass umed from using internet to reach broader customer base with lower retail price. However, the price is still higher for than FunTours offer (e. g. $93 vs. $90) therefore provides FunTours the discover to take away market share. It is short-term viable but not sustainable.Alternative 4 increases market variety but turns away from the main market (top 5), which is providing 89% of Paradises package sale. It equals to giving up a bigger pie for a tiny one. (Exhibit 2) The recommendation ranks the 3rd place in the 5 alternatives quantitatively. However, it provides both short-term viability and long-term sustainability. Lowering the price from utilizing the buyer power on Benoix Air gives Paradise the ability to win over FunTours price-wise in the short-run, and keep price low in the long-run.Internet distributor addresses the obsolete of travel agents. By offering both agents and internet distributor for premium market helps sustain our competitive advantage on luxury customers. Exhi bit 1 Marketing Share, Value and Growth of Canada and Paradise Vacation for 2007 and 2008 PR Market Setments National PR Canada Quebec PR Quebec Base Mid Premium Percentage 100. 00% 7. 80% 20. 00% 39. 00% 60% 30% 10% 2007 6,400,000 499,200 1,280,000 499,200 299,520 149,760 49,920 2008 4. 0% growth 6,694,400 522,163 1,338,880 522,163 313,298 156,649 52,216 Exhibit 2 Alternative 4 Market Share, Value and Growth for 2007 and 2008 National Paradise Canada Other destinations other than top5 8% 11% 2007 512,000,000 54,912,000 After 25% of expected growth 640,000,000 68,640,000 Exhibit 3 Income Statement for Alternative 1 and 2 (2008) Alternative 1 i Alternative 2iv Base Mid Premium Base Mid PremiumTotal Revenue 313,297,920 156,648,960 52,216,320 313,297,920 156,648,960 52,216,320 Agent Internet Agent Internet Agent Internet Agent Internet Agent Internet Agent Internet Industry Total Sales 72% 28% 72% 28% 72% 28% 72% 28% 72% 28% 72% 28% 225,574,502 87,723,418 112,787,251 43 ,861,709 37,595,750 14,620,570 225,574,502 87,723,418 112,787,251 43,861,709 37,595,750 14,620,570 Retail price 90. 00ii 82. 64 135. 00 123. 95 180. 00 165. 27 90. 00 82. 64 135. 00 123. 95 180. 0 165. 27 Commission 8. 18iii 0. 82 12. 27 1. 23 16. 36 1. 64 8. 18 0. 82 12. 27 1. 23 16. 36 1. 64 Wholesale price 81. 82 81. 82 122. 73 122. 73 163. 64 163. 64 81. 82 81. 82 122. 73 122. 73 163. 64 163. 64 costs of sales Airline 40 40 40 40 40 40 30v 30 30 30 30 30 Hotel 40 40 50 50 60 60 40 40 50 50 60 60 Contribution 1. 82 1. 82 49. 90 49. 90 63. 64 63. 64 11. 82 11. 82 49. 90 49. 90 73. 64 73. 64 SG&A 9. 00 8. 26 13. 0 12. 40 18. 00 16. 53 9. 00 8. 26 13. 50 12. 40 18. 00 16. 53 EBITDA (7. 18) (6. 44) 36. 40 37. 50 45. 64 47. 11 2. 82 3. 56 36. 40 37. 50 55. 64 57. 11 Earning function (8%) (8%) 27% 30% 25% 29% 3. 13% 4. 30% 26. 96% 30. 26% 30. 91% 34. 55% Earning (18,000,390) (6,840,346) 30,410,785 13,271,102 9,531,852 4,167,425 7,063,444 3,775,013 30,410,785 13,271,102 11 ,620,505 5,052,058 Total 32,540,428 71,192,907 i. Assume during price war, market share does not changeii.Retail price drops 10% for distributor of agent wholesale price will shift according to retail price and commission change (Wholesale=Retail/(1+10% commission) internet retail price change according to wholesale and commission (Internet=wholesale*(1+1% commission). iii. Commission for agent will increase to 10% internet stays the same as 1%. iv All assumptions from Alternative 1 holdv Airline price decreases 25% from$40 Exhibit 4 Income Statement for Alternative 3 and Recommendation (2008) Alternative 3vi Alternative 5 Recommendation ix Base Mid Premium Base Mid Premium 48,271,360vii 328,962,816 164,481,408 54,827,136 334,445,530 169,964,122 43,861,709 Internet Internet Internet Internet Internet Agent Internet Segment Percentage 100% 100% 100% 100% 100% 50% 50% 328,962,816 164,481,408 54,827,136 334,445,530 169,964,122 21,930,854 21,930,854 Retail price 93. 53 141. 30 187 . 05 88. 85 134. 23 193. 534xi 177. 70 Wholesale price 92. 6 139. 9 185. 2 87. 97xii 132. 905 175. 94 175. 94 costs of sales Airline 40 40 40 38 38 38 38 Hotel 40 50 60 40 50 60 60 Contribution 12. 6 49. 9 85. 2 9. 7 49. 9 77. 94 77. 94 SG&A 8. 42 12. 72 16. 83 8. 00 12. 08 19. 35 15. 99 EBITDA 4. 18 37. 18 68. 37 1. 97 37. 82 58. 5866 61. 95 Earning contribution 4. 47% 26. 32% 36. 55% 2. 22% 28. 17% 30. 27% 34. 86% Earning 14,711,841 43,283,583 20,038,677 7,428,695 47,885,482 6,638,907 7,645,225 Total 78,034,101 69,598,308 vi Because that internet distributor can reach more customer, 5% growth on expected revenue (2008) is assumedvii Total revenue afterwards 5% assumed growthviiiWith internet distributor, SG&A decrease by 10% from before, for agent, it stays the same ix. % revenue growth is assumed same from Alternative 3 due to the use of internet distributor. Premium market as luxury will decrease due to the upcoming recession, it is assumed that Premium segment will decr ease to 8%, Base and Mid will increase by 1% each. X From bargaining with Benoix Air, a 5% discount is expected. xi 10% commission on agent is provided. Xii Taking 5% off wholesale price