Internet Marketing Strategy of a Wholesale Tour Agency in Korea … · 2017. 8. 26. · 3. Internet Marketing Strategy of Hana Tour The milestone of HT’s internet marketing was

Journal of Service Science (2009) 1:83-104

DOI 10.1007/s12927-009-0005-z

Sam-Kwon Jung () Department of Tourism Information, Yuhan College e-mail: [email protected] Hyung-ihn Choe () Department of Airline Service, Korea Tourism College e-mail: [email protected] Jeoung-Woo Byun () School of Hotel and Tourism Management, Kyunghee University e-mail: [email protected]

Internet Marketing Strategy of a Wholesale Tour Agency in

Korea : Case of Hana Tour

Sam-Kwon Jung, Hyung-ihn Choe, Jeoung-Woo Byun

Received: 28 October 2008 / Accepted: 15 May 2009 / Published: 25 June 2009

© The Society of Service Science and Springer 2009

ABSTRACT

This study reviews the Internet marketing strategy of Hana Tour, a wholesale tour agency in Korea. The Internet marketing mix of Hana Tour is successful in carrying out its vision and mission by using a 7P's model, the combination of McCarthy's 4P's, ‘partnership’ and ‘person’ in Morrison's 8P's, and ‘process’ in Booms' 7P's. Particularly, this article presents a useful strategy to overcome the limitation of traditional offline sales channel and suggests a sales-orientated B2B2C business model through the Internet as a new channel.

KEYWORDS

Internet marketing, B2B2C, Wholesale

84 Sam-Kwon Jung, Hyung-ihn Choe, Jeoung-Woo Byun

© The Society of Service Science and Springer

1. Introduction

1.1 Background

Information Technologies (IT) is deeply affecting companies' business performance in the

competitive market (Porter 2001). Tour agencies are also affected by IT developments and e-

marketplaces in terms of reservations and transactions (Buhalis 2000).

Traditionally, tour agencies, tour operators, and inbound tour agents had been using the

Computer Reservation System (CRS) for reservations before the Internet was actively applied

in the tourism industry (Buhalis & Laws 2001). Videotext systems and travel networks were

generally used. Teletext, a system in which consumers made orders while watching TV, was

another form of reservation tools in the tourism business (Buhalis & Licata 2002).

The growth of the Internet enabled the potential consumers to gather the tourism

information and to decide products through online. More and more tour agencies have been

realizing the importance of the Internet as a marketing tool. While many online tour agencies,

such as Travelocity.com and Expedia.com have been successful in the United States, not

many online tour agencies have been successful in Korea. Compared with many prosperous

tourism companies in other countries, most of the Korean tour agencies are not utilizing the

e-commerce market effectively (Park et al. 2007). However, almost all tour agents are

recognizing the significance of the online business as their future market. The purpose of this

study is to review the case of Hana Tour (HT), which largely invested in IT systems, and will

to find out a successful model and strategy of internet marketing.

1.2 Research Objectives

Hana Tour (HT) is the best known tour agency in Korea, and has been ranked number one

in sales of out-bound travels and airline tickets for nine consecutive years (Tourism

Information Newspaper 2007.6.15). HT has been establishing online systems such as

CRM(Customer Relationship Management), PRM(Partner Relation Management),

EIS(Execute Information System), PI(Process Innovation), ERP(Enterprise Resource

Internet Marketing Strategy of a Wholesale Tour Agency in Korea 85


Planning), and GNIS(Global Network Information System) as a market leader after the

recognition of fast growing e-commerce market (Park 2006; Tourism Information Newspaper

2007.6.22). Wholesale agencies, which supply tour packages to retail agents and sell travel

products to consumers, need a differentiated e-commerce marketing strategy to support the

retailers (Buhalis & Licata 2002) and a system to manage consumers (Park et al. 2007). An

internet marketing strategy which can sufficiently and efficiently match the consumers' needs

and the travel products is required. Without considering the offline and online marketing

strategy together, there will be a limitation in satisfying the individual consumers' needs (Kim

2001). This study will suggest a way to overcome the restrictions.

Based on this HT case, we would like to find out an effective internet marketing strategy,

its performances, and the ideal model which is suitable for the Korean tourism market.

2. Internet Marketing of Hana Tour

2.1 Vision

The vision of HT is to become one of the "world's top 10 travel companies in 2010, and the

largest global tourism group in 2020" (www.hanatourcompany.com 2008.8). To achieve the

first vision in 2010, the company is concentrating on sales, profit, and the number of

outbound travelers. As the next step in becoming the ‘largest global tourism group in 2020’,

they plan to integrate the neighboring market (China, Japan, and Northeast Asia) with

advanced information technology and strong global network. The internet marketing strategy

with IT will play a major role as a framework to accomplish the company's vision.

2.2 Mission

The mission of the company is ‘Impression and Hope to Customers,’ and the foundations

to attain this mission are ‘Customer Satisfaction Management’, ‘Online Management’, and

‘Global Management’ (www.hanatourcompany.com 2008.8).



The first mission is the establishment of a business model for Customer Satisfaction

Management. Traditionally, wholesale travel agencies receive reservations from retail travel

agencies, which are their main distribution channel. A marketing strategy is needed to

support the retailers so that they can identify the customers’ needs and provide services to the

customers (Park et al. 2007). HT is carrying out the strategy by adapting the retail-focused

B2B2C model in three steps: 1) set up a 6 Sigma level of service, 2) provide one-stop service

to customers, and 3) build a customer-focused infrastructure and IT system.

The second mission is the settlement of internet marketing and effective online

management system using IT. When consumers make decisions to buy some tour packages,

they need media or channels that can provide valuable and correct information. Also, they

would like to receive reliable services while traveling and compensation for unsatisfied tour

packages (Park et al. 2007). To meet the travelers’ needs, ‘Business Support Model’ was

developed as follows: 1) enrich website content for users, 2) systemize online procedures for

efficiency, and 3) emphasize business transparency with global standards.

The last mission is the global management system for competitiveness in the global

market. According to United Nations World Tourism Organization (UNWTO) in 2007, the

tourism market will grow steadily worldwide, and by 2010 the number of international

tourists will reach one billion. Especially, the Northeast tourism market including China will

grow dramatically and the global business model to connect these countries will become

essential. As so, HT is planning to raise their brand value by expanding the subsidiaries and

offices in Asia, Europe, US, and Oceania, more specifically by opening 50 subsidiaries and

offices world-wide by 2010 (Global Travel Newspaper 2007.12.17).

3. Internet Marketing Strategy of Hana Tour

The milestone of HT’s internet marketing was the developments of a connection system

between the headquarters and the retailing partners in the early 1990. They had ‘Manager 1.0’

software for reservation and payment transactions, but the users needed an integrated

management system. As the next step, ‘Manager 2.0’ was introduced with upgraded

functions. In addition, software named ‘.com Helper’ was also launched to help the

Hanatour.com partners. The complication and duplication from the simultaneous use of



‘Manager 1.0’, ‘Manager 2.0’, and ‘.com Helper’ lowered the productivity. Improved

‘Manager 3.0’ software with reinforced reservation function, customer management function,

and personnel management function was brought in to solve productivity issues. In addition,

to handle online customers, they newly added the online business division within the

company. Also, GNIS was introduced to connect the foreign offices and subsidiaries with the

headquarters providing the environment for an integrated marketing strategy.

3.1 Website Operation Strategy

As the number of Internet users increased and the Internet began to play an important role

in communication, the company recognized the primary function of Hanatour.com and its

website’s operation. The first HT’s website ‘Hanatour.co.kr’ opened in June 1996 and

changed to ‘Hanatour.com’ in June 2004. Currently, about 50 thousand visitors hit the

homepages per day. It has been ranked number one among tourism sites according to the

Ranking.com and about 4 million website viewers visited the site during peak summer season

in 2007. The website operation strategies of HT are as follows.

First, they established their website based on the users’ needs. To deliver the value to

customers and retail partners, they are operating a win-win website system. Customers can

easily seek travel information, compare multiple products, make reservations in real-time,

and make payment through the site without any hassle. In addition, customers can find travel

guides and maps at their planning stage, and receive guaranteed services after returning from

their travel.

While HT maintains advantages of the offline system, it provides equivalent values to

online consumers. For example, if a consumer makes an online reservation directly with HT,

the company provides the consumer’s information to a local retail travel agent to support the

customer in an offline situation. HT has collected customers’ reservation information,

personal data, and satisfaction data through online for many years, has combined them with

the offline retailers’ know-how, and eventually has built an e-marketplace where B2B2C

business model works well.



Second, HT maximizes the synergy effects by systematically combining the website

content, design, and technology. Website content is the core factor when evaluating the

website quality. A website with superior design and technology but without competitive

content cannot be accepted as an excellent website by customers (Lee et al. 2005). HT’s

website has unique contents such as Information Sharing Community, Destination Guide, and

Special Tour Packages. They also provide useful information through ‘Hanatour Webzine’,

and various packages through Hana2045 Free-pack products, Outbound Travel packages,

Honeymoon packages, Golf Tour packages, and Domestic Travel packages. In addition, it

has comprehensive product information, service procedures, and a support system that can

resolve any online problems. HT uses web log analysis to figure out the real target

customers, and receives feedbacks from them to update the website content. The color, font,

usage of multimedia, and layouts of the web pages are important in that they affect the first

impression to visitors (Lee et al. 2005).

The oval shape logo represents the earth and the vision of the company. Red brick color is

used as the main theme, and hot pink and white combination with three supplementary colors

are used to show the strong company image. Search engine, Disaster Recovery System

(DRS), Process Innovation (PI) and Enterprise Resource Planning (ERP) technologies have

been applied to the site. HT has been implementing the PI and ERP system since June 2007,

which is the first movement of digital innovation in the travel industry in Korea (Travel

Information Newspaper 2007.6.22). They have also connected ERP financial accounting

module with the International Financial Reporting Standards (IFRS) system. Since the

company has been listed in the London Stock Exchange (LSE), it follows IFRS starting from

2008. The Korean government will also require IFRS for every listed company from 2011.

3.2 Internet Products Strategy

In the Internet era, intangible and digitalized products have been increasing, the concept of

products has been changing, and the relationship between a brand name and a domain name

has been growing (Kim 2006; Korea Internet Marketing Research 2006). HT divides its



online products into three categories- international travel products, domestic travel products,

and inbound travel products.

First, they have segmented the international travel products according to customers’ type,

continents, countries, and travel dates, and developed about 14,000 different products. The

products include package tours, honeymoon packages, golf tour, individual tour, hotel and

airline ticket sales for business travelers, and Flexible Independent Tour (FIT). Also they

have extended their business into charter flights. For hotel reservation, they have developed

their own Multi Article in the Direct Access System (MAIDAS) to handle about 30,000

hotels world-wide.

Second, they established subsidiaries, Hana Kangsan and Jeju HT, which only handle

domestic travel packages. These subsidiary companies work closely with local governments

to develop tour packages, leisure sports packages, seasonal packages, and various themed

packages. In addition, they operate group package tours, online rent car reservations,

domestic airline ticket sales, train tickets sales, and so on.

Third, they have inbound tour package programs for foreigners who visit Korea. They

have a new value-added business model with which they develop and handle every process of

tour programs. Inbound travel packages are targeting travelers from Japan, China, and US.

There are some themed travel packages (Airtel, leisure sports, making Kimchi package,

Teakwondo package, and drama location tour) and incentive travel packages (company

incentives, student group tour, and concert tour). In addition, airline reservation service,

interpretation service, and guide services are available to satisfy the customers’ needs.

3.3 Internet Price Strategy

Most travelers consider countries to travel and price when making decisions (Jung et al.

2007; Jung et al. 2007). If they feel the price is high, they hesitate to buy the package product.

However, how they feel about the price depends on the quality and the brand value of the

product. The pricing strategy that allows travelers to feel that they have bought a good travel

package with satisfaction is the key to success (Jung et al. 2007).



Internet pricing strategies can be separated into low pricing and high pricing strategy

(Korea Internet Marketing Research 2006; Jung et al. 2007). HT has been using a mixed

pricing strategy. The low pricing strategy with online and offline advertisement has broaden

the sales channel and attracted travelers. As a result, HT could maintain the stable demand

level and offer lower tour package than other travel agencies. The high pricing strategy

comes from analyzing the competitors in the market. HT evaluates the competitors’ products

and develops specialized and differentiated products which can deliver higher values to the

customers. An example of the mixed pricing strategy is ‘Puzzle Pack’ which allows

customers to organize the whole traveling program.

3.4 Internet Place Strategy

The term of internet place strategy contains not only the distribution of products but also

the process of transactions (Korea Internet Marketing Research 2006). Originally HT’s

business model had the traditional distribution channel of travel wholesalers. Now, HT

organizes travel packages and handles marketing, whereas the sales transactions occur at

retailers’ sites, which is an indirect form of Business to Customer (B2C). After the

reservation, the next transaction between a retailer and a wholesaler happens instantaneously

(B2B). This can be called the travel agency’s B2B2C. Marketing, service, and customers

management support of a wholesaler is vital (Park 2007). HT’s on-offline distribution

strategy has two types, general travel agent strategy and partner travel agent strategy.

HT organizes online travel packages and events, and sells them through various

distribution channels. Assistant travel agents of Hanatour.com use the agency’s B2B2C

business model.

1) General Travel Agent Strategy

First, the economy of scale is important because it can provide a competitive price to local

travel agents and eventually to customers. HT collects demands from small local travel

agents, and based on the total demand it can use its purchasing power to lower the package

price.



Second, general travel agencies provide customer-friendly and one-stop service to

customers by using 4A marketing mix which means “any way, any products, any time, and

anywhere.”

Third, constant supply of various travel packages from wholesalers to travel agents is also

important. HT supplies a variety of travel packages with charter flight service and block

charter, thanks to the steady supply from the local travel agents. The constant supply helps

to disperse the overbooked customers.

Fourth is the guaranteed departure service for the customers who made the reservation.

They use the ‘Manager 3.0’ system to gather the reservations by dates and travel destinations,

so that the maximum number of travelers can travel whenever they make reservations.

2) Partner Travel Agent Strategy

Partner agents are authorized to use the HT’s brand officially. About 658 travel agents

were specially selected in May 2007 and now contribute to the HT brand with outstanding

services.

Specialized partner travel agents can fortify customer services, lower operation costs, and

provide customer satisfactions by concentrating on their competence. These partners are

located in E-mart (mega supermarket) and GS mart (convenient store) in order to extend the

distribution channel.

3.5 Internet Promotion Strategy

Promotion strategy is a part of the marketing strategy, and should be harmoniously

organized with marketing objectives and other marketing mix strategies (Korea Marketing

Internet Research 2006). The promotion strategy of HT is as follows.

First, HT wants to have the best travel portal site in Korea. To do so, Hanatour.com

affiliates with other reservation websites in other countries and sets up the connection system.

Also, HT has video-on-demand (VOD) services linked to the product itinerary so that the

customers can enjoy the virtual experience and gather the destination travel information.

Online events and contests are a unique section of HT’s website. About 50,000 pages of



travel guides and 20,000 pages of destination images provide travel information to website

visitors.

Second, they have an efficient transaction supporting system for real-time product search,

reservation, and control. The system enables the local travel agents to maximize their sales

and profits.

Third, they provide website contents for any partner who wants to set up their own

homepage and sell the HT’s package. HT makes templates, maintains and repairs them

regularly, and provides them to the partners so that the local travel agents can easily create

their homepages without any extra costs.

Fourth, enhancing the brand value with specialized brands such as Prestige Club, HT Golf,

‘Haru n’ (in a day), ‘Jumal n’ (on weekends), is another strategy to stimulate the internet

marketing promotion.

3.6 Internet Partnership Strategy

The marketing mix concept was introduced by N. H. Borden in 1964, and generalized by E.

McCarthy with 4P (Product, Price, Place, Promotion) factors (Kim 1997). Later on, B. H.

Booms extended it to 7P model by adding Participants, Physical evidence, Process of service

concepts to the 4P’s (Kim 1997). On the other hand, A. M. Morrison added Person, Packaging,

Programming, Partnership factors, developing an 8P Tourism Marketing Mix (Kim 1997).

To increase the online customer market, HT have alliances with internet portal companies

(Yahoo Korea, Paran, and Daum), home shopping companies (GSeshop.co.kr, Hmall.com,

and Woori home shopping), online shopping malls (Samsung mall, CJ mall, Auction,

Lotte.com, G market, Daum, and d&shop), credit card companies (BC card, Samsumg card,

Hyundai card, Lotte card, Visa card, Kukmin bank, and Hana bank), media (SBS Golf.com,

and Hankyoreh), and retail stores (E-mart, and GS mart).

3.7 Internet Person Strategy

Human resource is one of the most important factors in any industry. However, in the

tourism industry, ‘people’ factor is critical for success (Kim 1997). Motivation strategy to



encourage workers has been the major issue for the CEO and top executives of HT ever since

the establishment of the company. HT offers stock options to employees after the assessment

of employee performances at the end of the year. In 2007, the difference of the stock option

price was 3,500 won per share. HT also has an education center to train 658 partner travel

agents, 1,000 assistant travel agents, and 1,304 internal employees. The numbers of internal

employees have increased dramatically in recent years. HT does not have a labor union, but

has been operating ‘Hana Collaboration Committee’ since 1999. Committee members

consist of top management, managers and employees. They regularly have open discussion

regarding working conditions and the company’s direction (Hana Tour IR 2007).

3.8 Internet Process Strategy

A product life in the travel industry can be defined as a process of reservation, arrival at

destination, travel, and return to airport, port, or terminal. Many researchers found that the

customer satisfaction with travel packages depends on service quality (Kim 1997; Jung et al.

2007). Process strategies can be categorized in 3R’s: Reservation, Remembrance of tour, and

Relation.

First is the strategy for reservation at the pre-departure stage. The company provides online

information service through website, email, VOD about destination guide (culture, price

index, local products, and area information), travel preparation guide (passport, visa, and

currency exchange), and products explanation (air, hotel, dining, shopping, and sightseeing).

As a complementary, offline assistance by phone, fax, and marketer is also available for

customers who are comfortable with an offline medium.

Second strategy is for ‘Remembrance of tour’, which starts from departure to the

destination. A tour conductor always explains the details of the whole tour program before

arrival at the destination. After arrival at the destination, a local tour guide checks customers’

reaction every morning regarding the previous day. HT controls the quality of tour

conductors and tour guides, and only recruits those who have relevant certificates and/or

licenses.



Third is the relationship strategy. The company forms online communities for the

customers after they finish their travel. Various online events such as photo contest and essay

contest are popular. The same marketer, who handled the reservation, contacts customers for

feedbacks and complaints if there are any. Real-time messenger system ‘Hona Tong’ is

actively used to communicate internally and to manage works with outside partners (Travel

Information Newspaper 2007.8.3).

4. Hana Tour’s Internet Marketing Performance

Evaluation of a company’s performance is different from others, and performance

measurement should be judged by different factors depending on the type of the company

(Kim 2006). Sales, net profit, market share, and management output will be considered for

HT’s case

4.1 Sales and Profit

In the tourism industry, the income from overseas traveling intermediation purely counts

for the tour deposit amount after deducting the tour expense. Air ticket intermediation income

means the sales commission of the ticket which is about 9% (Jung et al. 2006). Other income

includes promotional fees and advertisement sponsorship fees.

In 2007, HT’s income from overseas traveling intermediation was 1,390 billion won; air

tickets intermediation income were 491 billion won; other income were 110 billion won; and

net income were 268 billion won. HT’s total sales in 2007 were 1,992 billion won which is

3.8 times higher compared to 527 billion won in 2002. Net income also increased by 3.9

times from 69 billion won in 2002 to 268 billion won in 2007.

4.2 Market share

The market share in the tourism industry is calculated based on the ratio of the number of

tourists sent out by a company to the total number of outbound travelers from a country. As

in <Table 2>, total outbound number is from Korea National Tourism Organization (KNTO)



and the HT’s outbound number is from Korea Association of Travel Agents (KATA). The

number of international travelers has increased every year until 2007. About 10 million

people traveled outside of Korea in 2006, and HT sent out 1.3 million travelers. The market

share of HT marked 13.7% in 2007, and 12.0% in 2006.

<Table 1> Hana Tour’s Summary of Income Statement

(unit: million won)

Description 2007 2006 2005 2004 2003 2002

Overseas traveling intermediation Income

139,079 111,914 68,447 49,670 33,672 27,599

Airline ticket intermediation Income

49,171 42,823 35,038 26,551 23,642 22,087

Other income 11,048 11,563 7,543 3,537 1,114 3,087

Total Sales 199,298 166,300 111,029 79,759 58,429 52,773

Operating Expenses 163,389 136,075 93,265 67,953 50,034 44,672

Operating Income 35,909 30,225 17,764 11,806 8,394 8,101

Net Income 26,876 23,303 16,641 10,616 7,025 6,904

Source: Reorganized from Financial Supervisory Service (2008, 2007, 2006, 2005)

<Table 2> Hana Tour’s Market Share

Description \ Year 2007 2006 2005 2004 2003 2002 2001

Total outbound number

12,295,079 10,832,426 9,278,860 8,008,904 7,086,313 6,375,377 5,401,534

Hana Tour outbound number

1,684,870 1,301,833 946,081 721,845 574,195 480,899 400,390

Market Share (%) 13.70 12.02 10.20 9.01 8.10 7.54 7,41

Remarks: Total outbound number excluding airline crews Source: Reorganized from Financial Supervisory Service (2008, 2007, 2006, 2005, 2004)



4.3 Management performance

HT’s management performance is shown in <Table 3>. In terms of stability, the current

ratio is 150%, which is much lower than the standard rate of 250%. The current ratio means

the capability to pay short-term debts and the suggested ratio is 2 to 1. But, it depends on the

industry type (Lee 1994; Shim et al. 1988).

Income level, growth rate, and investment index are higher than the standard rates, which

is a positive signal for the company.

<Table 3> Hana Tour’s Performance Index

Performance Index

Category Equation 2007 2006 2005 Standard

Rate*

Stability

Current Ratio Current Assets / Current

Liabilities x 100 151.65 150.18 104.48 250

Debt Ratio Liabilities / Equity Capital x

100 85.40 98.50 104.93 100

Total loans and bonds payable to Total Assets

Borrowings / Assets x 100 No Loans -

Interest Coverage Ratio

Operating Income / Interest x 100

No Interest 800

Income

Return of Operating

Income

Operating Income / Sales Revenue x 100

18.02 18.17 16.00 11.0

Return of Sales Net Income / Sales Revenue

x 100 13.49 14.01 14.99 5.0

Return of Assets

Net Income / Assets x 100 14.60 17.23 23.05 10.0

Return of Equity Capital

Net Income / Equity Capital x 100

27.99 34.55 47.25 15.0

Assets Business present value

flow rate

Business present value flow / Assets x 100

21.22 49.89 26.01 -

Growth Rate Sales Revenue

growth rate

(Current Year Sales Revenue / Prior Year Sales Revenue x

100) - 100 19.84 49.78 39.21 -



Operating Income growth

rate

(Current Year Operating Income / Prior Year

Operating Income x 100) - 100

18.81 70.14 50.47 -

Net Income growth rate

(Current Year Net Income / Prior Year Net Income x

100) - 100 15.33 40.03 56.76 -

Assets growth rate

(Current Year Ending Assets / Prior Year Ending Assets x

100) - 100 0.25 112.32 49.84 -

Assets turnover Sales Revenue / {(Beginning Assets + Ending Assets) / 2}

1.08 1.23 1.54 2.0

turnover

Investment

Dividends to net profit

Dividends / Net Income x 100

38.0 34.9 36.9 -

Dividends (billion won)

Dividends Rate = Dividends / Capital Stock x 100

102 81 61 -

* Shim, Lee, & Seo (1998, p.39) Source: Reorganized from Financial Supervisory Service (2008, 2007, 2006, 2005, 2004)

4.4 SWOT Analysis

1) Strength and Weakness

Companies have to analyze their strength and weakness to keep up with the fast changing

internet business environment and competitive market, and establish a marketing strategy to

accomplish companies’ objectives (Korea Internet Marketing Research 2006).

A major strength of HT is the reliable sales network and the off-line B2B business model.

In the early years, HT’s offline B2B model advanced into online B2B. The next stage was the

formation of B2C business model. The final stage was the mixture of online B2B and B2C

model which developed into travel agency’s B2B2C.

Other strengths are high-end service quality, competitive brand power (49.2%), multiple

online and offline distribution channel, effective human resource management, continuous

investment on IT and Management Information System (MIS), and strong global network.



<Table 4> Hana Tour’s Development and Investment on IT

(unit: million won)

Description 2007 2006 2005 2004 2003 2002

Hardware 2,451 443 704 958 147 537

Software 303 224 135 11 11 133

Labor Cost 596 92 30 25 - 5

Operation Cost 1,079 515 111 - - -

Total Amount 4,431 1,275 981 994 158 676

No. of IT Personnel 86 90 73 68 55 43

No. of IT Development Personnel

30 37 34 22 18 20

Source: Reorganized from HANA Tour (2008)

The major weakness of HT is the burden of commission to local travel agents, which

counts for about 40% of operating income. The over-valued stock price could be another

weakness. Due to the high stock price, investors hesitate to buy the stocks.

Other weaknesses include the lack of inbound tour programs and the resistance of small

independent travel agents because of HT’s FIT sales. Although the global expansion of HT is

one of their strategies, the revenue from foreign subsidiaries is decreasing due to the recent

downturn in the global market. Broad application of IT throughout the company eventually

increased the IT maintenance charge. An inefficient CRM data collection could be a

weakness of the company.

<Table 5> Hana Tour’s Strength and Weakness

Strength Weakness

B2B -> B2B2C Transaction (Bargaining Power)

Commission to travel agents

High-end Service Quality Over valuation of stock price



Hana Tour’s Brand Power (49.2%), Lotte Tour (7.8%), Mode Tour (3.6%)

Resistance of small independent travel agents

Mix of multiple distribution channels (on-line & off-line)

Lack of inbound travel programs

HR management – Education Center, No labor union, Stock option, Job sharing

Decreased revenue from foreign subsidiaries

Investment on IT and MIS Increase of IT maintenance charge

Reinforcement of international network Difficulties on collecting CRM data

2) Opportunity and Threat

Internet marketing strategy is influenced by the business environment and market situation,

so these factors must be analyzed in terms of opportunity and threat (Kim 2006).

Initial stage of tourism started in the early 1990’s and grew gradually until the market met

the two major depression stages in 1997 (IMF) and 2002 (SARS: Severe Acute Respiratory

Syndrome). HT has experienced the second growing stage. During 2004~2006 outbound

travelers had increased by average of 25.4% every year. This data indicated how fast the

international travel market was growing.

The travel industry is now divided into two extremes; small local travel agents who are

losing competitiveness and mega travel agencies who are working as wholesalers and

retailers at the same time. Like other industries, major travel agencies with economies of

scale provide better priced products and specialized services to the market, and survive from

the intensive competition. This situation serves as an opportunity and as a threat to HT at the

same time. The loss of interest in domestic travel by customers also serves as an opportunity.

According to the research by the Ministry of Culture, Sports and Tourism in 2006, Korean

people prefer international travel twice more than domestic travel. Other opportunities

include preference of wholesale travel agencies by airline companies, expansion of open sky

policy, sales growth of online travel products, and US visa exemption program.

The 9.11 terror in 2001 and SARS in 2002 are examples of external threats for the tourism

industry, and HT should keep their eyes on terrors and other environmental threats. Aggressive

M&A by outbound travel agencies, such as Mode Tour (Interpark Tour), Sejoong Travel

(Tourmall), Hodo Tour (Nas Air), Redcap Tour (OK Tour), BT&I (Tour Express), and Jayoo

Tour (Tour.Korea), may easily prevail. These major competitors have acquired online travel



agencies by purchasing stocks or taking over them, and are becoming a threat to HT (Travel

Information Newspaper 2007.8.10). Other threats are openings of foreign travel agents,

accidents and complaints from travelers, unstable stock markets and exchange rate, and the

decline of airline ticket sales commission (Travel Information Newspaper 2007.12.28).

<Table 6> Hana Tour’s Opportunity and Threat

Opportunity Threat

Longer weekends Terrors / Environmental Threat

Preference on wholesale tour agents, Expansion of open sky policy

M&A of competitors

Growth of online sales Openings of foreign travel agents

Emerging bigger size travel agents Accidents and complaints

Loss of interest on domestic travel Economic slowdown in Korea

US visa exemption policy since 2008 Decline of air ticket sales commission.9%->7%->5%(Apr. 2008) -> 0%(2010)

5. Conclusions

HT started the business as a wholesale tour agent in December 1995, listed stocks at

KOSDAQ for the first time from the travel industry in November 2000, and also listed at

LSE in November 2006. Travel agency B2B2C business model with Hanatour.com, which

was launched in June 2004, has been a huge success. We would like to recommend the

following 7P’s model after reviewing the HT’s case.

5.1 Implications

HT’s internet marketing mix, which is based on McCarthy’s 4P’s, Morrison’s Partnership

and Person factors from 8P’s, and Booms’ Process factors from 7P’s, is successfully

executing its vision and mission.



We could find a couple of implications from HT case. First, the case clearly proposes how

to overcome the offline business model by using the Internet and applying travel agency’s

B2B2C business model to the travel industry. After the application of the new business

model, the sales rate increased by 20% in 2007, 30% in 2006, and 39% in 2005 and the net

profit rate also improved by 15% in 2007, 40% in 2006, and 57% in 2005.

Second, HT upgraded the brand value by matching customers’ (local travel agents and

travelers) needs by using offline place strategy and online partnership strategy. As a result,

the brand recognition marked number one (49.2%) in the market, and the market share rate is

expected to grow about 2% every years, which may reach over 15% after 2008.

Third, they recognized the importance of people factor since the service and the products

are delivered directly by the workers in the travel industry. HT used the people mix strategy

with an efficient reward system and stock options to motivate the workers. The distribution of

services and products using the process mix strategy enabled HT to send out the largest

number of tourists overseas and to have a remarkable sales record for 9 years in a row.

Fourth, during the IMF period, HT had actively invested in IT and evoked the vision to

workers with the promotion mix strategy, which eventually brought the settlement of online

management and global management.

Fifth, travel packages are easily duplicated by other travel agencies. HT smartly mixed the

product and price strategy to differentiate from other companies’ products. HT lowered the

price and customers received benefits from the strategy. Currently, HT offers about 14,000

different international travel packages and domestic travel products.

5.2 Conclusions

Since June 2004, HT has been successful with the online wholesale business model and

Hanatour.com. However, HT still holds some difficulties to overcome as a market leader.

First, utilization of an eCRM system for relationship marketing is necessary. Through the

eCRM system, HT can collect customers’ data and use data mining techniques to set up an

effective online relationship and strategy.



Second, based on the SWOT analysis, HT should pay attention to the threat factors. A

crisis management system should work when external crisis such as 9.11 terrors in 2001,

SARS in 2002, or crash of PMT (Progress Multi Trace) airline in 2007 occurs. Top

executives should prioritize potential crisis and seek practical solutions for future

emergencies in advance (Yoo 2005).

HT is certainly growing every year. The foundation of HT’s success is the travel agency’s

B2B2C business model and the strong partnership with small local travel agents. HT should

carefully analyze retailers’ and customers’ trends and feedbacks in real time, manage human

resources to supervise the growing number of workers, and expand the market in both

quantity and quality. The contribution of this case is how the unique business model is used

in the tourism industry with the Internet and IT technology. This will suggest many

implications to other similar travel agencies.

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AUTHOR BIOGRAPHIES

Sam-Kwon Jung is now teaching at Hotel and Tourism Management, YuHan University, the Republic of Korea. His main research area is tourism and the application of IT to hospitality industry. he is working to produce synergy through interdisciplinary research encompassing tourism, hospitality, and IT. He is working to Management Information System(MIS) software development of tourism industry from 1988 to 2008.

Hyung-ihn Choe received her MBA degree in international business from University of Miami. She is an Assistant Professor and Department Chair of Airline Service Department at Korea Tourism College. Her research interests include multi-service channel, consumer behavior, and brand image in hospitality and airline industry. She is a member of Korea Academic Society of Hospitality Administration and The Korea Academic Society of Tourism and Leisure.

Jeoung-Woo Byun is now teaching at the College of Hotel and Tourism Management, Kyung Hee University, the Republic of Korea. His main research area is tourism and the application of IT to hospitality industry; he is working to produce synergy through interdisciplinary research encompassing tourism, hospitality, and IT. He is vice-president of Service Science Association and he is also participating in several government projects, as the chair of the tourism section for the Evaluation Committee of the Ministry of Culture, Sports, and Tourism.

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Internet Marketing Strategy of a Wholesale Tour Agency in Korea … · 2017. 8. 26. · 3. Internet Marketing Strategy of Hana Tour The milestone of HT’s internet marketing was