Paradise Vacation Case

distinguish Decisions * Should Leduc agree to Air Indias offer? * Whats the companys agonistical scheme for 2008/2009? * How to respond to FunTours expansion and aggressive pricing strategy? SWOT Analysis paradise holds strong buyer proponent which enables it to muckle for spurn worth and discount. As food merchandise leader and Quebec company, Paradise lot promote itself with and through and through reminding client about company hisotry to strength their predilection and loyalty . The weakness lands at that Quebec is the only market in Canada the break open of one location leave damage the entire business.The threat chiefly lands at pricing competition from FunTours. Competitive Analysis and Consumer Analysis Because Paradise has its important market in Quebec, Benoix is the main competitor. However, the biggest threat comes from FunTours expansion currently. The competitive advantage of FunTours is its low pricing strategy. Travelling is has an elastic demand. Wi th cost macrocosm the most important determination, FunTours strategy could drive Paradise out of the market. This strategy targets at mid and base segment of the market. It creates threat to the equal segments for Paradise, which hold 90% of the r correctue.Nonetheless, Quebec is a brand new market where FunTours does not commence supplier connections or customer loyalty yet. FunTours serves no premium market where 10% of the receipts 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 solemnize customers from switching to new brand, and advertise to strengthen brand loyalty. Segment direction Conclusion radical Low price Lower price than FunTours offers mid(prenominal) Best value Lower price than FunTours offers, and special promotion with high value. Premium Luxury service Lower price to prevent customer from downgrading to mid(prenominal) segment. Keep performers as partia l distri only ifors for better services. Recommendation Base and mid(prenominal) package will be sold through profit just Premium package will be sold through both agent and earnings by 50/50 at the resembling time lowering sell price by 5%, and request Benoix Air for 5% discount on the escape. Implementation project Paradise will reject the offer from Air India. We will remain with the original segments of consumers, and lower price to stop FunTours from ntering the market at the alike time, keep the package unchanged to ensure customer experiences use promotional strategy to re-enforce brand name and loyalty. Product Travel package delivers both service and product. Paradise includes 3 packages targeting at base, mid and premium market. charge (See give 4 for detail) We will be using apprise-based pricing strategy. We will set lower retail price to stop FunTours from entering the market, and to provide lowest price for Base segment, best value for middle, and both sumptuosity service and low price for Premium segment. Retail Base 89 middle 134 Premium 193( promoter) 178 ( meshing) Wholesale 88 132 176 Tactics Markdowns Seasonal discount, coupons. Markdowns. channelise Indirect Distribution - hundred% of base and mid, 50% of premium package through lucre electrical distributer -50% of premium package through go bad agents with 10% commission Exclusive Distribution Distribute through good constitution internet distributors only for the purpose of keeping professional brand realize, and high-end travel agents to keep Premium customer privileged. Promotion Objective To re-enforce the brand image as a local and experienced travel operator who forever respond to Quebec travellers needs beyond expectation. Reminder Advertising TV publicize 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 l oyalty (3)Contests to earn trips in order to increase consumer involvements and personal musical noteings. Expected Results See Exhibit 4 alternative 5//Recommendation for income statement.Appendixes Decision criteria * Provide short-run viability * Provide long-term sustainability choice Evaluation * Cost cutting through partnership with Benoix and cost structure change to start a price contend with FunTours. * Setting pricing strategy as price war and cutting cost through vertical integration. * Sell its packages through network 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. preference 1, comparing in all other 4, gets the least receipts (32,540,428). Although it is feasible in short-term and tale nt drive FunTour out of the market, it does not chafe with the obsolete of travel agents. bighearted 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 attain to raise the price again in order to get covert on its previous profitability Paradise runs into the risk that the customers will feel cheated and uncomfortable with the raising price, and thus shift to other operators. For Alternative 2, although leasing mystical 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 simulated 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) thereof provides FunTours the chance 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 bewilder 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 succeed over FunTours price-wise in the short-run, and keep price low in the long-run.Internet distributor addresses the obsolete of travel agent s. By offering both agents and internet distributor for premium market helps sustain our competitive advantage on sumptuosity customers. Exhibit 1 Marketing Share, Value and Growth of Canada and Paradise spend 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 rehearsal for Alternative 1 and 2 (2008) Alternative 1 i Alternative 2iv Base Mid Premium Base Mid Premium entireness 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 exertion innate 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 portion 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 contribution (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 integrality 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 fit 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 Percen tage 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 later 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 t he use of internet distributor. Premium market as luxury will decrease due to the upcoming recession, it is assumed that Premium segment will decrease 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