Ctrip: Scientifically Managing Travel Services

Problem Statement

The main issue facing Ctrip is how they should continue to expand their product offerings while maintaining their corporate culture and philosophy. A decision needs to be made whether they should focus on budget and/or luxury travelers or continue to focus on the broader market of frequent independent travelers (FITs).

External

Initially the travel industry in China was characterized by small, fragmented agencies that offered poor service and focused on group tours and offered low prices to attract customers. This indicates that there are low switching costs as it would be easy for a customer to utilize a different agency or online platform. The industry is also heavily regulated by the Chinese government, specifically the air ticketing and packaged tours segment (Dai & Garvin, 2013, pg 2). The regulations were put in place in order to protect the average consumer from predatory pricing by industry competitors. The hotel reservation industry was not under the same amount of scrutiny and offered higher margins, hence why Ctrip entered the market in 2000 (Dai & Garvin, 2013, pg 2).

Recently, the industry has seen an uptick in budget travelers, those with annual incomes of RMB 60,000 or less, and luxury travelers, income above RMB 1 million. The emergence of budget travelers is due to the emergence of the average Chinese consumer. Wages in China have been increasing at a growing pace, leading to these individuals having more disposable income. Two notable competitors in the budget traveler space are eLong and Taobao, who both compete on price and do not offer quality customer service. There also may be an opportunity in the luxury market as luxury tastes are continually evolving and are not being satisfied by current offerings.

Industry attractiveness

Overall, the industry is not very attractive to new entrants as the industry is dominated by large, well established and capitalized players. For example: eLong is primarily owned by Expedia, the world’s largest online travel agent (OTA) (Dai & Garvin, 2013 pg 13). The regulations put in place by the Chinese government also reduce the likelihood of new entrants entering the market. The industry for luxury travelers may be more appealing to new players as luxury offerings typically command higher prices and therefore higher margins, but based on Ctrip’s recent market test of the luxury market this assumption may not hold true for luxury Chinese travelers due to their higher expectations.

Key success factors

The key success factors for this industry include brand reputation, customer responsiveness, economies of scale, efficiency and supplier networks. Brand reputation is important in many industries but is particularly important in the OTA industry. People relate to a brand and rely on