The internet strategy of the Costa Rican Tourism Board

Journal of Business Research 59 (2006) 375 – 386

The internet strategy of the Costa Rican Tourism Board Pedro Raventos * INCAE Business School, campus Walter Kissling Gam, Apartado Postal 960 – 4050, Alajuela, Costa Rica

Abstract This case is set in 2001 when the ICT makes a call for proposals to design, build, operate and market, a new website and introduce a reservations system. A discussion of the factors leading to the spectacular growth of Costa Rica as a destination and of the way in which the Internet has transformed the sector value chain, leads to a benchmarking exercise of ICT as a destination marketing organization, and an analysis of whether the ICT should become involved in handling reservations and how. D 2005 Elsevier Inc. All rights reserved. Keywords: Electronic commerce; Tourism; Costa Rica; Hotels; Clusters; Websites

1. Introduction In mid-2001, the Costa Rican Tourism Board (Instituto Costarricense de Turismo, ICT) completed a strategy review process in which it decided to look for ways to use the Internet more effectively to attract tourists to the country (Table 1). Although the ICT website had been successful, some of its directors thought that it could be improved. In September 2001, ICT management decided to take bids for a project to design, build, host and market a new website and operate an Internet reservation system. The invitation for bids was very open as there were different opinions about the services and functions the site should have. The bidders themselves were asked to propose the scope of services that they could offer, the presentation format and the commercial arrangements that would be offered to hotels and other tourism operators. 2. The ICT In 1955, Law 1917 chartered ICT as an autonomous state institution with its own budget, to which industry members could become affiliated. Its functions included: encouraging foreigners to visit the country; promoting the construction and maintenance of recreational facilities and lodging for tourists;

* Tel.: +506 437 2100; fax: +506 433 9101. E-mail address: [email protected]. 0148-2963/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2005.09.012

regulating hotel, travel agency, and car rental activities; and seeking a better conservation of the country’s natural attractions. Article 6 of Law 1917 made ICT responsible for the ‘‘custody and conservation of areas in a two kilometer radius around the craters of all the country’s volcanoes’’ and further established that ‘‘these areas are declared National Parks’’ (Asamblea Legislativa, 1955). Because of resource constraints, only the Irazu´ and Tenorio volcanoes became national parks that year. Poa´ s and Rinco´n de la Vieja were formally established in the early 1970s. The National Park Service was created in 1977. During the second half of the 1970s, the number of tourists originating outside Central America actually declined. In the early 1980s, emerging economies were hit by the sovereign debt crisis. In Costa Rica, the sudden interruption of external financing led to sharp devaluations of the currency, which made the country inexpensive for tourists and attracted many of them in 1982. Many US visitors were also drawn to the country by the early decision of the Monge Administration to move the Costa Rican Embassy in Israel to Jerusalem. Though short-lived, this boom encouraged the government to design a strong incentive package that would hopefully create a source of foreign exchange that was more reliable than traditional agricultural exports. In 1985, the Tourism Development Incentive Law (Number 6990) was approved, which granted tariff and sales tax exemptions for inputs used by hotels, car rental companies, and in-bound travel agencies. More dramatically even, Article 11 of the law

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P. Raventos / Journal of Business Research 59 (2006) 375 – 386

Table 1 Tourists by origin

Total North America Canada United States Mexico Central America Caribbean Souht America Europe Other

1975

1979

1987

1995

2001

299,037 87,997 4617 75,304 8076 161,681 2007 23,887 19,461 4004

317,724 80,259 5397 66,524 8338 170,247 3174 28,272 28,736 7036

277,861 104,841 7310 90,581 6950 108,543 3438 21,768 32,354 6917

784,610 349,307 41,898 287,434 19,975 218,023 7125 58,600 132,057 19,498

1,131,406 518,595 52,661 429,093 36,841 320,277 9298 103,917 150,796 28,523

ICT tourism statistics 1975 – 2001.

established that 50% of investments made in such tourism related activities by firms in other sectors could be used as a tax credit. The ICT would play an important role in managing these incentives. To be recognized as an authorized tourist facility and be granted the so-called ‘‘tourism declaration’’, a company had to be visited by an ICT inspector, who would assess the quality of the facilities relative to international standards. On this basis, the company also received a rating, which in the case of hotels ranged from one to five stars. The tax incentives of Law 6990 were established through tourism contracts. Encouraged by Costa Rica’s increasingly strong position as an eco-tourism destination, ICT also implemented incentives to promote sustainable development. Beginning in 1998, it awarded the ‘‘Sustainable Tourism Certificate’’ (CST) to hotels that monitored their impact on the environment, controlled their use of water and energy, and were active communicating their environmental concerns. The ‘‘Ecological Blue Flag’’ program, introduced in 1996, rated beaches in terms of cleanliness, clear signaling and waste management. The ICT collected and distributed tourism statistics and the results of the ‘‘Air Surveys’’ which were taken both in the high season (December– March) and in the low season (April – November). In these surveys tourists were asked to answer a detailed questionnaire as they waited to board their flights to return home. ICT certified firms could suggest that new questions of general interest be included. Results could be broken down by nationality and by travel motive. The finances of the ICT are shown in Table 2. It had three main sources of income: a 5% tax on airline tickets (8% until

1995), a 3% tax on hotel rooms and interest on government bonds and other license revenue. On average, it spent half of that revenue on promoting the country abroad. 3. Costa Rica as a destination Many factors made Costa Rica an attractive destination for tourists. Its 4 million people had a relatively high level of education. Public spending on education was 4.9% of GDP in 1999– 2000 as compared to 3.8% in Chile and 5.1% in the US (UNESCO, 2002). A high proportion of the people were bilingual, thanks in part to recent programs to strengthen the teaching of English at public schools. Costa Rica enjoyed an international reputation of peace and stability, and was recognized as a destination with beautiful natural sights. It was one of the most varied countries in the continent in terms of plants, wildlife, and natural resources in general. With only 0.01% of the world’s total surface area, it had almost 4% of all species (INBIO, 1998)). A quarter of Costa Rica’s territory was protected in some way, half of that in the form of national parks (Table 3). In a territory of only 50,900 km2 it was possible to find mountains, forests, volcanoes, and beaches, allowing the country to attract different sorts of visitors. At the same time, the relatively short distances between these attractions allowed tourists to engage in more than one activity during their visit. Costa Rica also enjoyed advantages by virtue of its location. Easy access from North America, the main tourist market, was shown by direct flights from several major U.S. cities. ICT (2001a) divided the development of tourism in Costa Rica since the 80s into three stages, as shown in Fig. 1: Ecological Tourism Pioneering Period (1980 –88), Growth Period (1989 – 1994) and Evolution Period from an Ecological Tourism Destination to a Nature-based Tourism Destination (1995 – 2001). During the pioneering period, dedicated ecologists and academics were drawn to the country by its natural attractions and by its image of peace, consolidated after President Arias received the Nobel Prize in 1987 for his efforts to achieve a peaceful solution to many years of civil strife in Central America, and in clear opposition to U.S. Policy at the time. Visitors would stay at Costa Rican run simple cabins and lodges of 20 rooms or less, or at research stations often managed by foreigners.

Table 2 ICT finances (thousands US$)

Current income Tax on hotel rooms (3%) Tax on airline tickets (5%) Other (licenses, interest) Total spending Administration Promotion Tourism revenues (millions $) Source; ICT & Central Bank.

1993

1994

1995

1996

1997

1998

1999

2000

2001

13,238 2352 8149 2737 11,334 3970 7364

14,661 2577 7842 4242 11,410 4933 6477

15,908 2698 6384 6826 10,228 4857 5371

15,594 2621 6808 6165 12,096 3493 8602

15,243 2747 7610 4885 12,301 3621 8680

15,597 3170 8056 4371 11,010 3256 7754

15,529 3461 8613 3455 24,046 16134 7912

16,253 4277 9011 2965 12,563 3827 8735

15,890 4253 8747 2890 11,431 3802 7628

577

626

660

689

719

884

1036

1229

1277

P. Raventos / Journal of Business Research 59 (2006) 375 – 386 Table 3 National park data Visitors

Poa´s Manuel Antonio Tortuguero Irazu´ Rinco´n de la Vieja Corcovado Arenal Santa Rosa Total national parks Protected areas

Foreign

National

Size in hectares

98,032 89,508 31,241 25,022 17,541 17,060 11,157 8,324 315,686 12,484

123,080 63,589 10,571 94,741 8757 2048 10,910 22,498 382,492 43,429

6506 1625 31,187 2000 14,161 42,468 12,124 38,674 625,629 1,288,565

Created In 1971 1972 1975 1955 1974 1975 1991 1966

377

The promotion efforts of the ICT mirrored this development. During the growth period, the ICT sought to position Costa Rica as an eco-tourism destination. The ‘‘Magic of Nature’’ campaign included advertisements in major travel publications and a documentary on the Discovery Channel. The ICT also invested resources in trying to attract visitors to the country during the rainy season (April – November). This initiative was off to a good start after it became official policy to call this period the ‘‘green’’ season instead of the ‘‘low’’ season. Although this image reflected reality – during the rainy season the vegetation and the natural experience is more striking– , it was not clear how successful they had been in reducing the seasonality of visitors. In 1996, the number of tourists fell for the first time since the boom began, and nervous operators started getting more involved in the promotion activities of the ICT. McCann Erickson was contracted and in 1997 came up with the ‘‘Costa Rica – No Artificial Ingredients’’ campaign. Advertisements appeared in upscale and specialized magazines like Travel and Leisure, Wildlife Conservation, Sport Fishing, Surfer, Audubon, Backpacker, and Travel Holiday. The campaign was so successful that its main slogan was retained in the ‘‘100% Costa Rica’’ campaign that kicked off two days before Christmas in 2001. The objective here was to portray the country as a place where the tourist could have a nature related experience and be very comfortable. This campaign was targeted to men and women over 35, college graduates, with an annual income higher than US$50,000, and residing in major U.S. cities. Advertising appeared in newspapers, magazines, and television, and greatly highlighted the URL for the ICT website.

Source: Sistema Nacional de Areas de Conservacion. Informe Nacional sobre el Sistema de Areas Silvestres Protegidas, 2003.

The growth period was characterized by the arrival of less academic but still ecologically minded tourists who would be interested in experiencing nature or in combining sun and beach with some kind of nature-related experience. At this time, the expansion in lodging was mainly in one-to three-star, 20 –40 cabin developments, 50– 80 room four-star hotels, and five-star hotels and lodges. In the evolution period, multifaceted tourists with an interest in nature became more important. Tourist segments, such as sun and beach, adventure, convention, those seeking health, and intercultural knowledge – all of them leaning to natural experiences – started to become more clearly defined. It was then when three- to five-star hotels, with a larger number of rooms and run by domestic or international operators, emerged as major players (ICT, 2001a). 500,000

Pioneering Period

450,000

Evolution Period

Growth Period

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

United States

Europe

ICT Tourism Statistics 1975-2001 Fig. 1. Tourists by origin.

Central America

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

-

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P. Raventos / Journal of Business Research 59 (2006) 375 – 386

Table 4 Air survey results Activities of tourists travelling for pleasure Average

Sun and beach Sun and beach Trail hiking Trail hiking Plant and wildlife watching Plant and wildlife watching Bird watching Bird watching Canopy Canopy Snorkeling Snorkeling Surfing Surfing Rafting Rafting Fishing Fishing Learning Spanish Learning Spanish

Season

1991 – 99

2000 – 01

High Low High Low High Low High Low High Low High Low High Low High Low High Low High Low

71.3 66.4 52.3 46.7 49.1 49.3 38.9 33.1 31.3 31.6 16.9 13.6 15.8 15.4 13.5 15.4 13.4 12.1 10.3 9.9

70.5 68.3 50.7 52.4 42.6 47.3 36.6 36.5 31.3 31.6 16.9 13.6 18.9 17.4 12.4 12.8 12.9 13.7 8.5 10.6

Activities of tourists from different origins

Sun and beach Plant and wildlife watching Hiking Visiting volanoes Bird watching Canopy Snorkeling Surfing Fishing Learning Spanish

USA

Canada

Europe

61 45 44 44 33 29 12 14 15 7

81 55 57 51 47 39 21 19 11 8

71 70 61 63 56 23 22 8 6 10

2001 High

2001 Low

2002 High

57.7 10.6 12.6 7.5 3.7

63.7 17.0 12.3 3.3 6.0

57.0 14.6 10.8 7.0 1.1

How did you find out about Costa Rica?

Friends and relatives Previous visits to Costa Printed article or advertisement Travel agent ICT

Source: Air Surveys ICT 1991 – 2000. US Vacationers. Source: Air Survey, ICT, 2002 Q1 & Q2. Source: Air Surveys ICT, US Vacationaries. The Air Survey of 2002 shows that 85% of visitors (from all countries) have college degrees, 75% are 35 and older, but that over half of them have income under $60,000.

In 2001, despite September 11, the country received almost 1.1 million visitors that on average spent US$85.60 per day and stayed 11.1 nights (ICT, 2001a). Tourists arriving in Costa Rica came for a number of reasons and got organized in different ways. According to Air Surveys conducted by the ICT, around 60% of all tourists came to the country for pleasure, and about 27% came for business reasons. Considering only U.S. tourists, 70% came for pleasure, up from only 33% in 1986.

Of all tourists, 48% traveled with their significant other, 20% came with friends, and 17% traveled alone. Only a quarter of U.S. tourists were using packages. Of the remaining 75%, two thirds made their arrangements before leaving the U.S., and one third made them after arriving in Costa Rica. One third of European tourists used a package. Over time, the country became less dependent on any particular country or state. For US tourists the concentration of visitors by state in the high season, measured by the Herfindahl index, dropped from 1600 in 1986 to 600 in 2000. The concentration in the low season was higher, but also dropped. In July, residents of Florida and Texas like to escape the heat. The same is true for Spaniards and Italians in August. Table 4 show some results of the Air Surveys. 4. The importance of Tourism to Costa Rica In 2000, tourism generated US$1,229 million, which represented 7.7% of Costa Rica’s GDP, over two thirds of service exports, and almost 16% of the country’s exports of goods and services. Free trade zones, boosted considerably with the establishment of Intel in 1998, exported almost three billion dollars, which represented more than 50% of total merchandise exports. In 1985, in contrast, tourism had only generated $118 million and traditional exports, such as coffee and bananas represented over 50% of FOB exports of a little over one billion. Table 5 shows the number of ICT certified firms involved in tourism in 2000. It seems odd that in 2000 there were nearly as many travel agents as hotels, but over 150 of these were actually tour operators which established themselves between 1990 and 1994, following the period of very rapid growth. These agencies organized excursions and packages for tourists that were already in Costa Rica and some of them worked with international wholesalers and tour operators. Table 5 also shows the number of jobs generated during 1997– 2000. Some tourism firms benefited from being able to accommodate seasonal peaks with students on their summer break. In the past, students had been used to help collect the coffee crop, but in the 80s and 90s this work had been taken over by Nicaraguan workers, many of which entered the country on tourist visas. This made the interpretation of the tourists from Central America statistic difficult. Hotels made efforts to recruit and train personnel and INA, the public vocational school, developed short training programs appropriate for tourism. As the sector grew, the market for specialized workers became fluid. Acoprot, the association Table 5 Firms with tourism declaration

Lodging Travel agencies Car rental Water transport Dining & entertainment Airlines

Operators in 2000

Jobs created 1997 – 2000

362 265 28 39 198 20

2536 365 9 142 946 38

Source: ICT Development Department, ICT (2001a).

P. Raventos / Journal of Business Research 59 (2006) 375 – 386 Table 6 Hotel characterization

5.1. Hotels and airlines

Number of Hotels (Number of rooms) Category

Rooms

Up to 25 25 to 100 More than 100 Total

379

0 – 3 Star

4 – 5 Star

Total

44% 33% 2% 79%

6% 10% 5% 21%

50% 43% 7% 100%

(18%) (33%) (7%) (58%)

(2%) (13%) (27%) (42%)

(20%) (46%) (34%) (100%)

Survey of hotels conducted between December of 2001 and February of 2002.

of tourism professionals, developed an online bulletin board to make it easier for operators and potential employees to find each other and financed a study to identify pockets of workers that could be rapidly trained to fill positions at beach hotels in Guanacaste. Acoprot also organized a yearly tourism fair – Expo-Tour – designed to bring together local operators with foreign wholesalers and tour operators. ICT (2001b) estimated that there were 31,706 hotel rooms in Costa Rica in 2001, including hotels with and without tourism declaration. About half of them had less than 25 rooms and 58% were located in the provinces of Guanacaste, Puntarenas, and Limo´n that have the main beach areas. The Appendix and Table 6 give a more precise description of the hotel supply in 2001. The ICT believed that all these benefits helped justify the generous tax incentives that had been introduced in 1985 by Law 6990. Although Article 11 of that law was repealed in April of 1992, the Attorney General ruled the following October that firms with tourism contracts signed prior to April could still take advantage of the benefits of article 11. Based on figures from the ICT Incentives Department, it is possible to calculate that $238 million of investments received tax credits for $119 million through 1999. Of this amount, only 17.4% was used by 1993 and only 28.4% by 1994. Twelve four and five star hotels, including the two Marriotts, received 73% of the total. The rest of law 6990 remained intact, and firms continued signing tourism contracts in order to obtain tariff and sales tax exemptions on inputs. Table 7 shows how the number of rooms and the number of tourists evolved from 1983 to 2000. 5. The world tourism industry In 1999, tourism was the world’s largest employer. Exports of $443 billion represented one third of world trade in services, and 6.5% of world exports of goods and services (World Trade Organization, 2001). This industry had a very interesting supply chain. Airlines, hotels and other providers would typically sell their services to consumers through travel agencies. Since the tourism product was a complex one, information exchange between providers and agencies had required substantial investments in information technology and many new firms emerged to manage this information. Host countries, in turn, created the so-called destination marketing organizations, which could be public, private or mixed institutions.

Lodging and air transport were central to tourism. In both activities, keeping a high occupancy rate was crucial for profitability. Every additional airplane seat or hotel room that was sold had a very low variable cost, thus providing a large contribution margin towards fixed costs. Setting different rates for different consumer segments also tended to enhance profits. The airline sector was rather concentrated, as a result of a long string of mergers and acquisitions. American Airlines had recently acquired TWA, while Grupo Taca had consolidated the Central American airlines in the 1990s. With the deregulation of air transport in the past 25 years, airlines had introduced a large number of airfares, subject to different conditions and restrictions, in order to segment demand more effectively. The average airfare had also decreased dramatically, leaving companies with very narrow margins to work with, and very vulnerable to demand contractions, such as the one occurring after 9/11. The hotel sector worldwide was fragmented. Even in the United States, where the larger chains had grown substantially by taking over independent hotels, no single chain controlled more than 10% of available rooms. These large chains, however, had established well-known brand names and provided customers in different segments with a standard quality. Marriott, for instance, had established the Marriott, Courtyard, and Fairfield Inn brand names. As a result, 70% of US hotels had an established brand. In Europe and Asia the situation was quite different, with only 20% of hotels having a brand name. In Costa Rica, hotels with an established brand name included Marriott, Best Western, Barcelo´, and Melia´, and accounted for a small percentage of total hotel rooms. Some hotels chains would own the hotel properties. Others, like Marriott, often preferred to manage hotels in exchange for a share of gross sales and operating profits, or franchise their name. Best Western hotels were almost always franchised. 5.2. Intermediaries Ever since the nineteenth century, travel agencies have acted as intermediaries between service providers and tourists, taking care of reservations and selling tickets in return for a fee. In the 1930s, they were handling 80% to 90% of all steamship voyages. As incomes grew and more people could afford to travel, their activities expanded. With more complex services and a greater number of destinations, consumers became increasingly dependent on the information and tailored recommendations of agents. In planning their trips, tourists also used travel guides for different destinations. These publications provided details about the main attractions and activities available at these destinations, and often rated and recommended hotels and restaurants. The best-known guides included the Michelin Guide, which was published in Europe, Fodor’s and Frommer’s, published in the U.S., and Lonely Planet, published in Australia.

380

P. Raventos / Journal of Business Research 59 (2006) 375 – 386

Other intermediaries that emerged with the growth of mass tourism were tour operators, which would buy services from providers and combine them to assemble packages. The packages of reputable tour operators were attractive for people traveling to destinations with few branded service providers. Since the package included lodging, food, entertainment, and transportation, travelers were no longer aware of the cost of each component and found it harder to shop. Operators managed to negotiate good prices by acquiring services in large blocks that would then be bundled and sold directly or through travel agencies to the public. Some of the largest tourist intermediaries in the world, such as Thomas Cook and American Express Travel, functioned as tour operators and travel agencies at the same time. 5.3. Computerized reservation systems As the frequency and popularity of air travel rose, airlines were pressed to find better ways of conveying flight information and recording reservations. This need led to the rise of the first centralized (or computerized) reservation systems (CRSs) that were maintained and updated online by airlines, and accessed by their remote offices. Sabre, a CRS developed by American Airlines in the 60s, was the first one to cover the United States, followed by United Airlines’ Apollo system. Subsequently these proprietary systems began to be shared between several airlines, and direct access was granted to travel agencies, so they could have flight information, inquire about availability, and book reservations in real time. These new systems were called Global Distribution Systems (GDSs). Hotels established their own CRSs, starting with SRS in 1970. Then, to make their systems more accessible to travel agencies, a consortium of hotels decided to connect their CRSs to GDSs that already had large networks of travel agencies

connected to them. In 1989, they created Pegasus, a company that developed THISCO (The Hotel Industry Switch), an interface that enabled information to be translated and exchanged between hotel CRSs and GDSs. The need for having an interconnection for each hotel was eliminated. Eventually, major GDSs and Pegasus were spun off by their founders, leading to a more objective and impartial display of information on the computers of travel agencies. GDSs ended up handling air tickets, hotels, cruises, and car rentals, and became the vital link between providers and travel agencies (see Fig. 2). In 2001, Sabre, the market leader, had a network of 59,000 travel agencies, 450 airlines, 53,000 hotels, 54 car rentals, 8 cruise lines, 33 railroad companies, and 228 tour operators. Amadeus, the second most important GDS, was formed by Iberia, Lufthansa and Air France and has been operating since 1992. Because these networks were difficult to set up, and because operators and agents clearly preferred a large to a small network, GDSs had great market power. Hotels had to pay $4 for each booking made. The commissions charged by different players are shown in Table 8. 5.4. Marketing firms Another trend found in the hotel sector was the formation of consortia to enjoy mutual benefits, particularly from marketing (Kotler et al., 1997). One of the best known was the New Yorkbased Leading Hotels of the World, which provided global distribution, reservation, and marketing support services for independent and some international five-star chain hotels. Another one was the Small Luxury Hotels of the World. VIP and Utell were companies that offered marketing and GDS-connection services to smaller independent hotels, which found the fixed cost of connecting to a GDS – close to US$10,000 – too onerous. The variable cost of these alternative companies, however, could be high. Hotels would

DMO

Small hotel Hoteles

Tour operators

Consumers Consumidor es

queÒos

Hotel

GDS Switch

Hoteles y Chain Consor cios (PMS y CRS)

Call centers

Travel agent

Fig. 2. Pre-internet tourism value chain.

P. Raventos / Journal of Business Research 59 (2006) 375 – 386

381

Table 7 Hotel room supply and tourists Year

Hotel rooms with tourism declaration

% of rooms in hotels with declaration that have 4 – 5 stars

Hotels rooms without tourism declaration

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

4695 4771 4866 5270 5017 5289 5456 6713 7196 8549 9479 10,794 11,862 13,128 13,437 13,413 13,714 14,122

– – – – – – – 11.6 18.2 – – – 26.6 – 30.3 32.9 35.6 38.7

– – – – – – – – – – – – 13,466 13,975 14,423 14,671 15,112 15,375

Tourism contracts signed

4 57 20 21 26 46 41 54 44 46 29 21 9 9 9 –

Total number of tourists

Tourists from outside Central America

Visits to National Parks by tourists

326 274 262 261 278 329 376 435 505 611 684 761 785 781 811 943 1032 1088

152 147 149 154 169 205 241 295 340 423 490 540 567 547 564 649 721 802

60 64 64 70 72 125 167 213 273 338 404 378 252 269 290 324 370 341

Tourists and visits to parks are in thousand. Sources: ICT ´ reas Silvestres Protegidas, 1992. Bermu´dez, F. Evolucio´n del Turismo en las A Sistema Nacional de Areas de Conservacio´n. Informe Nacional sobre el Sistema de Areas Silvestres Protegidas, 2003.

pay up to 30% of the value of each reservation handled by VIP. Utell charged a flat quarterly fee plus 3% for handling the reservation, regardless of whether or not the customer showed up, plus 10% for the travel agency. The hotels working with these companies typically did not have the facilities to keep updated information on their available inventory. Utell had the policy of taking reservations, unless a hotel would advise them otherwise in advance. Whenever a capacity problem arose, arrangements could be made for a partner hotel to receive the guests. 5.5. Destination marketing organizations (DMOs) Destination marketing organizations (DMOs) were public, private, or mixed non-profit organizations engaged in promoting a tourist destination through regional and international campaigns, promotion offices, information centers and publications in various media. The electronic databases of tourism products and destination-specific information were managed by information systems known as destination marketing systems (DMSs). In Costa Rica these functions, and many others, were performed by the ICT. 6. The impact of internet In the last few years, the internet became an increasingly important source of information on tourism, particularly in more developed countries, where most tourists originated. The US Air Survey, conducted when the traveler departs the United States, showed that, in 2002, 32% of residents traveling abroad used the Internet to research their trips (International Trade Administration, 2002).

Higher income Americans were more likely to be online. UCLA (2000) found that over 80% of those with income over $50,000 were online as compared to 66% for the general population. A survey conducted by the Travel Industry Association found that online Americans had an average income of $67,400, compared to $29,300 for those not online (Travel Industry Association, 2001). The internet gave service providers the opportunity to convey more detailed information to these potential customers at lower cost. Hotels created their own websites, replicating their promotional pamphlets, and including text, photographs, and even videos. If they also managed to get customers to make their reservations online, they could save on commissions paid to travel agencies and GDSs. Potential guests that visited the websites of hotel chains were ‘‘clicked through’’ to the chain’s central reservation system, where they could check room availability and have a reservation confirmed on the spot. Those visiting the websites of smaller hotels were often asked to send an email or fill an electronic form specifying their request, which would be answered once the hotel had manually checked availability. Due to their simpler product, airlines had an even greater opportunity of going directly to the consumers. Until then, travel agencies and GDSs had been central in providing travelers with information on the different connection and airfare choices. With the internet, all this information could be accessed by the customer at an airline’s website. In view of this threat, GDSs set up virtual travel agencies that offered the services available on their systems. Sabre created Travelocity in 1996 and in 2000 it had captured 35% of online gross bookings, and by 2001 had 29 million registered

382

P. Raventos / Journal of Business Research 59 (2006) 375 – 386

users (PhoCusWright, 2000). In 1996 Microsoft joined forces with WorldSpan, another GDS, to create Expedia.com. At Travelocity and Expedia customer requests were answered with offers that included set prices. Priceline developed a new concept where a customer specified a flight, say ‘‘SFO-NYC leaving August 5th and returning on the 17th’’, and how much she was willing to pay for it, say $250. Next, she provided a credit card number and accepted to be charged $250 if Priceline got her on flights on those days. Priceline would then search the discounted airfare inventory offered by affiliated airlines and, if an airfare under $250 was found, would debit her credit card and confirm the booking, which could not be changed. Otherwise, the customer was asked to wait for a few days before trying again. For customers with no strong brand preferences and no need to arrive at a specific time, the service could offer significant savings. The airline managed to sell a seat that would otherwise have gone empty, and did so without distorting its pricing structure because it never advertised the deeply discounted price. With time, online travel agencies encountered several problems. Airlines cut their commissions, particularly to online travel agencies. They also encouraged their clients to book directly on their individual websites and 800 numbers, or on Orbitz their jointly owned online travel agency, allowing them to save on both commissions and GDS fees. Five hotel chains (Hilton, Hyatt, Marriott, Six Continents, and Starwood) formed an alliance with Pegasus to create the Hotel Distribution System (HDS) that would connect the hotel’s CRSs directly to intermediary websites to offer discounted rooms. Since these initiatives of the airlines and hotels to ‘‘go direct to the consumer’’ also hurt the GDSs, several of them tried to support the online travel agencies by sharing their substantial fees with them. Online travel agencies, particularly Expedia, started moving away from simple intermediation to adopt a ‘‘merchant model’’, in which they took title to hotel room or air ticket inventory, marked it up and resold it, either individually or in packages. By the first quarter of 2001, 60% of Expedia’s sales were under the merchant model. Traditional travel guides were also forced to adjust to the times. Fodor’s featured a part of their content on the web at no charge to promote its printed guide, and referred clients to Expedia for online reservations. Lonely Planet offered its customers the possibility of downloading maps to a Palm Pilot. DMOs could promote their destinations more effectively, and at a reduced cost, by having an attractive website and by finding ways to attract traffic to it by links at suitable sites, through search related marketing and through traditional advertising. The DMOs could also keep in touch with tourists who had visited their destinations by email. By reminding them of their vacation, they might be encouraged to plan a new visit, or at least to recommend the country to friends and relatives. Word-of-mouth publicity could also be encouraged if a DMOs website offered users the possibility of sending virtual cards featuring a link back to the DMOs site. Such ‘‘viral’’ marketing

techniques had been used by several DMOs (www.gomaui. com/postcards). Table 9 shows a detailed comparison of five DMOs that have been very successful. DMOs had also started facilitating online booking for lodging and other products. There were three possible ways of doing this: (1) providing customers with a direct link to the hotel’s website or email address, (2) allowing the customer to fill a request form to later receive an offer subject to availability and (3) building a reservations engine that allowed customers to consult availability and make a confirmed booking at once. 7. E-commerce initiatives in Costa Rica Tourism operators in Costa Rica were able to establish an online presence fairly rapidly, thanks to the ready availability of website designers and information technology experts. The elimination of taxes on personal computers and the introduction of computer-training programs in schools in the mid 1980s had helped the country achieve Latin America’s fifth highest level of e-Readiness (Center for International Development, 2002). The Internet initiatives differed in some respects from those found in the United States. Intermediaries only offered hotel rooms and services in Costa Rica, or at best Central America, used a more rudimentary technology, and did not have the hook up to a GDS. Local tourism directories merely provided information about the country, getting their revenue from advertising. The vast majority of hotels developed a presence on the Internet. However, with the exception of the ICT website that was promoted through traditional advertising most local websites relied on well-known search engines or directories, such as Google or Yahoo! to elicit traffic. 7.1. Domestic intermediaries Domestic online intermediaries, like www.centralamerica. com, provided specialized information on natural attractions (volcanoes, beaches, rain forests), and specific activities (golf, white water rafting, surfing, diving, etc). This information was in some cases better than that provided on the ICT website, as it had greater geographic detail, a better visual display, and more specialized sources. Tourists reached the websites of these domestic online intermediaries through search engines or

Table 8 Commissions found in Costa Rican Hotel Industry Participant

Commission (From – To)

Traditional travel agency International online intermediary Domestic online intermediary GDS Switch CRS Tour operator/Wholesaler

10 – 20% 5 – 15% 20% + $40/an˜o – 30% + $120/an˜o $4.00 $0.36 $2.50 20% – 25%

Source: Kent, SE and Fraser, C. Internet Lodging: Bits Plus Beds Equals Bucks, 2000.

P. Raventos / Journal of Business Research 59 (2006) 375 – 386

383

Table 9 Example of existing DMS models

Destination Summary Year launched Number of suppliers in the area Legal structure

Current status Consumer site Online reservation (in real time) Reservation form Call center Data management Method used for updates

Updates directly made by suppliers Customer database owner

British Columbia

Finland

Seychelles

Singapore

Tirol

Unknown 7000 products, of which, 2,800 are lodging companies Government agency

1992 Capacity: 63,400 rooms (including 55,000 in hotels and other services) Government agency

2001 143 lodging providers

1995 32,000 hotel rooms

Government agency

Government agency

1992 4500 lodging companies promoted in the TISCover System Commercial TIS, Govmnt agency TTB

Yes

Yes –

Yes –

Yes Yes Vı´a WorldRes

Yes Yes

– Yes

Yes –

– Yes

–

– Yes

BC Tourist Board gathers data at the provincial level –

Through the contents tool

Through the contents tool. Inventory by WorldRes Yes

Contents tool, accessible online

–

Through the contents tool with a keyword Yes

BC Tourist Board

FTB

STMA

STB

Owned by providers and local tourism organizations

Yes

Source: World Tourism Organization: E-Business for Tourism: Practical Guidelines for Destinations and Business, 2001.

directories, or by clicking on links found at websites specializing on environmental issues or the same activities promoted by the intermediary. These websites were often referenced by more websites than the ICT website. Information was also provided for hotels and tours in the same geographic area. When the visitor found a hotel of her liking, she filled out a form specifying the dates of her intended stay, name, address and credit card number. The intermediary received the application and checked whether a room was available at that specific hotel for the dates requested. If space was available, the intermediary would send the customer an e-mail with a precise offer that included the hotel’s cancellation policy and asking for authorization to debit their credit card to confirm the reservation. Such

deferred booking processes were also common in the countries of Central and Eastern Europe. 7.2. Hotels In 2001, 64% of hotels in Costa Rica had a website, though they varied in quality and sophistication. Generally, those of higher rated larger hotels were better but not always. The web site of Hotel Costa Verde (www.hotelcostaverde.com), a 2-star, 54-room hotel with a rack rate of $60, featured photos, video, and a 360-degree virtual tour of different areas in the hotel. As part of its Internet marketing strategy, the hotel had registered its site at several directories and online reference pages, had optimized its search words, and had paid search engines for

Unique visitors

Page views

120,000 300,000 100,000

80,000

200,000

60,000

40,000

100,000

20,000

Feb 01 Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec Jan 02 Feb

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Report Generated by Super Stats 3:23 PM CST, 1/15/2002

ICT Webmaster Fig. 3. ICT website metrics.

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Table 10 E-commerce metrics of Costa Rican hotels

0 – 3 Star Up to 25 rooms Between 25 and 100 rooms More than 100 rooms All size 4 – 5 Star Up to 25 rooms Between 25 and 100 rooms More than 100 rooms All size All categories Up to 25 rooms Between 25 and 100 rooms More than 100 rooms All size

% of hotels that have websites

Number of intermediaries listing them

Percent of reservations received through

International

Domestic

GDSs %

Domestic online intermediaries %

eMail %

60 56 86 59

0.4 0.7 3.1 0.6

2.3 2.8 4.6 2.6

4 2 13 3

8 5 14 7

18 12 17 16

78 88 94 86

0.4 1.9 3.7 1.9

3.3 4.4 4.3 4.1

6 10 21 11

5 11 7 8

25 12 11 15

62 63 91 64

0.4 1.0 3.5 0.8

2.4 3.2 4.4 2.9

4 4 18 5

7 6 9 7

19 12 13 16

Survey of hotels conducted between December of 2001 and February of 2002. The website evaluation was carried out by research assistants in March 2002.

placement. From questionnaires filled out by guests, the hotel had learned that its main sources of traffic were a well-know search engine and Fodors. Hotel Presidente (http://www.hotel-presidente.com) was a 3star 100-room city hotel with a rack rate of $70, catering primarily to middle managers, which tended to be repeat customers. It had a very basic website. It received reservations from CentralAmerca.com and from major GDSs through its contract with Utell. Hotel Punta Islita (http://www.hotelpuntaislita.com) was a 35-room, 5-star beach hotel, with a rack rate of $150. All of the awards and certifications earned by the hotel appeared on its web page. Customers could make reservations through an online form, or via e-mail. It received reservations from major GDSs through Small Luxury Hotels of the World. Hotel Marriott Costa Rica (http://www.marriott.com) was a 248-room 5-star city hotel focusing slightly more on business travelers than on tourists. It had a rack rate of $150. Although the hotel had a local website, it was mostly used to sell other services that the hotel offered. Customers wishing to make an online reservation at the hotel from the U.S. would access the Marriott chain website. Other than this, GDSs were the hotel’s most important means of getting reservations. A survey conducted at the beginning of 2002 showed that 64% of all hotels in Costa Rica had their own internet site: some 86% of four and five star hotels and 59% of zero to three star hotels. (See Table 10). Evaluation of these websites found that 46% of them were user-friendly, 38% were extremely attractive because of design characteristics and 4% had video and virtual tours. Table 10 shows how often hotels appeared on domestic and international online intermediaries. It also shows the sources of reservations for the same classification of hotels. About 18% of all hotels are shown on GDSs. They are mainly large luxury hotels connecting directly through chain CRSs and large three star business hotels connecting through Utell or VIP. Averaging over all hotels, GDS reservations represented 5% of total hotel

reservations, but they reached over 30% for some large, higher category hotels. On average, hotels got 16% of their reservations through direct e-mail from customers, although this share went up to 25% for small, four-or five-star hotels. On average 30% of reservations were taken by telephone and 19% were walk-ins. 7.3. The DMO Up until 2001, the ICT website was only being used as source of general information about the country and basic data on ICT members. It was initially created in 1996 and redesigned in 1997 to the format found in late 2001. The Technology Department was in charge of designing and maintaining the page, as well as monitoring its results (see Fig.

Table 11 ICT website metrics Refering page

Share %

Search engines Other websites Within own site Others Total

50.0 17.0 7.4 2.1 100.0

Most popular pages

%

Page views

1 Portada 2 Hotels 3 Know Costa Rica 4 Natural attractions 5 Adventure 6 Costa Rica Tourism Board 7 Statistics 8 Travel search 9 Visitor safety tips 10 Learn to speak Spanish 11 Rent a Car

24.7 14.0 8.4 6.9 5.0 4.8 4.2 3.7 2.9 1.8 1.8

586,913 333,352 199,561 163,296 119,558 115,051 100,452 87,822 67,943 42,373 42,373

ICT Webmaster.

P. Raventos / Journal of Business Research 59 (2006) 375 – 386 Table 12 WTO assessment of the websites of 30 DMOs (Number of websites having the indicated feature) 1. Generic Location context (Where are we?) Login procedure Selection of preferred language 2. Trip Information Information about culture / history Information about the weather Essential trip information (money, customs, attire) Information on transportation Itineraries / Information on tours Information on travel insurance Picture gallery Maps Tips / Frequently Asked Questions (FAQ) Links to regional / local / national DMO’s 3. General Information Privacy policies /Terms and conditions / Copyright Information about online transaction security Guarantee and Return Policies Research Data / Customer Survey Links to related external websites 4. Special Characteristics Visitor comments / testimonies Weather reports / forecasts News / reports / magazines Newsletter Online chatting / newsgroups Virtual postcards 5. Design and functionality Man menu Subordinate menus Link to home page in every page of website Website map Use of Flash Use of Java applets Use of animated GIF’s Multimedia Destination text description Local currency exchange rate Search facilities by keywords Search facilities by category Contests / prizes Registration (club, newsletter) Online pamphlet / personal folder Electronic query format 6. Product Search / list Lodging Flights Car rentals Packages Attractions Activities Events Restaurants Tours Tour operators / travel agents Conference facilities Local services and businesses Shopping

14 11 24 16 23 21 29 25 3 14 26 14 23 18 9 4 15 30 8 7 10 15 6 12 30 10 27 13 12 9 22 30 29 5 22 28 3 21 10 29 28 12 14 11 23 20 29 12 27 11 6 5 15

385

Table 12 (continued) 7. Product information Detailed contact Multimedia Availability Rates Facilities Quality accreditation by entity 8. Online registration During the reservation procedure To enter a contest or raffle To create a personal pamphlet To shop To join a chat / forum To subscribe to a newsletter To join the club 10. Online shopping Apparel Souvenirs Books 11. Reservation facilities Questions via e-mail / fax Immediate online reservations Link to third-party reservation websites Call centers Direct contact service / product provider Maps

29 18 10 23 23 15 7 2 5 1 2 14 0 1 1 2 9 10 12 15 28 3

Source: World Tourism Organization: E-Business for Tourism: Practical Guidelines for Destinations and Businesses, 2001.

3 and Table 11). The site itself consisted of 50 pages of information about the different regions of the country. The website allowed users to search for hotels by region and category, and provided hyperlinks to the websites of hotels and their emails. Hotels without a website or email often requested that the ICT place the hyperlink and email address of an intermediary with which they worked. The ICT site got its traffic primarily from search engines, which accounted for nearly half the total references in 2001. The main referrers to the ICT web page were, in order of importance, Google (search engine), CostaRica.com, Yahoo! (directory), Yahoo! (search engine) and MSN (search engine). At the beginning of 2002 traffic to the website exploded after the episode of Temptation Island that had been filmed in Costa Rica was aired on Fox Network and a hyperlink to the ICT was placed on Fox’s website. In 2001, the site had nearly 2.5 million page views. By mid2002, ICT site had over half a million page views per month. In order to make the website easier to use, ICT’s technical team started redesigning current pages to make them more userfriendly and attractive, in parallel with the bidding process. Taking bids for the site as soon as possible, however, was extremely important to ICT. 8. The decision The bidding was for a two-year contract with renewal possibilities. It was estimated that system development would take about half a year. There were different opinions about the functions that were desired on the new website and whether or not a real time

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reservation system was needed. Those favoring the reservations system argued that ICT members would not have to pay for development costs. Others had some concerns. How would information about each hotel’s inventory be kept up to date?, Who was to be held responsible if a customer encountered problems with a reservation? Table 12 shows a benchmarking exercise of 30 DMO websites made by the WTO. Acknowledgements This work is based in part on a case written by Antonio Pe´rez-Cevallos under my supervision: ICT: Licitacio´n del Sitio en Internet. INCAE; #26702. The financial support of the Avina Foundation is acknowledged. Appendix A. Hotels in Costa Rica in 2001 Table 6 classifies the hotel supply in Costa Rica by category, as defined by the number of stars awarded by the ICT, and size. In 2001 four and five star hotels represented only 21% of the total number of hotels, but represented 42% of the total number of rooms. The generally smaller zero to three star hotels represented 79% of the number of hotels but had only 58% of the rooms. Taking five star hotels alone, they represented only 5% of the number of hotels but 16% of total rooms. Average hotel size in Costa Rica was 40 rooms. Fifty percent of hotels had less than twenty-five rooms (which we shall call ‘‘small hotels’’), 43% had between 25 and 100 rooms (‘‘mediumsized hotels’’), and only 7% had over 100 rooms (‘‘large hotels’’). Of available rooms, 20% were in small hotels, 46% in medium-sized hotels, and the remaining 34% in large hotels. Zero to three star hotels had 30 rooms on average, whereas four and five-star hotels had on average 87 rooms. There were hotels, however, that did not fit this pattern, such as specialty hotels, which were rated high, but had a smaller number of rooms. They managed to charge higher rates than the average in their category by differentiating their service. There were also medium-or large-sized hotels with three or less stars that were typically targeted to middle managers, who sought functionality and location rather than sophisticated service. Rooms were concentrated in cities and beaches. Some 43.5% of rooms were found in cities, 40.5% at beaches, and

16% in the mountains. City hotels had an average of 52 rooms; beach hotels had 41 rooms, and mountain hotels had 28 rooms. The average hotel rate for the 2001 low season was US$62.7 per night, with an average occupancy close to 44% (42% at the beach and 49% in the cities). For that same year’s high season, the average rate was $76.3 per night with an average occupancy of 70%, regardless of location. Combining these figures leads to average revenue per available room of $28 during the low season and $53 for the high season. This difference was bigger for beach hotels and smaller for city hotels. Occupancy tends to be higher the larger the hotel. Annual occupancy in small hotels was 50%, for medium-sized hotels it was 54%, and for the large ones, 62%. Annual occupancy for zero to three-star hotels was 51%, whereas for four to five-star star hotels it was 58%. The average hotel stay was 3.8 days. The length of stay varied from one day, for some hotels, up to 30 days for some apartment hotels. Comparing this figure with the average stay of a tourist in Costa Rica – over 10 days, as reported by ICT – was an indication that several hotels were used during the same visit, and there was a need for several reservations per visitor. References Asamblea Legislativa. Ley Orga´nica del Instituto Costarricense de Turismo;1955. Center for International Development. The global information technology report 2001 – 2002: readiness for the networked world;2002. ICT. Strategic plan 2002 – 2010;2001a. ICT. Memoria annual;2001b. INBIO. Estudio Nacional de Biodiversidad, Costa Rica Avances a Diciembre de 1998. Instituto Nacional de Biodiversidad. http://www.inbio.ac.cr/es/ biod/estrategia/Paginas/frame_estudio.htm. International Trade Administration. Survey of international air travelers;2002. Kotler P, Bowen J, Markens J. Mercadotecnia para hotelerı´a y turismo. Prentice may;1997. PhoCusWright. 2000 Gross online bookings. Travel Industry Association. Travelers use of the Internet 2001. http://agency. travelwisconsin.com/Research/MarketResearch_Active/internetuse.shtm. UCLA. The UCLA internet report: surveying the digital future. http://www. digitalcenter.org/pages/site_content.asp?intGlobalId=20;2000. UNESCO: 2002 Education Statistics, http://www.uis.unesco.org/TEMPLATE/ html/Exceltables/education/finance.xls. December 2004. World Trade Organization. Why is the liberalization of services important? http://www.wto.org/english/tratop_e/serv_e/gts_factfiction2_e.htm.