Exploring price and non-price decision making in the UK package tour industry: Insights from small-scale travel agents and tour operators

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Tourism Management 28 (2007) 1236–1261

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Research article

Exploring price and non-price decision making in the UK package tourindustry: Insights from small-scale travel agents and tour operators

Brian Daviesa,�, Paul Downwardb

aStaffordshire University Business School, Stoke on Trent ST4 2DF, England, UKbLoughborough University, Leicestershire LE11 3 TU, England, UK

Received 23 November 2005; accepted 17 September 2006

Abstract

The emerging literature on the UK package tour industry has drawn upon diverse academic disciplines each carrying different

methodological presuppositions. Underplayed is the intrinsic context within which tourism providers operate.

This paper presents the results of a questionnaire research investigation to generate practitioners’ insights into the competitive

behaviour of the industry in the UK. Such insights are central in an understanding of the perceptions and processes at work. Oligopoly

behaviour appears to be present amongst both large company groupings and small enterprises. The exploratory analysis suggests the

need to re-emphasise the behavioural nature of oligopoly. Further, the tourism ‘industry’ shares this characteristic with manufacturing,

previously assumed to be widely different.

r 2006 Elsevier Ltd. All rights reserved.

Keywords: Price policy; Practitioners; Oligopoly behaviour; Package tours

1. Introduction

Since Sinclair and Stabler (1997, p. 96) wrote that therewas an absence of tourism literature concerned with themarket environment within which tourism suppliersoperate a growing literature has examined the nature ofthe UK package tour industry. Whilst drawing uponeconomic theory, a number of methods of analysis havebeen employed in testing theoretical insights but conclu-sions lack a consensus. This suggests some methodologicalproblems and that there is a lack of scientific maturity insuch literature.

In this regard, Davies and Downward (2001a) argue thatunlike, say, typical economic analysis that relies on thequantitative investigation of the predictions of theories,more exploratory and/or case-specific research is importantin generating insights into the real processes at work withinthe tourism industry. Further, these need to draw uponbroader theoretical traditions than traditional economic

e front matter r 2006 Elsevier Ltd. All rights reserved.

urman.2006.09.020

ing author. Tel.: +441782 294082.

esses: [email protected] (B. Davies),

lboro.ac.uk (P. Downward).

analysis to make sense methodologically. Consequently,this paper pursues this latter line in presenting the results ofa questionnaire research project. It investigates thecompetitive behaviour of small- and medium-sized firmsin the UK package tour industry to critically assess theconclusions in the literature. Given the existing state ofknowledge, investigated in the literature review below, thehypothesis that, in a two segmented industry, the small-and medium-size enterprises act as highly competitive firmswhose profits rely on eliminating competitors is examined.

2. Competition amongst small-scale UK package tour

operators

Investigations into the UK package tour industry tookan early lead from Fitch (1987). Since then a body ofknowledge has developed examining the nature of compe-tition in the industry drawing primarily upon economictheory. Empirical examinations based on such theory haveinvolved most authors utilising a descriptive approachwhereby identified features are compared with the theore-tical assumptions of different models. Typically thesemodels draw upon unrealistic assumptions of optimising

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behaviour, subject to various constraints, reflecting differ-ent structural characteristics of the market. The modelsused include the neoclassical theory of the perfectlycompetitive firm, game theoretical oligopoly models, andcontestability, all of which are part of the industrialorganisation framework.

An emerging debate began with the work of Baum andMudami (1994) who suggest the industry is oligopolisticcharacterised by price stability. In contrast Evans andStabler (1995) suggest that price wars and non-cooperativebehaviour were the norms. Others, notably Gratton andRichards (1997), argue that the industry fitted Baumol,Panzar, and Willig (1982) work on contestability. Contest-ability implies that if competition in the market is notpresent then potential competition for the market may bepresent. Yet, in contrast Taylor (1996) concludes that theindustry could be viewed as competitive, oligopolistic orcontestable and supports Evans and Stabler’s conclusionon price wars and non-cooperation.

To try to resolve these competing explanations,Davies and Downward (1998, 2001a, 2001b), for thefirst time, employed econometric testing of the predictionsof the theories rather than a descriptive account ofprice behaviour or market structure. However, they tooconclude that none of the hypotheses could be ruled outeasily. More consideration needs to be given to explorationof the actual structure of the industry rather than relianceupon pre-existent theoretical concepts, which by theirnature are not designed to be literal descriptions.Thus, rather than one segment in the industry, twoappear to be important. One segment consists ofpredictions that could be associated with a stable oligopolyamongst the leading firms, whilst the other predictionscould be consistent with a number of smaller,highly competitive firms where profits are dependent oneliminating competition.

The nature of competition has also been explored moreindirectly through investigations into the pricing ofpackage tours. Several works examine the relationshipbetween price and product characteristics. Sinclair, Clewer,and Pack (1990), Clewer, Pack, and Sinclair (1994), andPastor (1999) have pursued this through the use of ahedonic pricing framework deriving a critique of Casiniet al. (1985). They suggest price differentials amongstinclusive package tours to different destinations are relatedto price elasticities of demand resulting from differenttourist origins and market segments within an origin. Morerecently, Aguilo, Alegre, and Riera (2001) have undertakenan analysis of German package prices in relation toproduct characteristics including transport costs, time ofthe year, hotel quality and complementary offers. Utilisinganalyses of variance and covariance, their finding is thattour operators are significant in determining price. Theimplication they draw is that this is the result ofmonopolistic competition and increased concentration.This is in line with the work of Van Dijk and van derStelt-Steele (1993), Gratton and Richards (1997), and Gauf

and Hughes (1998). Unfortunately, the form of competi-tion is not directly investigated.Despite all of these studies, the competitive structure of

the UK package tour industry is still not well understood.The only consensual view is that the industry consists of asmall number of large firms and a large number of smalland medium enterprises.

3. Some methodological issues

The discussion above is suggestive of the generation ofcertain ‘stylised facts’ that need enriching. The dynamics ofprofitability and market share and the role of pricing andmarketing especially warrant further explanation. Thispaper argues that more exploratory evidence is needed tohelp to draw out the causal characteristics underpinningpricing and decision making within the competitive frame-work. This is necessary because over reliance on existenteconomic theory allied to descriptive or econometricanalysis cannot discern the complex social and economicphenomena within which firms operate. On the one hand,the ‘testing’ of economic theory with reference to descrip-tive evidence on market structures, as detailed above, isproblematic as the theories were meant only as generatorsof predictions of market-level behaviour, rather than literaldescriptions of aspects of individual firms’ behaviour(see Friedman, 1953; Machlup, 1946).On the other hand, whilst Davies and Downward

(2001a) have employed an appropriate method they toohave been unable to discriminate between the theories. Thisis suggestive of more fundamental problems with thisepistemology.In general, statistical testing requires an ontological

commitment to a world of relatively constant conjunctionsof events, emanating from stable structures. In a non-experimental realm, however, it is by no means guaranteedthat structures do not change and evolve, especially overtime unlike the assumption of constancy, noted above.Moreover, even if one believes that there are relativelyenduring features of the world, the statistical approachmaintains that there is a fundamental randomness thatcontaminates all phenomena. To an extent, there is anontological paradox in juxtaposing structures and random-ness. One could argue, therefore, that statistical measuresare inappropriate tools of analysis.In this sense, good econometricians, for example

Haavelmo (1944) and Hendry (1993), explicitly grapplewith such ontological matters, if not reach agreement. Theformer emphasises a fundamentalist instrumentalist posi-tion in which randomness is not assumed to have a realcounterpart, unlike Hendry. Notwithstanding these differ-ences of emphasis, however, the problems of usingstatistical inferences to discriminate between theoriesremains, and may continue to do so if one uses nothingbut statistical analysis as a basis of offering inferences.An alternative approach, therefore, would be to argue

that, in fact, the world is a structured open system in which

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all phenomena are causally linked. Complexity rather thanrandomness thus creates problems of predicting anddecomposing phenomena. In this sense, statistical analysiscan be embraced in a partially instrumentalist fashion as aform of proxy for complexity. This might be useful foroffering predictions as part of an understanding of theunderlying structures yet recognising that complexity willaffect the ability to predict. There is a strong sense herethat the analysis acts as a ‘heuristic’ tool in much the sameway as conventions are employed to deal with complexity.They act as an abstract device or anchor in which thedecision maker can place trust in coping with uncertainreality. The corollary, of course, is that understanding realcauses is needed to help to instigate and thus be integratedinto the econometric analysis. It is here that a moreexploratory analysis is required.

The need is to produce theoretical constructs withreference to the actual decision-making processes, i.e.tourism in its real environmental setting. It would be moreappropriate to use such methods to explore and to revealthe processes that are actually at work and then link theseto the statistically defended predictions in the literature. Inthis respect, the combination of methods would addressand define real contexts and causes as well as their generalimplications. Of course, what is being argued is the need totriangulate methods of analysis.

However, the sense of triangulation that is beingadvocated here has a specific interpretation that reflectsthe ontological discussion above. The argument is thatstatistical and econometric work can produce empiricaldescriptions of events, but their causes need to beinvestigated too, in an exploratory setting (Downward &Mearman, 2002). The current research thus aims to offer adescription of pricing and non-price behaviour in UKsmall-scale package tour companies to try to identifyelements of this causal behaviour. This is an unexploredarea of the literature which has concentrated on theindustry as a whole or, in a more limited respect, on thelarge firms. In order to give a wider picture, the small- andmedium-sized firms warrant investigation. This is under-taken with the aid of data derived from interviews andquestionnaires.

4. Methodology

The dynamics of profitability and market share and therole of pricing and non-pricing decisions are investigated tohelp draw out the causal process underpinning pricing andcompetition. This will facilitate a better understanding ofUK small and medium tour operators and travel agents’pricing and non-pricing decisions and hence behaviour,both individually and as the result of their businessenvironmental setting. In order to do so, the hypothesisthat, in a two sector segmented industry, firms act highlycompetitively with profits relying on eliminating competi-tors is investigated. Market and environmental influences

on decision making are assumed to be of centralimportance.The previous argument in Davies and Downward

(2001a) suggests case-study work is an appropriate vehicleto test the hypothesis and to complement existingquantitative studies on the subject. A case study here willhelp outline the causal mechanisms underlying events likepricing and marketing behaviour. Thus, the roles of pricingand marketing are of particular interest. The emphasis ofthe empirical work is not simply to identify frequencycounts of responses to questions in a questionnaire by firmdecision makers. This would merely mirror the closedsystem emphasis of econometrics in its pursuit of eventregularities. The aim here is to also identify causal flowsfrom patterns in the responses. As a result, the responsepatterns are interpreted from simple tabulations and fromtransformed data utilising factor analysis. This enablesfurther insights into the processes at work and bridges thegap between econometrics and qualitative inferences in theexisting literature creating the framework for triangulation.To investigate these issues practitioner data were

collected following a two-stage process that could be seen,in essence, to be motivated by a grounded theoryperspective in as much that new insights were elicited withthe aim of then identifying their more general theoreticalrelevance. Using the Financial Analysis Made Easydatabase based on Companies House, London recordspublished by CD ROM Publishing Co., firms werecategorised systematically as small- to medium-sizedpackage tour suppliers, defined as having a turnover of£1–£300 million per annum. Initially, reflecting the idea oftheoretical sampling, decisions to include firms essentiallyinvolved some iteration between qualitative interviews andtheir acceptance to formalise the responses on a ques-tionnaire. Consequently, participation in the study waselicited first and a telephone interview conducted withtwenty such firms with personnel at the managerial level orabove. The aim was to get some general feedback onpricing and marketing strategies identified from the existingliterature as well as conceptions of competition.The second stage was to try to formalise the responses

further by getting the respondents to complete a ques-tionnaire. This was constructed following the telephonediscussions as well as being informed by the case-studyliterature on pricing referred to above. This also served as apilot survey as the study was then extended, as discussedbelow, to include a larger sample of some 680 firms towhom the questionnaire was posted.The following main themes emerged from the interviews.

Most respondents typically expressed a strong desire toseek financial stability and long-term security. This was tobe achieved through providing good value for clients andby tight financial management. Holiday prices were derivedaccording to ‘mark-up’ pricing formulas, in which prices tocustomers reflected the cost of elements of the package plusa margin. The actual decision making apparatus includedrelatively formal pricing procedures, with decision being


made at a relatively centralised level, to more informalsystems. Some respondents undertook formal evalua-tions of the likely impact of pricing decisions on volume,revenue and profit and were particularly concerned aboutmeeting longer-run targets, notably financial stability andlong-term security. Typically, these were the largercompanies in the sample.

As far as pricing and non-price adjustments to thecompetitive environment were concerned, a diversity ofpossibilities existed. In general, changes occurred oversome defined time-horizon. Annual changes were the mostcommon, but some respondents indicated biannual andseasonal change. The response to changes in prices or non-price efforts from competitors echoed these patterns. Itappears that firms seemed to appreciate who their keyrivals were. This suggests a degree of oligopolisticinterdependence despite their relatively small scale.

This is an interesting finding in that it suggests thatoligopoly as a concept is a more general behaviouralphenomenon, and is not, in essence, tied to the scale ofproduction per se as typically emphasised in economicanalysis. This said, it should be remembered, as notedabove, that early case-study research in economicsemphasised oligopolistic interaction. This led Hall andHitch (1939) to propose the kinked demand curve. More-over, Andrews (1949a) stressed the concern with potentialcompetition, i.e. ‘contestability’ in its modern guise. If thisis the case then the relatively inflexible adjustments ofprices and non-price marketing variables is explicable.

To further investigate these findings a larger sample offirms was identified and a questionnaire was devised. Froma sampling frame, 680 firms were selected using theFinancial Analysis Made Easy (FAME) database. Thefirms selected were the result of eliminating firms from over8000 listed in FAME. Large-scale companies, the ‘Top 7’,identified in Davies and Downward (1998), were excludedalong with firms with turnover greater than £300 million.This is in line with the use of such firms to define the large-scale tour operators and travel agents previously used inDavies and Downward. Some firms were duplicated andmany others had ceased trading so were also eliminated.Many firms are listed under headings such as ‘‘Companieswith travel as part of their name’’, but it is clear many arenot travel agents or tour operators, for example, GripBuses Limited. Once these had all been eliminated, it left apopulation defined as approximately 7000 firms. Thesample size also allowed a margin of error of 3–4% inthe precision of the estimate of the population.

5. Data and variables

The questionnaire sought to address issues raised by theinterviews and literature as indicated in each of theheadings below. Data were typically obtained on most ofthe variables by posing questions to elicit responses on afive point interval scale together with open-ended questionsto allow information gathering on decision making

behaviour and influences. The variables were derived fromeconomic theory and previous studies of actual firmbehaviour including Hall and Hitch (1939), Andrews(1949a, 1949b, 1964), Shipley (1983) and Downward(1999) and can be classified into sub-groups concerningthe broad dimensions of firm behaviour under investiga-tion. They are:

�
The general organisational goals indicating the impor-tance of various objectives in terms of constraining priceand non-price marketing behaviour. They comprise thefamiliar objectives cited in economic and managerialtheory. � General environmental variables indicating the relative
strength of competition directly, or ranked respondentsagreement with certain comments about the environ-ment.
� Following closely from the case-study literature on
pricing, see for example, Downward (1999), organisa-tional variables measuring the extent to which pricingand non-price marketing tasks are formalised andcentralised.

These variables are aimed at capturing the price settingand non-price marketing procedures of firms as well astheir behaviour in response to changes in the firm’senvironment. The variables are listed in Tables 1–4.

5.1. Contingency variables

A set of contingency variables measuring the companies’pricing and non-price marketing responses to environ-mental changes such as costs increasing/decreasing ordemand increasing/decreasing are also used. This is inresponse particularly to Shipley’s (1983) and Downward’s(1999) work on pricing. These are idip, iddp, idsnp, idrnp,ddip, dddp, ddsnp, ddrnp. Here, the first letters ‘i’ or’ ‘d’refer to the direction of the change, i.e. increase ordecrease, respectively. The second letter ‘d’ or ‘ms’ refersto the variable that has changed such as demand or marketshare, respectively. The third letters ‘i’ and ‘d’ refer todirection of the firm’s response to the shock such as toincrease or decrease a responding variable, respectively, or‘r’ and ‘s’ reduce and strengthen a responding variable,respectively. The final letters ‘p’ and ‘np’ refer to thevariables that are used in response to the shock, forexample, price or non-price responses. Thus, for example,‘ddrnp’ measures the extent to which the firm reduces itsnon-price marketing efforts following a decrease indemand.In addition there are variables, cipip, cipdp, cipsnp,

ciprnp, cdpip, cdpdp, cdpsnp, cdprnp. These examinecompanies’ responses, both price and non-price, tocompetitors increasing or decreasing prices. Finally, thereare variables measuring companies’ responses to a decreasein market share. These are dmsip, dmsdp, dmssnp and

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Table 1

General organisational goals

Growth of the firm

Long-run market share

Long-run profits

Long-run sales revenue

Long-run sales volume

Short-run market share

Short-run profits

Short-run sales revenue

Short-run sales volume

B. Davies, P. Downward / Tourism Management 28 (2007) 1236–12611240

dmsrnp. Here ‘dms’ refers to decrease in market share, andthe final two letters are as above.

Questionnaires were posted out to senior managementpersonnel and responses received. It was then necessary topost- or telephone reminders in order to improve theresponse rate.

5.2. Statistical analysis

Once returned, the questionnaires were analysed usingsimple statistical analysis utilising SPSS. First, the responserate was calculated in line with Neumann (2000). The totalresponse rate took the value of 27.6% (188 actual firms),which seems to be within the bounds of conventionalacceptance. The rate increased to 34% (221 actual firms) ifthe active response rate is used by excluding ineligiblequestionnaires and respondents who could not be reached.

Next, using the descriptives package on SPSS, thestatistical analysis produced simple frequencies along withthe mean and standard deviation descriptive statistics.

5.3. Factor analysis

To further explore these relationships, a factor analysiswas undertaken. This is possible due to the use of interval-based measures of inter-firm organisational relations andintra-firm environmental pressures as well as their reactionsto pricing shocks. Such an analysis enables the elaborationof the variety of causal processes that may be in existence ifonly partially. This is, of course, facilitating an open-system narrative such that all events cannot be reduced tothe same cause.

Factor analysis is concerned with identifying the linearcombination of variables that accounts for most of thevariance in the data. ‘Factor loadings’ are assigned to thevariables partitioned into factors. A rotation of the factoranalysis—an adjustment of the factor axes that helps topick out more pointedly apparent combinations of vari-ables—is undertaken to obtain a more meaningful inter-pretation of the results.

Orthogonal rotation ensured the linear combinations ofvariables identified are independent to one another. Aprinciple components analysis rather than a commonfactor analysis was preferred thus all rather than just thecommon or shared variances were used in constructingfactors.

6. Results

The results are divided into the statistical analysis andthe factor analysis. For the former, the various tablesbelow indicate the outcomes. They are based on the activeresponse rate of 34% (221 firms). Both percentages(rounded up) and number of firms are given with thelatter in parentheses. Appendix A indicates the size ofrespondent companies to the questionnaire such that, byturnover, they rank as small to medium size.

To give an overall picture of pricing and marketing,descriptive statistics are presented in Tables 5–7.These simply present the percentage responses toeach of the questions. Both Tables 6 and 7 appear inabbreviated form illustrating the main factors discussedin the narrative. Fuller tables appear in appendices2 and 3, respectively. Descriptive statistics compr-ising means and standard deviations are presented inAppendix E.The response categories at the top of the tables indicate

the nature of the questions asked. In general respondentswere asked about the variable in terms of the periodicity oftheir company being organised or behaving in a particularway.The factor analysis is the outcome of extracting factors

up to where the eigenvalues are greater than one. Aneigenvalue is the sum of squares of a factor. One is acut off point because factors are presumed to explainat least one variable. No redundant variables werefound. The general variables of Demand, Market andall the organisational, pricing, and non-price variablessatisfied the criteria. Following Green (1992), a factorloading of 0.2 was then used as indicative of significance.As a result, EXECPAR, PROCEDP, PROCEDNP,MARKET, PSTAB, and CHNGDIS, were identified assignificant.

7. Study findings

Table 5 indicates the importance of firms’ pricingand non-pricing objectives. The multiple pricing object-ives most stressed by respondents are growth, long-runprofit and long-run sales revenue, as implied and in linewith, the interviews, although short-run profits andsales revenue are significant. In terms of non-pricingobjectives, all variables, other than short-run market share,seem to be important.The strategic importance of these objectives is indicated

by the finding that executive-level decisions for bothpricing and non-pricing, although less so for the latter,are prevalent as indicated by the responses to EXECPARand EXECPARNON in Table 6. However, there is a fairdegree of non-executive decision taking with regards tonon-pricing decisions. Moreover, formalised procedures

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Table 3

Organisational variables

(a) Centralisation

EXECPAR: The frequency of participation in pricing decisions by executives

NONEXEC: The frequency of participation in pricing decisions by non-executives

EXECPARNON: The frequency of participation in non-pricing decisions by executives

NONEXECPARNON: The frequency of participation in non-pricing decisions by non-executives

(b) Formalisation

PROCEDP: The extent to which formalised procedures are followed for pricing

PROCEDNP: The extent to which formalised procedures are followed for non-pricing

PCONTING: The extent to which pricing reviews occur in response to particular contingencies or events rather than as scheduled

MCONTING: The extent to which non-price marketing reviews occur in response to particular contingencies or events rather than as scheduled

Table 4

Pricing and marketing variables

MARK UP: The extent to which the firm initially sets prices using a method of adding a mark up to a measure of average costs

PSTAB: The extent to which prices are set to encourage price stability on the market

PCOM: The extent to which prices follow actual or potential competitors in setting prices

PRILIST: The extent to which planned/initial prices are set with reference to a pricing guides rather than brochure prices

CHNGPROF: The extent to which, following the need to adjust initially planned prices, profit margins are changed

CHNGBRO: The extent to which, following the need to adjust initially planned prices, price guides are changed

CHNGDIS: The extent to which, following the need to adjust initially planned prices, the company uses discounts to brochure prices

CHNGBAS: The extent to which, following the need to adjust initially planned prices, the company modifies the costing base of prices

CHNGPLIS: The extent to which, following the need to adjust initially planned prices, the company modifies brochure prices

BROC: The extent to which, following the need to adjust initially planned prices, the company produces a new brochure

MSTAB: The extent to which marketing effort encourages price stability on the market

MCOM: The extent to which actual or potential competitors are followed on non-price competition

PGOODWILL: The extent to which prices are set to maintain goodwill or future trade

MGOODWILL: The extent to which non-price marketing aims to maintain goodwill or future trade

Table 2

General environmental variables

NUMCOMP: The number of current competitors

NUMPOTC: The number of potential competitor

PRICOMP: The extent to which price competition is stronger than non-price competition in core product market

DEMAND: The extent to which prices are set with market demand in mind

MARKET: The extent to which non-price marketing effort pays close attention to market demand

PFOLCOMP: The extent to which companies follow their competitors in setting prices

FPRICHNGE: The extent to which price competition in the core product is characterised by frequent price changes

UPRICHNGE: The extent to which price competition in the core product is characterised by unexpected price changes

FNONCHNGE: The extent to which the core product is characterised by frequent non-price changes

UNONCHNGE: The extent to which the core product is characterised by unexpected non-price changes

SALESPRO: The extent to which sales of the core product depend on sales of other products

Table 5

The importance of firms’ pricing and non-pricing objectives

Variable Response (%)

Name Very important Important Marginally important Not important Unimportant

Long-run profits 57.4 (108) 42.6 (80) 0 0 0

Short-run profits 23.9 (45) 47.9 (90) 28.2 (53) 0 0

Short-run sales revenue 20.9 (46) 43.1 (81) 28.2 (53) 4.8 (9) 0

Long-run sales revenue 23.9 (45) 66.5 (125) 4.8 (9) 0 0

Short-run market share 9.6 (18) 19.1 (36) 28.7 (54) 42.6 (80) 0

Long-run market share 23.9 (45) 19.1 (36) 33.5 (63) 23.4 (54) 0

Short-run sales volume 9.6 (18) 47.9 (90) 28.7 (54) 13.8 (26) 0

Long-run sales volume 9.6 (18) 47.9 (90) 28.7 (54) 13.8 (26) 0

Growth of the firm 37.8 (71) 33.5 (63) 28.7 (54) 0 0

B. Davies, P. Downward / Tourism Management 28 (2007) 1236–1261 1241

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Table 6

Firms’ organisation, pricing, non-pricing behaviour and the environment


Name Very often Often Sometimes Rarely Never

EXECPAR: The frequency of participation in pricing decisions by

executives

70.2 (132) 23.9 (45) 5.9 (11) 0 0

EXECPARNON: The frequency of participation in non-pricing

decisions by executives

64.4 (121) 23.9 (45) 11.7 (22) 0 0

PROCEDP: The extent to which formalised procedures are

followed for pricing

17.6 (33) 47.3 (89) 29.3 (55) 5.9 (11) 0

PROCEDNP: The extent to which formalised procedures are

followed for non-pricing

17.6 (33) 29.8 (56) 23.4 (44) 17.6 (33) 11.7 (22)

PCONTING: The extent to which pricing reviews occur in

response to particular contingencies or events rather than as

scheduled

11.7 (22) 18.1 (34) 35.1 (66) 29.3 (55) 5.9 (11)

PGOODWILL: The extent to which prices are set to maintain

goodwill or future trade

41 (77) 18.1 (34) 35.1 (66) 5.9 (11) 0

MCONTING: The extent to which non-price marketing reviews

occur in response to particular contingencies or events rather than

as scheduled

11.7 (22) 41 (77) 29.8 (56) 17.6 (33) 0

MGOODWILL: The extent to which non-price marketing aims to

maintain goodwill or future trade

23.4 (44) 47.3 (89) 29.3 (55) 0 0

DEMAND: The extent to which prices are set with market

demand in mind

29.3 (55) 12.2 (23) 17.6 (33) 29.3 (55) 11.7 (22)

MARKET: The extent to which non-price marketing effort pays

close attention to market demand

11.7 (22) 41.5 (78) 17.6 (33) 11.7 (22) 17.6 (33)

MARKUP: The extent to which the firm initially sets prices using

a method of adding a mark up to a measure of average costs

41 (77) 18.1 (34) 17.6 (33) 0 23.4 (44)

PSTAB: The extent to which prices are set to encourage price

stability on the market

29.3 (55) 23.4 (44) 23.9 (45) 11.7 (22) 11.7 (22)

PCOM: The extent to which prices follow actual or potential

competitors in setting prices

17.6 (33) 18.1 (34) 17.6 (33) 23.4 (44) 23.4 (44)

CHNGPLIS: The extent to which, following the need to adjust

initially planned prices, the company modifies brochure prices

5.9 (11) 11.7 (22) 23.9 (45) 29.3 (55) 29.3 (55)

CHNGDIS: The extent to which, following the need to adjust

initially planned prices, the company uses discounts to brochure

prices

23.4 (44) 45.9 (11) 29.3 (55) 29.8 (56) 11.7 (22)

BROC: The extent to which, following the need to adjust initially

planned prices, the company produces a new brochure

17.6 (33) 5.9 (11) 5.9 (11) 35.6 (67) 35.1 (66)

MCOM: The extent to which actual or potential competitors are

followed on non-price competition

11.7 (22) 18.1 (34) 35.1 (66) 23.4 (44) 11.7 (22)

Table 7

Firms’ contingency plans



ICIP: Increase costs increase price 8.5 (16) 50 (94) 33.5 (63) 8 (15) 0

ICSNP: Increase costs strengthen non-price 8.5 (16) 8.5 (16) 83 (156) 0 0

DDSNP: Decrease demand strengthen non-price 8.5 (16) 41 (77) 42.6 (80) 8 (15) 0

CIPIP: Competitors increase price increase price 8.5 (16) 33.5 (63) 16.5 (31) 41.5 (78) 0

CIPSNP: Competitors increase price strengthen non-price 0 58.5 (110) 25 (47) 16.5 (31) 0

DMSSNP: Decrease market share strengthen non-price 25 (47) 33.5 (63) 33.5 (63) 8 (15) 0


are employed in pricing but not to the same extent in non-price decision making, as given by the responses tovariables PROCEDP and PROCEDNP. This situation isconfirmed by the factor analysis results.

7.1. Pricing

Prices tend to be set using mark ups (MARKUP) inorder to maintain goodwill (PGOODWILL) and, to some


extent, to create price stability. However, there is asubstantial amount of dissention to the latter, as indicatedin PSTAB. There does not appear to be overwhelmingsupport for the notion that the sector is influenced by priceleadership. However, over 50% of the responses indicatesome lack of price competition (PCOM). Once establishedin brochures, there appears to be reluctance to depart fromsuch prices. As indicated by PCONTING, price is onlymarginally reviewed to accommodate shocks. The tendencyis to utilise discounts (CHNGDIS), although not over-whelmingly, whilst leaving brochure prices alone(CHNGPLIS). Neither is it the norm to produce newbrochures (BROC). The factor analysis also emphasisesPSTAB and CHNGDIS.

7.2. Non-pricing

There appears to be a greater degree of latitude innon-pricing decisions and responses to environ-mental conditions. MGOODWILL confirms theoverall desire to maintain goodwill from customersdemonstrated by PGOODWILL. Meeting challengesand changes is more likely to take place through non-price than pricing decisions. For example, MCONT-ING provides evidence of greater response to conti-ngencies or events than is the case under pricingdecisions. The non-pricing responses appear to bethe result of firm initiative with MCOM indicatinglittle non-price leadership from actual or potentialcompetitors.

From a behavioural point of view one can indicate whythese responses are to be expected by examining thestructure of the business environment. Appendix D:Numbers of Firms’ Actual and Potential Competitorsreveals that firms typically identify themselves as facingbetween 1 and 9 actual competitors, and 1 and 14 potentialcompetitors, thus emphasising Andrews’ (1949a) notion of‘known rivalry’. Thus, to meet such competition theindustry seems to emphasise producing stability andgoodwill from customers.

7.3. Demand conditions

Whilst there is no simple suggestion that prices areset to follow competitors as indicated by the responses toPCOM in Table 6, neither is there much evidence thatfirms take strong account of market conditions and,potentially, demand as indicated by the responsesto DEMAND and MARKET. DEMAND indicates arelatively even spread of responses implying demand is notgreatly significant. This may be the result of the type ofproducts offered by the tourism industry involvingsignificant time lags between the design and purchaseof inputs of a product and its release on the market.The adjustment to changes in demand appears to bemore through non-price effort, as indicated in MARKET.Thus, it appears that attention to demand encompasses

some notion of encouraging price stability, but notoverwhelmingly, rather than following competitors asindicated in MCOM.

7.4. Contingencies

The general desired stability of prices, but also recognis-ing that this may not be possible, is indicated in theresponses describing the contingency variables in Table 7.It appears that firms respond by changing their prices ornon-price efforts typically only ‘sometimes’. Exceptionsinclude when costs increase then prices follow suit (ICIP).This naturally follows on from the mark-up pricing systemsemployed and, perhaps, the sense that costs are oftenbeyond the control of the firms. When demand changes, incontrast, a mix of strategies is employed. These includeincreasing marketing efforts as demand rises (IDSNP). Asimilar strategy is employed if demand falls (DDSNP).There does not seem to be any serious attempt to adjustprices with contingent changes in demand. Presumably,therefore, unlike costs, demand changes are built into thenext planning cycle. The responses to changes in compe-titors’ prices tend to exhibit a split and also emphasiseeither matching their prices (CIPIP) or strengthening oreconomising on non-price marketing efforts (CIPSNP).The latter is echoed when firms face falls in market share(DMSSNP).Coupled with the changes in prices following competi-

tors changing their prices, this could be suggestive ofthe partial presence of Hall and Hitch’s ‘kinked’ demandcurve relationship. More generally it suggests thatnon-price as much as price changes matter in mee-ting contingencies. This may well be a way of atte-mpting to ensure the price stability desired, as discussedabove.In conclusion, the response patterns derived from

the simple tabulations demonstrate the following. Themultiplicity of price and non-price objectives in Table 7suggest, in line with Shipley (1983), that firms are satisficersbecause they do not wish to pursue a single objective at theexpense of others. Pricing tasks are programmable, as perPRILIST and MARKUP, and companies predeterminepricing tasks at a general level. Once set, prices are hardlyever altered.The overall strategic importance of pricing is also

evident in EXECPAR indicating pricing decisions aremade high up in the organisation. Firms only reluctantlychange their prices from those initially set and issued inbrochures. Stability and goodwill rather than attention tocompetitors appears to be the order of the day. Further,PGOODWILL indicates that it is not a general character-istic of firms to change prices from initially planned on thebasis of standard procedures that are set with the long termin mind.The main contrast with non-pricing decisions is

that meeting challenges and change is more likely tooccur through non-pricing decisions than pricing, but


with the common aim of fostering goodwill. However,even here, as with pricing, there is some indication of alack of capability in responding to and respondingquickly to environmental shocks. This reflects theinterplay of organisational and environmental factors inpractice.

Further qualitative, anecdotal support is offered tothese conclusions from the open-ended questions onthe questionnaire. Prices tend to be inflexible in the sensethat the overwhelming indication was that they werechanged annually and, at best, 6 monthly. In respon-ding to changing prices or non-pricing changes made bycompetitors, very few firms indicated a quick reaction.Indeed, reactions were mixed. For both price and non-price changes, reactions ranged from never changingto annually changing, with particular emphasis onseasonal and annual changes. These may be indicativeto the objectives above of price stability and cus-tomer goodwill. Once again, this seems to supportthe notion of known rivals with firms neither follow-ing leaders nor responding to competitors with anyurgency.

8. Conclusions

One purpose of the paper has been to investigatefirms’ individual behaviour rather than discriminatingbetween theories. Existing literature has placed an overreliance on economic theory and econometrics whichpredicts market level behaviour producing ‘stylisedfacts’. This paper has tried to develop a greaterunderstanding of the context and causal characteristicswithin which small- and medium-sized UK tour operatorsand travel agents operate. The statistics generated herehave been used as a proxy for complexity rather thanassuming stable structures and constant conjecture ofevents. This has led to greater understanding of thereal processes as demonstrated through the case specificinsights.

These insights are as follows. The exploratory evidencehas drawn out the following underpinning causalcharacteristics. The main themes define the real contextin terms of decision processes, pricing and non-pricedecisions and activities. It is demonstrated that prices areset to achieve long-run objectives, typically profit andgrowth. In order to meet these objectives prices are set byexecutives. This is attempted to facilitate the promotion ofgoodwill and meet long-run competition among knownrivals. The results of the research indicate a reluctance offirms to alter prices in the light of contingent events andshocks. This is the result of the interplay betweenorganisational and competitive pressures as well as thesepressures within the individual firm setting. To meet thesefirms respond by typically changing their non-pricemarketing activities. This action seems to meet theexpectation of a highly stable environment associated withtask formalisation.

This contrasts with orthodox economic accounts of suchbehaviour, which is to be found in the existing body ofknowledge on tour operators and travel agents and theempirical findings generate implications for theoreticaldiscrimination. The implications for the hypothesis that, ina two sector segmented industry, the small- and medium-size enterprises act as highly competitive firms whoseprofits rely on eliminating competitors is placed in doubt.Rather than competition, the results bring into play thepossibility that this section of the industry displayscharacteristics in line with oligopoly. However, theexamination of the underlying processes at work seems toindicate an important qualitative inference that it isoligopoly of a behavioural nature rather than one ofoptimising.In many respects this is all indicative of the

basic strategies of oligopoly recognising, of course,that one cannot test optimising models literally in thisway. To this end, it should be noted that early economistssuch as Hall and Hitch and Andrews also elaboratedupon such strategies, but in a way that grounded theiranalyses in historically defined decision making. Recognis-ing the importance of such work, which in a moreexploratory way reveals the causes of events, the aboveresearch does offer a way in which the mixed econo-metric results noted earlier can be accounted for.Because of the ‘structural’ emphasis of the industrialorganisation literature, oligopoly has typically been con-fined to discussion of the larger firms in markets. Bydefinition, here structural features such as relatively largemarket shares can figure in econometric work. Of course,for many smaller firms their rivalrous ‘segment’ is less welldefined and difficult to identify in secondary data.However, the behaviour is the same as that amongst thelarge firm market leaders because it reflects a similardecision-making scenario, but scaled down. The onlydifference may well be the unknowable feedback from theoverall scale of industry demand, which sets a capacity onthe industry. In this respect for this sector, thoughbehaviour is the same it is possible for market demand tosqueeze out suppliers to raise profits for the remainder inthe aggregate.This explains the reluctance of firms to change

prices in the light of demand or competitive shocks,a consequence of business behaviour and part of a widerset of relations of normal business behaviour. Thehypothesis that there exists a highly competitive environ-ment where profits rely on elimination of competition isnot proven. Neither would it appear that a causalmechanism concerned with ensuring information necessaryfor environmental adaptation through prices passesthrough the organisation is present. Adaptation is not viapricing. The existence of price stickiness appears to bepresent.Any account of price stickiness and behaviour generally

must account for both the expectational concerns ofbusiness as well as the means by which firms attempt to


overcome this uncertainty through internal organisation ordecision making apparatus. These are the key elements ofprice formation neither of which are a central part ofneoclassical economics or the existing research on UK touroperators and travel agents. They are, however, central to abehavioural account of price and non-price behaviour.They are demonstrated in the causal process underlying the‘stylised facts’ of previous theoretical investigations in thearea. The general observations from the research seem tobe highly resonant with many early case-studies of pricingand competition in manufacturing that pre-dated theindustrial organisation paradigm and its methodologicalemphasis upon prediction, rather than descriptive rele-vance.

In some respects the authors were somewhat surprisedby these results. Less resonance with the previouscase-study literature on pricing in manufacturinganticipated because, in principle, one was dealingwith a different industry involving the provision ofservices. It is commonly argued that tourism may not bean easily identified specific industry unlike manufactu-ring. It has significant differences in both productionand consumption consisting of a complex bundle ofphysical, social, and experiential characteristics (see Da-vies, 2003). Yet, on reflection there is probably littledifference here with small-scale manufacturers, say, produ-cing customised components. It should be emphasised atthis point that while the case-study work into manufactur-ing referred to above does not specifically address small-scale firms, in general the literature finds little difference inbehaviour. Studies such as Haynes (1962) and Hankinson(1985) are specific examples of such research. Indeed, Lee(1998) provides a large summary of the work done fromwhich the interested reader can identify research intosmaller firms.

The implications for theoretical constructs includegreater emphasis on case study, firm level material. AsDownward (1994, 1999) argues, it would be appropriatenot to dismiss many of the insights yielded by previous casestudy and questionnaire research into pricing and competi-tion in economics in as much that they can offer causal

narratives. Indeed, post-Keynesian, Behavioural and In-stitutional economics traditions emphasise the findings ofsuch research whilst accepting that their role as tests ofindustrial organisation theories is inappropriate. Thus,many early case-study investigations into pricing andcompetition, for example by Hall and Hitch (1939) andAndrews (1949a), whilst arguing that firms did not literallyidentify and equate marginal revenues and costs to(attempt to) maximise short-run profits, nonetheless didreveal that prices were set on the basis of a mark up onaverage full costs evaluated at a normal level of output.The objective was to stabilise prices to create long-run

profits in an uncertain environment by generating goodwillfrom customers. Consequently, they postulated that pricestended to change more in relation to cost changes thandemand changes, a finding supported in econometricstudies.A similar objective appears to be present amongst small-

and medium-sized UK tour operators and travel agentswith non-pricing elements replacing mark up on averagefull costs as the strategic variable. It is clear that similarpotential links between research findings could be found inthe package tour industry and suggests a future fruitfularea for research. One could think of the exploratoryanalysis as putting bounds on the possible behaviour ofspecific variables measuring market level outcomes (Earl &Kay, 1985).There may also be some general implications of the

findings in this research. By embracing an approach inwhich the historical causal processes are emphasised seemsto suggest that industrial policies may need to be more fine-tuned. An example, based on the typical public policyramifications of the industrial organisation literature, canbe given to support such an argument. On the basis of theeconometric evidence one might argue that the opportu-nities for exploiting consumers hinge upon the large firmsonly, because of the ‘competitive’ pressures facing smallerfirms. The analysis above suggests that there may well beopportunities for localised exploitation by the smaller-scalefirms regardless of what happens to the overall market.Such a possibility has been recently discussed by Waterson(2003) in discussing the problems of search behaviour byconsumers as being one aspect of consumer welfare, theother being the traditional focus on the existing choicespossible as defined by the extent of current supply.Further, there is the possibility that the tourism

‘industry’ shares this characteristic with manufacturing,previously assumed to be widely different and not a basisfor comparison with the tourism industry.In summary, by triangulating the findings of this paper

with previous quantitative investigations, what is emergingas a common element between the contexts and adding tothe account of the phenomenon is that oligopoly behaviouris present amongst both large companies and small andmedium enterprises. The emerging theory is that ofoligopoly. However, there may be a need to reemphasisethe behavioural nature of oligopoly as opposed to viewingit in the positivist way of a structural phenomena. This is areaffirmation of the historical roots of oligopoly analysis inAndrews and Hall and Hitch. A greater understanding ofthis will enrich our understanding of the tour operationand travel agency business. The triangulation of quantita-tive studies and this one, albeit a first step, provides a basisfor moving forward to further explore such behaviour ofthe UK package tour industry.


Appendix A. The size of firms in the questionnaire sample

The size of firms in the questionnaire sample is given in Table A1.

Table A1

Turnover (£M) Sample (%)

1o2 24.7 (55)

2o3 0

3o4 12.9 (29)

5o6 27.6 (61)

6o7 0

7o8 5.5 (12)

8o9 0

9o10 0

10o11 0

11o12 1 (2)

12o13 10.4 (23)

30o31 4.7 (10)

75o76 5.9 (13)

291o300 6.2 (14)

Appendix B. Table 6 firms’ organisation, pricing, non-pricing behaviour and the environment

Table 6 firms’ organisation, pricing, non-pricing behaviour and the environment are given in Table B1.

Table B1



EXECPAR: The frequency of participation in pricing decisions by

executives

70.2 (132) 23.9 (45) 5.9 (11) 0 0

NONEXEC: The frequency of participation in pricing decisions

by non-executive

0 17.6 (33) 23.4 (44) 35.6 (67) 23.4 (44)

EXECPARNON: The frequency of participation in non-pricing

decisions by executives

64.4 (121) 23.9 (45) 11.7 (22) 0 0

NON-EXECPARNON: The frequency of participation in non-

pricing decisions by non-executives

11.7 (22) 23.4 (44) 29.3 (55) 18.1 (34) 17.6 (33)

PROCEDP: The extent to which formalised procedures are

followed for pricing

17.6 (33) 47.3 (89) 29.3 (55) 5.9 (11) 0

PROCEDNP: The extent to which formalised procedures are

followed for non-pricing

17.6 (33) 29.8 (56) 23.4 (44) 17.6 (33) 11.7 (22)

PCONTING: The extent to which pricing reviews occur in

response to particular contingencies or events rather than as

scheduled

11.7 (22) 18.1 (34) 35.1 (66) 29.3 (55) 5.9 (11)

PGOODWILL: The extent to which prices are set to maintain

goodwill or future trade

41 (77) 18.1 (34) 35.1 (66) 5.9 (11) 0

MCONTING: The extent to which non-price marketing reviews

occur in response to particular contingencies or events rather than

as scheduled

11.7 (22) 41 (77) 29.8 (56) 17.6 (33) 0

MGOODWILL: The extent to which non-price marketing aims to

maintain goodwill or future trade

23.4 (44) 47.3 (89) 29.3 (55) 0 0

DEMAND: The extent to which prices are set with market

demand in mind

29.3 (55) 12.2 (23) 17.6 (33) 29.3 (55) 11.7 (22)

MARKET: The extent to which non-price marketing effort pays

close attention to market demand

11.7 (22) 41.5 (78) 17.6 (33) 11.7 (22) 17.6 (33)

MARKUP: The extent to which the firm initially sets prices using

a method of adding a mark up to a measure of average costs

41 (77) 18.1 (34) 17.6 (33) 0 23.4 (44)

29.3 (55) 23.4 (44) 23.9 (45) 11.7 (22) 11.7 (22)

ARTICLE IN PRESS

Table B1 (continued )



PSTAB: The extent to which prices are set to encourage price


PCOM: The extent to which prices follow actual or potential

competitors in setting prices

17.6 (33) 18.1 (34) 17.6 (33) 23.4 (44) 23.4 (44)

PRILIST: The extent to which planned/initial prices are set with

reference to a pricing guides rather than brochure prices

11.7 (22) 11.7 (22) 18.1 (34) 0 58.5 (110)

CHNGPROF: The extent to which, following the need to adjust

initially planned prices, profit margins are changed

5.9 (11) 17.6 (33) 53.2 (100) 17.6 (33) 5.9 (11)

CHNGPLIS: The extent to which, following the need to adjust

initially planned prices, the company modifies brochure prices

5.9 (11) 11.7 (22) 23.9 (45) 29.3 (55) 29.3 (55)

CHNGDIS: The extent to which, following the need to adjust

initially planned prices, the company uses discounts to brochure

prices

23.4 (44) 45.9 (11) 29.3 (55) 29.8 (56) 11.7 (22)

CHNGBAS: The extent to which, following the need to adjust

initially planned prices, the company modifies the costing base of

prices

0 17.6 (33) 29.8 (56) 23.4 (44) 29.3 (55)

CHNGBRO: The extent to which, following the need to adjust

initially planned prices, price guides are changed

0 0 29.8 (56) 35.1 (66) 35.1 (66)

BROC: The extent to which, following the need to adjust initially

planned prices, the company produces a new brochure

17.6 (33) 5.9 (11) 5.9 (11) 35.6 (67) 35.1 (66)

MSTAB: The extent to which marketing effort encourages price


11.7 (22) 35.6 (67) 17.6 (33) 17.6 (33) 17.6 (33)

MCOM: The extent to which actual or potential competitors are

followed on non-price competition

11.7 (22) 18.1 (34) 35.1 (66) 23.4 (44) 11.7 (22)


Appendix C. Table 7 firms’ contingency plans

Table 7 firms’ contingency plans are given in Table C1.

Table C1



ICIP: Increase costs increase price 8.5 (16) 50 (94) 33.5 (63) 8 (15) 0

ICDP: Increase costs decrease price 0 0 0 33 (62) 67 (126)

ICSNP: Increase costs strengthen non-price 8.5 (16) 8.5 (16) 83 (156) 0 0

ICRNP: Increase costs reduce non-price 8.5 (16) 0 17 (32) 33 (62) 41.5 (78)

DCIP: Decrease costs increase price 0 0 25.5 (48) 25 (47) 49.5 (93)

DCDP: Decrease costs decrease price 8.5 (16) 17 (32) 25.5 (48) 24.5 (46) 24.5 (46)

DCSNP: Decrease costs strengthen non-price 17 (32) 24.5 (46) 42.6 (80) 16 (30) 0

DCRNP: Decrease costs reduce non-price 0 0 33.5 (63) 42 (79) 24.5 (46)

IDIP: Increase demand increase price 8.5 (16) 16 (30) 25 (47) 25 (47) 25.5 (48)

IDDP: Increase demand decrease price 0 0 17 (32) 16.5 (31) 66.5 (125)

IDSNP: Increase demand strengthen non-price 0 33 (62) 42 (79) 25 (47) 0

IDRNP: Increase demand reduce non-price 0 8.5 (16) 33.5 (63) 33 (62) 25 (47)

DDIP: Decrease demand increase price 0 0 25 (47) 0 75 (141)

DDDP: Decrease demand decrease price 8 (15) 8.5 (16) 41.5 (78) 8.5 (16) 33.5 (63)

DDSNP: Decrease demand strengthen non-price 8.5 (16) 41 (77) 42.6 (80) 8 (15) 0

DDRNP: Decrease demand reduce non-price 0 17 (32) 25.5 (48) 33 (62) 24.5 (46)

CIPIP: Competitors increase price increase price 8.5 (16) 33.5 (63) 16.5 (31) 41.5 (78) 0

CIPDP: Competitors increase price decrease price 0 8 (15) 34 (64) 58 (109) 0

CIPSNP: Competitors increase price strengthen non-price 0 58.5 (110) 25 (47) 16.5 (31) 0

CIPRNP: Competitors increase price reduce non-price 0 25.5 (48) 42 (79) 32.4 671) 0

CDPIP: Competitors decrease price increase price 0 0 34 (64) 66 (124) 0

CDPDP: Competitors decrease price decrease price 0 25 (47) 33.5 (63) 41.5 (78) 0

CDPSNP: Competitors decrease price strengthen non-price 16.5 (31) 33.5 (63) 33.5 (63) 16.5 (31) 0

ARTICLE IN PRESS

Table C1 (continued )



CDPRNP: Competitors decrease price reduce non-price 0 8.5 (16) 59 (111) 32.4 (61) 0

DMSIP: Decrease in market share increase price 0 0 34 (64) 66 (124) 0

DMSDP: Decrease in market share decrease price 8.5 (16) 17 (32) 50 (94) 24.5 (46) 0

DMSSNP: Decrease market share strengthen non-price 25 (47) 33.5 (63) 33.5 (63) 8 (15) 0

DMSRNP: Decrease market share reduce non-price 17 (32) 50.5 (95) 32.4 (61) 0 0


Appendix D. Numbers of firms’ actual and potential competitors

Numbers of firms’ actual and potential competitors are given in Table D1.

Table D1

Response (%)

Response category Variables

NUMCOMP NUMPOTC

0 0 4.4 (10)

1–4 31.4 (69) 14 (31)

5–9 35.3 (78) 29.7 (66)

10–14 11.9 (26) 17.5 (39)

15–19 0 0

20–24 9.5 (21) 0

25–30 8.5 (19) 15.5 (34)

More than 30 3.4 (8) 0

Don’t know 0 17 (38)

Appendix E. Descriptive statistics

Descriptive Statistics: General organisational goals are given in Table E1.Descriptive Statistics: Organisational, general environmental, pricing and marketing variables are given in Table E2.Descriptive Statistics: Contingency variables are given in Table E3.

Table E1

N Mean Std. deviation

lrp 188 1.42 0.49

srp 188 2.04 0.72

srsr 188 2.14 0.84

lrsr 188 1.90 0.69

srms 188 3.04 1.00

lrms 188 2.56 1.09

srsv 188 2.46 0.85

lrsv 188 2.46 0.85

Growth 188 1.91 0.81

Valid N (listwise) 188

Table E2


execpar 188 1.36 0.59

nonexec 188 3.65 1.03

execparnon 188 1.47 0.69

ARTICLE IN PRESS

Table E2 (continued )


nonexecparnon 188 3.06 1.26

procedp 188 2.23 0.81

procednp 188 2.76 1.26

pconting 188 2.99 1.09

pgoodwill 188 2.11 1.13

mconting 188 2.53 0.92

mgoodwill 188 2.05 0.73

demand 188 2.81 1.43

market 188 2.81 1.30

pstab 188 2.53 1.33

pcom 188 3.17 1.43

prilist 188 3.81 1.51

chngprof 188 3.00 0.91

chngplis 188 3.64 1.19

chngdis 188 3.01 1.33

chngbas 188 3.64 1.08

chngbro 188 4.05 0.81

broc 188 3.65 1.45

mstab 188 2.94 1.31

mcom 188 3.05 1.16

markup 188 2.47 1.58


Table E3


icip 188 2.41 0.76

icdp 188 4.67 0.47

icsnp 188 2.74 0.60

icrnp 188 3.99 1.10

dcip 188 4.24 0.83

dcdp 188 3.39 1.26

dcsnp 188 2.57 0.95

dcrnp 188 3.91 0.76

idip 188 3.43 1.26

iddp 188 4.49 0.77

idsnp 188 2.92 0.76

idrnp 188 3.74 0.93

ddip 188 4.50 0.87

dddp 188 3.45 1.40

ddsnp 188 2.50 0.76

ddrnp 188 3.65 1.03

cipip 188 2.91 1.04

cipdp 188 3.50 0.64

cipsnp 188 2.58 0.76

ciprnp 188 3.07 0.76

cdpip 188 3.66 0.48

cdpdp 188 3.16 0.80

cdpsnp 188 2.50 0.96

cdprnp 188 3.24 0.60

dmsip 188 3.66 0.48

dmsdp 188 2.90 0.87

dmssnp 188 2.24 0.92

dmsrnp 188 3.15 0.69




Appendix F

For Office Use Only

Questionnaire

1. You and your firm

a. What is your job title?

………………………………..

b. What is the legal status of your firm? (Please tick the appropriate box.)

Sole trader [ ]

Partnership [ ]

Private Limited Company [ ]

Public Limited Company [ ]

c. What is your firm's main line of business?

Tour Operator [ ]

Travel Agent [ ]

Other [ ]

If Other, please state……………………..

……………………………………………

d. If your firm has several lines, what percentage of business is given to

Tour Operations ..............................................

Travel Agency..................................................

Other ................................................................

e. What is the approximate annual turnover of your firm?

……………………………………………………………………..

ARTICLE IN PRESS

f. What percentage of your firm's business derives from:

i. Core package tours- short haul ..........................ii. Core package tours - long haul ..........................iii. Core package tours - low price ..........................iv. Core package tours - high price ..........................v. Niche market products ..........................

2. Firm Objectives

(2.1) How important are the following objectives to your firm? For each objective, please tick one box to indicate its importance. The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryImportant

Important Marginally Important

Not Important

No Importance

Long run profit [ ] [ ] [ ] [ ] [ ]Short run profits [ ] [ ] [ ] [ ] [ ]Short run sales revenue [ ] [ ] [ ] [ ] [ ]Long run sales revenue [ ] [ ] [ ] [ ] [ ]Short run market share [ ] [ ] [ ] [ ] [ ]Long run market share [ ] [ ] [ ] [ ] [ ]Short run sales volume [ ] [ ] [ ] [ ] [ ]Long run sales volume [ ] [ ] [ ] [ ] [ ]Growih of the firm [ ] [ ] [ ] [ ] [ ]

(2.2) Are there any other important factors/ objectives that you feel are taken into account?

..........................................................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................


ARTICLE IN PRESS

In the following sections, please tick one box to indicate its importance. The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

3. Marketing decisionsHow important are the following marketing variables to your firm's marketing policy?

VeryImportant

Important Of some Importance

Marginally Important

No Importance

i. Price [ ] [ ] [ ] [ ] [ ]

ii. Package tour Characteristics [ ] [ ] [ ] [ ] [ ]

iii. Other, related products [ ] [ ] [ ] [ ] [ ]

ivDistribution Channel [ ] [ ] [ ] [ ] [ ]

v. Advertising/ Promotion [ ] [ ] [ ] [ ] [ ]

4. The extent of competition

(4.1) Approximately how many firms currently compete with your main line of business (please circle)?

0 1-4 5-9 10-14 15-19 20-24 25-30 More than 30

Don’t Know

(4.2) Approximately how many firms do you feel could become competitors for your main line of business if profits grew (please circle)?

0 1-4 5-9 10-14 15-19 20-24 25-30 More than 30

Don’t Know

5. Pricing decisions

(5. l) To what extent are pricing decisions made by the following personnel? Please tick one box to indicate its importance for each case.

VeryOften

Often Sometimes Rarely Never

Executive [ ] [ ] [ ] [ ] [ ]

Non-executive [ ] [ ] [ ] [ ] [ ]


ARTICLE IN PRESS

(5.2)To what extent are formalised procedures followed?The boxes can be considered as intervals on a scale with the extremes beingindicated by the words in bold type.

VeryOften


[ ] [ ] [ ] [ ] [ ]

(5.3) Please describe, briefly, the procedures in your firm.

..........................................................................................................

..........................................................................................................

..........................................................................................................

..........................................................................................................

(5.4) To what extent, when setting prices, do you refer to pricing guides that differ from those published in brochures?The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryOften


[ ] [ ] [ ] [ ] [ ]

If Never, please go to (5.7). Otherwise, go to (5.5)

(5.5) Are the guide prices used above or below brochure prices?

Above Below

[ ] [ ]

(5.6)To what extent do guide prices differ from those published in brochures?

The same

By 1–5% [ ]By 6–10% [ ]By 11–20% [ ]By over 20% [ ]


ARTICLE IN PRESS

(5.7) When setting prices does your firm follow a procedure of marking up its cost of supply?

VeryOften


[ ] [ ] [ ] [ ] [ ]

(5.8) How are the cost of the following elements of a package tour determined? Please tick one box that best describes your situation for each case, i to iii.

i. accommodation:

by the package tour supplier buying in on very short contract (less than 1 year) [ ] buying in on short contracts (i.e. less than 3 years) [ ] buying in on medium term contract (i.e. 3-5 years) [ ] buying in on long term contract (more than 5 years) [ ] internal arrangements with other parts of the organisation [ ] other (please specify)......................................................................

........................................................................................................

ii. primary mode of transport (air, rail, sea, coach, etc.):

by the package tour supplier [ ] buying in on very short contract (less than 1 year) [ ] buying in on short contracts (i.e. less than 3 years) [ ] buying in on medium term contract (i.e. 3-5 years) [ ] buying in on long term contract (more than 5 years) [ ] internal arrangements with other parts of the organisation [ ] other (please specify)......................................................................

........................................................................................................

iii. hotel transfer:

by the package tour supplier buying in on very short contract (less than 1 year) [ ] buying in on short contracts (i.e. less than 3 years) [ ] buying in on medium term contract (i.e. 3-5 years) [ ] buying in on long term contract (more than 5 years) [ ] internal arrangements with other parts of the organisation [ ] other (please specify)......................................................................

........................................................................................................

iv. Other items. Please specify and state how the costs are determined.

......................................................................................................................

......................................................................................................................

......................................................................................................................


ARTICLE IN PRESS

(5.9) Please tick one box for each of the following statements to best describe your firm's situation when setting prices. The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryOften

Often Sometimes Rarely Veryrarely

‘In setting prices, we hope to encourage an atmosphere of price stability in the market.’

[ ] [ ] [ ] [ ] [ ]

‘The company follows actual or competitors closely in setting prices.’'

[ ] [ ] [ ] [ ] [ ]

‘The company pays close attention to the state of market demand in setting prices.’

[ ] [ ] [ ] [ ] [ ]

‘The company tries to generate goodwill/future trade from the same customers when setting prices.’

[ ] [ ] [ ] [ ] [ ]

‘Pricing reviews occur in response to particular contingencies or events rather than as scheduled in company plans.’

[ ] [ ] [ ] [ ] [ ]

6. Price adjustments(6. l) In adjusting prices, please indicate the extent to which the following are employed by ticking one box for each case i–viThe boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryOften


i. Modify the costing base of prices [ ] [ ] [ ] [ ] [ ]

ii. Changing price guides [ ] [ ] [ ] [ ] [ ]

iii. Changing brochure prices [ ] [ ] [ ] [ ] [ ]

iv. Changing profit margins [ ] [ ] [ ] [ ] [ ]

v. Using discounts to brochure prices [ ] [ ] [ ] [ ] [ ]

vi. Produce a new brochure [ ] [ ] [ ] [ ] [ ]


ARTICLE IN PRESS

(6.2) Are discounts: Please tick one box.

Standard [ ]Discretionary [ ]

(6.3) How much discretion is there in the price charged to customers (eg. travel agents, if you use them)?

Please tick one box.

None [ ]0–5% [ ]

6–10% [ ]11–20% [ ]

Over 20% [ ]

7. The competitive environment: Pricing(7.1) Given the competitive environment, how does your firm respond to the following:(please tick one box for each case i - iv in all categories.)The boxes can be considered as intervals on a scale with the extremes beingindicated by the words in bold type.

VeryOften


‘When an increase in costs occurs, we..i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price

marketing effort [ ] [ ] [ ] [ ] [ ]

iv. relax non-price marketing effort [ ] [ ] [ ] [ ] [ ]

‘When a decrease in costs occurs we.,i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price



‘When an increase in demand occurs, we.,i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price




ARTICLE IN PRESS

‘When a decrease in demand occurs, we.,i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price



‘When competitors increase their prices, we..i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price



‘When competitors decrease their prices, we..i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price



‘When faced with a decline in market share, we.i. increase our prices [ ] [ ] [ ] [ ] [ ]ii. decrease our prices [ ] [ ] [ ] [ ] [ ]iii. strengthen non-price



(7.2) How often are prices planned to change? For example, annually, bi annually, seasonally: ...............................................................................................................................

...............................................................................................................................

............................................................................................................................................

(7.3) Over what period do you change prices if a competitor changes its price? ...............................................................................................................................

...............................................................................................................................

............................................................................................................................................

8. The competitive environment: non-price marketing decisions(8.1) To what extent are non-price marketing decisions made by the following personnel?The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.


ARTICLE IN PRESS

VeryOften


Executive [ ] [ ] [ ] [ ] [ ]

Non-executive [ ] [ ] [ ] [ ] [ ]

(8.2)To what extent are formalised procedures followed?The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryOften


[ ] [ ] [ ] [ ] [ ]

(8.3) Please describe, briefly, the procedures in your firm.

...............................................................................................................................

...............................................................................................................................

............................................................................................................................................

............................................................................................................................................

(8.4) Please tick one box for each of the following statements to best describe your firm's situation when deciding non price marketing efforts: The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryOften

Often Sometimes Rarely Veryrarely

‘The company follows actual or potential competitors closely on non-price competition.’

[ ] [ ] [ ] [ ] [ ]

‘In the normal course of business, non price marketing efforts are often adjusted from those initially planned’

[ ] [ ] [ ] [ ] [ ]

‘Our non price efforts are aimed at encouraging an atmosphere of stability in the market.’ [ ] [ ] [ ] [ ] [ ]


ARTICLE IN PRESS

‘The company pays close attention to the state of market demand in designing non price marketing efforts.’

[ ] [ ] [ ] [ ] [ ]

‘The company tries to generate goodwill/future trade from the same sources when designing non price marketing efforts.’

[ ] [ ] [ ] [ ] [ ]

‘Reviews of non price marketing efforts occur in response to particular contingencies or events rather than as scheduled in company plans.’

[ ] [ ] [ ] [ ] [ ]

9. Products and MarketsThe following section looks at the relationship between your main/core product and any other related products or services your firm may offer.

(9.1) To what extent do you agree that the following are important?The boxes can be considered as intervals on a scale with the extremes beingindicated by the words in bold type.

Strongly Agree

Agree Never Disagree Strongly Disagree

‘Sales of your main/core product crucially depend on the sales of your other products’

[ ] [ ] [ ] [ ] [ ]

‘On balance, price competition is stronger than non-price competition in your main/core product's market.’

[ ] [ ] [ ] [ ] [ ]

‘The market for your main/core product is prone to unexpected price changes.’

[ ] [ ] [ ] [ ] [ ]


ARTICLE IN PRESS

‘The market for your main/core product is prone to frequent changes in price.’

[ ] [ ] [ ] [ ] [ ]

‘The market for your main/core product is prone to unexpected changes in non-price competition.’

[ ] [ ] [ ] [ ] [ ]

‘The market for your main/core product is prone to frequent changes in non-price competition.’

[ ] [ ] [ ] [ ] [ ]

(9.2)How important are the following in achieving your firm's objectives? Please tick one box for every case i–v.The boxes can be considered as intervals on a scale with the extremes being indicated by the words in bold type.

VeryImportant

Important Marginally Important

Not Important

No Importance

i. free travel to the airport [ ] [ ] [ ] [ ] [ ]

ii. currency exchange services [ ] [ ] [ ] [ ] [ ]

iii. travel insurance promotions [ ] [ ] [ ] [ ] [ ]

iv. the sale of trips/outings at the holiday destination [ ] [ ] [ ] [ ] [ ]

v. holiday price [ ] [ ] [ ] [ ] [ ]

(9.3) How often are non price factors planned to change? For example, annually, bi annually, seasonally:

...............................................................................................................................

...............................................................................................................................

............................................................................................................................................

............................................................................................................................................


ARTICLE IN PRESS

(9.4) Over what period do you change non price factors if a competitor changes itsprice?

...............................................................................................................................

...............................................................................................................................

............................................................................................................................................

Thank you. The questionnaire is now complete. Please return it in the envelope provided.

If you would like to receive a copy of the results, please tick the following box:


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Documents

Exploring price and non-price decision making in the UK package tour industry: Insights from small-scale travel agents and tour operators