BTT107_CU -SEM II- BSC TTM-Tourism Economics (1)-converted

revenue remains the same, marginal revenue is equal to average revenue. If TR stands for total revenue and Q stands for output, then marginal revenue (MR) can also be expressed as follows: MR = ∆TR/ ∆Q ∆TR/ ∆Q indicates the slope of the total revenue curve. Thus, if the total revenue curve is given to us, we can find out marginal revenue at various levels of output by measuring the slopes at the corresponding points on the total revenue curve. AVERAGE AND MARGINAL REVENUE UNDER IMPERFECT COMPETITION: The meaning of the concepts of total, average and marginal revenues under conditions o’ imperfect competition will become clear from Table 21.3 . As has been stated above, when imperfect competition prevails in the market for a product, an individual firm producing that product faces a downward sloping demand curve. In other words, as a firm working under conditions of imperfect competition increases production and sale of its product its price falls. Now, when all units of a product are sold at the same price, the average revenue equals price. How marginal revenue can be obtained from the changes in total revenue and what relation it bears to average revenue will be easily grasped from looking at Table 21.3 . Table 21.3 . Total, Average and Marginal Revenues:

It will be seen from the Col. Ill of the table that price (or average revenue) is falling as additional units of the product are sold. Marginal revenue can be found out by taking out the difference between the two successive total revenues. Thus, when 1 unit is sold, total Y revenue is Rs. 16. When 2 units are sold, price (or AR) falls to Rs. 15 and total revenue increases to Rs. 30. Marginal revenue is therefore here equal to 30- 16 = 14, which is recorded in Col. IV. When 3 units of the product are sold, price falls to Rs. 14 and total revenue increases to Rs. 42. Hence marginal revenue is now equal to Rs. 42- 30 = Rs. 12 which is again recorded in Col. IV. Likewise, marginal revenue of further units can be obtained by taking out the difference between two successive total revenues. Marginal revenue is positive as long as total revenue is increasing. Marginal revenue becomes negative when total revenue declines. Thus when in our table 22 .3 quantity sold is increased from 9 units to 10 units the total revenue declines from Rs. 72 to 70 and therefore the marginal revenue is negative and is equal to -2. It may be noted that in all forms of imperfect competition, that is, monopolistic competition, oligopoly and monopoly, average revenue curve facing an individual firm slopes downward as in all these market forms when a firm lowers the price of its product, its quantity demanded and sales would

increase and vice versa. The case, when average revenue (or price) falls when additional units of the product are sold in the market is graphically represented in Fig. 21 .1. In Fig. 21.1 it will be observed that average revenue curve (AR) is falling downward and marginal revenue curve (MR) lies below it. The fact that MR curve is lying below AR curve indicates that marginal revenue declines more rapidly than average revenue. When OQ units of output are sold, AR is equal to QH or OP and MR is equal to QS. When OM units of the product are sold, marginal revenue is zero. If the quantity sold is increased beyond OM, marginal revenue becomes negative. AVERAGE AND MARGINAL REVENUE UNDER PERFECT COMPETITION: When there prevails perfect competition in the market for a product, demand curve facing an individual firm is perfectly elastic and the price is beyond the control of a firm, average revenue remains constant. If the price or average

revenue remains the same when more units of a product are sold, the marginal revenue will be equal to average revenue. This is so because if one more unit is sold and the price does not fall, the addition made to the total revenue by that unit will be equal to the price at which it is sold, since no loss in revenue is incurred on the previous units in this case Consider the following table: TABLE 21.4 . Average and Marginal Revenues under Perfect Competition: In the above table, price remains constant at the level of Rs. 16 when more units of the product are sold. Col. Ill shows the total revenue when various quantities of the product are sold. Total revenue has been found out by multiplying the quantity sold by the price. It will be found from taking out the difference between two successive total revenues that marginal revenue in this case is equal to the price i. e., Rs. 16 . Thus, when two units of the good are sold instead of one, the total revenue rises from Rs. 16 to Rs. 32 , the addition made to the total revenue i. e. marginal revenue will be equal to Rs. 32 -16 = Rs. 16. Similarly, when three units of the product are sold, the total revenue

increases to Rs. 48 , and the marginal revenue will be equal to Rs. 48 -32 = Rs. 16 Likewise, it will be found for further units of the product sold that marginal revenue is equal to price. The case of perfect competition when for an individual firm average revenue (or price) remains constant and marginal revenue is equal to average revenue is graphically shown in Fig. 21.2 Average revenue curve in this case is a horizontal straight line (i.e., parallel to the X- axis). Horizontal- straight- line average revenue curve (AR) indicates that price or average remains the same at OP level when quantity sold is increased. Marginal revenue (MR) curve coincides with average revenue (AR) curve since marginal revenue is equal to average revenue . ELASTICITY OF DEMAND Demand for a good is said to be “ elastic” if a small change in price causes people to demand a lot more or a lot less of the good. Demand for a good is “inelastic” if a small change in prices causes people to make no change or almost no change in how much they demand of that good. If the price of gasoline at the pump rises, the amount of gas people demand falls. But, does it fall by a lot or only by a litt le? The price elasticity of demand is all about answering that question. If a 10% increase in the price of gas results in almost no change in the amount of gas people want to buy, we

say the price elasticity of demand for gas is inelastic. If it results in a very large reduction in the amount of gas they want to buy, we say the price elasticity of demand for gas is elastic. Usually economists describe demand as either relatively elastic or relatively inelastic when compared to an imaginary neutral amount of elasticity. That is, if a 10% increase in price results in a 10% decrease in the amount of the good demanded, we think of that as a neutral elasticity of demand. If we know demand for gas is relatively inelastic, we can estimate that when the price of gas goes up by 10% people will not change their buying habits very much, buying almost the same amount of gas as before–that is, reducing their gas purchases by less than 10%. If we know demand for gas is relatively elastic, we can estimate that a 10 % increase in the price of gas will cause the quantity of gas demanded at the pump to fall by over 10%. The price elasticity of demand often depends on how long a time period is involved. The day after the price of gas falls, people may not change their gas purchases or driving habits very much. Perhaps their tanks are already full enough to get where they have already planned to go. But within a week or a month, people will notice that the fall in the price of gas now enables them to travel a litt le more than they’ d previously planned, or relax their daily driving habits and not worry so much about driving to get groceries weekly instead of every other week. That is, after a week or a month, the price elasticity of demand may increase and eventually may settle in at a new level. It is also possible for people to overreact to a price change. For example, perhaps people fear that the price will rise again soon and they will lose out on an opportunity. That is, the price elasticity of demand probably changes over time, before settling down. It often takes more time for people to adjust to a sudden, unexpected price change than to a price change they expected because they have more time to rethink their plans when price changes are predicted or announced in advance. DETERMINANTS OF ELASTICITY OF DEMANDS Apart from the price, there are several other factors that influence the

elasticity of demand. These are: Consumer Income : The income of the consumer also affects the elasticity of demand. For high- income groups, the demand is said to be less elastic as the rise or fall in the price will not have much effect on the demand for a product. Whereas, in case of the low- income groups, the demand is said to be elastic and rise and fall in the price have a significant effect on the quantity demanded. Such as when the price falls the demand increases and vice- versa. Amount of Money Spent: The elasticity of demand for a product is determined by the proportion of income spent by the individual on that product. In case of certain goods, such as matchbox, salt a consumer spends a very small amount of his income, let’s say Rs 2, then even if their prices rise the demand for these products will not be affected to a great extent. Thus, the demand for such products is said to be inelastic. Whereas foods and clothing are the items where an individual spends a major proportion of his income and therefore, if there is any change in the price of these items, the demand will get affected. Nature of Commodity: The elasticity of demand also depends on the nature of the commodity. The product can be categorized as luxury, convenience, necessary goods. The demand for the necessities of life, such as food and clothing is inelastic as their demand cannot be postponed. The demand for the Comfort Goods is neither elastic nor inelastic. As with the rise and fall in their prices, the demand decreases or increases moderately. Whereas the demand for the luxury goods is said to be highly elastic because even with a slight change in its price the demand changes significantly. But, however, the demand for the prestige goods is said to be inelastic, because people are ready to buy these commodities at any price, such as antiques, gems, stones, etc. Several Uses of Commodity: The elasticity of demand also depends on the number of uses of the commodity. Such as, if the commodity is used for a

single purpose, then the change in the price will affect the demand for commodity only in that use, and thus the demand for that commodity is said to be inelastic. Whereas, if the product has several uses, such as raw material coal, iron, steel, etc., then the change in their price will affect the demand for these commodities in its many uses. Thus, the demand for such products is said to be elastic. Whether the Demand can be Postponed or not: If the demand for a particular product cannot be postponed then, the demand is said to be inelastic. Such as, Wheat is required in daily life and hence its demand cannot be postponed. On the other hand, the items whose demand can be postponed is said to have elastic demand. Such as the demand for the furniture can be postponed until the time its prices fall. Existence of Substitutes : The substitutes are the goods which can be used in place of one another. The goods which have close substitutes are said to have elastic demand. Such as, tea and coffee are close substitutes and if the price of tea increases, then people will switch to the coffee and demand for the tea will decrease significantly. Whereas, if there are no close substitutes for a product, then its demand is said to be inelastic. Such as salt and sugar do not have their close substitutes and hence lower is their price elasticity. Joint Demand : The elasticity of demand also depends on the complementary goods, the goods which are used joint ly. Such as car and petrol, pen and ink, etc. Here the elasticity of demand of secondary ( supporting) commodity depends on the elasticity of demand of the major commodity. Such as, if the demand for pen is inelastic, then the demand for the ink will also be less elastic. Range of Prices : The price range in which the commodities lie also affects the elasticity of demand. Such as the higher range products are usually bought by the rich people, and they do not care much about the change in the price and hence the demand for such higher range commodities is said to be inelastic.

Also, the lower range commodities have inelastic demand because these are already low priced and can be bought by any sections of the society. But the commodities in middle range prices are said to have an elastic demand because with the fall in the prices the middle class and the lower middle class are induced to buy that commodity and therefore the demand increases. But however, if the prices are increased the consumption reduces and as a result demand falls. Thus, these are some of the important determinants of elasticity of demand that every firm should understand properly before deciding on the price of their offerings. SUMMARY The revenue of a firm together with its costs determines profits. We, therefore, turn to the study of the concept of revenue. The term ‘ revenue’ refers to the receipts obtained by a firm from the sale of certain quantities of a commodity at various prices. The revenue concept relates to total revenue, average revenue and marginal revenue. The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of the commodity. KEYWORDS • Marginal analysis: Decision making which involves a comparison of marginal (extra) benefits and marginal costs. • elastic demand: Demand is elastic when the percentage change in quantity demanded is larger than the percentage change in price. Total revenue would increase with price decreases and decrease with price increases. • encompassing interest: If an individual, or an organization is entitled [email protected] to a substantial portion of any increase in the output of a society and The following keywords biseaalrsso a large proport io n of any drop in this social output, that required.- AR(Average revenue) Marginal revenue Commodity Income

individual or organization has an encompassing interest in that society. • Inelastic demand: Demand is inelastic when the percentage change in quantity demanded is smaller than the percentage change in price. Total revenue would increase with price increases and decrease with price decreases. • Inferior good: Goods that are purchased less with higher income, such as generic products or house brands. LEARNING ACTIVITY 1. A producer can sell more of a good only by lowering the price. Prepare a Total Revenue and Marginal Revenue schedule. Take four output levels 2. .A producer can sell any quantity of output of the good he produces at a given price. Prepare a Total Revenue and Marginal Revenue schedule for four output levels. UNIT END QUESTIONS A. Descriptive Questions 1. What is the behaviour of average revenue in the market, in which a firm can sell more only by lowering the price? 2. Draw Average Revenue and Marginal Revenue curves in a single diagram of a firm, which can sell more units of a good only by lowering the price of that good. 3. Define revenue 4. Define Marginal Revenue

5. Draw a single diagram of the Average Revenue and Marginal Revenue curves of a firm, which can sell any quantity of the good at a given price Explain 6. Explain the relation between Marginal Revenue and Average Revenge 7. Explain the relationship between Marginal Revenue and Total Revenue 8. Complete the following table B. Multiple Choice Questions (Mcq’s) 1. Which of the following is not a characteristic of perfect competition? a. Free entry and exit of the firms b. the demand curve of firm is horizontal c. The marginal revenue curve is horizontal d. An individual firm can influence the price 2. When marginal revenue is zero, total revenue: a. Maximum b. Minimum c. Zero d. Decreasing

3. Marginal revenue is always less than price at all levels of output in: a. Revenue b. Monopoly c. Both (a) & (b) d. None of the above 4. ……………………. Demand is inelastic when the percentage change in quantity demanded is smaller than the percentage change in price. Total revenue would increase with price increases and decrease with price decreases. a. Elastic demand b. Inelastic demand c. Demand value d. Monopoly value 5. Goods that are purchased less with higher income, such as generic products or house brands. a. Raw good b. Primary goods c. Inferior goods d. Demand goods Answer 1. d 2. a

3. b 4. b 5. c SUGGESTED READINGS • 2006 Instructions for Form 990 and Form 990- EZ, U.S. Department of the Treasury, p. 22Williams, p. 647 \"Revenue models\". Dr. K. M.Popp. • HM Revenue & Customs ( United Kingdom) Office of the Revenue Commissioners (Ireland) Internal Revenue Service bureau, Department of the Treasury (United States) Missouri Department of Revenue Louisiana Department of Revenue.

UNIT -6 TOURISM DEMAND STRUCTURE 1. Learning objectives 2. Introduction 3. Defining demand 4. Determinants of Tourism 5. Factors affecting tourism demand 6. Trends in Tourism Demands 7. Tourism worldwide 8. Holiday Travel Propensity and frequency 9. Summary 10. Keywords 11. Learning activity 12. Unit end questions 13. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the demand of tourism • Understand about the factors of tourism demand and determinants • Understand about the trends in tourism demands

• Understand about the tourism worldwide and holiday travel propensity INTRODUCTION Annually, the travel industry generates trillions of euros, converting into one of the largest contributors to the global economy. According to a recent study conducted by the World Travel and Tourism Council, the industry accounts for 10.4 % of the world GDP and creates 313 million jobs – which is approximately 9.9% of the global employment. However, travel industry is extremely turbulent, with numerous factors affecting consumer behavior. For instance, politics, fashion, and expectations can significantly influence customers’ buying habits. As a result, prices will fluctuate, demand will oscillate, and economies shift. Here, we explore how demand influences growth in travel and tourism. DEFINING DEMAND Broadly speaking, demand in a desire of consumers and clients for a particular commodity or service. Therefore, the travel sector defines demand as the number of consumers who travel and use tourism facilities in a given t imescale. Furthermore, travel is defined as any destination away from a customer’ s place of residence or employment. Therefore, tourism industry encompasses both domestic and international tourism, as well as leisure and business travel. As tourism is such a changeable sector, several factors affect consumer behavior across these segments. Influencing the dynamics of demand in tourism The determinants of demand in the travel industry are dynamic and ever- changing. To illustrate, demand is affected by disposable income, costs, competition, distribution of wealth, supply competition, advertising, vacation entitlements, exchange rates, government regulations, and tax policy. It is apparent that a multitude of factors influence consumer behavior, many of which are outside of the industry’ s control. For example, a local tourist authority often can do very litt le to influence the cost of airlines taxes.

However, companies and local authorities are not completely powerless. Hence, local players can lobby for more direct flights from key origins. Furthermore, authorities should seek the ways to promote ease of transit. The European Union proves the success of such policies, where passport- free travel, efficient immigration systems, and hassle- free customs have encouraged international tourism withinthe bloc. In addition, EU membership signals safety, modernity, and accountability to potential visitors. This is illustrated particularly well by the Eastern European nations, whose tourism industries have boomed since they were granted membership. Why time is money in the travel industry In addition to accessibility, vacation allowances affect how consumers choose to travel. For instance, consumers with more free time are likely to travel to exotic destinations for longer periods. Equally, those with smaller vacation allowances are likely to choose destinations closer to home for a shorter space of time. Furthermore, season is one of the major determinants of demand. Generally, climate, holidays, and school vacations will significantly affect consumer behavior. Depending on other variables, consumers are generally willing to pay a higher price for vacation packages and products during these periods. DETERMINANTS OF TOURISM Variation in tourism demand and inflows is induced by many factors – ranging from economic and political to social, natural and technological. Some of them are discussed here briefly. Income Income in the country of tourists’ origin plays an essential role when it comes to traveling. It is one of the most frequently used variables in tourism studies. Even during the last decade, income has continued to be chosen by many researchers as a significant determinant of tourism demand. In contrast to this unity, they each expressed income in a slightly different way.

International tourism requires money. One has to commit a significant expenditure on transport in order to get to the desired destination and of course pay for a place to stay. However not everybody finds interest in exploring foreign countries. When speaking of recreational travel it`s not necessary to spend money on it. That’s why it would make sense to use discretionary income (i. e. the amount of income that remains after we pay for all necessary expenditures) as a determinant of tourism demand. Price Price comes a close second to income when choosing possible significant determinants of tourism demand. Also known as tourism or relative prices, they are difficult to measure precisely because of the wide range of products that tourists are likely to pay for while traveling. Additionally, tourism prices consist of two main components – transportation costs and the cost of living at the destination (Martin and Witt, 1987 ). The amount of money spent on local travel counts as a part of the cost of living at the destination. Exchange Rates Exchange rate is a vital determinant and influences the demand to a great level. While making decision on their travel destination, tourists are much more aware of the changes in exchange rates than of changes in relative prices. Tourists are in habit of t ravelling abroad annually and mainly during summer. Everything they spend abroad is from their annual budget. Both relative exchange rates and relative prices of travel services influence the amount of their spending and are therefore taken into account when deciding whether to take a trip abroad or choose the budget- fr iendly option and explore their homeland. Due to the fact that exchange rates are published daily (in newspapers, evening news etc.), the tourists have a much more precise knowledge of the values of exchange rates than they have of the prices in their planned destination while making the decision. The information on price changes is generally not known in advance, so the tourists’ only indicator of the destination’s price level is what they remember it to be at the last time they visited that particular destination.

Exchange rates vary a lot over time and are therefore constantly affecting the number of tourists visiting a certain country. The fluctuation in exchange rates can affect the tourists’ decisions in several different ways. The change can be either favourable or unfavourable. Gerakis (1966) identified the impacts caused by a change in exchange rates in favour of the tourists and described that it makes them spend more on things that they would purchase anyway, buy additional goods and moreover such a change attracts new tourists and cross- border shoppers. Reverse effects resulting from an unfavourable change in exchange rates were depicted by The Economist Intelligence Unit (1975), which identified that people tend to travel less abroad, change their final destination, spend less on destination’ s goods and services and/ or stay for a shorter period of time. Furthermore, they postpone their trip, use a different type of transport and those who travel for business begin to spend less. Similarly, as in cases of income and prices, many empirical studies have employed various definitions of exchange rate variable. As recognized by Crouch (1993, p. 48 ), there are three types of exchange rate definitions used in tourism demand literature: . a) Units of the origin country’s currency per unit of the destination currency. . b) Units of the origin country’ s currency per weighted unit of currencies in foreign destinations. . c) Weighted units of alternative destinations’ currencies per unit of destination currency. The use of each definition depends on whether the researcher is interested in identifying the effect of exchange rates on tourism flows between pairs of countries or tourism departures to a larger number of either alternative or all countries. Mainly definitions a) and b) can be found across the tourism demand studies. The interpretation of changes in relations given by these two definitions is as follows. If the ratio a) increases, it is due to the origin country’ s currency

devaluation with respect to the destination’ s currency. It means that the destination’ s goods and services become more expensive for tourists resulting in a decline of tourism demand. Crouch ( 1993) adds that a change in this ratio can also occur if at time of devaluation of the origin’ s currency with respect to other currencies there is a smaller reduction in the value of the destination’ s currency. He further explains that the reason behind this kind of change in ratio a) could have a positive effect on tourism demand. The same reasoning can be applied to the case of multiple destinations in b). Other Economic and Non- economic Variables Trade Openness Including the trade openness variable, also known as the volume of trade, in tourism demand analysis could be particularly useful when a destination’ s economy is greatly driven by international business. In such destinations, tourist arrivals for business purposes make up a fair share of total arrivals. According to Abbas and Ibrahim (2011) Egypt can be viewed as a country that satisfies the previous assumption. They recognized that the volume of trade has had a significant and positive effect on the international tourism flows to Egypt during the period 1990- 2008. Trade openness was measured as the sum of export and import volume between Egypt and the country of tourism’s origin divided by the sum of Egypt’ s GDP and GDP of countries of tourism’s origin. Population Size and Population Segment It seems reasonable to include this variable among the determinants of tourism demand. We can assume that the larger the population of countries of tourism’s origin, the more tourists will these countries generate. The idea of investigating the influence of different population segments on tourism demand rather than focusing on the effects of total population arose quite recently. Different age groups’ consumption patterns vary a lot. Over the past decade, the proportion of older people in developed countries has

been steadily rising at the expense of the proportion of younger people ( Alvarado and Creedy, 1998). This trend is known as population aging. It can be measured by the share of citizens who are above the retirement age. Their share has been recently rising because life expectancy has been increasing. Since the baby boom after the Second World War fertilit y rates have dropped significantly and the fact that the babies born then are now near or have already entered retirement certainly adds to the recent population aging trend as well. Retirement represents an important milestone and marks a start of a new and exciting chapter of life. Generally, retirees have more time and money to spend on travelling, which can considerably boost the demand for tourism. Moscardo (2006) calls this type of senior travel a `’ third- age tourism” and adds that there is a rising number of companies that specialize in providing tourism services particularly for seniors. Marketing In order to increase awareness of a particular country as attractive tourism destination tourist organizations around the world spend a lot of money on various promotion activities. Different nationalities and cultures are likely to respond differently to marketing and different destinations vary in their ability to use marketing effectively, thus it is rather difficult to model the impact of destination promotion correctly. Country Attractiveness Tastes vary from person to person. Moreover, they change and develop over our Life. Age is just one among other various socio- economic factors that influence t ravellers’ tastes. Sex, marital status and level of education also result in different tastes across population. They can further change as a consequence of rising living standards, advertising or innovation (Song et al., 2009 ). Due to the fact that there are so many influencing factors, it is very difficult to measure a variable to indicate tastes. Another way to capture destination preference or popularity of a particular destination over time is by inclusion of a time trend.

Repeated Visits People generally don’t like taking risks, it could be said that they are risk averse. Although this term is mostly used in relation to behavior of investors, it aptly describes the reluctance to take risks by tourists, too. If they enjoyed the stay in a certain destination it is highly likely that they will return to the same place next time as well. Traveling to a different country they are not familiar with would represent a certain level of uncertainty (Song et al., 2009 ). Furthermore, they tell their friends and family about the lovely time they had and what they liked about the destination in particular. After that the information spreads more and more. This is known as so called Word-of- Mouth (WOM) effect. Recent evolution of technology, more specifically in digital social networking, has encouraged the development of a digital version of WOM (eWOM). Increasing number of travellers look on online tourism review sites for details on accommodation at a particular destination in order to plan their travel (Sigala et al., 2001). Additionally, results of a survey conducted as a part of the Pew Internet and American Life Project (2006) confirm that the most searched topics on the internet are tourism related. Some of the most popular travel websites include Trip Advisor and Travel Pod. TripAdvisor calls itself the world’s largest travel site. It is a place where travellers share insights about accommodation, attractions or restaurants at a destination. It currently contains more than 100 million reviews. Travel Pod allows its users to create a blog containing photos and stories about their travel experiences. Both WOM and eWOMcan be viewed as a form of marketing. They have same e_ects as promotional activities of national tourist organizations and attract more tourists to a destination. In addition, they are almost always free of charge (Sigala et al., 2001 ). Numerous studies have been conducted in order to decide which of these forms of marketing is more effective. Kardon (2007) concludes that tourists are more influenced by WOM than advertising or pro

motion by marketing departments. The chance of repeated visits, i.e. habit persistence of tourists, is often proxied by the value of dependent variable lagged by one time period. If this variable is included in a model of tourism demand it is expected to have a positive sign. The lagged value accounts not only for habit persistence but also for possible supply constraints in the destinations. Among these constraints are, for example, insufficient hotel and passenger t ransportation capacity or shortages of staff. (Dwyer et al. 2006 ). Seasonality Specific time of the year, like a season or a period of school holidays, can have a significant effect on tourism demand. Typically, if using monthly data, twelve seasonal dummy variables are included in the model and similarly four seasonal dummy variables are incorporated regarding the quarterly data (Shareef et al., 2008). Culture Tourism and culture were viewed as largely separate aspects earlier. Cultural resources were seen as part of the cultural heritage of destinations, related to the education of the local population and the underpinning of local or national cultural identities. Tourism, on the other hand, was largely viewed as a leisure- related activity separate from everyday life and the culture of the local population. This gradually changed towards the end of the century, as the role of cultural attractions in motivating tourists and distinguishing destinations from one another become more obvious. The growing articulation between culture and tourism was stimulated by a number of factors. An outbreak of a disease , organization of Olympic Games, terrorist attacks, oil crises, wars, all of these is just some among many examples of one- off events, which can be captured by the inclusion of a dummy variable (Song et al., 2009 ). Salleh et al. (2007) described and assessed the impacts of SARS

(which stands for Severe Acute Respiratory Syndrome) on international tourist arrivals to Malaysia. They investigated the effect of this infectious disease by including a dummy variable for the SARS outbreak in 2003 and estimated it had a negative effect on tourism owes from all of the seven Asian origin countries that were included in their analysis. Another one- off event that has been often added in a form of dummy variable to the demand models is a year of the terrorist attack. The tourism industry, unfortunately, attracts the attention of international terrorist groups, because it provides them with a wide variety of ways how to gain the attention of global media. Military bases, government institutions, transportation networks, and crowded places can all become targets. Terrorist events are responsible for an abrupt change in tourists’ decision making and negatively impact upon global tourism demand. Tourists fear for their safety, and moreover, they are discouraged from traveling by heightened security checks resulting in delays in transport systems. However, the apprehension towards traveling doesn’ t last long. The impact of a terrorist event on tourism is apparent particularly in the short run and has only a limited effect in the long- run (Middleton et al., 2001 ). During the last decade, the impact of September 11, 2001 attacks on the volume of tourism has been frequently analysed. It had an extraordinary profound effect on tourism demand across countries all over the world. The aftermath of 9/11 wasn’t sensed only in the United States but also worldwide because of its unprecedented scale that shocked the whole world. FACTORS AFFECTING TOURISM DEMAND Tourists are of many different types. For instance, business tourist, education tourist, medical tourist, adventure tourist, religious tourist, leisure tourist, and sports tourist are to name but a few. Tourist destinations and attractions develop their tourism plans in line with the tourist motivational factors and demand. Many factors impact on tourist demand; however, this article addresses the primary factors affecting tourism demand.

Factors affecting tourism demand can be divided into two categories i.e. price factors and non- price factors. There are many factors which we need to consider under each category. Price factors How much is the t ransport cost for a tourist to go to a destination? Flight prices change often, and the price tourists pay depends on the day they fly, when they book, and the number of available seats in airlines. Flights prices also depend on tourist destinations. So, costs could be high or low. For example, a tourist can travel from London to Paris with £ 20 or less. However, sometimes they need to pay more than £ 100. A flight from London to Dubai may cost £300 or more. Therefore, whether a tourist will travel to a destination or not may depend on transportation cost. It is important to note that different airlines have different pricing policies. Cost of accommodation, food, shopping, and entertainment also impact on tourism demand. For example, food is usually expensive in Switzerland while it is cheap in India. Exchange rates also impact on tourism demand. It is very evident from the recent developments in the UK. Inbound tourism is booming in the UK due to weak pound. In this regard, the readers will find the article What is the impact of a weaker Pound useful. Non- price factors There are a number of non- price factors that can affect tourism demand. For example, destination image is an important factor. UK is positioned as one of the best countries in the world with a great number of historically significant attractions and world heritage sites. This is perhaps enough for many tourists to visit the UK. Immigration systems in a country may also impact on tourism demand. Flexible and accelerated visa processing systems often motivate tourists to travel abroad. It may work other way round as well. For instance, tourists from developing countries often find it difficult to travel to developed

countries due to rigid immigration systems. Weather conditions also play an important role in tourism demand. Tourists often go to destinations in search of sunshine. Likewise, winter is perhaps the only solution for many attractions promoting skiing. Heavy rains and floods usually impact on tourism demand in any destination. TRENDS IN TOURISM DEMANDS The tourism industry, reflecting wider societal evolution, has seen noticeable change in recent years. The dynamic has changed with increasing disposable income, rising life expectancy and technological developments empowering customers, who quite literally have the power to plan and book their travel in the palm of their hand. But which specific trends are most notably influencing traveler decisions to hop on a plane, jump in the car or board a train to their next destination? 1 - Growing Appetite for Travel Firstly, global wanderlust is on the rise and is reflected in 2018 international tourist arrivals, which grew 6% as a result of increases in all world regions. The good news for accommodation providers and other tourism businesses is that this growth has been accompanied by a growing intent to spend, across both short breaks and longer holidays. The chart below highlights the proportion of consumers prepared to spend less, the same or more on their 2019 travels. 2 - Convenience Booking Convenience is king for today’s consumer, and technology has been a great facilitator in this area. In our 2018 Consumer Travel Insights Survey, 69% of respondents cited convenience as the most important aspect when booking their holiday. Whether booking via an accommodation provider directly or an online travel agency (OTA), ease of booking is at the forefront of the consumer’ s mind.

Those booking via OTAs cited viewing all available options as a major influence, enabling them to find and book the best property and price for their trip. Technology has created seamless customer booking experiences and comprehensive research tools, resulting in the culture of convenience booking. 3 - Experiential Tourism The experience economy is growing! Consumers are no longer happy to simply receive generic messaging and services from brands, they want an experience that’ s enriching and authentic. In the tourism industry this translates to experiencing new places and cultures, with travelers citing this as the fourth most influential factor in their decision to holiday. 4 – Affordable Luxury Technology has not only made booking trips a less stressful process, it has disrupted the traditional marketplace. The growing pool of accommodation and agents available to travelers, coupled with increased spending power, has empowered consumers to ‘ trade up’ to steep but affordable prices. This is the democratization of luxury, and it has empowered consumers to decide when the luxury options are worth splashing that extra cash— remember, we are entering the age of experience. In tourism, this can be seen in the rise of glamping, low- cost carriers and their pay- for- what- you- use business models, and personalized/exclusive experiences in destination. 5 – Personalization in Travel Travelers aren’ t content to simply plan and book holidays for themselves, they want to experience the destinations at their own pace too. So, the holidays they purchase need to be flexible and tailored to their desires. There is still a reliance on travel agents and accommodation providers, but tourists want messaging that’s personalized to their wants and needs. Approximately 43% of respondents in our Traveler Trends Survey agreed with the statement

“personalized holiday adverts or notifications make my travel planning easier”. 6 - Responsible Tourism The growing conscience of travelers has presented another new opportunity to operators, who can tap into their growing interest and awareness in the environmental, social and economic impact of their travel. As the below image highlights, this impacts the destinations they choose, when they visit and the products they purchase when t raveling. TOURISM WORLDWIDE Tourism industry has witnessed an astonishing growth over previous few years. Sparked by increasing technological advancements and transport networks all over the world, the industry has seen a steep growth. In many countries industries such as wildlife, entertainment, art, transportation, etc. have now started taking one step ahead to expand their reach to international visitors/tourists. The global travel and tourism industry was valued at USD 7,581 Billion in 2014 (10 .0% of GDP) and was forecasted to grow by 3.8% in 2015 . The global tourism industry is further envisioned to witness a year-on- year (Y-O- Y) growth rate of 3.9% and reach USD 11,382 Billion (10 .6% of GDP) by 2025 . The revenue generated from visitor exports is also projected to upsurge from USD 1, 384 Billion in 2014 to USD 2,141 Billion in 2025 , exhibiting a CAGR of 4.0%. Total investment on global travel and tourism sector is anticipated to swell from USD 814 Billion in 2014 at a year-on- year (Y- O- Y) growth rate of 4.7% to reach USD 1,336 Billion in 2025 . Market Size and Forecast Europe tourism industry is the largest in the world accounting for 51% of share in 2015 . Europe tourism industry is spiked by increase in number of international tourists in France, Spain, Italy, Germany and the U.K. The revenue generated from tourist travel in the U.K. accounted for USD 142.0

Billion in 2015 . North America travel and tourism industry accounted for USD 1,412 Billion in 2015 . With USD 1, 218 Billion of revenues in 2015 , the U.S. is the largest travel and tourism market in North America followed by Canada with USD 98.2 Billion. The U.S. tourism market is further anticipated to witness a robust CAGR during the forecast period. Asia- Pacific tourism industry accounts to witness the highest growth over the forecast period i. e. 2016- 2025. The tourism market in Asia- Pacific is likely to get propelled from strengthening economy, rise in disposable income and increasing infrastructural developments in some of the major countries such as India, China, Japan and Singapore. Backed up by these factors, Asia- Pacific region is projected to attract over 502+ million visitors by 2025 . Market Segmentation By Type Based on type, the global tourism industry can be segmented into international tourism and local/domestic tourism By Purpose of Travel On the basis of purpose of travel, the global tourism industry is divided as adventure tourism, business tourism, medical tourism, religious tourism and others. By Geography Geographically, the global tourism industry can be segmented into North America, Latin America, Western and Eastern Europe, Asia- Pacific, Middle East and North Africa (MENA) and rest of world. The study further analysis the Y- O- Y Growth, demand & supply and forecast future opportunity in North America (United States, Canada), Latin America (Brazil, Mexico, Argentina, Rest of LATAM), Europe (U. K., Germany, France, Italy, Spain, Hungary, BENELUX (Belgium, Netherlands,

Luxembourg), NORDIC (Norway, Denmark, Sweden, Finland), Poland, Russia, Rest of Europe), Asia- Pacific (China, India, Japan, South Korea, Malaysia, Indonesia, Taiwan, Hong Kong, Australia, New Zealand, Rest of Asia- Pacific), Middle East and Africa (Israel, GCC (Saudi Arabia, UAE, Bahrain, Kuwait, Qatar, Oman), North Africa, South Africa, Rest of Middle East and Africa). Growth Drivers and challenges Increasing per capita income in most of the emerging nations is believed to be one of the key drivers of global tourism industry. In addition to that, promotion of tourism by certain government bodies such as UNWTO (United Nations World Tourism Organization) is also expected to escalate the global tourism industry. However, natural calamities, terrorist activities, political unrest in many countries, outbreak of some fatal diseases such as Ebola and Swine Flu etc. are projected to restrain the growth of tourism industry in some countries of the world. HOLIDAY TRAVEL PROPENSITY AND FREQUENCY Holiday Travel Propensity (HTP) is the share of the population which took at least one holiday travel of five days or longer during the last twelvemonths. Empirical HTP has grown from the 1950 s through the mid- 1990 s and since then has shown stability on a level of slightly more than 75% with a peak of 77.3 % in 2013 (Figure 1). Variation in the last decade was low (Lohmann, Schmücker and Sonntag 2014 ). Applying a polynomic regression model to the data of the 60 years since 1954 (using 1954 as year 1 and 2013 as year 60) reveals a linear growth of 1.775 percentage points per year, corrected by a quadratic term of – 0.013 per year², with an R² of .969 (Figure 2). This quadratic regression function will reach a maximum of 79.8 % in 2021 . [email protected] Figure no. is missing.

Within the annual Reiseanalyse, interviewees are asked to indicate whether they took a holiday travel in the year before the interview, the previous year and the pre- previous year. For example, in January 2014 (RA 2014), people are asked if they made a holiday travel in 2013 (period t), 2012 (t- 1) and in 2011 (t- 2). For this analysis, we change the perspective and take the Holiday Travelers and Non Travelers of the year 2012 (t) and ask if they made a holiday travel in 2013 (t+1) or not. This will give us the t ransition rates needed for the analysis (Table 1). Because data are available not only for the last year and the previous year, but also for the pre- previous year, it would even be possible to enlarge the model from transitions between two years into transitions between three years. SUMMARY

In summary, the determinants of demand in travel are among the most complex of any industry. In the face of the significant and unalterable effects of seasonality, geopolitics, and global economics, suppliers encounter particularly challenging obstacles. Although it is clear that marketing and lobbying can shift consumers behavior, these key challenges continue to present hurdles. In response, the industry needs to ensure its operations and marketing efforts are agile and customer- centric. Tourism and travel service is a major industry attention in the world. Many countries by realizing the significance of this sector are trying to strengthen it. Many developing as well as developed countries are making serious efforts to reshape the tourism sector. Since the tourism has capacity to generate foreign exchange through attracting thee foreign tourist. India is expected to be the second fastest growing tourism nation in the world over the period 2005 -2014 .In 2007 around 5. 08 million tourists arrived in India and they spent nearly US 11 million dollars. It contributes significantly to the creation of employment opportunities, income and harmony. India has taken many steps to improve tourism in the last 50 years. Though there an increase in the absolute numbers of tourist arrivals but share of India to total world tourism arrivals and earning is very low this is due to factors which affect the tourism demand in India. The major factors like economic factors, demographic factors, Time availability, Legislation Problems like government has just started promoting rural tourism. Central government and State government should encourage rural tourism by providing financial support to start the project. Because it will create employment in rural areas and it will also help in flow of fund from urban to rural. It can help in preventing the migration of people from rural area to urban areas. Lack of Trained Manpower especially in hotel management may not be interested to go to rural area to work. The rural people who will be appointed are required to be trained for discharging their duties. Decorating the cottages or suites and maintain them. Serving foods to the visitors, to understand the taste of the customers, either it should be local cuisine or different type of India cuisine or continental dishes. Lacks of Local Involvement ever since the rural people do not have awareness and

skills to engage them in different actions. They may get the jobs of unskilled worker KEYWORDS • Business visitor: A business visitor is a visitor whose main purpose for a tourism trip corresponds to the business and professional category of purpose • Country of residence: The country of residence of a household is determined according to the centre of predominant economic interest of its members. If a person resides (or intends to reside) for more than one year in a given country and has there his/her centre of economic interest • Data collection: Systematic process of gathering data for official statistics. • Data compilation: Operations performed on data to derive new information according to a given set of rules. • Internal tourism: Internal tourism comprises domestic tourism and inbound tourism, that is to say, the activities of resident and non- resident visitors within the country of reference as part of domestic or international tourism trips LEARNING ACTIVITY 1. Discuss about the market size and segmentations in India in tourism industry. 2. Discuss the tourism economics trends

UNIT END QUESTIONS A. Descriptive Questions 1. Define demand. 2. What are the factors affecting demand of tourism? 3. What are the determinants of tourism demand? 4. Explain the tourism worldwide. 5. Explain trends in tourism demand B. Multiple Choice Questions (Mcq’s) 1. Which of the following disciplines views demand from the perspective of motivation and behavior? a. Psychology b. Engineers c. Geographers d. Economists 2. What is suppressed demand? a. Those who simply do not wish to travel or are unable to travel b. The actual number of participants in tourism or those who are travelling c. Demand postponed because of a problem in the supply environment d. The section of the population who do not travel for some reason 3. What is deferred demand?

a. The section of the population who do not travel for some reason b. Those who simply do not wish to travel or are unable to travel c. Demand postponed because of a problem in the supply environment d. The actual number of participants in tourism or those who are travelling 4. In economic terms, what term refers to the quantities of a product that an individual wishes to purchase at different prices at a given point in time? a. The displacement effect b. A supply schedule c. A demand schedule d. A displacement schedule 5. According to Gartner (1993) the formation of a destination image is based upon information acquired by the tourist from three sources. What type of information is gained from Organic agents? a. Information from media sources or popular culture b. Information controlled by sources external to the individual, such as advertisements c. Information acquired through personal experience d. Information from travel agents Answer 1. a

2. d 3. c 4. c 5. c SUGGESTED READINGS • . Garlick, S (2002). \"Revealing the unseen: Tourism, art and (2): 289 –305. photography\". Cultural Studies. 16 doi:10.1080 /09502380110107599 . • Gartner, W.C. (1993). \"Image formation process\". Journal of Travel and Tourism Marketing. 2: 191 –216. doi:10. 1300 /j073v02n02_12. • Hughes, H.L. (1989). \"Tourism and the arts\". Tourism Management. 10 (2): 97 – 99. doi:10.1016 /0261- 5177( 89) 90050 -2 . • Phelps, A (1986). \"Holiday destination image: The problem of assessment— an example developed in Minorca\". Tourism Management. 7 (3): 168 – 80. doi:10. 1016 /0261- 5177( 86) 90003 -8 . • Richardson, S.; Crompton, J. (1988). \"Cultural variations in perceptions of vacation attributes\". Tourism Management. 9 (2): 128 – 36. doi:10.1016 /0261- 5177( 88) 90022 -2 .

UNIT -7 TOURISM SUPPLY – I STRUCTURE 1. Learning objectives 2. Introduction 3. Tourism Supply Components 4. Tourism supply system 5. Seasonality 6. Tourism product life cycle 7. Summary 8. Keywords 9. Learning activity 10. Unit end questions 11. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • Understand the tourism supply, and its components. • Understand about supply system and seasonality • Understand the tourism product life cycle INTRODUCTION The definition of tourism supply should result from the definition of tourism. Thus it can be defined as the supply of all assets, services and goods to be

enjoyed or bought by visitors and occasioned by the journeys of visitors. Statistics on tourism supply may be approached in two ways: • statistics on the production ( structure) of enterprises etc., e. g. supply has been interpreted as ACTIVITIES of enterprises such as the supply of HORECA, transport and retail services; • statistics on the results of such activities, i. e. PRODUCTS, which also may be services, consumed by visitors. The general purpose of statistics on tourism supply is to assess the contribution of the tourism sector to a country's general socio- economic process and to identify the effects of tourism, distinguishing between direct effects and indirect or induced effects. TOURISM SUPPLY COMPONENTS Here are typical components of the tourism supply: Tourism supply components are classified into five main categories: 1. Natural resources — includes elements in an area for the use and enjoyment of visitors such as climate, landforms, terrain, flora, fauna, bodies of water, beaches, natural beauty and water supply for drinking, sanitation, and similar uses. 2. Infrastructure — consists of all underground and surface developmental construction such as water supply systems, sewage disposal systems, gas lines, electrical and communications systems, drainage systems and other constructed facilit ies such as highways, airports, railroads, roads, drives, parking lots, parks, night lighting, marinas and dock facilit ies, bus and train station facilities and similar tourist service installations. 3. Superstructure- The above ground facility services such as airport buildings, passenger traffic terminals, hotels, motels, resorts, restaurants, shopping centres, places of entertainment, museums, stores and similar

structures. 4. Transportation and transportation equipment- includes items such as ships, airplanes, trains, buses, limousines, taxis, automobiles, cog railways, aerial tramway, and similar passenger transportation facilit ies. 5. Hospitality resources — include the cultural wealth of an area which makes possible the successful hosting of tourists. Examples are the welcoming spirit of tourist business employees, attitudes of the residents towards visitors, courtesy, fr iendliness, sincere interest, willingness to serve and to get better acquainted with visitors, and other manifestations of warmth and friendliness. It also includes the cultural resources of an area such as fine arts, literature, history music, dramatic… Attractions They are the places the tourists perceive as the satisfaction of their leisure- oriented needs. • Natural Attractions: Caves, canyons, rocks, waterbodies, landscapes. • Man- Made Attractions: Theme parks, towers, bridges, architecture, temples, mosques, churches, and monuments. • Cultural Attractions: Historical sites, monuments, local arts and crafts, local folk core, music and dance.

Transportation They are the modes of commuting. • Road: Car, bus, cycle. • Rail: Long distance, high speed, commuter, or intercity trains. • Water: Boats, ferries, cruises. • Air: Carriers that operate on fixed schedule, Charters that operate as and when required. Intermediaries They are the mediators. • Travel Agents: The business of selling hospitality and tourism products. • Tour Operators: They deal with the operating components for rates. Destination It is the place the tourists visit. It is composed of: • Accommodation: Hotel, motel, lodge, guest house, B&B. • Restaurant: Specialty restaurants, themed restaurants, branded restaurants such as CCD, KFC, Bistros, and takeaway food joints. • Tourist Facilities: Pubs, entertainment parks, shopping centres, and casinos.\\ Activities They include activities the tourists are interested to engage in: • Adventure Sports: Mountain biking, bungee jumping, rafting, and other similar activities. • Leisure: Basking on beaches, swimming, dining near waterbody. • Business Activities: Attending seminars, business meetings, promotions. • Health Activities: Attending Yoga sessions, exercising, undergoing

naturopathy, and similar such activities. TOURISM SUPPLY SYSTEM The 'tourism system' is an expression often used but seldom precisely defined. The reason is quite evident. Tourism is a complex phenomenon: there are many different actors, and demand and supply are geographically separated but production and consumption take place on the same spot. A tourism system can be defined as a framework that shows the interaction between: tourism supply at the destination, the bridging elements between supply and demand, and tourism demand (see Figure 4.1). The relationship between demand and supply, via the bridging elements, is a two- way link. In the tourism system, the supply at the destination is the key element. Figure 4.1: Components of the tourism system Suppliers provide the basic elements that together form the overall visitor experience (Ritchie and Crouch, 2003 ). However, according to these authors there are many resources or factors that are required by tourism and hospitality enterprises far more than the elements cited in Figure 4.1. For them, labour is a key factor, and other supply factors include food and beverage producers, local crafts, and manufacturers of equipment (such as amusement park rides, camping equipment), etc. Suppliers are connected to tourists through tourism marketing channels consisting mainly of intermediaries (tour operators, retail trade, meeting and convention planners etc.) and facilitators, who assist in the efficient functioning of the tourism system (e.g. flow of information, marketing, [email protected], knowledg e). Other bridging elements include the different Wrong figure nutmrabenrsinpgosr.tation mod es.

SEASONALITY In time series data, seasonality is the presence of variations that occur at specific regular intervals less than a year, such as weekly, monthly, or quarterly. Seasonality may be caused by various factors, such as weather, vacation, and holidays and consists of periodic, repetitive, and generally regular and predictable patterns in the levels of a time series. Seasonal fluctuations in a time series can be contrasted with cyclical patterns. The latter occur when the data exhibits rises and falls that are not of a fixed period. Such non- seasonal fluctuations are usually due to economic conditions and are often related to the \"business cycle\"; their period usually extends beyond a single year, and the fluctuations are usually of at least two years. Organisations facing seasonal variations, such as ice- cream vendors, are often interested in knowing their performance relative to the normal seasonal variation. Seasonal variations in the labour market can be attributed to the entrance of school leavers into the job market as they aim to contribute to the workforce upon the completion of their schooling. These regular changes are of less interest to those who study employment data than the variations that occur due to the underlying state of the economy; their focus is on how unemployment in the workforce has changed, despite the impact of the regular seasonal variations. It is necessary for organisations to identify and measure seasonal variations within their market to help them plan for the future. This can prepare them for the temporary increases or decreases in labour requirements and inventory as demand for their product or service fluctuates over certain periods. This may require training, periodic maintenance, and so forth that can be organized in advance. Apart from these considerations, the organisations need to know if variation they have experienced has been more or less than the expected amount, beyond what the usual seasonal variations account for.

Detection The following graphical techniques can be used to detect seasonality: • A run sequence plot will often show seasonality • A seasonality plot of US electricity usage • A seasonal plot will show the data from each season overlapped • A seasonal subseries plot is a specialized technique for showing seasonality • Multiple box plots can be used as an alternative to the seasonal subseries plot to detect seasonality • An autocorrelation plot (ACF) and a spectral plot can help identify seasonality. A really good way to find periodicity, including seasonality, in any regular series of data is to remove any overall trend first and then to inspect time periodicity. The run sequence plot is a recommended first step for analysing any time series. Although seasonality can sometimes be indicated by this plot, seasonality is shown more clearly by the seasonal subseries plot or the box plot. The seasonal subseries plot does an excellent job of showing both the seasonal differences (between group patterns) and also the within- group patterns. The box plot shows the seasonal difference (between group patterns) quite well, but it does not show within group patterns. However, for large data sets, the box plot is usually easier to read than the seasonal subseries plot. The seasonal plot, seasonal subseries plot, and the box plot all assume that the seasonal periods are known. In most cases, the analyst will in fact, know this. For example, for monthly data, the period is 12 since there are 12 months in a year. However, if the period is not known, the autocorrelation

plot can help. If there is significant seasonality, the autocorrelation plot should show spikes at lags equal to the period. For example, for monthly data, if there is a seasonality effect, we would expect to see significant peaks at lag 12, 24 , 36, and so on (although the intensity may decrease the further out we go). An autocorrelation plot (ACF) can be used to identify seasonality, as it calculates the difference ( residual amount) between a Y value and a lagged value of Y. The result gives some points where the two values are close together (no seasonality), but other points where there is a large discrepancy. These points indicate a level of seasonality in the data. Calculation Seasonal variation is measured in terms of an index, called a seasonal index. It is an average that can be used to compare an actual observation relative to what it would be if there were no seasonal variation. An index value is attached to each period of the time series within a year. This implies that if monthly data are considered there are 12 separate seasonal indices, one for each month. The following methods use seasonal indices to measure seasonal variations of a t ime- series data. Method of simple averages Ratio to trend method Ratio-to- moving- average method Link relative’s method Method of simple averages The measurement of seasonal variation by using the ratio- to- moving- average method provides an index to measure the degree of the seasonal variation in a time series. The index is based on a mean of 100, with the degree of seasonality measured by variations away from the base. For example, if we observe the hotel rentals in a winter resort, we find that the winter quarter

index is 124. The value 124 indicates that 124 percent of the average quarterly rental occur in winter. If the hotel management records 1436 rentals for the whole of last year, then the average quarterly rental would be 359= (1436/ 4). As the winter- quarter index is 124, we estimate the number of winter rentals as follows: 359*(124/ 100) =445; Here, 359 is the average quarterly rental. 124 is the winter- quarter index. 445 the seasonalized winter-quarter rental. This method is also called the percentage moving average method. In this method, the original data values in the time- series are expressed as percentages of moving averages. The steps and the tabulations are given below. Ratio to trend method 1. Find the centred 12 monthly (or 4 quarterly) moving averages of the original data values in the t ime- series. 2. Express each original data value of the time- series as a percentage of the corresponding centred moving average values obtained in step( 1).In other words, in a multiplicative time- series model, we get( Original data values)/(Trend values) *100 = (T*C*S* I)/( T*C)*100 = (S*I) *100. This implies that the ratio– to- moving average represents the seasonal and irregular components. 3. Arrange these percentages according to months or quarter of given years. Find the averages over all months or quarters of the given years. 4. If the sum of these indices is not 1200 (or 400 for quarterly figures), multiply then by a correction factor = 1200 / (sum of monthly indices). Otherwise, the 12 monthly averages will be considered as seasonal indices. TOURISM PRODUCT LIFE CYCLE

The main input of life cycle analysis is the time series data and the main exercise is its conditioning. Time series data is a collection of data related to a particular aspect over a period of time. The focus of the analysis is to see what changes take place in the characteristics of the subject under study over a period of time. Time series analysis is one quantitative method used to determine patterns in data collected over time ( Levin, 1986 ). Though the scope of the research is limited to the endogenous variables, the time series data available for tourist arrivals need to be corrected for assessing the stage of product life cycle. The four kinds of variation involved in time series analysis are secular trend, cyclical fluctuations, seasonal variation and irregular variation. Secular trend changes the value of variables increasing or decreasing over a period of time. Cyclical fluctuations are cyclical movements hitting peaks or falling to low, mostly in an unpredictable manner, and the time between these peaks and lows could vary from one year to several years. Seasonal variations are pattern of changes that happen within a year and tend to be repeated year after year. Irregular variations in most instances are completely unpredictable and changing in a random manner. A time series may exhibit one or more of these components. Since the life cycle of a product also run into several years normally, application of time series analysis in the time series data of sales of a product helps to fit an appropriate curve after eliminating the seasonal variations. This estimated curve can be used to predict the future sales of the product. The cyclical and irregular variations can be measured for the period up to which the time series data on sales of the product is available. However, predicting such variations is rather cumbersome. The Product Life Cycle was first referenced in the 1920 s by economists reporting on the automobile industry and today, it is one of the best- known marketing concepts on the planet (Clancy & Peter, 2004 ). The term applies biology to all manner of brands, makes and models of packaged goods, cars, magazines, or indeed any product imaginable. It identifies any stage of the

life cycle of the product with any of the four cycles - birth to growth, growth to maturity, maturity to decline, and ultimately to death. The Product Life Cycle concept has four underlying assumptions – (i) Shape assumption which approximates the Product Life Cycle sales pattern to an “S” shaped curve; ( ii) Stages assumption which exhibits distinct changes based on the slope of the “S” shaped curve; ( iii) Causality assumption which considers different supply side market structure and conditions for each stage; and ( iv) Strategy assumption which considers different marketing strategies for each stage ( Steffens, 2002).The position of the brand in the Product Life Cycle is taken as a tip by the marketers to device strategies to maximize profit at that stage. Kotler defined Product Life Cycle as “ an attempt to recognize distinct stages in the sales history of the product” (Kotler, 1988 ). In an organization, individual business units play different roles in achieving organizational objectives ( Darymple & Parsons, 2002 ). Some business units grow faster than others, some units will be more profitable, and not all units will generate the same cash flow. The life cycle concept helps to keep track of the ‘ portfolios’ formed by the collection of these business units. Ideally, a firm would prefer to have some business units in each phase of the product life cycle. If most of the items are in the mature and declining phases, the company will have trouble reaching its growth objectives. Similarly, if all the products are in the introductory and decline phases, the firm is likely to experience serious cash flow problems. Product life cycle analysis helps to know when a product is leaving a stage and entering the next. The marketing objectives and strategies that can be generally adapted along with the characteristics of the Product Life Cycle stages are given in Table 1. 1 ( Kotler, Keller, Koshy, & Jha, 2007 ). The Product Life Cycle is considered to be useful as a predictive tool, planning tool and as a control tool (Gandhi, 1996 ). Since a product has a predictive life pattern and the problems likely to be encountered in different stages of Product Life Cycle are known, the management is pre- warned of the likely changes in the product position. Though it is rather difficult to forecast these changes with any degree of exactness, it provides a preview of the

broad spectrum of product events likely to occur. Table 1.1: Summary of Product Life Cycle characteristics, objectives and strategies Introduction Growth Maturity Decline Life Cycle Characteristics Sales Low sales Rapidly Peak sales Declining sales rising sales Costs High cost per Average cost Low cost per Low cost per customer per customer customer customer Profits Negative Rising profits High profits Declining profits Customers Innovators Early Middle Laggards adopters majority Competitors Few Growing Stable Declining number number number beginning to decline Marketing objectives Create Maximize Maximize Reduce product market share profit while expenditure and awareness defending milk the brand and trial market share Strategies Product Offer a basic Offer product Diversify Phase out the [email protected] Product life cycle diagram is also required.

product extensions, brands and weak service, items models warranty Price Charge cost- Price to Price to Cut price plus penetrate market match or best competitors Distribution Build Build Build more Go selective, selective intensive phase distribution distribution intensive distribution out unprofitable outlets Advertising Build product Build Stress brand Reduce to level awareness awareness differences needed to retail among early and interest and benefits hardcore loyalists adopters and in the mass market dealers Sales Use heavy Reduce to Increase to Reduce to Promotion encourage minimal level sales take of brand promotion to advantage switching entice trial heavy consumer demand Source: (Kotler, Keller, Koshy, & Jha, 2007 ) Based on the Product Life Cycle, management is better placed to plan its strategy in advance so as to exploit fully the product potential. Product modifications, promotion, pricing strategies and dealer motivation programmes can be planned much earlier. The use of Product Life Cycle as a Control tool is more relevant to a multi- product company. By monitoring the

positions of the products in the Product Life Cycle, the company can draw its marketing strategy more effectively. For example, the maturity stage normally lasts longer than the two earlier stages of introduction and growth stages, but poses strong challenges to marketing management. Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals with the mature product. In the case of a product in the decline stage, carrying a weak product can be very costly to the firm. Falling reputation can shake customer confidence in the company and its other products. A decision to maintain, harvest or drop it would become a necessity. The issue of dropping a product like the properties of a hotel chain could also be a complex issue and might be impossible or impractical due to the reasons given below (Kotler, Bowen, & Makens, 1999): • Contracts may prohibit quick closure • The hotel may be a historic property or have sentimental attachment to the community and to management • Closure might have a negative effect on the community • The hotel may be owned by the chain, and a buyer may not be readily available • Special relationships may exist between the franchisee and the franchisor All products introduced in the market do not essentially pass through all the stages of Product Life Cycle ( Gandhi, 1996 ). It is possible that the product dies out after passing through the 1st and 2 nd stages. It will also be difficult to identify a demarcation line between the stages. The product life cycle stage of a product need not be the same in different market segments at a given point of t ime. The time span of a product in each stage in Product Life Cycle can also vary. The Product Life Cycle concept can describe a product class, a product form

or a brand ( Kotler, Bowen, & Makens, Marketing for Hospitality and Tourism, 1999 ). Product classes have the longest life cycles and the product forms tend to have the standard Product Life Cycle shape. A specific brand’s life cycle changes fast due to changing competitive attacks and responses. The use of Product Life Cycle concept for forecasting product performance or for developing market strategies presents some practical problems. The issues faced by the marketing managers are: Difficulty in identifying current life style stage; Difficulty in determining when it would move to the next stage; and Difficulty in enumerating the factors that affect the movement from one stage to another Researchers have identified at least 17 different Product Life Cycle patterns (Clancy & Peter, 2004 ). Groucutt, Leadley and Forsyth also have mentioned about the identification of range of patterns of the Product Life Cycle, 17 by Tellis and Crawford, and 10 variations by Swann and Rink ( Groucutt, Leadley, & Forsyth, 2004 ). The same authors have again created five variants of the classic life cycle model as shown in Figure 1.1. – life cycles A, B, C, D and E. Brief explanations of these five variants are also given. Life cycle ALife cycle B Life cycle C Life cycle DLife cycle E Figure 1.1: Variants of the classic life cycle models (Groucutt, Leadley, &