Strategic management is an innovative science. Despite the existing guides to formulate strategies that will create competitive advantages, companies depend significantly to managerial creativity in finding market niche and filling it. Within this short paper we will evaluate past strategies of Expedia Corporation and assess existing opportunities regarding the corporate entry to a new line of business.
Expedia is known as a powerful player in the online travel business. In 2002, the company reported a $66 million net income on revenue of 591 million. The numbers are predicted to rise sharply in 2003. Even in very non-supportive market conditions, the company managed to increase gross sales by 75 % compare to last year, placing the company in the number one seat of the online travel business with $5 billion revenue. The company was developed by Richard N. Barton, the person who was recognized for brilliant strategies that brought Expedia to the top of the market. Nevertheless, the CEO resigned on February 4, 2002, after a dispute with one of the owners of the company, leaving the company in the hands of his right hand officer, Eric C. Blachford (Mullaney, 2003).
Along with the resignation of the former CEO, Blachford stated that he would continue to expand the business the way Barton did. Not long after, the new CEO revealed his intention of entering the corporate travel business, in order to expand the company which already ‘own’ the online travel business. This raises considerable question of whether the company is prepared to go head-to-head with competitors of both industries (Mullaney, 2003).
In getting to the top of the ladder of the online travel business, Expedia created revolutionary strategy that has never been performed by its competitors. The company started to ‘get creative’ by adding a new service in its travel products. The new service is hotel rooms. Instead of asking for commission, the company decided to by rooms with discount prices and then selling them to travel customers with considerable mark up. The strategy boosted Expedia’s earnings and allowed the company to cut airline prices for customers. Having the cheapest airline cost and an extra service, travel market were increasingly attracted toward Expedia (Mullaney, 2003).
This strategy is taken because airlines who were using online travel agencies to get customers are cutting their fees and finally decided to launch their own internet services. Performing the new act, Expedia have a stronger bargain power toward airlines of the travel industry (Mullaney, 2003).
According to the article, the company is also known for its ability to turn problems into business opportunities. When the planes hit the twin towers, travel agencies automatically sliced their spending to anticipate the drop in market activities. Nevertheless, Expedia take advantage of the market being ‘reset’ for travel businesses to increase marketing in order to take away market share from other agencies. From the ‘dark times’ Expedia managed to exceed travelocity, its number one competitor in online travel business and furthermore, enhance market share for online traveling (Mullaney, 2003).
The interesting question is derived from Expedia’s entry to the corporate travel business. Despite the fact that it is not a ‘completely new’ business compare to Expedia’s existing online travel business, Expedia would have to face the number one player in the industry, AmEx. Currently, AmEx has an online service that enable the company to provide services in lower prices than the Expedia. The company also has the early lead which means that some consumers will stay with them for loyalty. Nevertheless, Expedia’s decision to enter the new market would be influenced by existing experience in the travel business and the will to expand the business. The new CEO of Expedia believed that by using technology to lower transaction cost, they will be able to compete with existing players (Mullaney, 2003).
The factor that enhances the possibility of Expedia to be successful in the new market is the fact that the company has considerable experience in the point-to point travel arrangement activities. Some believed that using their existing skills, the company would develop significant competitive advantage in a short time. Furthermore, there are those airlines which have considerable respect toward the company and its history of managerial success –like the Jet Blue Airways- that they will strive to gain access to Expedia’s customers (Mullaney, 2003).
Another factor that is in-favor of Expedia’s success in the new market is the condition of the environment. The market for hotels and trips wont recover in any time soon, while hotels rooms are abundant, which means discounted rooms for most customers. This would increase Expedia’s margin by several percent (Mullaney, 2003).
If the new CEO is able to coordinate those advantages to gain significant amount of customers, Expedia will have the power to direct customer to which airline and hotel it prefers. This would give the company enough power to control their suppliers and gain enormous advantages.
IV.2 Unique Competency
According to the article, besides the supportive factors mentioned above, Expedia have the advantage of a well known brand. Expedia has marked itself as a successful company in the online travel industry, therefore, the new market of corporate travel would definitely anticipated its presence. If Expedia is able to maintain low fares in their new services, the market will recognize it as trademark that would quickly boost Expedia’s reputation in the new market.
IV.2 Suggestions
One of the biggest challenges in managing a new business is to discover the competitive advantages available within the new environment. More often, successful managers have to leave their plans and strategies in order to pursue existing market opportunities. Bad managers usually forced their strategies into a business and refuse to acknowledge the unique situation they might have encountered.
The biggest mistake of successful companies like Expedia is to think that similar method that brought them success in previous businesses will bring them more success in new ones. Therefore, it is imperative for the company to make appropriate market analysis and discover market niches before running any plan or strategy. Managers must keep in mind that the previous success in the online travel business is only possible due to revolutionary strategy which was resulted from sensitive observation of the industry.
