Analysis of the Adventure Tourism business model

Submitted by:
Aditi Kaikini Ankur Bhardwaj Ann Varghese Misha Tyagi Nimit Jain Rajat Anand Sampada Nayak

Table of Contents

Title Introduction to Adventure Tourism Government Policies Pricing Policy Cost Structure Consumer Behaviour Barriers to Entry Sustainability References

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Introduction
Adventure means different things to different people. What fills one tourist with fear might fill the other with boredom. There are different adventure tourism products available to consumers over the world and the number of people buying it is increasing at an accelerated pace. Adventure tourism consists of guided commercial tours where the principal attraction is an outdoor activity which relies on features of the natural terrain, generally requires specialised sporting or similar equipment, and is exciting for the tour clients. In case travelling consists of physical activity, interaction with the environment and cultural exchange it can be accounted for as Adventure travelling. Hard adventure travelling (caving, mountaineering) and soft adventure travelling (backpacking, cycling, eco-tourism) are the sub categories. Adventure tourism consists of the following types of activities 1. Land Based: Mountaineering, Rock Climbing, Rappelling, Bungee jumping, Trekking 2. Water Based: River Rafting, Wind surfing, Yachting, Kayaking 3. Air Based: Parasailing, Paragliding, Bungee Jumping

The three major markets are Europe, Latin America and North America, which comprise 70% of overall international departures hence translating to the biggest market in travelling, according to the UNWTO. Slovakia, Israel, Czech Republic and Estonia are the four leading nations for adventure tourism among the developing countries for 2009. Tourism was placed below manufacturing or agriculture in terms of economic development potential But now tourism is a potential means of earning export revenues, generating large numbers of jobs including for young people and women promoting economic diversification and a more service-oriented economy, helping to revive urban areas and cultural activities. Adventure tourism has an edge over other forms of tourism in its ability to attract young business entrepreneurs and in addressing specific consumer demands.

Government Policies
According to the economic theory of regulation, regulation is the result of pressuregroup action and results in laws and policies to support business and to protect consumers, workers and the environment. Since there is a vast number of adventure tourism activities all over the world, there are certain standards set by governments of respective nations for various reasons like protection against unfair business practices, keeping working conditions in control, adherence to the minimum standards in the equipments used. The active players in the market influence government in formulating certain rules and regulations that restrict the entry of new players into the sector and this is done through
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licensing, making it mandatory to have some relevant experience in those kind of activities, initial certifications for guides as well as equipments, continued evaluation in terms of skill and safety. Also, to protect the interest of the consumers, governments have made it mandatory for organizations to provide detailed information regarding the entire tour to the client in advance and also the possible dangers involved, adequate arrangement for medical facilities, the equipment that will be supplied, etc. The government defines guidelines to be followed for infrastructure, equipments and accessories, operator qualification, responsibility to environment. However, there is always a certain amount of environmental degradation associated with these activities like trees are cut; river quality deteriorates with time, etc. To maintain a balance between the benefits that result from these activities and its negative effects, different governments have made it mandatory to make sure that these operators volunteer some sure that environment is not degraded and marginal benefit is equal to the social cost amidst all the adventure activities, government has blended these activities with environmental management programs to preserve the natural resources. In India, the government is planning to form an accreditation committee for operators. This committee will be empowered to look into any complaints made against operators, upgrading the guidelines and safety rules, organize training programs to enhance the pool of the skilled people and will also be capable of carrying out inspections of the operators activities and certify compliance to safety regulations. Besides this, according to National Tourism Policy 1982, government is also responsible undertaking research, promote tourism, and formulate marketing strategies. Also, it makes sure that local community is always involved in such kind of activities to make sure that they are benefitted and are able to achieve their minimum basic needs and provide their local expert knowledge to the operators for optimization.

Pricing Policies
The experience which the consumer gets is everything in tourism, more so in adventure tourism. It takes a sound mixture of financial analysis and marketing strategies to set the prices for a business like adventure tourism. The services and the products provided in this business are very rarely the same. And this is not only because of the location, but also because of the people and the components that make up the experience an adventure tourist has. The pricing policies for adventure tourism will more or less be based on: a) Exclusivity: Depending on how unique the adventure product/service is, the business owner can be accordingly flexible in deciding the prices. The more the exclusivity, the higher the flexibility.

b) Operating Costs: Knowing both the variable and the fixed costs, and hence the break-even point, it should be decided what the minimum pricing should be to be able to earn profits. c) Competitors Price: The pricing structure which firms engaged in adventure tourism should adopt will also depend on the price which the competitors providing a similar product or service are charging. d) Rack rate: Rack rate is the full rate which all tourism businesses should have before any discounts are applied. For activity and attraction operators, the full rates are more likely to be charged almost all the time whereas accommodation operators are likely to change prices almost daily for the month or two months ahead to fill the gaps. e) Seasonal Pricing: The prices demanded by the business owners in the adventure tourism industry usually vary with the low, high and shoulder seasons. These are usually high during the peak seasons and low during the off-season. f) Package Deals: Providing the consumer with a package of your own services and striking deals with complementary local businesses, you can provide the consumer with a better net-price than if he had purchased each component individually.

g) Discounts: While businesses should not be averse to discounting, they should be careful about how it is done. It should not be done too often to stimulate demand. Although discounting might get you a booking instead of no-booking, it can reduce profitability or even missing the break-even point in the long run as customers may become used to a certain price level and you might not be able to charge your normal rack rates. Therefore, discounting with certain conditions like a minimum stay or the minimum number of people in the booking should be followed. h) Commissions: Customers may come to you through a third party such as a retail agent, inbound tour operator or an online travel agent, who charges you a commission. The allowances for these commissions are usually made in the rack rates so that different prices across the different distribution channels do not confuse the customer.

Cost Structure
A Study reveals that adventure tourism has around 26% share in the total tourist population. And the share of the adventure tourism is increasing owing to stable and steady life and higher disposable income. People are willing to spend more on the adventure part. Therefore, need arose for more adventure tour operators and organizers. The major cost elements of adventure tour operator include the Fixed Cost component and the variable cost component. The fixed cost will be as
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Equipments: Safety is the primary concern of the customer and the operator in adventure sports. Cost of the equipments is the major part of the cost structure. The equipments amount almost up to 30% of the total fixed cost. While in case of the air based tourism it may go up to 55%. Property: In case of the land based tourism, the cost of the land becomes a high part. Land is generally procured outskirts of the city to minimize this cost. On the other hand, for air-based and water based sports this cost is bit less as compared to land based. Licensing Cost: All the adventure tour operators have to comply with the minimum standards set by the government to operate. They also need access to natural resources such as mountain, hill and water bodies to operate. And to obtain the license they need to fulfil the criteria set by the government. The variable cost will have components such as the operating cost of the remuneration, bookings and travels costs. Variable cost depends on the number of tourist on the tour. Remuneration also comes under variable cost because the tour guides and labour charges are based on number of the tourists in the group. This business faces a high talent crunch and the available skilled labour has higher wage rates. The bookings are generally made through local tour and travel operators and they are paid per customer basis. Tough a fixed cost, bookings website is generally considered under the variable cost .The travel cost of the customer also depends on the travel season and available options.

Consumer Behaviour
Adventure travellers often seek new travel destinations and activities. A considerable percentage of this sector is willing to accept limited tourism infrastructure provided they get an exceptional, authentic experience. They are looking to learn new things about the locations and to interact with the local cultures. Hence they look out for emerging destinations which are in the nascent stages of development and also in more mature destinations that have developed appropriate product. Tourism is a service rather than a product, which may have a considerable effect on consumer behaviour. Due to urbanisation more and more people have lesser outdoor activity. Most of the consumers are cash rich and time poor. The market for adventure tourisms consists of two major groups: People who have the desire, the money and the basic fitness level but not the time, skills, experience and the equipment required. This group generally consists of the younger generations. They can be further divided into 2 sub groups o Section of consumers that have High Disposable income but less time: They are in the workforce and have a limited vacation time. They are more likely to spend a huge amount of their income to fill up the limited time. o Smaller budget and more time People who have the experience and the skills but do not have the time to organise their own trips and would rather pay for the services(baby boomer generation)

The different determinants of consumer behaviour in case of adventure tourism are

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Marketing and advertising of various firms, their guide books, travel agents, reviews from other consumers or researches online. Constraints such as time and cost involved Range of attractions and amenities offered Personal and social needs of travel including motivators, desires and expectations Safety considerations and risk taking ability Adventure sports tourism is a fast-growing segment of the leisure travel industry. Adventure tourism is a superior/normal product and its demand increases with increase in income. It also is subject to the Bandwagon effect where more consumers are roped in on the basis of reviews and peer experiences. The expenditure in adventure tourism tends to move upwards even in difficult economic times.

The 2009 report compiled by Christina Heyniger of Xola Consulting estimated that adventure travel was an $89 billion industry globally and growing at 20 percent annually. Heyniger's study lists fishing, rock/ mountain climbing, biking and white water rafting in the top 10 adventure activities. Adventure travellers are equally likely to be single or married, and male or female. The majority are between 35-37 years old. 27% of adventure travellers are age 25-44.25% of adventure travellers are age 55 or older. 42% of adventure travellers are women They are also more highly educated than other types of travellers, with 70% of hard adventures having postsecondary education and 63% of soft adventurers having postsecondary education. All adventure travellers spend significant amounts of money on equipment & apparel pretrip. Adventure travellers are specialty travellers and thus spend more than the average traveller on a trip. The consumer trends seen in adventure tourism are not specific to a geographical area. It depends on the economic, cultural and social aspects of country. 26% of the travelling population is into adventure tourism, hence constituting an important niche within travel and tourism.

Barriers to Entry
Barriers to entry are obstacles in the path of a firm that make it difficult to enter a given market. The different barriers to entry to an adventure tourism firm would be Location: In case of adventure tourism the location needs to be pristine and in natural environments. In case of rapid and unsupervised urbanisation these areas are limited. In case of adventure sports like White Water River rafting, mountaineering, trekking the areas are restricted and hence the firms that venture into adventure tourism have to face intense competition from other firms trying to tap the growing market. Infrastructure: The emerging economies are still in the developing phase of infrastructure, construction and the equipment required along with the expertise for extreme adventure sports. These act as a limitation as huge initial capital and time investment is required to enter the sector. Risk quotient and Safety procedures: Typically the consumers engage in tourism that involves less risk and is concerned about safe travel (sightseeing over scaling Mt. Everest). Hence the market size of adventure tourism is comparably smaller as compared to tourism in general. Government policy: The government has set certain standards and regulations which need to be followed before entering the market. Requirements for licenses and permits may raise the investment needed to enter a market. Financial barriers: Since adventure tourism is a superior good and the cost of providing the service is high, the prices do not fluctuate as per changes in the market. Similarly FDI in this segment is complex and its impacts are not well understood. Resource Crunch: As already seen, due to high risk involved and many regulations by the government, there is always a shortage of skilled people in the field of adventure tourism. Also, in many developing nations like India, not many clients are willing to go for these kind of activities due to high prices and due to low customer base, this is not seen as a viable option for making it as a career. Many people learn various skills like Paragliding, Bungee Jumping etc. for fun purposes and never see it as a possible career option.

Sustainability
Adventure tourism can work as a development and economic growth agent in some of the poorer nations. Especially, those which are rich in scenic beauties and possess varied landscapes. South Africa is one the country which is tapping its magnificent outdoors and climate to deliver the value of money to customer and to sustain and generate employment for its citizens.

The way how this can be done through adventure tourism is explained through following charts. Issues hindering the progress of Poor nations
Poor Health Individual apathy and Inaction Law and order issues Government Interventions take time

Poor Education

Lack of investment from private sector

Unemployment Environmental Degradation

Neglect from International community

How Adventure Tourism can Reverse Cycle

Greater Value resources improves morale and health

New oppurtunity for foreign and local investment

Adventure business build and use local capacity, especiallly youth

Employment and Particpation in growing economy encourages interest in education

Exposure, new oppurtunity to project psotive image.

References
Christina Heyniger: Xola Consulting: business consulting services, market research statistics for the Adventure Travel Industry http://www.xolaconsulting.com/index.php Tourism-Review.Com: http://artmatters.info/?p=2367: Tourism Policy: Govt of India, http://tourism.gov.in/policy/Tourismpolicy.pdf Satya P Das.: Microeconomics for business: Dominick Salvatore : Managerial Economics in A Global Economy:

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