An optimization model for tour operators considering bundling of services, pricing strategies and supplier selection with quality aspect

• Main Authors: Ibana, Miguel Enrico, Saquido, Meryll Ingrid, Yang, Daphne Kate
• Format: text
• Language: English
• Published: Animo Repository 2018
• Subjects: Tourism—Linear programming; Operations Research, Systems Engineering and Industrial Engineering
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18662
• Institution: De La Salle University

Tourism is a fast-growing phenomenon that has become one of the largest service industries in the world. Due to its increasing impact to the economy of countries, it has gained much attention. With that, the importance of the tour operator's services has grown. Tour operators bundle service products into a single tour package, consequently having the challenging task of playing the middleman between service providers and customers. The services offered by tour operators play a significant role in the overall success of a tourist's vacation experience. Despite having a central role in an emerging industry, several travel agencies shut down due to commercial reasons, conflicting business strategies with their partners, or external economic environments. The current study developed a linear programming model that is designed to adhere to the unique operational dilemmas faced by tour operators. More specifically, the objective of this paper is to develop a strategic revenue optimization for tour operators considering; (I) bundling of packages, (2) supplier selection that considers quality, and (3) service add-ons. The model decides a supplier sourcing and product bundling strategy for a single planning period, while being historically provided with a defined customer profile. The model is logically validated through varying input parameters, and then analyzed given different scenarios. The first scenario deals with the customer demand. When customer demand decreases, it is better for the tour operator to buy individual services rather than quantity discounted services. If customer demand is increased, then quantity discounted services are more favorable than individual services. The second scenario deals with the amount of rooms and seats inside each predesigned package and the result shows that 2 rooms and I seat is the ideal allocation. The model was taken a step further by the analysis of the demand as a function of price through determining the optimal markup price setting. The results showed that the optimal markup price for predesigned packages should be lower than the optimal markup price for the service add-ons, which are not part of the predesigned packages. In order to reach the maximum profit of the tour operator given that customers are price sensitive. Several managerial insights can be made using the model such as; optimal supplier mix, package bundling strategies, and price setting strategies.