Presentation to Portfolio Committee

Transcription

1 Presentation to Portfolio Committee Oxford Economic Model and Market Investment Framework August 2017 Slide no. 1

2 Contents SA Tourism s Goal for the Next Five Years (slide 3) Approach for Developing the Marketing Investment Framework (slide 4) Consultation Process (slide 5) Stakeholder Feedback (slides 6 8) Developing the Market Investment Framework (slides 9 29) Operating Strategy: The Hub and Spoke Model (slides 30 ) Strategy Framework for Engagement with the Provinces(slides 31) Slide no. 2

3 Total tourism revenue from the two markets (i.e., international and domestic) is expected to reach ZAR 142Bn by 2021 SA TOURISM s GOAL FOR THE NEXT FIVE YEARS All International Tourists Domestic Holiday Tourists To meet the goal aspirations, South Africa should reach ~14.0 million international tourist arrivals Boosting the domestic holiday travel will allow South Africa to reach ~3.6 million holiday trips by international tourists, who, on a day spends ZAR 850 and stays 9.2 nights in SA in 2016 TOTAL TOURIST Revenue 1 by domestic holiday tourists, who, on a day spends ZAR 530 and stays 5.1 nights on a trip ZAR ~109Bn (TTFDS based on 2016 ) ZAR ~118Bn by 2021 ZAR ~9.7Bn (holiday Revenue based on 2016) (TTFDS + Holiday Revenue) ZAR ~142Bn by 2021 (TTFDS + TTDS based on 2016) Note: 1 Based on the spend in 2016, and not adjusted for inflation or currency fluctuations; Source: Departure Survey 2016; MIF, SA Tourism Domestic Survey 3

4 Our approach to develop the marketing investment framework is laid out below: Gather Inputs from Relevant Stakeholders Gathered inputs from stakeholders to develop hypotheses and identify the guiding principles that would help define the framework for the strategic thrust Draft Framework for Investment Choices Drafted preliminary framework, taking cognisance of the key objectives of the thrust Discuss Framework with Relevant Stakeholders Finalise the Framework Discussed and review the Marketing Investment Framework with the relevant stakeholders and gathered their inputs and refine them Finalised the framework in accordance with the inputs shared by the stakeholders, and in mutual discussion with the SA Tourism business teams Final Sign-off on the Framework Got final sign-off on the Marketing Investment Framework and portfolio selection from the relevant stakeholders 4

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6 The opinion of stakeholders across the South Africa s tourism ecosystem was gathered to determine the guiding principles to develop the investment framework Conversations with the stakeholders have provided the following inputs to be considered when developing the investment framework Measurability of Impact Clarity in Role Pragmatic Approach Guiding Principles Synergy in Efforts Agility Simplicity 6

7 Guiding Principles All the entities operating in South Africa s tourism ecosystem need to have a unified focus on the destination s tourism positioning, with synergised efforts and simplified processes Clarity in Role Key Guiding Principles Share the mandate of SA Tourism in the tourism value chain and its role in contributing to the economy of the country. Synergy in Efforts Synergies needed must be achieved among different entities operating in the tourism ecosystem New MIF needed to relate to industry s footprint in the market. Simplicity Over the years, the addition of various elements to the existing processes for defining portfolios has resulted in making the processes complex and cumbersome; therefore, MIF has define (redefine) clear and standard guidelines 7

8 Additionally, the efforts towards meeting the goal should be practical and allow for agility, and the impact should be assessed to establish effectiveness Guiding Principles Key Guiding Principles Measurability of Impact The impact of various efforts that SA Tourism is making to enhance tourism growth in South Africa were assessed. There is a clear set of indicators to establish the ROI across various aspects of the tourism value chain, which will allow monitoring of different entities effectiveness. Pragmatic Approach It is imperative that the efforts to spur the South African tourism industry should not only follow a scientific approach but also factor in the realities of the operating environment, which is what the MIF delivers Agility The evolving internal and external parameters, which impact the South African tourism ecosystem, have been addressed, to tap into the potential of emerging opportunities and or quick wins 8

9 Thrust 1 : Developing the Market Investment Framework OPTIMISING MARKETING INVESTMENTS Develop and implement an investment strategy that allows SA Tourism to focus on prioritised markets Define a robust portfolio to target opportunities Formulate an optimal investment plan 9

10 To achieve the goal of 5 in 5 SA Tourism needed to develop a marketing investment strategy that will help the organisation focus on prioritised Markets and Segments To achieve the goal of adding five million tourists to the existing baseload, in the next five years, SA Tourism needs to develop a marketing investment strategy that will help the organisation focus on prioritised markets and segments 1 Reassess Key 2 Develop Marketing 3 Inform Investment 4 Source Markets Investment Model Strategy Design a robust and replicable portfolio review approach for SA Tourism, taking into consideration each market s attractiveness and the overall targets Develop an agile, intuitive excel-based model to help SA Tourism distribute its marketing budget across identified key markets Develop and test various market scenarios to formulate an optimal investment plan and performance review schedule based on the current allocated financial resources Prepare for Future Build an Scenarios agile model that will enable SA Tourism to assess their performance in the future and adjust their strategy accordingly 10

11 Developing the Marketing Investment Framework SA Tourism s is guided by the philosophy of bringing together the targets, market selection and available resources, to establish optimal marketing investments Establish annualised targets in line with market performance and investment by leveraging information from an Oxford Econometric model What? Targets Prioritise markets for marketing investment based on performance and outlook, South Africa s ability to win in the market, return on past investments and SA Tourism s mandate Why? Purpose/ Mandate Gain clarity on the role of SA Tourism to inform the investment and partnership strategies Optimise marketing investment distribution to ensure high return on investments by mapping targets across the prioritised markets and identifying synergies across entities operating in the tourism ecosystem Where? Markets How? Investment Optimal Investment Distribution 11

12 Key steps in developing the Marketing Investment Framework Targets Determine growth to be achieved across different markets - TDM Outcome: Growth rates to assess nominal growth across all source markets Markets Level 0: Eliminate markets based on data availability Market Attractiveness Level 1: Rank markets on macroeconomic strength/stability Level 2: Rank markets on outbound attractiveness Ability to Win Rank markets on South Africa s ability to win Outcome: Priority order of Markets Allocate budget across the prioritised markets by leveraging baseline growth, setting activated growth, and applying the relative cost of acquisition Investments Assess arrivals (by specific purpose) from the existing portfolio markets Determine marketing spend (for the purpose) across the specific portfolio markets Outcome: Relative cost of acquisition of tourists across all markets 12

13 SA Tourism leverages the Tourism Decision Metrics (TDM) developed by Oxford Economics. The model forecast Global Tourism Demand for 190 countries. Targets It currently estimates that the WORLD will reach 1,553Mn arrivals by 2021 From the Global tourism demand it calculate a share of each destination country based on historic and future performance. For SA it estimates a share of 12.7Mn arrivals by Global Tourism Demand (190 Markets) Destination Market Share Calculation For each origin market: Real GDP Consumer Spending Exchange rates Unemployment For each potential destination: Prices Consumer price Index, Exchange rate, Interest rates Destination competitiveness Index Regulatory frame work Environment & Infrastructure Human, cultural and natural resources 13

14 Market prioritisation exercise ranks countries on their relative attractiveness as a source market and South Africa s ability to operate and perform in that market Marketing Investment Framework: Markets Targets Baseline vs. Activated Growth: Determine growth achieved with/without marketing investment across different markets Outcome: Growth rates to assess nominal growth across all source markets Markets Level 0: Eliminate markets based on data availability Market Attractiveness Level 1: Rank markets on macroeconomic strength/stability Level 2: Rank markets on outbound attractiveness Ability to Win Rank markets on South Africa s ability to win Outcome: Priority order of Markets Allocate budget across the prioritised markets by leveraging baseline growth, setting activated growth, and applying the relative cost of acquisition Investments Assess arrivals (by specific purpose) from the existing portfolio markets Determine marketing spend (for the purpose) across the specific portfolio markets Outcome: Relative cost of acquisition of tourists across all markets 14

15 As the first step, the prioritisation framework filters out countries with no data availability for select essential indicators that demonstrate the macro-economic state of the market Markets: Attractiveness Level 0 As the framework is driven by several data points, data availability is a key criterion to remove countries from further analysis For market prioritisation, the framework considers all the countries in the world (214 countries), and shortlists markets based on their data availability across mandatory indicators, which can be selected from the following: Indicator Name Data Availability (By Country) Mandatory Indicator for Next Level Selection Urban Population 209 GDP PPP per Capita Currency Exchange Rate Political Stability Index Education Index In the current selection scenario, for a source market, if data is not available for any of the selected indicator that market will be filtered out from the next level analysis 15

16 Social Economic Owing to data unavailability, lack of information consistency and redundancy, few indicators are not considered for Level 1 analysis of the market attractiveness framework Level 1 Markets: Attractiveness Level 1 Indicators Political Political Stability Index GDP PPP (Per Capita) Inflation Rate Annual Disposable Income Unemployment Percentage Inequality in Income Currency Exchange Rate GDP PPP (Total) GINI Index Cost of Living Index GNP (Total) GNP (Per Capita) Income Quartiles Education Index Urban Population Urban Population (% Growth) Total Population Population (15-64 Years) Human Development Index Literacy Rate Youth Literacy Rate 1 Technology Internet Penetration Mobile Phone Subscription 1 Mobile Device Penetration 1 Others Proximity to South Africa No. of International Flights 1 No. of Metro Cities 1 Note: 1 Excluded based on low data availability 16

17 Social Economic Driven by the principle of simplicity : Indicators are further shortlisted using correlation analysis, removing redundant indicators reflecting similar trends Markets: Attractiveness Level 1 Indicators (Correlation) Political: Political Stability Index GDP PPP (Per Capita)* Inflation Rate Unemployment Percentage Inequality in Income Currency Exchange Rate Annual Disposable Income GDP PPP (Total) GINI Index Cost of Living Index Education Index Urban Population Urban Population (% Growth) Total Population Population (15-64 Years) Human Development Index Literacy Rate Technology: Internet Penetration Others: Proximity to South Africa Political Stability Index 1.00 GDP PPP per Capita Inflation Rate Unemployment Inequality in Income Currency Exchange Rate Annual Disposable Income GDP PPP Total GINI Index Cost of Living Index Education Index Urban Population Indicators are excluded on the basis of correlation between them. The indicators with correlation value of more than ±0.5 are excluded (subject to their relevance) * Indicator is used as a composite score of the current value, historic growth rate and future growth rate Urban Population Growth Total Population Population Years Human Development Index Literacy rate Internet Penetration

18 Relative weights of the different indicators are calculated by regressing them against dependent variables that demonstrate the anticipated impact from the level of analysis Economic Social Markets: Attractiveness Level 1 Indicators (Regression) Level 1 Dependent Variable Africa Land Markets Africa Air Markets Total Outbound Trips Overseas Markets Percentage of Long Haul Trips Political: Political Stability Index 10% 12% GDP PPP (Per Capita) 12% 17% Inflation Rate Unemployment Percentage Inequality in Income 3% 18% The weights are calculated by taking proportion of the coefficients of each variable in the regression equation Currency Exchange Rate Education Index 13% 9% 1 11% The weights are further readjusted to ensure that each variable is given relevant weight Urban Population 13% 22% Urban Population (% Growth) 8% 10% Technology: Internet Penetration 7% Others: Proximity to South Africa 2 10% 18

19 Similar to Level 1, a few indicators are not considered for Level 2 analysis due to data unavailability or redundancy South Africa Travel Global Travel Index Markets: Attractiveness Level 2 Indicators Level 2 Total Outbound Trips Total Domestic Trips Passport Index Tourist Outbound Expenditure Short Haul vs Long Haul Trips % Leisure Outbound Trips % Business Outbound Trips Outbound Air Passenger Carried No. of International Tickets Sold (Air/ Water/ Road) 1 No. of International Packages Sold 1 Index Holiday Arrivals (% of Total) MICE Arrivals (% of Total) Average Spend in South Africa Length of Stay No. of Expatriates Travelling to South Africa* Average Spend by Purpose The geographic positioning of a country has an impact on the outbound nature of the source markets; thus, to ensure relevance of outbound attractiveness of South Africa s source markets, travel behaviour related to South Africa has been considered Note: 1 Excluded based on low data availability *Total Arrivals to South Africa are estimated based on country of residence and not nationality (and includes information on expatriates travelling). This data is considered as a key component to estimate weights, and its impact has been accommodated while prioritising markets 19

20 For Level 2 analysis, a few redundant indicators are removed from the assessment by leveraging correlation analysis to streamline the list of indicators Global Travel Index South Africa Travel Index Markets: Attractiveness Level 2 Indicators (Correlation) Level 2 Total Outbound Trips* Total Domestic Trips Total Outbound Trips 1.00 Total Domestic Trips Passport Index Indicators are excluded on the basis of correlation between them. The indicators with correlation value of more than ±0.5 are excluded (subject to their relevance) Passport Index Tourist Outbound Expenditure Tourist Outbound Expenditure Short Haul vs Long Haul Trips * Indicator is used as a composite score of the current value, historic growth rate and future growth rate Short Haul vs Long Haul Trips % Business Outbound Trips % Leisure Outbound Trips Outbound Air Passenger Carried Holiday Arrivals (% of Total) MICE Arrivals (% of Total) Average Spend in South Africa Length of Stay % Business Outbound Trips % Leisure Outbound Trips Outbound Air Passenger Carried Holiday Arrivals (% of Total) MICE Arrivals (% of Total) Average Spend in South Africa Length of Stay

21 South Africa Travel Index Global Travel Index Global and South Africa-specific travel trends and behaviour are likely to impact South Africa s Market Share in the outbound market; hence, it is leveraged as the dependent variable Markets: Attractiveness Level 2 Indicators (Regression) Level 2 Africa Land Markets Africa Air Markets Overseas Markets Dependent Variable Market Share: Arrivals to South Africa by Total Trips Total Outbound Trips 21% 22% 9% Total Domestic Trips Passport Index 23% 1 9% 19% 20% 1 The weights are calculated by taking proportion of the coefficients of each variable in the regression equation Tourist Outbound Expenditure Short Haul vs Long Haul Trips 21% - - 8% 12% The weights are further readjusted to ensure that each variable is given relevant weight % Business Outbound Trips Holiday Arrivals (% of Total) 3% 9% MICE Arrivals (% of Total) 3% 7% 12% Average Spend in South Africa 17% Length of Stay 3% 8% 21

22 The framework calculates the overall attractiveness score of source markets by combining scores from Level 1 and Level 2 analysis, after applying relevant weights Combined Score Markets: Attractiveness Combined Score Level 1 (Macroeconomic View) and Level 2 indicators (Tourism View) have a different magnitude of impact on tourist arrivals to South Africa. Therefore, the scores from these two analyses are appropriately cumulated to calculate the overall attractiveness of a market To consider the expected difference in impact of the two parameters, both scores are provided a weighted percentage that reflects their impact on arrivals to South Africa To calculate this ratio, the final scores of Level 1 and Level 2 are regressed against South Africa s market share of arrivals, where coefficients from the regression output determine the weights for level 1 and 2 scores Independent Variables Level 1 Score Level 2 Score Regression Analysis Dependent Variable South Africa s Market Share of Arrivals Weights 1 Level 1 Weights: 20% Level 2 Weights: 80% Market Attractiveness Score Level 1 Score Level 2 Score Note: 1 The weights have been calculated based on the relative contribution of each Level of analyses on the outcome of Level 2 across the different sets of markets, i.e., Africa Land, Africa Air and Overseas 22

23 Ability to win analysis evaluates markets based on South Africa s ability to operate and perform in these markets Markets: Attractiveness Ability to Win Ability to Win Analysis Relationship Better political relations and welcoming visa/travel policies act as an advantage for a destination market, increasing the number of tourists from different source markets Infrastructure Existing diplomatic and tourism specific operational centres in source markets provide an additional advantage of ease of operation Market Favourability Source markets with supporting business policies are easy to enter and conduct marketing operations Operational Connectivity Better air connectivity and proximity between source and destination market provide additional advantages of reduced travel time and ease of travel, thereby improving travel 23

24 Qualitative indicators in the ability to win analysis are quantified on appropriate scales to conduct a relative assessment Markets: Attractiveness Ability to Win Indicators Ability to Win Relationship and Infrastructure Political Scenario Visa Regulations by South Africa Current Partner Network South Africa s Presence Market Favourability Starting a Business Index Enforcing Contracts Index Trading Across Border Index Resolving Insolvency Index Operational Connectivity Airports with Direct Flight Proximity to South Africa South Africa s Brand Perception 1 Brand Recall Rating on Willingness to Visit Perception as Leisure Destination Likelihood to Recommend Rating as Affordable Destination Rating as Leisure Destination Other Language Constraints Note: 1 Excluded based on low data availability on all markets 24

25 Operational Connectivity Market Favourability Relationship and Infrastructure Indicators determining South Africa s ability to operate and perform in these markets are likely to influence the Arrivals to South Africa from the source market; thus, arrivals is leveraged as the dependent variable to determine the relative weights Markets: Attractiveness Ability to Win Indicators (Regression) Ability to Win Africa Land Markets Africa Air Markets Overseas Markets Dependent Variable Tourist Arrivals to South Africa Political Scenario Visa Regulations by South Africa Current Partner Network South Africa s Presence Starting a Business Index 17% 17% 17% 9% 7% 18% Leveraged Tourism Competitiveness Score as a proxy to Current Partner Network, as state of tourism economy in a market is a good reflection of trade in the market, and can determine the possibility of having good partnerships Trading Across Border Index Enforcing Contracts Index 9% Resolving Insolvency Index 1 10% Airports with Direct Flight 10% 21% 21% Proximity to South Africa 10% Others: Language Constraints 1 25

26 The framework calculates cost of tourist acquisition in each market, and factors in targets to be achieved and priority order of markets to distribute the marketing budget Marketing Investment Framework: Investments Targets Baseline vs. Activated Growth: Determine growth achieved with/without marketing investment across different markets Outcome: Growth rates to assess nominal growth across all source markets Markets Market Attractiveness Level 0: Level 1: Eliminate markets Rank markets on based on data macroeconomic availability strength/stability Level 2: Rank markets on outbound attractiveness Ability to Win Rank markets on South Africa s ability to win Outcome: Priority Priority Order order of of Markets Markets Allocate budget across the prioritised markets by leveraging baseline growth, setting activated growth, and applying the relative cost of acquisition Investments Assess arrivals (by specific purpose) from the existing portfolio markets Determine marketing spend (for the purpose) across the specific portfolio markets Outcome: Relative cost of acquisition of tourists across all markets 26

27 As SA Tourism has limited resources, it needs to prioritise the markets that should qualify in its investment set, i.e., which can be nurtured through in-market marketing. Other attractive opportunities need to be kept in the purview for future actions Classification of Markets across the Three Tiers: Investment Set Budgets are allocated across the markets, in reducing order of attractiveness, to conduct inmarket activity and achieve the desired growth Core Markets Strategic Markets Rest of the World Budgets exhaust here Opportunities that are attractive but cannot be invested in due to resource unavailability, have been categorised as strategic markets Remaining markets, which are not included in either the core set or the strategic set, will be dealt with minimum support Similarly, markets in the tiers of Other Arrivals (i.e., VFR) and Overall Arrivals are also classified as core and strategic 27

28 The allocated budget for SAT could only afford to service a total of 29 countries. These markets were categorised across the three tiers of the role pyramid, leading to a varied set of responsibility within each tier. Marketing Investment Framework: Core Markets Twenty nine (29) core markets have been shortlisted, for dedicated in-market marketing investments, of which: Twenty two (22) markets predominantly contribute to holiday and MICE arrivals Five (5) markets predominantly contribute to VFR Two (2) markets have the highest share of traders/resellers Core Markets (in order of priority) USA Australia Germany UK France Switzerland Netherlands Brazil Canada China Italy Tanzania Holiday and MICE Arrivals India Denmark Belgium Portugal Sweden Kenya Ireland Nigeria Namibia DRC Other Tourism Arrivals (such as VFR) Lesotho Swaziland Zimbabwe Botswana Mozambique Overall Arrivals (such as resellers and traders) Malawi Zambia Note: The categorisation across the three tiers is based on the prominent purpose of visit. For the Holiday + MICE tier, all Holiday and MICE arrivals have been considered, in addition to the other visits 28 related to business, which are not classified as business resale purposes. Other tourism arrivals are primarily based on VFR and personal shopping. Overall arrivals primarily comprise business resale

29 Based on the MIF the ROI provided sufficient ground for Treasury to allocate budget to cover the additional 14 Strategic markets. Marketing Investment Framework: Core + Strategic Selection Certain markets, ranked high in the investment framework, are not selected as Core markets based on value/volume contribution or available budgets. These markets are inspected for potential and ability to collaborate, and are selected to form the Strategic set 11+5 in Europe 3 +1 in Americas 3+4 in Asia Pacific + # Additive numbers in grey represent strategic markets Darker shade represents Core markets Lighter shade represents Strategic markets 12+4 in Africa 29

30 OPERATING STRATEGY: The Hub and Spoke Model HUB-AND-SPOKE OPERATING STRATEGY FOR INTERNATIONAL MARKETS United Kingdom Ireland Netherlands Belgium Norway Denmark Sweden Finland SA Tourism will configure itself in a Hub-and-Spoke manner, to ensure effective marketing initiatives, support to the value chain partners and effective delegation of authority and responsibility Canada United States *Domestic market as well as markets in South America, Central and Eastern Africa, and Africa Land will be operated from South Africa. Brazil Argentina France Portugal Spain Italy Nigeria Ghana DRC Angola Mozambique Malawi Zambia Zimbabwe Namibia Botswana Swaziland Lesotho Germany Switzerland Austria represents hub in the region Turkey UAE Uganda Tanzania Ethiopia Kenya South Africa* India Singapore North America Malaysia China Japan Australia New Zealand Northern Europe Eastern Africa South America United Kingdom Western Africa Australasia Central Europe Central Africa China Southern Europe Africa Land South East Asia There will be some markets such as those in South America that will be managed virtually via third-party marketing agencies, in a prudent manner 30

31 SA Tourism Strategy Framework for Engagement with the Provinces The SA Tourism strategy is underpinned by the 5-in-5 National Tourism Target which is jointly owned by SAT and the PTAs. This drives strategic alignment, proportionate resource allocation and coordination of marketing activity. Source Markets 5-in-5 National Tourism Target Drives Resource Allocation Distribution Markets Success Factors: Making 5-in-5 come alive and relevant in the provinces. APPs and Strategies need to link up Current 10m India Australia Netherlands United Kingdom Eastern Cape Western Cape Northern Cape Gauteng SAT and PTA become jointly accountable for the targets Effort, resources and funding deployed according to targets eg hostings, APPs etc Elevate targets into provincial performance (Premier + SOP) + 5m in 5yrs Germany United States China Africa Other DIRCO North West Limpopo Mpumalanga Free State KwaZulu-Natal Grading targets included PTA CVP: Strategy formulation and market execution Global and local market support and alignment Ownership of local activities and activations + local capacity and tourist activities - 4% of global target (eg) - Key source markets 31

32 THANK YOU 32