An Analysis of the Challenges in the Tourism Industry and Their Impacts

Categories: Tourism

The Tourism Industry is a unique sector of the economy because of how wide-ranging it is across industries. This means that the factors which effect it are extremely diverse from political, economic to psychological and environmental. As well as this there are many inter-relationships with the economy like construction, retail and education which means challenges faced by the tourism industry need to be understood and tackled effectively because they will have a wide reaching impact across society. According to World Tourism Organization tourism makes up 9% of GDP and there were 1087 million international tourists in 2013.

In this essay I am going to highlight some of the biggest challenges I think will impact the tourism industry and look at some of the issues involving these.

In particular I am going to look at are the shifting needs and demands of consumers, the design and delivery of tourist experiences and also externalities, risk and crisis management. Tourism involves the movement of people between borders which means that exogenous factors as well as direct influences have a significant effect on the consumer demand for a destination.

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A change in the demands of consumers is an important challenge faced by the tourism industry because firms providing holiday packages will need to forecast these changes and adapt to them accordingly in order to remain competitive within the industry. Schwinger in 1989 predicted that tourism demand will continue to grow and become more and more differentiated as groups of consumers will have specific demands due to their preferences being varied.

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The challenge for tourism industry is being able to predict changes in consumer demand and then react accordingly. In order to do this we must look at the factors impacting on demand. These can be grouped into economic, social and political determinants.

However because of the nature of the tourism industry the factors which impact on its demand are so far reaching that is it extremely difficult to identify the source of the change in demand. Since 1945 there has been an increase in tourism which is more individual and more environmentally and culturally sensitive. There has been a move away from the ’38’ tourism which consists of sun, sea and sand where consumers looked for mass consumption and a much more standardized product. The tourism industry must become more consumer oriented to be able to meet individual needs of consumers who are more culturally aware and are looking for a certain quality to their experience which could develop them as a person. Maslow (1943) focused on the hierarchy of consumer needs by ordering their needs from lower physiological needs and then moving towards higher.

It is based on the idea that once basic needs are fulfilled like hunger and thirst a consumer moves towards higher order classification like safety needs and esteem needs finally ending in self-actualization needs like personal self-fulfillment. This framework proves quite useful for tourism companies when looking at tourist motivation however because there are usually a number of factors involved it may limit this application. There have been developments in ecotourism where tourists are mainly motivated by their interest to the save the environment. An example of this is the Liana Lodge in Ecuador which allows tourists to experience the vast diversity of the Amazonian rainforest without damaging the protected areas. This is just one example of how ecotourism has grown into a significant niche market in Ecuador due to the change in preferences of consumers. However one main issue is that public policy are needed if the scale of demand for ecotourism becomes unmanageable. This is important because this type of niche tourism relies on the idea that only small groups of consumers are interested otherwise will have a detrimental effect on the environment and therefore defeat the purpose of ecotourism.

However changes in consumer demand may actually benefit the tourism industry as demand may increase so the industry will experience an increase in profits and also changes in demand may just provide new opportunities for firms to expand their products into new markets such as volunteerism or pro-poor tourism. International tourist arrivals grew by 5% just in 2013 to 1.087 billion. One way the tourism industry could deal with these demand changes is by providing much greater personalization. For example a majority of consumers now purchase holiday packages online so allowing them to be able to customize their own holidays could be an effective method as each consumer can obtain what they desire.

This type of personalization could be linked to market segmentation which is an important marketing response used by companies. Market segmentation is the process of dividing the industry into identifiable groups in order to provide consumers exactly what they want. Tourism companies can use a three part process of market segmentation, targeting and positioning in order to tackle differing consumer needs. Identifying groups in order to segment the market and then developing profiles for these is a specialist function which is usually done by market research agencies as market research is key for this. However the life cycle of products is getting shorter which means that market segmentation is more difficult because marketing needs to adapt much quicker. Market segments are also getting smaller and products are more targeted.

Another challenge faced by the tourism industry is the design and delivery of the tourist experience. Increasingly customer experience has become a decisive success factor for tourism products. It is important that companies provide an experience which means customer expectations as it is the best strategy a business can follow because it translates to increased profits. Tourism is an intangible good and customers must pay for it in advance which means they must rely on the accuracy of information available such as reviews so customer satisfaction is key. The ‘Gaps in service quality’ model shows the issues that firms may face when trying to provide a service. Gilbert and Joshi (1992) identified 5 gaps which exist in the delivery of tourist services. Gap 1 refers to the management’s perception of what the expected service should be, the second looks at the translation of tourist needs into service quality specifications and the third involves the actual delivery of the service. Gap 4 is about the organization’s communication with the consumer and whether the promised service and the delivered service match and lastly gap 5 being the difference between the initial expectations of the consumer and their actual perception of the service.

Effective utilization of market research techniques could help reduce some of these gaps. Management’s perceptions of the consumer experience may be inaccurate so it is important that they gain detailed information from consumers on what they desire so they can provide the best product possible. It is also vital that their marketing techniques are a realistic reflection of the actual quality offered otherwise they may oversell their product and so lead to consumer dissatisfaction. Haywood and Muller (1988) provided a framework in order to evaluate the consumer experience and so aid firms in understanding if their services are successful in the eyes of the consumer. For example websites like trip advisor which provide reviews of consumer experiences may show Companies see services as process but from the customers point of view they are ‘experiences’ which are a “result of encountering, undergoing or living through situations” (Schmitt 1999, p25).

An experience can be split into four realms; entertainment, educational, aesthetic and escapist. The challenge for the tourism industry is being able to see the service from the customer’s point of view and so create a ‘memorable experience for each consumer. The Customer Journey Canvas (Stickdorn and Schneider 2010) provides a structured graphical representation of consumer experiences as a sequence of touchpoints (McCabe, n.d p339). This allows the firm to highlight exactly what the consumer experiences and so be able to adapt their marketing and processes to improve their experience. The high-level overview means that There will be a sequence of touchpoints looking at the pre-service and post-service period which evoke expectations in a consumer either before they experience or after. Satisfied guests are more likely to become loyal customers and then therefore recommend other consumers and so influence the pre-service period of potential consumers.

The expectancy-disconfirmation paradigm (Oliver 1977) gives an an analysis of the judgements of consumers in relations to their expectations and also their post consumption status at certain touchpoints as shown in the customer journey canvas. Another response of firms to improve consumer experiences could be to use the five key design principles (Pine and Gilmore 1998). The experience should be themed and this should be harmonised with impressions as these are the ‘takeaways’ of the experience. Elements of the service that do not relate to the theme should be removed as they diminish the harmonisation of the theme. As well as this memorabilia are an effective marketing tool because they represent a memory of the consumers experience. Lastly, it is important that all five senses are engages because it creates a more effective and memorable experience.

Another key challenge faced by the tourism industry in relation to service delivery is ‘servicescape’. Servicescape is a concept developed by Booms and Bitner to emphasise the impact of the physical environment in which the service process takes place and assess the difference in customer experience depending on this. Servicescapes influence the nature and quality of customer and employee interactions (Bennett and Bennett, 1970) so can either enhance or detract from the customer experience. Service providers can benefit from this impact if market research is accurate and they are able to determine exactly what factors improve the overall experience for the consumer. However the challenge is that servicescapes should be designed holistically which means that design elements are fully integrated because each element will impact on everything else.

One marketing response could be service design. Service design is a strategic design process which aims to create good customer experiences. This approach uses concepts from various disciplines such as strategic and service management, operational management but also psychology, sociology and architecture and many others. For example, the Rainforest Cafe is an example where servicescape has been used effectively through the tropical forest theme which flows through the whole process so that consumers get the optimal experience. Consumers in the tourism industry face a variety of different risks ranging from economic, psychological, performance and also physical. This is because of the nature of the product which means that “Tourism is particularly sensitive to security and health concerns”. (Blake and Sinclair: 2003: 814)

Crisis and risk management is key for the tourism industry because of the impact that such events have on tourism demand. Crises that impact tourism can be divided into three categories; natural, medical and man made. Natural crises could be seen as the effects of climate change and global warming for example, earthquakes, tsunamis etc. The “attraction potential of most destinations” (Gössling & Hall, 2006, p. 1) depends greatly on natural resources. This means that the potential impacts of climate change have significant considerations for planning in the tourism industry. The most drastic impact will be sea level rise on island states. For example the Maldives which is an extremely tourism dependent country is only 8 feet above sea level so eventually sea level rise will threaten the existence of the island which means tourist will no longer be able to visit the island.

As well as sea level rise, natural disasters are also a challenge for the tourism industry because they are largely “unpredicted catastrophic changes” (Faulkner) which have a huge detrimental impact on tourism. A good example of this is the 2004 Indian Ocean Tsunami which had a huge impact on Thailand’s tourism industry and its entire economy because of the country’s dependence on tourism. In 2002 tourism contributed 6% to GDP (Flamm, 2005). In particular areas which are largely dependent on tourism are more susceptible to such natural disasters. As well as the physical impact of the tsunami leading to a sudden decrease in tourism there was also an emotional impact because consumers suddenly became aware of the risks involved. Tourist perceptions of areas which are sensitive to climate change is important because consumers will decide on a tourist destination based on their perception of it. A key response for the tourism industry in regard to such natural crises is crisis management so that the impacts of the event are minimised.

There are five phases to such a method; signal detection, preparation and prevention, containment, recovery and learning. Each part of the process is important however I think in terms of the tourism industry during and the after the crisis is when firms must play a key role. Communication to consumers is vital in order to maintain confidence so promotional messages and effective research will be key for this. Even if after the crisis the country or area recovers in terms of environment and infrastructure if consumers perceive it to be too risky or unsafe then tourism there will not continue. However climate change in some cases may also be an asset to the tourism industry because a warmer climate due to global warming will benefit holiday destination where heat and sun is a selling point. For example in the UK an increase in the temperature may encourage domestic tourism and also inbound international tourism due to the warmer climate.

Disease outbreaks and medical issues are another shock to the tourism industry. This is because consumers will be completely put off travelling to destinations which are known to be high risk areas. For example the Ebola outbreak in 2014 first reported in March swept across West Africa and killed 5,689 people across six countries (BBC News, 2014). As well as the direct impact of the disease on the lives of many the African tourism industry has also been effected because “it’s difficult to defeat fear with logic” (Paris, 2014). The impact has also not just been limited to the countries affected by the disease but also other countries in the West African region. Tourism is a “discretionary purchase” which means that consumers have complete freedom of choice in terms of whether they want to travel or not. This means that fear is an extremely big deterrent for consumers. For the tourism industry it is difficult to contain such an outbreak but communication to consumers is key in order to prevent fear spreading. Man-made risks are another challenge for the tourism industry.

Tourism and terrorism tend to be correlated because the strength of the tourism industry means they are an ideal target for terrorist attacks due to the social and economic disruption that is caused. The threat of terrorism can have severe adverse effects on tourism demand in that region because consumers are unlikely to be will willing to travel to a destination that is prone to terrorist attacks. For example, the terrorist attacks on September 11, 2001 in New York had huge detrimental impacts on international air travel not just in the United States but worldwide. This is due to the widespread concern over international air travel safety. In the United States there was a greater impact as there was a sudden drop in international arrivals due to the perceptions of consumers which made it a less attractive travel destination. In response to terrorist attacks it is difficult to find crisis management strategies which are tailored for tourism but generally the tourism industry will need to be prepared for such eventss and should encourage each tourist destination to incorporate crisis management planning into their strategies. As well as this the tourism industry will be key in restoring confidence in the area and eliminating fear from consumers in order to make them comfortable to travel to that destination once again.

I think the factor which is the biggest challenge for the tourism industry is risk and crisis management. This is because they are unpredictable and can have widespread effects which last for a long period of time. Also, it is difficult for the firms to react to these events and be able to restore demand back as there are few responses which are extremely effective. With natural disasters, medical outbreaks and terrorist attacks the impact which mainly affects tourism is fear. This is difficult to counterattack because perceptions of consumers are difficult to change especially with the amount of media coverage that is involved with such major events.

Although these crises may be infrequent their impacts could be disastrous and irreversible which makes them one of the biggest challenges in my opinion. However as well as this the factors like keeping up with new consumer demands and meeting consumer expectations are extremely important because firms can have more of a response to these because with the appropriate marketing technique or strategy these could be overcome effectively. The challenge here is for firms to be able to predict future trends in tourism before they happen so they can adapt their marketing strategies and so gain maximum profits when the needs of consumers do change. This may be difficult in some cases but market research will be vital in the success of tourism products especially in regards to market segmentation.


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An Analysis of the Challenges in the Tourism Industry and Their Impacts. (2021, Sep 12). Retrieved from

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