H OSPITALITY AND T OURISM A DVISORY S ERVICES

1. HOSPITALITYAND TOURISM ADVISORYSERVICES Future Marketing Strategy for the International Markets November 2006 e Quality in Everything We Do

2. The surveys clearly revealed • Israel has considerable “growth prospects” in the international markets

3. Which strategies / measures are necessary • to realize these growth prospects • to convert interest into trips? Or else: • What does the realization of the growth prospects depend on?

4. Overcoming the Barrier “Political Situation” Israel’s political situation acts as a strong barrier, but this should • not be an argument for being inactive in the international markets In contrast, • the political situation should be a spur to be particularly active in the markets

5. Because, • the more present • the more attractive Israel appears as a tourism destination in the international markets, • the more this barrier can be overcome

6. Active Marketing The precondition to realize Israel’s growth prospects is • a very active • continuous • long-term oriented marketing in the international markets And (in connection thereto) • a sufficient / long-term secured marketing budget

7. 5-Year Marketing Program In a first step, irrespective of the political situation, an at least • “5-year marketing program” • with a guaranteed “5-year marketing budget” has to be consequently realized (For more than 5 years Egypt e.g. is consequently and successfully adhering to its marketing program – independent from political events)

8. The Aim for the Int'l Markets: A realistic target (also considering political setbacks and, on the other hand, aviation reform) is: • to double the number of international tourists in the next 5 years 4-5 m 2 m

9. The Potential • Substantial growth prospects for Israeli economy • Doubling the number of annual international visitors by 2011 to 4 million visitors could result in: • An annual addition of approximately NIS 18 billion in international travel and tourism receipts in Israel • An annual addition of approximately NIS 15 billion to Israel’s GDP • The creation of nearly 45,000 new jobs in Israel

10. Marketing Strategy for the Int’l Markets What would be the most important strategies / measures for the international markets in order to reach this target? At first: to select the right markets for investment

11. Priority / “High Potential” Markets “First Priority” Markets USA Great Britain Germany The “three Big” demand markets worldwide with high Interest Potentials for Israel The second most important market for Israel at present with a traditionally high affinity towards Israel France Italy Sweden A growing market with a high interest in Israel A smaller but very high spending market and having an above average interest for Israel

12. “Second Priority” Markets Switzerland Netherlands Russia Canada China A smaller but substantial, high-spending market A smaller market, but having one of the highest outbound travel intensities The most important Eastern European source market but altogether a smaller outbound market A smaller market for overseas trips but having a high ethnic / Jewish share A smaller market but a growth market, also with an interest in Israel (but only for 1-2 stays in the scope of a multi-destination trip)

13. Non-Priority Markets (at least in the next 5 years), among others India Poland Hungary Small outbound market, primarily business trips Smaller / low spending market (religious-inclined market) Small / low spending outbound market

14. “High Potential” / Most Promising Markets for Israel: • France • Italy • Sweden • USA • Great Britain • Germany

15. Marketing / advertising budgets should above all invest in • the first priority / “high potential” markets, the markets with the best earning prospects for Israel and only to a lesser degree in • the second priority markets No specific investment (at least in the next 5 years) in • the “non-priority” markets After 5 years the ranking of the high potential markets / budget allocation should be reviewed and adjusted if necessary

16. Future Target Groups / High Potential Segments Israel’s growth prospects in the international markets lie above all • in the “holidaymaker” segment • namely, in the segment interested in “Culture / Tour”

17. Additional segments (but only for smaller target groups and/or single markets): • Sun&Beach with affinity for culture • religiously-motivated / Pilgrimages • ethnic / VFR Generally not a target group for Israel: • families with small children

18. The Future Product Strategy The absolute main product for all international markets / the product with the best market chances is • the Tour In European markets: primarily Tour only Israel America: Both, only Israel and multi-destination Tour (Greece, Egypt, Italy) Asia: Only multi-destination Tours (whereas the visit of Israel is limited to a maximum of 1-2 days)

19. Strengths of the Tour • highly competitive (due to the uniqueness of the religious sites) and • less price-sensitive • less safety-sensitive due to less exchangeable: - the “pyramids” can only be found in Egypt - the “places of the bible” only in Israel

20. Also important for all markets: • Tour with a few “relaxing days” above all at the seaside (Tour combined with Sun&Beach)

21. Further products for the international markets (although for smaller target groups and not for all markets): • Sun&Beach holiday at the Red Sea (especially Great Britain, Sweden) • Traditional religious Pilgrimage (USA, Italy, Poland, Canada) • Spiritual/ Meditative/ Self-finding trips (Germany, Sweden, Italy, USA) • Visiting Israel as part of a cruise (Great Britain, Sweden) • Medical stay at the Dead Sea (Russia, Germany) • CityBreak (Jerusalem) (Italy) • Kibbutz stay (young people) (France, Sweden) • Desert trip (Sweden)

22. The Future Price Strategy The realization of Israel’s growth prospects will also significantly depend on • the price strategy Israel follows in the future In this context, it is decisive: • prices must not constitute a second barrier (beside the political barrier) on the contrary, • prices should be an instrument to somewhat compensate the risk of the political situation

23. Given moderate prices, • the political barrier can be brought down and • a much broader target group can be reached (a large part of the Israel potential, especially in Europe, comes from the middle income brackets)

24. Therefore, in the international markets, Israel should primarily follow a • “mid-priced” strategy Thus important: • A sufficient offer “good quality mid-grade accommodations” (3-star hotels, particularly also with a sense of place) • inexpensive air fares Focusing on a mid-priced offer does not exclude high-priced offers, but the main emphasis should remain on good quality mid-grade offer

25. The Future Distribution Strategy The main distribution channel for Israel in the international markets should be • Tour Operators / Travel Agencies In order to better exploit the large interest potential, Israel needs to • strongly cooperate with tour operators / travel agencies and should • significantly increase the number of tour operators / travel agencies offering Israel This represent a central marketing task in the next years to come

26. What do tour operators expect from Israel? • Financial support in subsidizing aviation in the form of a safety net for seat occupancies / cancellations(although only relevant to large tour operators with own charter flights) • Well-priced flights(generally more important because this also benefits the small and medium-sized tour operators) • Free information trips(particularly important for tour operators not offering Israel)

27. But: The by far most important sales-supportive measure from the tour operators’ / travel agencies’ view would be • a more “moderate price policy” and conducting • a continuous / intensive “consumer advertising” both in order to activate / increase the consumer demand Therefore, the so-called “safety net” would be an important but only flanking measure (for large tour operators with own charters only)

28. Expected support in the case of an “acute crisis”: • fast, honest and reliable information • professional first response / evacuation measures • assumption of all costs (cancellations / transportation, etc.) and a “post-crisis management”, including: • advertising to rebuild the clients’ trust • reduction of prices / special offers in the following season That means, decisive for the tour operators are: • moderate prices • and consumer advertising

29. The Internet as a Sales Channel The tour operators themselves are increasingly offering online bookings At least for the next few years, Israel should refrain from its own online sales because: • personal contact and consultation are very important in the case of Israel and • it would be counterproductive for a good and close relationshipwith tour operators Except: Flight bookings for repeat / VFR-visitors

30. The Future Communication Strategy The image of Israel (above all in Europe) is a negative image shaped by the political situation It is a “must” to contrast this negative (news) image in the future Therefore, if Israel wants to better exploit its large interest potential, it is a precondition (irrespective of the present political situation): • to run a strong consumer “advertising campaign”

31. With highest priority, Israel has to set up a second / positive / peaceful in the markets / in the consumers’ minds a “touristic” image

32. The development of such a second / touristic image cannot be done overnight This is: • a long-term process • following a long-term concept • which should only be briefly interrupted in the case of a political event It is a measure which is also long overdue from a touristic point of view – but not only: • such a campaign would also have an extremely important function for Israel in general

33. In a first step, a should be provided for the international markets This budget would be in line with the competitors And this budget represents a precondition to realize Israel’s growth prospects • 5-year budget of 250 million USD • 50 million USD per year

34. In this context, it should again be mentioned that • tour operators give such a touristic image campaign a higher priority • than a so-called “safety-net” (subsidizing in the aviation sector)

35. ROI of 9:1 • Our analysis suggests that for every additional dollar invested in marketing, the return on investment will be $9 in additional spending • An annual increase in marketing spending to $50 million could initially yield an annual average of $447 million in spending and over 510,000 additional visitors.

36. In general important for the future advertising measures: It is not recommendable to • provide “ad hoc budgets at the end of the year” • sporadically place one or two ads or TV commercials • change the advertising concept / line within short intervals

37. Additional communication measures: • Development of a “crisis plan” and • a superlative Israel “website” as the central information system In contrast: Printed promotional material as a Tourist Board service abroad can be dispensed with

38. Summary Israel has • a large unexploited interest potential in international markets • and thus considerable growth prospects • The political situation acts as a barrier but it can be overcome via • the establishment of an attractive “touristic” image • and a “moderate price” policy

39. Israel’s most important strength is • its worldwide unique “religious culture / history” (but primarily in a touristic culture / sightseeing than a pure religious sense)

40. Recap of Core Measures for Int’l Markets: • Concentration on the first priority / high potential markets • Concentration on the core product “Tour” • Implementation of a 5-year image campaign(with a budget of 250 million USD) • Following a “mid-priced”strategy • Close partnership with tour operators / travel agencies as the central distribution channel • Improvement of the offer quality / orientation on the core product “Tour” • Improvement of the flight offer / cheaper flight prices

41. Great prospects for Israel Take your chance! Be’Hatzlacha!