The successful implementation of marketing strategy must resolve another tension within the organisation. The creative dynamism of marketing action and the territorial ambitions of specialist and functional departments. The diagram below reflects the process though the outcome may not be strategically desirable:
The influence of the marketing department must be sufficient to effect change within an organisation. The marketing department of a major hotel company having undergone a major review of the loss making restaurants in its hotels decided to convert some of them into profitable use as guest accommodation, offices and franchised restaurants. This major change was overruled by a head office dominated by food and beverage specialists and the refurbishment funds were spent on redeveloping the restaurants which continued to make a loss.
Other issues that will influence the development and implementation of strategy within the organisation include:
∙ Technology
∙ Management styles
∙ Human resources
∙ Product portfolio
Technology - Some hospitality operations dealing in budget markets are able to implement strategic plans with relative ease because they have been able to reduce the the scope for staff - customer interaction. The introduction of operational methods that do not require such a large staff input, for instance buffets, self registration and so on have assisted in this process. The use of technology has been slow in reducing the overall staff costs but is beginning to enable hospitality companies to control some of the customer - staff interactions. A lead has been taken from the banking and financial sector where technology has largely replaced staff involvement with some transactions, for instance cash withdrawals and paying in. Even more complex transactions such as loan applications are dealt with according to set criteria and with a minimum of staff involvement. This process has been relatively successful, when supported by promotions that emphasise the consumer led approach of the bank or building society. The financial sector has been the subject of much criticism however and it is extremely difficult at present to isolate customer satisfaction with this type of service. Recent research suggests that some customer groups, for instance short stay businessmen, actually prefer minimal contact with service staff and appreciate highly automated reception procedures such as guest registration and settling accounts on departure. Cowell [7] maintains that substitution of capital for labour '...is inappropriate in those service organisations where the human element of service is central to what is provided. The strategic challenges in such situations are different from those faced by producers of more tangible goods'. Hospitality organisations are currently auditing their operations not only to achieve cost effectiveness but also to assess those areas that are less flexible to the demands of strategic implementation.
Management styles - The influence of management styles on strategic decision making and the achievement of marketing objectives is of profound importance. Within an organisation there will be differing styles of management depending upon a number of factors such as, the product - process relationship. For instance the restaurant of a haute cuisine operation is likely to be more mechanistic than the kitchen. Despite these departmental variations the prevailing culture and its responsiveness to innovation and change will determine the successful accomplishment of organisational gaols. Thus both Virgin Airways and British Airways compete for the trans atlantic air traveller with organisations and management styles that are very different. Virgin is a decentralised organisation with a more democratic, consultative style of management perhaps more responsive to change compared to British Airways which still retains a formal hierarchy with traces of its public sector origins. The progress of both companies will be watched with great interest as they compete in such a dynamic and high risk market place.
The nature of the external environment will influence the management style considerably, Khandwalla [8] suggested that the more hostile and fast changing the external environment the more risk taking and organic is the top management style and the greater is interdepartmental conflict.
Human Resources - The importance of personnel to any hospitality organisation as an intrinsic part of the product or service offered has been discussed previously. Davidson [9] has emphasised the point by suggesting that 'In a service industry the secret of success is recognition that customer contact personnel are the key people in the organisation' Comment has already been made about the possible role of technology in service interactions which may assist in standardizing and improving the efficiency of some aspects of the business. However the critical impact of any hospitality product on the target market will to a large degree be heavily influenced by the personnel involved. Motivation of service personnel is a key issue in the achievement of a hospitality organisations gaols. Conventional training and staff development will make a significant contribution to the achievement of these gaols. Some companies have found that direct financial incentives in the form of bonus schemes have an important influence on key service personnel.
Product Portfolio - The range, quality and level of service product provided will determine the extent and ease with which the organisation can implement strategic decisions. Major fast food chains for instance targeting new markets with new additions to their menu or methods of service delivery will have to develop technology and systems that can provide the standardized service which is the hall mark of their operations. Extensive training and staff development will also have to be undertaken in order to ensure the successful achievement of these gaols. Service organisations generally are traditionally known to be more responsive to change and able to adapt their systems more readily because of the relatively low skill levels involved in the product. However the growing sophistication of a market characterized by slow or non existent expansion means that hospitality operators are having to become more specialized. The trend toward increased branding in the hospitality industry also means that there are now significant barriers to diversification created by the need for particular skills or technology.
Strategic Business Units
Most hospitality companies, even small independent units operate several businesses. A bed and breakfast operation will provide accommodation, a meal, and perhaps a bar or licensed area for recreation. The larger the hospitality business the more difficult it is to define precisely the nature of the business. Levitt [10] suggests that product led definitions of a business such as 'hotel and catering' are not helpful and may distract the strategic policy makers in the formulation of effective long term action plans. He maintains that the definition of the business should be in terms of its customer satisfying ability in which the hotel and catering operation may be described as serviced accommodation for short stay travellers. Emphasis in this example is placed on the rooms, the provision of food and beverages is subordinate to this main aim and may even be provided on a concession arrangement by another company. Levitt proposes that companies shifting their corporate perspective in this way can achieve a better clarity of purpose, and are in a stronger position to identify appropriate marketing strategy. This approach to the strategic planning process also enables the company to identify its strategic business units more clearly. In the example given strategic direction will be focused on the rooms as the essential proposition, assuming this is what a short stay business traveller actually wants, and ensuring the standard of the other facilities to meet the needs of this particular market. The implications of trading on a product led basis implied by the definition of the service as hotel and catering are resource intensive as the company attempts to optimise every aspect of the business instead of those that have signficance to the target market. Many hotel companies traded on the asset value of their properties during the past ten years and regarded traditional activities, the sale of rooms, food and beverages as a means of generating liquid assets.The drastic deflation of property prices has forced hotel companies to reappraise their businesses and identify trading propositions for the long term. Abell [11] defines businesses according to three dimensions:
∙ Customer groups
∙ Customer needs
∙ Technology
This type of definition is useful as the business can incrementally develop along these dimensions without losing sight of its core business. Hospitality operations need an additional service dimension which can be combined with technology to provide strategic direction.
Diagram four indicates the possible relationship between these dimensions:
This type of approach enables companies to identify the nature of their business activity relative to the market place. It also assists in measuring competitive activity in key areas. Consideration of markets, products, competitors, and service delivery will facilitate the identification of strategic business units which essentially will direct the companies marketing and control functions.
A strategic business unit will form a natural grouping within the company manifesting some of the following characteristics:
∙ The strategic business unit (SBU) will have a semi-autonomous management structure probably answerable to senior management with executive or general management responsibility.
∙ The nature of the SBU's business will allow separate plans and strategies to be prepared within the overall corporate strategy.
∙ There is direct competition in the area of the SBU's core business which will significantly shape marketing strategy.
∙ Costs and revenue are directly attributable to the SBU and effective systems can be installed in order to monitor and control them.
∙ There are identifiable market segments for the SBU's products which are capable of being researched and analysed through the marketing information system.
The identification of SBU's with identifiable management structures can assist in the successful formulation and implementation of strategy, however it can also lead to the formalisation of interest groups within the organisation which can militate against radical but necessary corporate change. Diagram 5 represents a hospitality organisation based on SBU's.
Providing there is a strong executive with a veto over the SBU's then this type of structure can give the dual advantage of managers who have a good working knowledge of overall corporate goals through their interaction with company strategists at a senior level. While in addition SBU managers have almost complete control over their area of activity.
The purpose of identifying strategic business units in this way is to develop marketing strategy, budgets and control mechanisms which can be approved by the appropriate level of management in the organisation with a power of veto if these plans do not conform to the corporate mission or strategy. Senior management will be in a position to analyse the submissions by the SBU's in order to develop an overall strategy and portfolio of business. In recent years various portfolio-evaluation models have been evolved in order to analyse the relative potential of SBU's. The Boston Consulting Group, a leading American consulting firm, developed one such model which has become extremely well known [12]. This approach uses a growth-share matrix to to compare different businesses within a company plotting market growth rate against market share.
While these models help managers to understand the relative commercial positions of businesses within the organisation, like any model they have to ignore many factors in order to make a clear proposition. High growth and improved market share may not be the only criteria and pursuing these as objectives may lead the company away from its core businesses. Whilst these core products may expeience slow growth they may also be capable of careful extension. Several hotel companies were disadvantaged by their pursuit of cash rich but volatile businesses during the eighties and have sought to consolidate in their core products in recent years.
ENVIRONMENTAL INFLUENCES ON STRATEGY FORMULATION
During the last decade, new structures began to take shape and the contemporary hospitality organization is typically leaner, more decentralized and reactive to international development opportunities. This is partly in response to the competitive forces of the early 1990s which led to corporate 'downsizing' with reductions in corporate marketing and other functional specialisms taking place. The need to adapt and match organizational capability to changing international markets and competition has been identified by Olsen l13]. His analysis which is summarized below, illustrates the importance of sensitivity to environmental influences during strategy formulation.
Structural influences
A key feature of structural change is the growing worldwide dominance of multinational chains. Expansion is often facilitated by strategic alliances between components parts of the industry, thereby creating travel, lodging and foodservice networks. The alliances also benefit from rapid technological advances in telecommunications and computerized reservation systems. The buyers of hospitality services have contributed to the re-structuring by consolidating their purchasing power so as to control the transaction more fully. For instance, corporate travel managers typically use fewer travel intermediaries and are using their purchasing power to obtain better prices from airlines, car rental and hotel firms and exert greater influence over how the supply inventory is utilized. To respond, operations and marketing functions must work closely in order to maintain high operating standards and an effective customer service interface and, at the same time, analyze the events which are changing their business environment so that appropiate product extensions and refinements can be identified.
Investment capital influences
During the 1980s the hospitality industry experienced an investment boom as property development worldwide attracted investment capital from banks and institutional investors. This led to higher expectations of financial performance as hotel firms in particular, were required to achieve higher returns to satisfy shareholders. This resulted in the need for fresh thinking about how to market hotels, as return on assets became as important as percentage return on profits. The re-alignment which occurred will continue to influence marketing strategy, especially as high interest rates have forced many hotel operators to sell property and take back management contracts on former assets. A number of implications arise from this, notably the need to ensure that product consistency is maintained by hotel owners so that the brand image and reputation of the hotel operator is not adversely affected.
Technology - external influences
Multinational hospitality firms are beginning to harness technology in ways which are in themselves, shaping organizational change and in turn, marketing strategy. The focus of activity is directed towards ensuring the fullest possible utilization of capacity. In this respect, global reservation systems are having a significant impact on where customers stay and how they will get there. To stay ahead in global communications, hospitality firms will have to be able to adapt and apply changing technology to the reservations field. In addition to sales support, technology is influencing improvements in hotel security systems, transportation systems, decision making and corporate communications. As international firms need effective systems for communicating about customers, performance and environmental events, continuous updating on aspects of information transfer is needed to improve marketing effectiveness.
Pricing influences
Recession, high interest rates and the increasing influence of buyers among other factors, have been influencing the pricing structure and in turn, the product development strategies of the hospitality industry. Pricing has been influenced by the application of more sophisticated decision support and yield management methods. Keener pricing has also driven developments in the economy lodging sector, leading to the rapid diffusion of low price and limited service hotel properties. This has put pressure on all levels of the industry to achieve lower costs and to compete with lower prices so that economy concepts can be effectively positioned in the international marketplace.
Political and ecological influences
The laws affecting development, repatriation of profits, regulations regarding the employment mix of nationals vs. foreign labor, the logistics of supply and taxation represent some of the many ways in which the political environment is influencing international development. As hospitality firms expand, it is therefore important to study the local, national and international political and trading frameworks in which they have to operate. Increasingly, hospitality firms are also facing constraints relating to the ecological impact of development and the industry will have to address concerns about waste water and solid waste disposal among other issues. The complexity of these issues means that strategic development options must be fully researched prior to taking decisions about market penetration and development.
The complex and often unpredictable nature of environmental influence on strategy formulation means that hospitality firms who are seeking to expand across country and cultural boundaries must seek to identify the wider organizational implications:
"...Unless companies proactively develop mechanisms which address environmental risk at the strategy formulation, structural and operating systems level and devise effective managerial responses to contain the effects of environmental pressures, the viability of many global strategies based on multi country supply networks is questionable..."
(James, [14])
A fundamental question relating to the appraisal of environmental risk concerns the degree of fit between the product and the market. In order to fully consider this issue, it is necessary to establish a development policy which reflects the character and perceived strengths of the product.
COMPETITIVE INFLUENCES
Competitors within an industry will pursue quite different gaols and objectives consistent with their resources and markets plus their own interpretation of to how to engage other competitive actitvity. Michael Porter [15] conducted a rigorous analysis of the competitive forces that influence all businesses and their approach to developing marketing strategy. Porter postulates that there are five fundemental competitive forces acting on the business:
1 Threat of entry
2 Threat of substitutes
3 Power of buyers
4 Power of Suppliers
5 Level of rivalry among current competitors
The combined strength of these forces will determine the profit potential of an industry and its approach to marketing strategy. The relative influence of these forces will vary from industry to industry depending substantially upon the service/technology - customer need - market segment matrix discussed earlier.
Threat of entry - Competition is one of the benchmarks of a free market economy. The effect of a new company entering an industry will make it more competitive as the new entrant attempts to secure market share. Obviously existing companies in a market place will seek to deter new entrants through the erecting or reinforcing of barriers to entry. Porter lists six main barriers to entry:
∙ Economies of scale
∙ Product differentiation
∙ Capital requirements
∙ Switching costs
∙ Access to distribution channels
∙ Cost disadvantages independent of scale
∙ Government policy
Barriers to entry in the service sector have traditionally been regarded as low and the hospitality industry is no exception to this general rule. Even in hospitality businesses where there are high capital requirements there are various options such as contract management, licensing or franchising which enable medium risk entry into the industry. There are several instances of individuals and companies,Bob Payton's My Kinda Town is just one, entering the industry with mature product concepts for instance pizza and achieving exceptional levels of turnover within a relatively short period. Individuals and companies can still bring their own interpretation of a product into an apparently saturated market place and achieve notable success.
However there are examples of oligopoly within the hospitality industry. For instance the brewing industry had erected effective barriers to entry by controlling access to the main distribution channels, through the public houses and other retail outlets. The recommendations of the Monopolies and Mergers Commission has loosened this control and allowed smaller brewers to gain better market access through their own outlets and public houses owned by other breweries.
The threat of substitutes - The consumer of leisure industry products is unlikely to demonstrate loyalty to any one of them. Most consumers choose from an itinerary of activities which for instance may involve going to one of several pubs or restaurants. However this narrow view of rivalry between restaurants or public houses fails to acknowledge the fact that consumers may choose to spend their leisure time and money in some other, completely different way, for instance a trip to a garden centre, a stately home or a picnic in a country park. There is also a trend for people using their spare time in more purposeful activities for instance learning languages, or taking correspondence courses, activities which can reduce their leisure time and act as a substitute.
The growing internationalisation of commerce at all levels also represents a threat to traditional hospitality providers trading in the business sector. Companies with substantial interests overseas may find it more viable to have overseas agents or offices which may reduce the need for company representatives to travel and use hotel accommodation. The rapid development of new communication technologies may also reduce the need for foreign or domestic travel.
Porter suggests that those substitutes which should be monitored are:
∙ Those products which provide a better performance/price standard than the industry standard.
∙ Products produced by industries earning high profits
The power of buyers - The consumer is the ultimate influence on marketing strategy but the collective power will vary depending on the industry and product. The ability of most hospitality operators to differentiate their products makes it more difficult for buyers to exert absolute power over the hospitality provider. For instance an hotel operator providing for the predominantly mid market business sector will have several sources of business and will be able to offer tailored products, combinations of room, food and beverages, leisure, office facilities, conference facilities, transport arrangements and so on and have a range of price discretion . In this situation it would be difficult for one buyer to influence the price to the disadvantage of the seller. This is in contrast to some other industries. For instance the large food retail companies are in a position to force the price of some agricultural produce below the cost of production and insist on quality standards that further increase those costs. Porter has identified the following conditions that make the power of the buyer group strongest:
∙ It is concentrated or purchases large volumes relative to seller sales
∙ The products it purchases represent a significant fraction of the buyer's costs or purchases
∙ The products it purchases from the industry are standard or undifferentiated
∙ It faces few switching costs
∙ It earns low profits
∙ Buyers pose a credible threat of backward integration
∙ The industry's product is unimportant to the quality of the buyer's products or services
∙ The buyer has full information.
The power of suppliers - Powerful suppliers can increase costs and thus have the opposite effect of buyers in an industry. Perhaps the most important 'components' in the provision of hospitality service are the staff involved, who also represent the highest proportion of costs to the organisation. They are not suppliers in the true sense of the word but the sensitivity of hospitality operators to union activity in the industry demonstrates the importance of the payroll in determining overall profitability. Other suppliers of goods and services to the hospitality industry are usually not in a position to exert exceptional influence over the buyer. The main determinants of suppliers having power over an industry according to Porter, occur when:
∙ It is dominated by a few companies and is more concentrated than the industry to which it sells.
∙ It is not obliged to contend with other substitute products for sale to the industry.
∙ The industry is not an important customer of the supplier group
∙ The supplier's product is an important input to the buyers business.
∙ The supplier group's products are differentiated, or it has built up switching costs.
∙ The supplier group poses a credible threat of forward integration.
Rivalry among current competitors - Levels of competition within the hospitality industry varies within its component product sectors. For instance large international groups competing in high price, business markets will approach competition at a different level to hotel companies competing for the economy markets. The large international hotels tend to avoid direct competition on quoted tariff prices though they will discount and offer varied product packages to different markets. Neither will they compete directly on productivity costs for instance pay levels will be kept at accepted rates. These may be actually fixed in localised areas such as the west end of London. Competition will often focus on the communication of product benefits or unique service offerings with an attempt to build customer loyalty and differentiate the company and its products from similar products and companies in the market place.
Hotel companies competing for economy markets are more likely to compete directly on price and service costs. Even within sectors the nature of competition will vary according to geographical location. In some locations a particular hotel company may have no competition or the demand is so great that control becomes the priority, achieving increased productivity and reduced costs.
Porter indicated that rivalry is intensified by the following factors:
∙ Numerous or equally balanced competitors
∙ Slow industry growth
∙ High fixed or storage costs
∙ Lack of differentiation or switching costs
∙ Capacity augmented in large increments
∙ Diverse competitors
∙ High strategic stakes
∙ High exit barriers.
Companies can map their position relative to other competitors according to criteria derived from market research. For instance if rapid check out facilities and secretarial services are important to the business market provision in these areas can be measured through guest surveys against the competition and mapped accordingly. A review of opportunities and threats offered by the resulting analysis will offer direction for strategic decision making.
THE MARKET
The market will ultimately influence the organization's approach to developing marketing strategy. In a previous section the role of marketing information systems, to inform the strategic decision making process, has been discussed. There are currently several market related issues that confront the hospitality operator which may be summarized as follows:
1. Market segmentation
2. Gap analysis
3 Level of market involvement
4 Market - Product Positioning
Market segmentation - Many commentators regard market segmentation as the most important influence on the development of marketing strategy and it is an issue dealt with substantially, elsewhere in this book. Effective segmentation must be established upon a good understanding of consumer behaviour, the needs, wants and motivations of the organization's target markets. This type of understanding is derived from careful research and experience of the market place which will enable the definition of markets in terms that are strategically meaningful to the business. The principal market segmentation variables may be described as follows:
1 By area, country or region of market origin, including nationality.
2 Socio economic, demographic and tenure groups.
3 Psychographic or lifestyle groups
4 Behavioural groups including, usage groups, usage rates, loyalty status, attitude toward the product or service.
These can be supplemented by variables which are of significant interest to the individual organization for instance business segments that have a high spend on profitable food and beverage items or responsiveness to promotions and so on. As mentioned previously the hospitality industry is in a particularly strong position to collect and record this type of information from its records.
Gap analysis - Gap analysis was developed by Argenti [16] as a means of identifying the changes in strategy required to achieve organizational goals and objectives. The process involves the following:
1 Set goals or targets
2 Extrapolate current performance using market and accounting data
3 Measure the forecast gap - Once the forecast has been made, the difference between it and the goal or target can be measured.
4 Develop strategies to close the cap
The strategy required to close the gap will probably have some implications for the future development of markets. For instance hotel companies traditionally trading in business related markets may have to adopt strategies to make up the gap that exists between forecast levels of business and targets either by developing the existing market with some value added offer or diversifying into new or complementary markets.
Market involvement - This is an important concept for hospitality operations which have the ability to trade in several markets and maintain a high level of differentiation. The extent to which an hotel develops its leisure markets as opposed to business markets and the strategy to be adopted within each of those broad sectors will depend upon the following:
∙ The organizations business strategy, cost leadership, differentiation and focus.
∙ The nature of the markets under consideration and their relative attractiveness
∙ The available resources.
Market - product positioning - Analysis of the trading environment will lead the company to position its service products relative to identified market segments. Ansoff [17] proposed a series of alternatives for considering growth opportunities which included the following:
- Market Penetration - which will increase market share from existing products in existing markets
- Market Development - new markets for existing products.
- Product Development - new products for new markets
- Integration - Either forward, backward or horizontal. That is developing the business into traditional areas of consumer demand or supply or from expanding the existing business as a form of market penetration
- Diversification - new products for new markets.
These strategies are in order of increasing risk to the business so that a company would primarily try to identify a means of expanding the business using existing products and markets and then sequentially investigate the other possibilities for growth. The uncertainty created by the recession has discouraged many hospitality companies from pursuing diversification strategies because of the level of risk involved.
International markets
The international dimension of market segmentation is an important feature of hospitality marketing and will become increasingly more important in the future. There are opportunities even for small hospitality businesses in overseas markets through management agreements, franchising or direct management. The industry is quite unique in its experience of overseas markets either servicing overseas tourists in the home market or providing hospitality services overseas. The product can often be exported with very little modification, in fact its appeal overseas may be that it represents a novel product for instance British pubs in America, Amaerican burger restaurants in Europe. There are a number of implications arising from market - product policy decisions which relate to market positioning and the adoption of an appropriate development strategy. Crawford-Welch [18] draws on Miles and Snow's typology [19] to identify the characteristics of three generic options for international development. These are summarized below:
Market position: Defender
Product policy: Standardization
Role: Maximizing efficiency/ protecting market position.
Implementation: Best suited to hospitality firms who are competitive on price; good at controlling costs; able to achieve uniform levels of operating standards and efficiency via standardization and can clearly identify and define target markets and segments which are seeking these benefits.
Market position: Analyzer
Product policy: Standardization with some, market-led customization
Role: Minimizing risk/ maximizing opportunities for profit improvement
Implementation: Best suited to hospitality firms who by way of product specification, are able to encourage a degree of flexibility in service provision and/or 'do it yourself' customization by involving guests in service-production so as to reduce costs. This approach assumes that guests can be made aware of the option to customize, that they know how to pursue this option and that there is sufficient interest in the customization benefits.
Market position: Prospector
Product policy: Customization
Role: Maintaining competitive advantage/ innovative market development.
Implementation: Best suited to hospitality firms who are able to increase the value added per employee via service enhancement. This requires an organizational commitment to service improvement, consumer research and environmental scanning so that changing expectations are almost automatically linked to the process of service enhancement.
Product policy influences on strategy formulation
The previous section emphasises the essential relationship between markets and products in the development of marketing strategy. The pattern of demand for a product over time has certain implications which will influence strategy development. The hospitality industry is renowned for its seasonal fluctuations in some markets which sometimes causes severe problems for planning budgets and cash flow. There are less predictable causes of fluctuation for instance the weather, exchange rate variations social and political upheaval which require tactical manoeuvring by the hospitality organisation. Research has also tried to identify longer term trends for products around which generic strategies can be developed. The product life cycle is one such attempt which has proved useful as an agenda for considering marketing and strategic action. This concept proposes that a product will go through a series of stages during its commercial life which are generally acknowledged as the following:
Stage one The Introduction Stage, when a new product is introduced to the market
Stage Two The Growth Stage. At this stage the product has been accepted by the market and there is a rapid growth in market size.
Stage Three Maturity Stage. Sales are increasing but at a slower rate, prices and profits are declining. Mergers, takeovers, diversification and integration may occur.
Stage Four Decline Stage. Saturation of the market has occurred abd absolute sales of the product decline. Productivity becomes the main concern of the business.
At each stage there are implications for the financial well - being of the company, marketing, production, pricing and manpower. Obviously if this model were universally true the process of strategic planning would be much simplified but its simple formula must be qualified by the considerable criticisms that have been directed at it [20]. These criticisms may be summarised as follows.
The curve of the product life cycle - Empirical studies have shown that many products simply do not pass through the four stages[21]. For instance many products including hospitality services have been in existence for centuries, though arguably in different forms and show no signs of going into the decline stage. The Savoy Hotel today would probably be recognised by the first patrons of the hotel when it was opened in the latter part of the nineteenth century. Even though the technology and the markets have changed the nature of the service and the style and structure of the building are little changed. In support of the life cycle most of the hotels contemporary with The Savoy have long since been replaced by international chain hotels. Hotels like The Savoy serve a tiny percentage of the market who appreciate and can afford what is essentially an Edwardian style hotel.
Level of aggregation - There is some dispute about the level at which the product life cycle applies. Porter takes the view that the concept applies at an industry level and would apply, for instance to the decline of the steel and ship building industry in the United Kingdom. Other research [22] shows that while the concept has some validity at the product class level (i.e fast food restaurants) it has almost no validity at the brand level (i.e. Burgerking, and MacDonalds do not follow life cycles). The hospitality industry provides little support for the idea of an industry progressing through the various stages even when considering the proposition at a sector level, for instance hotels and restaurants have been in existence for centuries. It is also difficult to find product classes that have followed the pattern fast food restaurants may be seen as the modern day equivalents of the pie and ale shope that abounded in Victorian England. Some brands may not have withstood the rigours of competition for instance the Lyons Corner House, Aberdeen Steak Houses and others where the concepts have been modified by other companies.
The product life cycle as a predictive tool - The predictive power of the technique is also in question. The fact that the hospitality industry is prone to seasonal and other fluctuations makes it difficult to establish precisely at what point a company lies on the life cycle curve. Most companies and products are probably in the mature stage of the life cycle which would suggest a commonality of approach albeit within broad guidelines. In fact there is quite a variation in approach several of which contradict the generic strategy indicated by the life cycle theory. For instance hospitality companies generally have high pre opening expenses and high initial costs because the operation generally has to be fully staffed and stocked from the outset the extent of gearing will determine the amount of scope the operation has for strategic manoeuvre unless as part of a larger company it is able to absorb some of the costs. During the mature stage when, according to the theory, promotional costs are supposed to fall because the market is aware of the product, hospitality businesses may have to invest more in below the line expenditure in order to sustain differential marketing strategies.
Company influence on the life cycle - Companies can change the course of the life cycle through proactive marketing strategy. Guiness has been transformed in its market appeal by creative and dynamic promotions which have changed its appeal as a stout to fortify the middle aged and expectant mothers to a fashionable, 'cult' drink for those of an indeterminate age. The maturity stage can, it seems, be extended almost indefinitely until the product becomes redundant or is the victim of other factors such as poor management or planning
Product life cycle conclusions - Despite the criticisms of the product life cycle it is a useful framework for understanding the forces that act upon a product and the possible responses by the functional departments within an organisation. These various departments should be aware of the resource implications and the necessary performance criteria at each of the life cycle and consider them with regard to their own circumstances. It is apparent, however that there is no universal, prescriptive business response to any of these stages but there is a possible, minimum agenda for discussion which can provide the basis for making decisions about the product portfolio.
Summary of possible product life cycle strategies:
Introduction Stage
∙ A Rapid Skimming Strategy - launching the product at a high price and at a high promotional level.
∙ A Slow Skimming Strategy - Launching a new product at a high price and low promotional level.
∙ A Rapid Penetration Strategy - Low price and high levels of promotion.
∙ A Slow Penetration Strategy - Low price and low level of promotion
Growth Stage
∙ Product is modified following review of initial launch.
∙ New, complementary products may be added for instance new menu items
∙ Appeal to new market segments
∙ Extend distribution network
∙ Promotional emphasis shifts from creating awareness to creating loyalty.
∙ Differential pricing introduced
Maturity Stage
∙ Market modification - expanding the market for the brand
∙ Product modification - changing various aspects of the product
∙ Marketing mix modification - Determined by market and product considerations
Decline Stage
∙ Identify weak products
∙ Develop appropriate strategies assess exit barriers
∙ Assess investment implications of competitive activity
∙ Consider withdrawing the product
Product differentiation and branding
During the past decade hospitality operations have been developing product differentiation and branding strategies as a result of their own maturation process. As hospitality markets have become saturated and the growth in demand slowed in most sectors hospitality companies have sought to distinguish their products from the competition and appeal to identified market segments, rather than the general categories of consumer. There are problems associated with differentiation and branding, which include increased promotional budgets to communicate brand and product features and the problem of ensuring consistent service delivery as an essential component of the branding process. Often the key to successful differentiation lies not in modifying the hospitality product to different market segments but in careful promotion in order to modify the perception by the consumer of the product and their experience of it. Marketing strategy should be directed at identifying 'perceptual gaps' in the market place and moulding the consumers perception of the service accordingly.
The development of branding strategies by major hospitality companies such as Forte has also provided an important lead in the development of marketing strategy. Brands however need constant attention and high levels of investment to sustain competitive advantage in the long term.
The value of established brand names such as Hilton and Holiday Inn is closely related to the perceptions of quality and consistency that they represent in the international marketplace. Yet, an examination of current strategy indicates something of a divergence in product policy relating to international development. The debate centers around the role of standardization and customization in international development and the extent to which product policy should reflect one or both of these in order to achieve desirable market positioning.
Product standardization: Holiday Inn Worldwide's brand extension strategy
In a study of firms operating in American and European markets during the mid-1970s managers identified a number of factors which were considered to be critical to success (Sorenson and Weichmann, [23]). Above all was a standardized product which could be packaged, branded and distributed as effectively in export markets as at home. This development approach is being used by Holiday Inn Worldwide, who are committed to a major international expansion program (Parker and Teare, [24]). The original Holiday Inn hotel concept or 'core brand' gained international recognition for setting and achieving consistently high standards in product design and service. Early innovations pioneered by Holiday Inn were remote controlled television and direct dial telephones and in the 1990s, a uniquely sophisticated satellite communication network provides instantaneous information transfer between North America and Europe.
At present, there are four types of Holiday Inn hotel, all of which feature attributes which are characteristic of the 'core brand' identity:
* The Holiday Inn Crown Plaza is located mainly in major city centers and offers amenities and facilities designed specifically for the upper middle market.
* The original 'core brand' Holiday Inn concept.
* The Holiday Inn Garden Court hotel is an economy concept hotel which was introduced in 1990 specifically for the European market. Typically offering 100 guest rooms, it offers the standard bedroom design together with a compact public area, small meeting rooms, a fitness area and an informal restaurant and bar.
* The latest extension to the brand portfolio is the Holiday Inn Express, designed specifically for the rapidly growing upper economy segment in North America.
The expansion program is based on a brand extension strategy which will enable Holiday Inn Worldwide to operate hotels in three distinctive mid-market categories ranging from economy to deluxe.
The basic parameters of the Holiday Inn product provide a standardized framework, although a degree of sensitivity to the market is necessary to ensure that customers are able to recognise the Holiday Inn style and standards in geographically and culturally diverse locations. Central to this is the reputation for quality and consistency associated with the Holiday Inn trademark. To safeguard these attributes, which provide a universally marketable brand, two procedures are used to scrutinize operating standards. First of all, standards are clearly and precisely defined in relation to specifications for hotel design and construction as well as for operations and service. The design specifications include detailed reference to every facet of the operation, ranging from the size of the guest room to the adequacy of life and fire safety systems.
As much of the network is franchised, it is policy to restrict contract and licence agreements to those who understand the precise requirements for constructing and operating hotels to Holiday Inn standards. This necessitates a comprehensive quality audit system and every hotel participates by undergoing an independent quality audit inspection twice a year as a minimum requirement. If problems are reported, the hotel fails the inspection and typically undergoes scrutiny three times over the ensuing six month period. At the same time, a program to correct the deficiency is drawn up in consultation with the owner and a timetable for implementation agreed. If the work is not carried out to the satisfaction of the quality audit team by the agreed date, then the hotel would face termination from the Holiday Inn system. The quality audit program is continually refined so as to improve the effectiveness of the assessment process. For example, a refinement October, 1991 provides for an overall assessment score at any given hotel, allowing for the measurement of improvement over time.
Product customization: Hilton International's Japanese service brand
Greater European harmonization during the 1990s involves rationalizing the legislative framework relating to business while at the same time, allowing European Community members to preserve their distinctive and culturally diverse heritage. In this context, it can be advantageous to customize hospitality services so that they reflect the customs, traditions and preferences of the marketplace and it has been argued that clusters of countries or customer segments could be offered a branded variation of the core product, as defined by the benefits sought by the different country/segment groups (Douglas and Wind,[25]; Kale and Sudharshan, [26]). This approach has been adopted by Hilton International who have developed a Japanese service brand which reflects subtle forms of product customization (Bould, Breeze and Teare, [27).
The number of Japanese visitors to Hilton International hotels worldwide has been growing rapidly, doubling since 1988 to reach a figure close to 21 percent of the company's total visitor volume -equalling the number of American guests. The total Japanese outbound market is projected to double again by 1995 but the Japanese are much less used to international travel than most other nationalities, as they have very different cultural expectations. This led to a decision to develop a service brand which would meet the culturally unique needs of Japanese business and leisure travelers. Initially, efforts were concentrated on identifying 'best practice' within the organization by finding out how the hotels with an established Japanese clientele were responding to guest requirements. Those which, because of their location, should have been receiving a higher proportion of Japanese guests were also examined, and a relationship was identified between increasing Japanese business share and the implementation of customized service features that Japanese guests had requested. On completion of the audit-based comparison, a consumer research program began in Japan, using hotel database information in order to find out what Japanese customers who travel internationally wanted Hilton hotels to provide.
The culmination of the research was the development of the Hilton Japanese service brand 'Wa No Kutsurogi' Service meaning 'comfort and service, the Japanese way'. It consists of distinctive service features and special amenities appealing to both Japanese business and leisure travelers. These include Japanese speaking staff at the participating hotels, the provision of safe deposit boxes, hotel information, menus, wine lists and safety instructions in Japanese, the provision of an Oriental food selection, often with authentic Japanese cuisine, and the availability of Japanese green tea and items such as slippers, bathrobes and Japanese newspapers. The brand, symbolized by a Japanese crane, the Tsuru, which is the national emblem of Japan signifies 'freedom, good luck, long life and happiness'. The aim is simply to attract more Japanese business to more Hilton hotels. The underlying assumption is that if the majority of visitors feel comfortable with the hotel service environment they experience, the development will have been fully justified in terms of the additional guest satisfaction and new business it will generate.
For validation purposes, inspections are carried out by Japanese companies situated in the locality of the hotels. A successful inspection represents an endorsement of the local company's confidence in the hotel's ability to deliver authentic Japanese service. The idea emerged from the consumer research, and it offers an effective form of competitive advantage by allowing a selling approach to develop directly from the product itself. Fifteen successful inspections are needed for a hotel to take part, which are repeated annually. Japanese manufacturers are used to working cooperatively with suppliers and so the idea of building a relationship by asking for their cooperation in defining and designing a product is widely accepted. This approach was particularly helpful during discussions about the possibility of recruiting Japanese speaking hotel staff from ex-patriot Japanese communities. The responses indicated that it would be less acceptable to recruit an ex-patriot than a new member of staff direct from Japan, because it was felt that ex-patriots who had been living away from Japan for five years or more would be less sympathetic to the principles of providing authentic Japanese service. This indicates something of the subtle nuances of relationships and cultural interpretation which separate authentic styles which Japanese firms are willing to endorse, from Western interpretations of Japanese service which are less acceptable and thereby less likely to succeed.
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