To understand the competition in an industry or segment, it is important to analyze the fundamental characteristics of the market such as pricing, distribution, and capacity, along with absolute size (Griffith & Jain, 2012). In general, as price increases, the number of competitors decreases. Similarly, as the number of competitors increase, distribution i.e. the number of hotel operating units increases as well.
Customers:
It is important to analyse and recognise the potential customers. For this process, customers in the general public can be formed into smaller groups who share common interests and needs. Segmentation can be used in identifying the customers where heterogeneous general customers are divided into smaller homogeneous specific customer segments. These customer segments can be profiled for the purpose of designing a product to satisfy specific needs.
The four major ways to segment and identify customers are geographical, demographic, psychographic and behavioral.
Geographical: Region, country size, city size, density.
Demographic: Income, gender, occupation and other variables.
Psychographic: Social class, lifestyle, personality.
Behavioral: Most wanted benefits, usage, loyalty, readiness to buy and attitude toward product.
Throughout the hotel industry, two major variables are used to segment hotel customers: size of customers, are customers traveling independently or as part of an organized group and purpose of trip, traveling primary for business or leisure. These two variables form the four major customer segments used in the hotel industry:
- Individual business travelers
- Individual leisure travelers
- Group business (meetings & conventions)
- Group leisure (tours & social groups)
Many customer sub-segments fall under these four major segments. Presently, the hotel industry has a number of different products and price points designed to appeal to several distinct consumer groups requiring some form of customization (Coy).
MACRO FRAMEWORK ANALYSIS
PESTLE Analysis:
The hotel industry is operating under a macro-environment that changes constantly. These changes often make some opportunities or threats to the companies in the industry. The PESTLE framework analyze these external factors include both positive and negative impacts for organizations in hotel industry. The following identifies are about major macro-environment factors that affect the hospitality industry’s ability to provide its offering.
The political factors of PESTLE represent the government perspective towards hotel industry. Due to globalization, the government provided more flexible policies for the domestic hotels to entry in to foreign markets, accept multinational companies. Thus, some successful hotel brands such as Hilton and Marriott already have launched in many parts all over the world (CTH, 2009).
The economic factor is another factor that affect the hotel industry. It seems that the growth of economy is extremely beneficial for hospitality. Meanwhile, the recession of economy can have negative impacts conversely. Due to the change of economic atmosphere and tourism development recent years, more brands go overseas for the business and create new type of hotels, such as boutique hotel, which attract young people due to the increase of income and fashionable.
Social culture factor is quite important for PESLE analysis because it relate to the key element of hotel industry that the demographic profile and culture background of customers. For some countries, the increasing number of aging population and their willing to travel at leisure time becomes a good business opportunity for hotel industry. The societal change for providing nutritional food for people is a health trend for hotel industry. Thus, it just shows some relations with legal factor. For instance, legislations on health and safety can be of great challenge to the hospitality industry based on the requirement of food law.
As the technology developing, the Internet penetration can influence the service quality and customer satisfaction of hotels, meanwhile, affect the channels for getting information of the hotels online. Moreover, the environmental factor is another important factor that determines the trend for the development of hotel industry. The eco-friendly concept should be taken into consideration for running a hotel business and the government also introduces environmental laws aims to changes within the hospitality sector. For instance, regulations for modify the design of their buildings, to not build in particular environmentally sensitive areas and examine more environmentally friendly ways of disposing of waste.
Successful Hotel Chains:
Marriott’s Firm Strategy:
- Next Generation Travellers
- Brand Distinction
- Portfolio Power
- Technology Leadership
- Owner Preference
- Global Growth
Accor’s Firm Strategy:
- A powerful marketing approach, with a revitalization of the Economy Hotels activity and the Accor brand.
- Unique operational expertise derived from Accor’s skills and capabilities in its three strategically aligned businesses – hotel owner, operator and franchisor – in all segments and all regions.
- A value-creating asset management strategy that improves the Group’s business performance optimizes its balance sheet and support growth.
- A development strategy that aims to consolidate the Group’s current leadership in Europe and Latin America and position it among the leaders in Asia-Pacific, especially China.
Hilton’s Firm Strategy:
- Corporate Social Responsibility (CSR)
- Differentiation
- Superior customer service
- Implementing new technology
- Cost efficient strategy
All the above Hotel chains have excelled and focused their key strategies in the fields of Sustainability, Corporate Social Responsibility, Workplace, Diversity and Inclusion.
COMPETITIVE ADVANTAGES
The dynamic nature of this industry has given birth to a new future for the global hotel industry over the next five years. In order to reverse the recent downward trend and achieve future growth, the hospitality industry will need to address major issues which can help them to achieve their competitive advantage and help them to sustain their profitability over the next few years.
Rebrand, Reposition and Redirect:
According to Ernst&Young Global Hospitality Insights report over the past decade, “lifestyle” brands proliferated as hotel companies attempted to adapt to the needs of a new demographic and a new traveler. Boutique lifestyle brands rapidly emerged in urban centers around the world. Large international hotel companies rolled out plans and established new brands in primary and secondary markets to penetrate these markets, diversify their portfolios and maintain competitiveness (Ernst and Young, 2012). During recession, hotel companies have to shift investment strategies while continuing to tailor them to the unique challenges and opportunities of each global market. Over the past decade, the demands of the traveler have evolved rapidly. Technology and social spaces that mix business and pleasure have emerged as key preferences. Additional opportunities to rebrand are occurring as distressed hotel properties are being sold, rebranded and repositioned in their respective markets.
Technology:
According to Deloitte report, to be successful l, hotel firms must invest in technology. The battle to drive bookings through proprietary websites continues. More than 50 percent of travel bookings are made on the Internet. Travelers are turning to their mobile devices to not only research hotel options, but to book and communicate room preferences directly with the hotel. Mobile channel booking has increased four-fold between 2008 and 2010 according to Forrester Research. Plus, Google is projecting that mobile will overtake PCs as the most common Web-access device by 2013. With travelers adopting smart phones and tablets at such a rapid pace, the major operators are developing applications and websites for mobile devices to meet consumer demands.
Changing Demographics:
There will be two key demographic drivers of change in the industry, which will create new patterns of travel and demand: the ageing baby boomer population, and the emerging middle classes in the developing countries. The key to attracting this sector is appealing to their youth attitude and desire for experiential travel. The middle classes will also create ripples of change far into the future as their travel patterns evolve from domestic to regional to international.
Revenue Management:
Revenue management has changed over the years. Managers have always tried to lower their prices to stimulate sales when demand is weak and they have raised prices during peak demand periods. Hotels are now able to update prices for all future arrival dates to match market demands each day, by using advanced market intelligence applications in their business operations.
Integration & Globalization:
Vertical integration is a trend that began a few years ago. Lodging companies realized that guests’ accommodation needs were not just at one level; rather, they seemed to vary by price and facilities/amenities. Almost all major lodging companies now have properties in each segment of the market.
Talents:
The human resource management is the key factor that impacts the profit and growth of an organization. In hotel industry, the turnover of staff happens all around the world and the hotelier spends large revenue on labour management (Deloitte, 2010). Due to this issue, a well formed recruiting plan and strategy should be used to retain the critical employees and manage turnover. In order to get highly productive labours, clear the purpose of recruitment, trained employees, evaluate the performance and give equal opportunity and rights to employees are the main steps to maintain the talents in hotel industry (Naukrihub, 2007).
Crisis Management:
Like other industries, hotel industry will possibly face unpredictable shocks during the globalization as well. Thus, to manage the impact and reduce risk, appropriate actions is quite important for the industry (Deloitte, 2010). The crisis management model informed in the study of Hosie and Smith (2004) indicated that the operators should use learning as a tool to do prevent, prepare, response and recovery when facing the crisis.
Develop a consumer generated media strategy:
Developing a consumer generated media strategy, as the name suggests, is to incorporate variety of social media by adding items such as forum, blog and videos into official website of the hotel to spread the brand. It allows customers to interact with others and feel comfortable in an online environment, and provides the option to communicate variety of lodging experiences as well as information with other visitors or members.
Branding through online publications:
Apart from advertising, there are many other marketing opportunities like online journals. An online journal could be long-term benefit for posting hotel news and hotel articles. Then the information about destination, hotel services or travel packages can be incorporated in interesting articles that would fit the theme of the journal.
KEY DRIVERS FOR CHANGE
Antoine Medawar, Managing Director, Amadeus Hospitality Business Group, said: "The hospitality industry is undergoing a period of unprecedented change and will continue to transform. Customers are changing; technology is changing; markets are changing”.
The key drivers for change that have been identified are:
Market Drivers:
According to the World Tourism Organisation (UNWTO) World Tourism Barometer, international tourist arrivals grew by around 4.6% in 2011 to 982 million (up from 939 million in 2010). This is despite a stalled global economic recovery and political unrests in the Middle East. UNWTO forecasts international tourism to continue growing by 3% to 4% in 2012, reaching the one billion mark by the end of the year.
As a result, with the growth of tourism industry, the market demands of hotel will obviously increase, which will led the development of the entire hotel industry around the world. On the other hand, in the emerging markets, the rise of the middle classes will create new demand for both leisure and business hospitality. The greatest future potential in these markets will lie in developing mid-market and economy-branded products aimed at the domestic traveler. By 2015, China and India will have absolute year-on-year hotel demand growth greater than the United Kingdom, France or Japan.
Government Drivers:
Government is another driver that indicates the policies enable by government for the industry to globalize (Yip, 2003). Government can make the structure for hotel industry that how it develop and globalize in the future. The attitude of government reflects on the policy and tax it makes for the investment. Many countries now have the sustainable concept for future development that value ‘Go green’ for reducing the over supply of lodging space and building a lasting legacy for the future (Ernst & Young, 2012). In addition, for hotel industry, international tax should be aware as key issues when investing in different countries, because it reflects the prospect of lodging business in that country whether it is limited by government policy (Ernst & Young, 2012).
Cost Drivers:
Volatility in the capital markets is expected to continue through 2012, lenders are anticipated to be selective in capital deployment, with a focus on strong sponsorship, cash flow, brand affiliation and location. Potential borrowers will need to put more effort into securing financing and may increasingly need to explore wider financing possibilities
The capital agenda of Hotel Industries are preserving, optimizing and raising or investing capital, understanding this is essential to enhance the company value. A continuing shortage of readily available debt capital is anticipated as many lenders are waiting until there is more clarity in the market. This has led market to an increase in opportunistic lenders, who are capitalizing on the uncertainty by helping to fill the void left by more traditional lenders but they are seeking higher returns for this.
Companies must evaluate and develop key strategies to manage cash under these current circumstances.
Competitive Drivers:
Competitive Drivers helps to recognise to what extent do the actions of competitors enable or force us to globalize and strategise.
The hotel sector has turned to segmentation for expansion by targeting specifically tailored products to different kinds of travelers. Major hotel companies such as Marriott, Hilton etc have simultaneously segmented the industry and increased the number of overall brands. Basically, as new niche segments are identified, a number of new brands rush in and capture the potential demand in this new space. To seize the momentum of a new niche segment, and to leverage the goodwill associated with their existing brands, many hotel firms in the industry have turned to brand extensions. (Rushmore, 1999)
Each hotel brand attempts to make consumers think that its offerings are different from its competitors to create some degree of market power. Conversely, when an entire market is represented as one large homogeneous unit, the intensity of competition is much greater than when the market is segmented. That is, when the products offered by different competitors are perceived by customers to be more or less similar, firms are forced into price and to a lesser degree, service competition. In such situations, competition can become very intense. (Kurtz & Clow)
ECONOMIC TRENDS AND IMPLICATIONS
Some of the current and the future global economic trends are
The United States will probably avoid a recession and Asia will continue to outpace the rest of the world:
This economic trend can be seen in the performance of Hotel Industry as well. When compared with 2010, the global hotel performance experienced growth in 2011. Asia Pacific experienced the highest percentage growth in Average Daily Rates and RevPAR, although occupancy has remained relatively flat.
The global hotel supply pipeline continues to be dominated by the Americas and Asia Pacific. As of April 2012, STR Global reported that the two regions contribute to a combined potential new room count of over 650,000. By comparison, Europe and Middle East Asia badly affected by global financial crisis has over 275,000 potential new rooms (around 30% of global hotel pipeline). (Smith Travel Research, 2012)
Europe is headed for a second dip and growth in other emerging markets and Middle East Asia will mostly hold up:
The European hotel performance improved on all three key performance indicators in 2011, when compared with 2010. However, growth started to soften towards the end of the year, largely due to uncertainty in the Eurozone.
However, Europe and Middle East Asia is expecting an increase in hotel supply in most major cities, with double digit growth in several cities.
The hotel supply pipeline for Istanbul remains very active, with several hotels due to open in the coming years. Istanbul is due to receive its first Shangri-La and Raffles. Financial and permit problems have led to many hotels, originally scheduled to open before 2011, to be delayed.
Development activity in London remains strong. While a marked number of hotels have opened in Stratford, where the Olympics stadium and village are located, the majority of new hotel developments continue to be focused in Central London. The London hotel supply pipeline is expected to increase by 11.3% and 6.0% in 2012 and 2013 respectively.
The Abu Dhabi hotel market has been completely reshaped over recent years. Additional upscale and luxury hotels are expected to be developed in the city. Planned developments are expected to see major brands such as Banyan Tree, Four Seasons, Bristol, Ritz Carlton, Rosewood, St Regis and W Hotel.
The on-going economic crisis and its impact on the Dubai real-estate market has led to a reduction in the future supply pipeline for the city. However, despite the delays, a committed future hotel supply pipeline is still in place. Supply entering the market between 2012 and 2015 is expected to be in the upper-upscale and upscale segments and to constitute branded hotels. Planned developments include major brands such as Conrad, Fairmont, Oberoi, Rosewood and Waldorf Astoria. (Jones Lang Lasalle, 2012)
RECOMMENDATIONS
Social Media:
With the development of technology, the media plays an important role in the marketing strategy to hotel industry. Nowadays, the social media is a way of generating revenue and bookings for the hotel industry (Rauch, 2011).
Future growth:
Based on the secondary data from online resource, the hotel values have double-digit growth annually and the increasing rate of demand goes beyond the inflation (Rauch, 2011). Due to the improvement of profits and values, the hotelier should prepare for the new demand for both leisure and business hospitality. The factors for improvement include the infrastructure, traffic, food and beverage quality and so on. In the future, the developing country such as China and India will have a significant rate of tourism growth and it is the chance to hotel industry market expanding (Stark Tourism Forum, 2010).
Sustainability:
The consumer nowadays are well aware of environmental issues which continues to rise, they understand that integrating green strategies into design, construction and daily building operations is becoming more relevant and can be an important aspect of a company’s overall commitment to sustainability. Meeting sustainability standards has now become more important more than ever as properties that do not meet are expected to experience lower occupancies and resale values. Rising populations and increasingly scarce resources will provide a challenge to the business environment in which sustainability will need to be embedded within all the aspects of the hospitality industry.
Building a lasting legacy:
By hosting of a global event Hospitality chains get an opportunity that is rare and unique which will allow them to share a country’s hospitality with the world; this provides an opportunity for them to capitalize on attention and visitation resulting from the event and it provides a long-term private and public investment to the area. Although candidate cities compete furiously for every opportunity to showcase their corner of the world, the historical short- and long term impacts of hosting such events has varied significantly. The truth behind such events for tourist destinations comes from how countries plan and manage their entry into and exit from the momentary limelight.
Emerging Markets:
In the emerging markets, the rise of the middle classes will drive significant new demand for both leisure and business hospitality. The greatest future potential in these markets will lie in developing mid-market and economy-branded products aimed at the domestic traveller. Hospitality chains should concentrate on their growth in developing countries that now have high disposable income and spend that on their holidays and on the professional front they provide good arenas for business gatherings.
New Management:
The complex forces of capacity control, safety and security, capital movement, and technology issues will require a future management cadre that is able to adapt to rapid-paced change across all the traditional functions of management. The growing complexity of the customer/employee interaction, driven by technology and the information age, will shape human resources needs in the future.
Advanced Text Analytics:
Today’s travelers are willing to share their experiences with hotels, and they share those experiences online through social networks, online reviews on sites and directly with the provider through surveys, emails, calls etc. This feedback contains valuable insights that hotel firms can use to improve the guest experience, target customers with offers, and differentiate their properties, products and services from the competition. The use of advanced text analytics software technology to analyse these data helps in improving the hotel customer experience. The advanced text analytics can assist in
- Cross-channel analytics: Analyzing customer conversations across all communication channels.
- Automatically discover topics of conversation among customers.
- Hot spotting: Detecting emerging issues.
- Monitor the success of new initiatives.
- Marketing campaign tracking.
- Competitive and survey analytics.
- Customer engagement response.
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