Beating the Competition and Sustaining in the Modern Hotel Industry
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“The capital of the world is in 23 different places”- this was the tagline used by the General Electric Company when it expanded its business in 1995. It is very valid for India as well. India is emerging as one of the leading economies of the world and the rate of growth in every sector of the economy is immense. The hotel industry is very sensitive to economic cycles and is therefore intrinsically linked to the state of the economy. At present, there are over 462 hotels in the country and the total number of rooms is around 58612. Hotel room supply has increased in 2010-11 by 15% while the nationwide occupancy has increased by 1.7%. Although the growth in supply is a double digit figure but the growth in occupancy signals the fact there is a lot of scope in the hotel industry in India (Vardharajan, Goel and Karulkar, 2011). The table below, obtained from the same source, presents the existing and proposed supply entering the major cities in the country. “Over the past five years, most brands have focussed their emerging market expansion plans on the upscale and luxury sectors, targeting international and luxury business travellers.” (Hospitality 2015: Game changers or spectators, Deloitte, 2010)
“Half of humanity is middle class, that middle class needs hotels.”- Fritts van Passchen, President and Chief Executive Officer, Starwood Hotels and Resorts Worldwide Inc. (Hospitality 2015: Game changers or spectators, Deloitte, 2010) These are the two chief thoughts that are driving the upcoming hotels in India. Gradually but steadily the focus on the market is shifting from upscale luxury to a completely new concept which combines elements of luxury with elements of the so-called Budget hotels. This is the new age competition that the five star and deluxe hotels are going to face in the country and worldwide. Every company in the hospitality sector is reinventing and repositioning itself to match the requirements of this emerging market. The list below shows some of the major upcoming hotels in India at major locations.
The list above is not exhaustive and in fact there might an equal number of other upcoming hotels. On studying these hotels closely, we can see that gradually the line that differentiates star categories of hotels is fading away. “Sustainability will become a defining issue for the industry in 2015 and beyond.” (Hospitality 2015: Game changers or spectators, Deloitte, 2010) Competitive Intelligence is the latest game-changer in the industry. It is very important to know what our competitors will do before they do it. It requires data collection, analysis of the competitors’ market value and position, integration into our own information database and wise business decisions. It should have immediate, actionable and effective results. All upcoming hotels are competition to existing hotels irrespective of star category. Existing hotels have to use technology, logistics and marketing skills to stay upbeat with the new breed of hotels coming up. It’s no longer enough to compete with oneself and we should never underestimate our competitors. An updated database about all the competition and continuous research and development is essential. Renovation and innovation are indispensible.
“Strong brands survive almost every crisis.”(de Paoli and Fischer, 2001) “Only a sustainable differentiation between one’s own brand and competitor brands can help to gain new customers or to realize a price premium.” (Daun and Klinger, Delivering the message, 2006) Stephen King’s article suggested that it is now time to consider revising the application of marketing principles to the marketing of brands in the 1990s. “A brand is more than a logo, a name or a corporate design- it is the picture which is anchored in the perception of a customer and affects their preferences.”(Daun and Klinger, Delivering the message, 2006) Branding and positioning are what define the success of a business. Guests form perceptions about hotel brands at every form and step of interaction. With the modern means of communication, such forms and steps have increased manifold. “There is a direct company-customer contact-based relationship.”(Moores, 1986) This experience helps hotels achieve distinction against competitors. But at the same time “the communicated value proposition of the brand has to be clear-cut so that potential guests are able to identify the advantage of a hotel in comparison to its competitors” (Daun and Klinger, Delivering the message, 2006).Apart from communication through words, pictures and logos should also be redesigned in order to make an everlasting connection with the guest.
“For hotel chains wanting to satisfy the needs of guests and beat the competition, then building a psycho brand provides an opportunity which if realized, could do not only this but also defy the test of time.” (Mehta Gautam, December 17, 2003) Perceptions of brands in the minds of the consumer are formed on the basis of the four main functions of the brain-thinking, sensation, intuition and feeling. Psycho branding is supported by three concepts- Goodyear’s Model of Brand Evolution: Brands act as extensions of the personality. Incorporation of personal characteristics into the brand makes it more appealing to guests. Moment of Identity: The modern guest tries to match her own identity with the identity she relates to the brand. Maslow’s Hierarchy of Needs: It is the driving force for choosing any brand, the one which identifies with self actualisation. For hotel chains wanting to satisfy the needs of guests and beat the competition, then building a psycho brand provides an opportunity which if realized, could do not only this but also defy the test of time, for psycho brands have no limit to their life expectancy. (Mehta Gautam, December 17, 2003)
“In the brand perspective of an individual hotel, brand identity becomes an individual property concept, generally reflecting the goods and services uniquely bundled by the management of the hotel” (Olsen et all, 2004). Brand valuation can be done by three approaches- cost based approach depending upon the total of all costs incurred to establish the brand(Keller, 1998); market based approach based on the amount for which a brand can be sold in the market(Government of Japan, 2002) and the income based approach. As Cravens and Guilding maintain, by looking at the income that can be attributed to the brand, one can avoid the majority of the shortcomings that are associated with the cost based approach. This approach is also called the brand price premium approach. Hotel services are more complex to position as they involve tangible services like room comfort or location and intangible services like privacy.
The extension of the marketing mix is essential, best portrayed by Booms and Bitner’s seven Ps: product, place, price and promotion with the addition of process, physical evidence and people. There are always three groups of customers in the market- those that are completely loyal to the brand; those that are loyal but may use other brands and those that do not buy your brand and use only other brands. Garlick suggested the group that should be cultivated the most is the second one. Companies must establish their target markets and analyse the needs of the market. Then it needs to highlight the services and brands that appeal to that segment, “first act, then talk” is the idea. More and more companies are creating sub-brands under the primary corporate name to create new niche opportunities across pricing and level-of-service parameters. “The majority have loyalty programmes with a few making assertions to having the best based upon surveys done by various organisations or travel-related journals” (Olsen et all, 2004). While creating new brands and marketing them, companies must keep in mind the Critical Success Factors. Some of the main CSFs are listed below. Critical Success Factors
Revenue management system
Brand portfolioOperating management system
“Hotel operators and OTAs (online travel agents) have often been in competition in recent years. Yet they often share common strategic aims and by 2015 we are going to see amore collaborative approach to achieving common benefits.” (Hospitality 2015: Game changers or spectators, Deloitte, 2010) OTAs became powerful after the advent of Expedia. Hotel operators feel collaborating with OTAs makes them lose control over their inventory and the prices are often not very profitable. On the other hand, OTAs aim at providing the best deal available to their customers, who they believe trust them to provide the best available rates.
But trends are changing; a recent study by Cornell University sited the “billboard effect” enjoyed by hotels with their brands being advertised on Expedia. Hospitality companies can take advantage of huge OTA investments in technology and marketing resulting in growth of market share while the OTA can become a partner with an international brand.
Harremans et al. suggested that, among marketing activities, advertising is critical in brand building since it plays an important role in conveying the product information which is considered the main attributes of the brand in the eyes of the consumer. Whereas Grassl pointed out that explaining brand equity by solely depending on marketing might not be appropriate. But modern trend in marketing and management is towards on-line advertisement, database management, risk management and crisis management (Hotel Industry Sales and Marketing Changing, September 28, 2005). Dr. Rach noted: “It’s back to basics. In order to be successful in direct sales you have to respond to the client.” One of the major upcoming and popular mean of communication and advertisement is the world wide web but here again the focus is mainly on on-line booking and price promotions and presentations. The characterisation of the brand is not given importance. It is essential that we use this important distribution channel in an ideal way to differentiate ourselves within the competitive market. We have to be everywhere. Hotels need to check their on-line responses more frequently.
Weiner said in old days we had bingo cards and now we have click throughs. After having identified competition and established marketing tactics to tackle the same, we come to the million dollar question of price. “Pursuit of a cost leadership strategy does not necessarily mean an intention on the part of a business to sell its product offering at the lowest price relative to competitors.”(Lusch and Vargo, 2006)It is good to consider the price if competitors as a guideline while pricing our products of a similar nature but hotels should also remember that credibility also lies in the compatibility between the services they offer and the price they quote for it. This compatibility may be endangered if luxury brands begin to fight for market share with low pricing. It will lead to price wars. If the price is perceived to be too low, the customer begins to doubt the value proposition- with long term disastrous consequences for the brand.( Daun and Klinger, Delivering the message, 2006) Price wars are the biggest problem in the recession faced by general managers. Hotels should not drop prices; in fact increase them whenever possible.
Every hotel needs to understand its CSFs in detail and then build marketing activities around them. Value proposition is very important. We also need to understand the target market and what it wants and how much can they pay. If we can offer the target market exactly what it wants at the price it is ready to pay with a 10% window, half the battle is won. Instead of offering discounts on rack rates, hotels should offer complimentary breakfast and other services to guests(Creytens, 2012). Hotels that do not get full on weekends can also give a late checkout of 5 pm to the week end get away guests at no added costs and a little added price to the guest. Hotels need to master the art of fencing their rates. Fencing refers to the tactics followed in order to prevent one segment from eating into another. This can be done by offering packages in one, complimentary services in another, etc. “It’s vital you know just how much incremental business your hotel will have to generate to reach the same revenues and profit.
In other words, does the revised sales volume appear achievable when compared to the current sales volume? If you expect the sales volume to fall by more than the % breakeven sales change as a result of the competitor’s price decrease, it would be less damaging to your property’s profitability to match the price than to lose sales. On the other hand, if you expect that sales volumes will fall by less than the % break-even sales change it would be less damaging to your profitability to let your competitor take the sales than it would be to cut price to meet this challenge. You have a choice, but at least do the math first so that you make an informed, fact-based decision.”(Buckheister, 2012) Price optimization is indispensible and it is important to understand the elasticity of the market segment. (Kotrba, 2012) Having understood the competition, marketing tactics to tackle the same and revenue management tricks to maximise profits, I feel it is essential for hotels to plan with a vision of the future. At the same time, it is also essential to develop a plan B. Nothing works like intuition and anticipation.