The Combined Forces of an Economic Recession and H1N1 Epidemic Are Causing the Hotel Industry to...

8/12/2019 The Combined Forces of an Economic Recession and H1N1 Epidemic Are Causing the Hotel Industry to Suffer in a

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The combined forces of an economic recession and H1N1 epidemic are causing the hotel

industry to suffer in a time of great challenge. Business travel is down because of the

recession and the pandemic has significantly reduced tourism. This paper considers three

types of hoteliers in current market conditions in light of Porters theories. Now more than

ever Porters well regarded thoughts on business strategy and the !nternet first published in

"##1 are crucial to consider and they contribute to an analysis and criti$ue of the hotelindustrys internet strategy. !n his Harvard Business %eview article of "##1 Porter said &To

find the answer we need to look beyond the immediate market signals to the two

fundamental factors that determine profitability' !ndustry structure which determines the

profitability of the average competitor and sustainable competitive advantage which allows a

company to outperform the average competitor( )Porter "##1*. This paper e+amines the five

forces which impact competitiveness within and thus the profitability of a competitor in the

hotel industry. ,rom the guidance provided in the ,ive ,actor -odel recommendations are

made to enhance and refine internet strategy for the considered hotel chains.

Hotels

The hotels chosen for this paper are' intage !nns primarily located in Niagara/on/the/0ake

anada 2heraton Hotel chain and Best 3estern Hotel hain. &4very business must design

a strategy for achieving its goals consisting of marketing strategy and compatible

technological strategy and sourcing strategy(. )5otler 6 5eller"##7* &To identify rivals in the

international hotel industry current practice is to use price segment and pro+imity(

)-atthew "###*. !n previous work -ichael Porter outlined three additional generic

strategies that could be used. These are' overall cost leadership differentiation and focus.

&The point to be understood here is that any company can have a core competence but it is

competitive competence which gives them a chance to win. ,or e+ample %it8/arlton

,airmont 0oews ,our 2easons !ntern/ontinental 3 Hotel Hotel 2ofitel 0e -eridien are

ruling the hospitality industry. This is because of there ability to set up state of the art hotels

and their ability to provide e+ceptional customer service with focus on customer relationship

management. The customer relationship is a uni$ue selling point )92P*. The &2ervice( is

both their core competitiveness and also their competitive competence( )Trehan "##:*

Porters ,ive ,actor -odel

;ccording to Porter )"##1* the internet is an enabling technology that can be used within the

conte+t of a good business strategy in any industry. ;lthough the !nternet alters industry

structures and levels the competitive ground often dampening profitability in the industry it

can be used to encourage and promote greater profitability if properly implemented. The five

forces that impact competitiveness which are outlined in Porters 1


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easily available reducing purchasing hassles and marketing which allow customers to find

what is of interest are the very things that make it more difficult for companies to &capture

those benefits as profits.( )"##1*. The most important determinant of a marketplaces profit

potential is the intrinsic power of buyers and sellers.

Threat of 2ubstitute >oods

!n the hotel industry there is usually another hotel ?ust around the corner. They appear in all

price ranges with varying levels of service and amenities. The constant challenge will

always be to get the guest to choose your hotel over the competitor. The internet makes the

overall market more efficient while e+panding the si8e of the potential market and creating

new substitution threats. >iven the potency of this threat a superb internet presence is vital.

;nother ongoing threat is that another hotel chain may erode your customer base with a

newly formulated internet approach or marketing campaign. This is supported by the

following $uote from 0uck and 0ancaster )"##@*'

&The development of value chain process analysis supported by collaborative event

management over the !nternet the structuring and the sharing of customer focused value

chain data powerfully enhance the performance of value chains and of electronic

commerce.(

Bargaining Power of Buyers

Business persons choosing a hotel for business travel are savvy consumers and they are

comfortable with computer technology. !t has become very simple for them to go online andbook a hotel. They no longer need travel agents corporate travel consultants or middle men

of any kind to determine where they will stay. Porters model predicts this elimination of

intermediaries.

Tourists are more and more capable of using the internet in the same way but in another

fulfillment of Porters model they are more often bonding together in a novel way. They are

finding internet businesses like cheaphotels.com which will negotiate or discover bargains

for them. Both of these processes shift the bargaining power to the end user as the Porter

model predicts and these same freedoms reduce the cost of switching so that loyalty is a

thing of the past unless a particular hotel uses its one time opportunity when a customer

stays at the hotel to deeply impress the customer with a uni$ue and valuable differentiator.

%ivalry among e+isting competitors

The rivalry among competitors in the hotel industry is fierce. 3hen potential customers can

learn about a hotel on line the internet reduces the differences among competitors. People

tend to seek the best price for the best e+perience and the tendency is to reduce price to be

competitive. The internet covers wide geographical areas so the market is widened

increasing the number of competitors. ,or e+ample someone who wants to spend the day in

the historic town of Niagara/on/the/'0ake can easily choose a hotel in a near by town if the

amenities or the price are better. ariable and fi+ed costs can be different in areas that are

more e+pensive to live and work making it more difficult for a hotel in Niagara on the 0ake to


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reduce their prices to the level of one in nearby 2t. atharines.

Barriers to 4ntry

The initial investment in the hotel industry creates $uite a barrier to entry but certain barriers

to entering the hotel market are reduced by the internet. ; presence on the internet reducesupstart marketing costs somewhat and gives the new competitor access to potential

suppliers and resources. 4ven a bed and breakfast can use the websites of large chains to

understand the key marketing concepts and the lures for customers. 2witching costs are

usually nil for a consumer. )-cNurlin "##7*

; vital barrier would be differentiation. ; hotel that can differential itself by location by

service amenities or some other $uality has the potential to attract and keep its clients.

;nother barrier to entry would be e+pertise. 9nfortunately in a mobile society employees

fre$uently leave one hotel chain to work in another and they take that e+pertise in terms of

training or of e+perience with them. !t is in the areas of e+pertise and of differentiation that ahotel can make the greatest impact on its client and thereby on its bottom line. !n fact many

established companies have synergies between their established business and online

technology.

Bargaining power of suppliers

3hile this is not a substantial threat in the hotel industry it can have impact especially in the

area of labor. 3ith an aging population there are fewer people to fill service industry ?obs

and hotels which can attract e+cellent staff have a greater chance of providing e+cellent and

e+ceptional e+periences to their clientele. ;s part of their internet strategy all hotel chainsshould have a section on recruitment for employment.

The other supplies that are needed by hotels are also easier to attain through internet

channels whether originated by the supplier or by the hotel chain. 3ith their products in

greater demand by greater numbers of hoteliers suppliers gain some measure of power by

competition for their offerings.

%ecommendations

;ll of the hotels listed above can benefit from internet applications that produce greater value

in the value chain. The firms infastructure can benefit from financial and 4%P systems.

ommunicating with investors can also be done by internet. Human resources can be

managed by the internet as part of the overall strategy as well providing internet based self

service personnel and benefits web based training internet based sharing of information

and knowledge and electronic time and e+pense reporting. alue can be increased by

standardi8ing technology across multiple locations forming knowledge directories and

allowing real time access to online booking information. ,inally every hotel could benefit by

online inventory control and forecasting systems with suppliers. These improvements can all

lead to greater profitability )Porter "##1*

4ach type of hotel needs to identify its uni$ue strengths and target market and align its

internet strategy to support that identity 3ill the chain choose to be low cost or to command

a premium priceA istinguishing oneself from the competition becomes vital. This can be


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enhanced by superior technology through superior inputs through better training of staff or

through better management. ifferentiation adds value but the internet makes it hard to

maintain those distinctive strategic positions because it eases change to best practices and

it improves operational effectiveness. Never the less such distinctions make the business

more profitable.

By its basic nature the hotel industry is fragmented. The internet makes it easier for travelers

from far and wide to learn about the hotel or to order a room but the customer must still

come to the hotel for the service. This makes it more likely that the profitability will be there

for when sale is easy to transact and complete the profit margin usually decreases. Porter

points out similar e+amples with %eal 4state and with furniture sales.

ealing directly is great for hotels. Cther than travel agencies who arranged hotel stays the

hotel business has always been a face to face business and this normally sustains the

economic value of the transaction. ,or all of these chains the internet complements rather

than cannibali8es established ways of doing business. !t becomes one more link in the valuechain.

4very chain listed below should use its website to attract employees and to communicate a

philosophy of management. !n the employment section the designers must remember that

they are communicating not only to potential employees but also communicating the service

standards that the guests can e+pect.

CORPORATE SUSTAINABILITY AND SOCIAL

RESPONSBILITY

As a part of Tatas; Indias premier business house; Taj Hotels, have always believed in

society and environment being integral stakeholders in our business along with its

shareholders, customers, vendors and others !ver the last decade, the movement towards

ecologically sound tourism has gained urgency and importance across the globe and we

recogni"e that responsible practices in vogue are as diverse as the geographies

Taj promote corporate citi"enship through our strategic public#private partnerships which

encourage building livelihoods of less#advantaged youth and women The causes they

promote include reducing malnutrition, promoting indigenous artisans and craftsmen and

enhancing employability of identified target groups by sharing our core competencies as a

leading hospitality company

Taj have the uni$ue scope and opportunity to develop raw potential into a skilled workforce

that is immediately employable by various players in the industry A majority of its

community projects are focused around e%tending its key strengths in food production,

kitchen management, housekeeping, customer service and spas to promote economic

empowerment of candidates from vulnerable socio#economic backgrounds The group is fully


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committed to the cause of building a sustainable environment by reducing the impact of its

daily operations on the environment and improving operational efficiencies, resource

conservation, reuse and recycling of key resources

A glimpse of indicative projects undertaken by Taj group

Tajs si%th &orporate 'ustainability (eport was submitted to the )nited *ations +lobal

&ompact society in August, --. The )nited *ations +lobal &ompact is a strategic policy

initiative for businesses that are committed to aligning their operations and strategies with ten

universally accepted principles in the areas of human rights, labor, safety / security,

environment and anti#corruption This &orporate 'ustainability report also serves as their

+(I 0+lobal (eporting Initiative1 as well as Triple 2ottom 3ine report The report focuses on

identified priorities at IH&3 and responds to key stakeholder needs Taj plan to continue and

further strengthen its commitment to the environment and societies in which we operate

EARTHIn an endeavour to reinstate its vision and efforts to boost sustainable tourism, Taj Hotels

(esorts and 4alaces presented 5A(TH 05nvironment Awareness / (enewal at Taj Hotels1

this year Implementing schemes such as the +angroti +lacier &lean#)p 5%pedition, as well

as designated 5arth rooms, which minimise environmental impact, Taj is one of Asias

largest group of hotels to commit to energy conservation and environmental management

5A(TH has received certification from +reen +lobe, the only worldwide environmental

certification program for travel and tourism

The Taj began a century ago with a single landmark 6 The Taj 7ahal 4alace Hotel, 7umbai

Today, the various Taj hotels, in all their variety and historical richness, are recognisedinternationally as the symbols of true Indian hospitality The &ompanys history is integral to

Indias emergence into the global business and leisure travel community; and looking to the

future, Taj Hotels (esorts and 4alaces is well positioned to meet the increase in travel activity

with the rapid e%pansion of the Indian economy

Porter's 5 Forces Model

The state of competition in an industry depends on five basic forces, which are diagrammed

above The collective strength of these forces determines the ultimate profit potential of anindustry 8hatever their collective strength , the corporate strategists goal is to find a

position in the industry where his or her company can best defend itself against these forces

or can influence them in its favor

Contendin Forces

T!re"ts o# Entr$%

*ew entrants to an industry bring new capacity, the desire to gain market share, and often

substantial sources &ompanies diversifying through ac$uisition into the industry from othermarkets often leverage their resources to cause a shake up The seriousness of the threat of


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entry depends on the barriers present nd on the reaction from e%isting competitors that the

entrant can e%pect

There are si% major sources of barriers to entry These are9

5conomies of scale

4roduct differentiation

&apital re$uirements

&ost disadvantages Independent of si"e

Access to distribution channels

+overnment policy

S&liers%

'uppliers can e%ert bargaining power on participants in an industry by raising prices or

reducing the $uality of purchased goods and services 4owerful suppliers, thereby, can

s$uee"e profitability out of an industry unable to recover cost increases in its own prices The

power of each important supplier group depends on a number of characteristics of its market

situation and on the relative importance of its sales or purchases to the industry compared

with its overall business A supplier group is powerful if it is dominated by a few companies

and is more concentrated than the industry it sells Also if it poses a credible threat of

integrating forward into the industrys business This provides a check against the industrysability to improve the terms on which it purchases

B&$ers%

&ustomers likewise can force down prices, demand higher $uality or more services, and play

competitors off against each other# all at the e%pense of industry profits A buyer group is

powerful if it is concentrated or purchases in large volume 3arge volume buyers are

particularly potent forces if heavy fi%ed costs characteri"e the industry# as they do in metal

containers, corn refining, and bulk chemicals, for e%ample# which raise the stakes to keep

capacity filled The product it purchases from the industry are standard or undifferentiatedThe buyers, sure that they always can find alternative suppliers, may play one company

against another, as they do in aluminium e%trusion Another case can be when the products

the buyer purchases from the industry from a component of its product and represent a

significant fraction of its cost The buyers are likely to shop for a favorable price and

purchase selectively 8hen the products sold by the industry in $uestion is a small fraction of

buyers costs, buyers are usually much less price sensitive

S&(stit&tes%

2y placing a ceiling on the prices it can charge, substitute products or services limit thepotential of an industry )nless it can upgrade the $uality of the product or differentiate it


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TH(5AT9 HI+H 0because of new class, 3ow otherwise1

&ustomers *eed

+ood Hospitality

Hygiene food and environment

S&ccess #"ctors #or T") !otels%

Technology related9#)sed of advance technology in hotel premises

7anufacturing# related9# High utili"ation of fi%ed assets


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+lobali"ation

*ew +eographical location

Threats 9

:luctuations in international tourist arrivals

Increasing competition

Terrorism

CONCLUSION

Taj Hotels (esorts and 4alaces is one of Asia>s largest and finest group of hotels The

&ompany is rapidly emerging as a global brand by integrating an international network oflu%ury hotels within the chain Taj Hotels is part of the Tata +roup, India>s premier business

house Taj 7ahal 4alace Hotel in 7umbai, India was the subject of many newscasts since

*ovember ?,--@The terrorist attacks not only killed and wounded many, but also caused

major damage to the iconic hotel Tata, a pioneer industrialist and philanthropist, conceived

the idea of building a hotel in the wake of the bubonic plague which had devastated 2ombay

in the late @.-sTata>s sole wish was to attract people to India, and incidentally to improve

2ombay The severely damaged hotel has to be rebuilt The si%th floor is gutted, and many of

its restaurants, including the famous 8asabi, burnt and the splendid dome is shaken because

of the many e%plosions The anti$ue chandeliers and priceless artwork are all lost forever

2ut the Taj 7ahal 4alace and Tower stands as an icon of the city of 7umbai, a symbol ofboth independence and dignity It will also stand in the future as a representation of the

indomitable human spirit of the people of 7umbai displayed in the face of the greatest

adversity

http'DDwww.theofficialboard.comDorg/chartDindian/hotels

The Combined Forces of an Economic Recession and H1N1 Epidemic Are Causing the Hotel Industry to...

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