Posted at 10.07.2018
In my statement I'll analyse the hotel industry using macro-environmental and structural examination such as Infestations and Porters Five Forces Model analyses. The aim of my work is dialogue of current political, economical cultural and technological local climate and exactly how it impacts the hotel industry. Structural examination will help me to determine possible competitive strategy that i can follow in this industry.
I will use PEST analysis for visitor hotel industry release. This analysis allows me to explain what happens in this industry nowadays. I am going to explain how different facets make a difference the industry as in positive such as negative way. Hotel industry is a sub industry of travel and tourism industry, because it influenced with travel and leisure quite strong. Travel and leisure nowadays has a global meaning as well as for analysing the hotel industry I must think globally about it. There exists variety of factors impacting on hotel industry, however they can't be concentrated just in a single country, because the consumers of the hotels can be people from the whole world, not only from the country where in fact the hotel can be found. There is inside and outside tourism existing in each country, so there are so many potential customers, who can book a hotel. Political and cost-effective factors of other countries can effect the hotel industry of the country where the hotel situated, this effect level depend on how popular is a holiday destination for outside the house tourists. If it's popular, which means that outside travel and leisure is very developed upon this place and hotels there just makes their profit on foreign tourists as well as local tourists. Tourism is a worldwide activity since its beginnings, as soon as a passing was made from travels (reserved for people with money) to using the spare time of the worker in order to create profit.
I will write about both of these factors in a single section because these factors are very closely related to one another.
Tourism industry is an easy growing industry. Hotels exist for providing the tourist a possibility to stay at the place where they are not living. Schengen arrangement has given for travellers a chance better to move in one country to another. This agreement has increased the number of customers of the hotels. This arrangement removes boundary control between 25 European union countries. These countries are: Austria, Belgium, Bulgaria, Cyprus, The Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lichtenstein, Lithuania, Luxemburg, Malta, The Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and Switzerland. So, this arrangement makes travelling process between these countries easier and cheaper. People do not need to spend their time and money for sorting out the issues with visa. They are able to just easily travel straightaway from one country to some other; just take a carry and go. Naturally, this fact influences the complete hotel industry in positive way. Additionally, relating to Schengen arrangement for The USA, Australia, New Zealand and Canada visit of Schengen area is possible without a visa, but there is a time limited for 3 months. This means that folks from 4 more countries can travel easily. The UK and Ireland continued to be outside the agreement due to fears of terrorism. . But these countries are associates of EU, which is partly financial union. This level of economical integration means free movement of commodities and people. If people can readily move between EU countries, this means that they are able to travel, but if they are able to travel it means that they may decide to book a hotel for a brief stay while going to new locations.
16 countries from European union use the same money, which is euro (). This simple fact makes tourism safer and favourable between those 16 countries. Travelers, for example visiting from France to Spain, do not lose their money on foreign currency exchange. These factors give some advantages of those countries. But more effective are countries where the currency of the country is cheaper comparable to other currency. In case the travel and leisure and hotel services are developed in this country, this may mean a major popularity of this country among tourists. Of course, if country is popular among visitors, the hotel industry can definitely take an advantage of this simple fact. But nowadays after financial crunch the currency rate has modified. For instance 1 British pound now could be 1. 10914434 Euros; which means that euro became more expensive than before. For this reason fact going from UK to countries using Euro became more expensive. This situation has two edges of medal, from one aspect the Euro countries and their hotels might lose some travelers from UK. But from other side the united kingdom hotels usually takes advantage onto it, After all if it became too expensive to travel in foreign countries, people might spend cash to travel insight the UK. I am just looking on some situations with currency and how they have an impact on the hotel industry. Forex is a very important factor and can affect the industry both ways actually.
Economical changes in virtually any country can affect the hotel industry, because they'll affect the tourism industry. For example if in some countries you will see too high level of unemployment and too low level of income, people won't have money for reserving a hotel, they will prefer to stay at home rather than traveling.
People are inquisitive, this is their nature. Lots of them want to travel in free time, to go to new places. If someone decides to travel he will in any case need to stay someplace; that the hotel is ideal for. In the current life people are extremely busy, they working hard and definitely will need a time for you to rest. They will need it to change scenery, to see something new, to visit some interesting places and involve some new experiences. All of this affect hotel industry in positive way, because people will travel and use the hotels as accommodation to meet their needs.
Another factor is people's lifestyle. Some people travel because they need to, this might be one of these responsibilities at the job. If this business trips takes greater than a day, the workplace will reserve a hotel for person exploring with try to sort out the business issues.
Some people find staying in hotel very costly or just find it convenient and interesting in which to stay camping or caravan parks for their vacation. These people's patterns have an impact on the hotel industry as a whole. Caravan parks and camping became very good competition of hotels. The hotels aren't the one existing spot to stay on vacations.
The hotels offer a good service with their customers. Service is really the product which they sell. Hotels are a complex of variety of services. They aren't only a bed space and breakfast time. Plenty of hotels have sport facilities, pools, Health club, beauty centres, golf clubs, massage rooms and so forth. All this facilities are working to attract the clients. Moreover, there is the information about holiday destinations, destinations and entertainment available in visitor hotels. Some hotels, especially situated in tourist resort vacation spots, have a night program of friends' entertainment. All of these factors favourably affect the hotel industry. This greatly helps the life span of tourists. They do not have to think and get worried about anything; if they pay money they can also spend a great time however, not only sleeping and eat. The personnel of the hotel will be able to answer all of your questions. It is very good when you're able to find everything in one place.
The globalization has considered a place inside our modern life. Now it is possible to book nearly any country's hotel on internet. Doing such as this, people always have an opportunity to compare hotel prices and facilities because there is a lot of information available on internet. Hotels usually cooperate with travel operators. Usually, when people reserve any occasion, they reserve a hotel as well as aircraft tickets and hotel transfers. Cooperation with head to operators is useful for both edges, for people and for hotels. Tour operators find the customers for the hotel so, of course, this technological factor is important in hotel industry.
To choose the appealing competitive position available, I need to get started on with evaluation and analysing the industry to which your business belongs, using Porters Five Forces Model. This model can be used for determining and analysing the opportunities and risk that the business can meet in the industry. Corresponding to Michael E. Porter model, there are 5 competitive makes existing and he created a diagram demonstrating how these causes generating the industry competition. These 5 causes are:
The rivalry among existing firms.
This drive is a main of the Porters' diagram. The strength of rivalry between organizations will be high when there is a existence of the following factors in the industry:
Large amount of companies
Small degree of differentiation
Low progress of industry
High fixed costs
Possibility of increasing development capacity only through the top capacity
High proper stakes
High obstacles to leave because of monetary, strategic or psychological reasons
The threat of access of potential competition.
A new rival maintains a menace for the marketplace share of existing opponents. The bigger is a barrier to entry in to the industry, the low is threat of potential competitor's admittance. Relating to M. Porter, there are 6 major sources of obstacles to entry:
Economies of the scale
This is decrease in cost per device resulting from increased production, came to the realization through operational efficiencies.
This happens when existing firms have well known brand and customers loyalty.
The hurdle is high if the firm's admittance expenses of assets needs are too heavy.
Access do distribution channels
The company have to encourage the distribution channels to cooperate.
Government can limit or foreclose the usage of the industry with such handles as licensing or limitations to access raw materials. (Porter M. , (2004), p. 13)
The risk of alternative products.
Availability of substitutes decides the upper limit of the purchase price for the merchandise in the industry. The buyer can change to substitutes when the prices of the existing goods go above this boundary. The lifetime of completely changing products will limit the company's profit, because it may cause the serious competition.
Bargaining power of customers.
The market ability of clients is mirrored in their ability to reduce prices in the industry, by reducing the number of purchased goods, or to demand better quality product for the same price. Factors leading to greater bargaining ability of potential buyers are:
The awareness of buyers is greater than attentiveness of manufacturers in the industry
Large level of purchases
Undifferentiated or standardized products or services
Existing the threat of backward integration of buyer with manufacturer
Openness of information about manufacturer's costs
High price elasticity of demand in the industry. If purchasers are sensitive to changes in market prices, this mean that market electric power of company is low.
Bargaining electricity of suppliers.
Suppliers may threat to raise prices, forcing the company to reduce the number of products, and as a consequence of it, to reduce their income. Bargaining electricity of suppliers is high in following conditions:
The dominance of the few suppliers
The focus of industry suppliers is higher than awareness of industry manufacturers
Inaccessibility of substitutes
The relative insignificance of the maker to the supplier
The importance of providing product to the manufacturers
High dealer differentiation
If the price to improve the dealer is high for the manufacturer
Possibility of direct integration of dealer with manufacturer
The collective durability of these makes determines the best profit potential on the market, where profit potential is assessed in terms of long haul return on invested capital. (Porter M. , (2004), p. 3). It is not necessarily to use all of the five forces inspecting the industry because not absolutely all of them will be important in any one industry. Examining a vacationer hotel industry I am going to use just three causes from five existing, because I believe these three forces are usually more important in my chosen industry. I will write about the chance of accessibility of potential competition, bargaining ability of buyers and the risk of substitute products. Studying a hotel industry in this certain way will enable me to find the competitive technique for my own hotel in future.
The hotel industry is very appealing industry for new entrants for their benefits from tourism development.
If the chance of accessibility of new competitors is low, the business can raise prices and increase profitability. As I told before, the level of this risk depends on barriers of admittance.
To determine how risky of entrance of new opponents is, I chose capital requirements and product differentiation resources of barriers. To create a new hotel and to buy all the essential things, which really helps to provide a good service, are very expensive, so the cost of the building itself and cost of furniture and equipment maintain a high hurdle to entry the industry. Furthermore, to employ people is also very costly because for normal hotel functioning it needs to hire lots of personnel. Opening a fresh hotel may have additional legal or financial complexities and company might need to pay for professionals in this field to sort out these complexities away.
Byeong Yong Kim and Haemoon Oh have the same thoughts and opinions, in their article they wrote: Although lodging industry has high entry barriers such as huge amount of investment necessary to build a building and a dependence on a countrywide service network. . Other reason of high barriers is the fact new company might not have effect of current economic climate of size. The economies of range that might provide a hurdle to entry are present generally in equipment-based, rather than in people-based, service businesses. Where economies of level cannot be developed easily, two other obstacles to access can be used: proprietary technology, and/or service differentiation. . I think the hotel industry's service is people structured so, as told in Dan R. E. Thomas article, economies of the size can't be developed easily. Product (service) differentiation maintain quite higher level of barrier as well because existing hotels or hotel chains have popular brands and positive reputation, which is even more important, like Holyday Inn, Premier Inn, or more luxury hotels like Marriott or Hilton. Customers have a choice, so if they need in which to stay the hotel they'll choose hotel with already existing good reputation and good service somewhat than new hotel, that they have no idea anything about.
Buyers contend with the industry by forcing down prices, bargaining for top quality or more services, and participating in competitors against each other - all at the expense of industry profitability. (Porter M. , (2004), p. 24) Plenty of potential buyers can be found on the market and no solitary buyer is dominating, so their electric power is quite low. However, this ability is increasing because of new technology that permit traveller to reserve hotel from anywhere in the world. . The buyer now is up to date about the hotel even if he never seen it rather than been in town where in fact the hotel can be found. In case buyer have no idea about the new competition it may be unprofitable for competition. Brand recognition allures new customers and makes customers to replicate the purchases. The clients are independent and this fact makes customers powerful. Hotel industry clients are quite sensitive to price, because hotels are mainly indistinguishable and because travel and leisure as well as hotel service is not product of first need. As the travel and leisure is mostly seasonal activity and the affect of tourism industry on hotels is quite high means that tourist hotels revenue may be cyclical. Furthermore the hotels have substitutes. Each one of these facts give the buyers some electric power. Taking on account all the facts determined above, I'd say ability of potential buyers is neither too low nor too much.
Substitute in this particular case is alternate of the hotel. The substitutes stand for the competitors and when the substitutes could be more preferable or even more accessible for customers than hotels, the hotel industry may have problems. I think the risk of substitutes is quite high, but not the best one.
Staying with friends or family can be considered a hotel alternative as well. People may have friends around where they will travel and they may prefer to remain with them. That is cheaper than residing in hotel. However, not all the vacationers have relatives and friends where they can stay.
Other substitutes are caravan parks and camping. People may determine that this is better accommodation for travelers, and this being from town is more interesting, much healthier and cheaper, and camping is the best place for ideal snooze. But, despite the fact that camping supplies the same accommodation function, hotels can have some additional services like Fitness center or rub saloon. So camping is not completely the same as hotel and many people may determine not to change the hotel stay for something else.
The alternative like teleconferences using video recording equipment or telephone is available for business travelers. They do not actually need to move somewhere to deal with their business problems in person, they just can use technologies to type majority of problems from your home or work place. This fact permits these to choose if indeed they want to go someplace and stay static in hotel or just ring somewhere to be on contact. Replacement like this has much more serious devotion and business hotels may lose quite a lot of clients. However, not absolutely all the issues can be easily sorted on the phone, so necessity of in person conferences continues to be relevant.
Hotel is a service industry and service is more abstract than a product. To develop the technique for the hotel I must take this fact into consideration.
According to Emerald article advised strategies are differentiation and low costs.
A differentiation strategy demands the introduction of a product or service that offers unique attributes that are valued by customers and this customers understand to be better than or different from the products of your competition.
Majority of hotels are equivalent (homogenous), so the easiest way to lure customers is creating something strange, which can astonish customers and make them interested in. I need to create the initial hotel which will not have analogues in the district around. For example, I can open a hotel inside an historic castle or create a good imitation of traditional castle, if there are no castles in the region I'd like. Such hotels nowadays already can be found (for example South Cave Castle hotel in East Yorkshire, UK or Amberley Castle Hotel in West Sussex, UK); nevertheless, they aren't common. I simply need to choose location where in fact the castle hotels are in minority or not provided by any means. The castle-hotel has abnormal, mysterious atmosphere as well as comparison between modern equipment and services and outdated interior. These attributes certainly make the hotel unique. The crucial thing is not too focus on an old fashion; service should be of the best current modern standard. Although, I could make differentiation in service as well, for example differentiation in hotel entertainment such as offering the carriage with horses or possibility to set up a costume masquerade party. In this case my hotel will be not only accommodation and standard service but also entertainment organic. Firstly, this plan can appeal to new segment of customers market, not only travelers. Tourists come not to spend all the time in the hotel. Hotel is merely accommodation with additional services provided. But the castle is interesting by itself and people may take luxury of celebrating wedding ceremonies and anniversaries in this hotel as a way to get memorable impressions and memories. I think detailed strategy will decrease in volumes dependence of the hotel from international travel and leisure, because tourists will not be the one customers of this hotel.
But implementation of such idea has some complications; the main of them is expensiveness of the complete business. Uniqueness costs big money and low cost strategy is unacceptable in this specific case. This expensiveness has one positive instant, since it maintain high barrier of accessibility the industry with similar or completely the same idea. This way, if the firm have enough purchases to implement the thought of castle hotel and realized it, it will be difficult for new competitors to duplicate the same strategy.
As a bottom line, I'd like to include, that analyzing the industry is essential to choose strategic position. Knowledge of what happens in the industry is the best way to achieve excellent results, make a profit and compete successfully.
Porter, E. M. Competitive Strategy. Approaches for Analyzing Market sectors and Rivals, (2004), Free Press, New York
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