Competition in the Lodging Business

1
Chapter 12

• Competition in the Lodging Business

2
DEFINITION OF MARKETING

• Marketing is communicating to and
  givingcustomers what they want, when they want
  it, where they want it, at a price they are
  willing to pay (Lewis, 2000).

3
COMPETITION IN THE LODGING BUSINESS

• Based upon what you have learned so far, how
  would you characterize the lodging industry in
  terms of competitiveness?
  
• The industry can be characterized as being highly
  competitive as well as very fragmented
  
• There are many different ownership companies,
  brands and types of properties each vying for
  their share of the market

4
LEADING BRANDS

• Holiday Inn (InterContinental) 188,000 rooms
• Best Western 187,000 rooms
• Days Inns (Wyndham) 142,000 rooms
• Marriott 130,000 rooms
• Hampton Inns (Hilton) 127,000 rooms
• Others Super 8, Comfort Inn, Holiday Inn
  Express,, Motel 6, Ramada, Hilton

5
COMPETITION IN THE LODGING BUSINESS

• Despite the visibility of several large hotel
  companies, many hotels are still independently
  owned and operated
  
• From year to year, the number of hotels that
  attain chain affiliation usually equals the
  number of hotels that become independent
  
• There were 89,000 hotel new hotel rooms projected
  to be built in 2004 55,000 were actually built
  
• 86,000 new rooms were projected for 2006
• As the industry grows, it becomes more
  competitive and marketing becomes more important

6
COMPETITION IN THE LODGING BUSINESS

• The marketing mix in lodging is much the same as
  we described it earlier and how it applies to the
  food service industry. How the 4 Ps are
  interpreted, however, is slightly different
• Product includes both physical goods and
  services. It also includes services provided at
  the chain level
  
• Price refers to what the guest actually pays
  which may differ quite a bit from the rack rate
  (posted rate)
  
• Price, in the lodging industry, is much more
  flexible than in the food service industry

7
COMPETITION IN THE LODGING BUSINESS

• Place refers not only to the physical location
  of the hotel but also to the place where the
  hotel room is sold (which is often different).
  
• Promotion refers to marketing communication
  advertising, sales, etc. Sales plays a much
  greater role in hotels because of the importance
  of group sales

8
THE PRODUCT

• The Product is made up of goods and services
• The hotel product can sometimes be more goods and
  sometimes more services
  
• This often depends on the type of guest being
  served the upstairs guest or the downstairs
  guest
  

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THE PRODUCT

• The Upstairs guest is interested in the upstairs,
  or primarily the room. They are not interested
  in additional services. They are willing to trade
  off for lower prices
• The Downstairs guest is interested in services
  and offerings in addition to the room. They want
  lounges, food service, public space, etc. and are
  generally willing to pay more

10
THE PRODUCT

• Guests may obviously be further segmented by the
  extent and sophistication of services that they
  desire
  
• Services can include food service, concierge
  (and concierge floors), spas, fitness centers,
  and business centers, among others
  
• There are also systemwide services which will
  include reservations, accounting, billing and
  quality assurance

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THE PRODUCT

• Food service was the most important service for a
  long time but hotels are changing the way that
  they manage it
  
• Some hotels are choosing to limit foodservice
  (breakfast only)
  
• Some are choosing to eliminate it
• Others are choosing to outsource it

12
FOOD SERVICE

• Hotels have been exploring ways to increase the
  profitability of various departments (including
  rooms) in recent years (e.g. telephone, catering,
  fitness facilities, retail space, etc.)
• The food and beverage area is one department that
  has posed unique challenges to hotels in recent
  years
  

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FOOD SERVICE

• Reasons to outsource
• Financial considerations
• Ability to focus on core competencies
• Strategic intents

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PRICE

• Hotel pricing is meant to be flexible depending
  upon the time of year, the time of day,
  occupancy, the customer, the amount of business a
  group provides each year, etc.
• The cost of providing the hotel room generally
  sets the floor (the lowest)
  
• The rack rate generally establishes the ceiling
  (the highest)

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PRICE

• Special rates will include
• Corporate
• AAA
• Government
• Preferred
• Association

16
PLACE

• Location is a major factor in hotel success
• Location is decided based upon a feasibility
  study
  
• A feasibility study considers proximity to
  transportation routes, a demand analysis, market
  characteristics and a competitive analysis
  
• Hotel locations may change over time

17
PLACE DISTRIBUTION CHANNELS

• Distribution channels refer to how and where
  hotel rooms are sold
  
• Whereas guests used to make reservations through
  the hotel (directly), travel agents or through a
  central reservations system, now online booking
  has changed this
• Representation companies Utell
• Online booking through hotel companies lowers
  costs resulting in lower cost rooms to customers
  
• Finally, on-line agencies such as Expedia and
  Travelocity are gaining market share
  

18
PROMOTION

• Advertising much hotel advertising still
  focuses on print media (newspapers and
  magazines)
  
• Some hotels favour television advertising such as
  Holiday Inn, Starwood and Hilton
  
• Good ads entice customers to learn more
• Some advertising is a joint effort with local
  tourist/promotion boards
  
• Internet advertising continues to increase and is
  easier to track success rates than more
  mainstream media (Embassy Suites spent 35 of
  budget on on-line advertising)

19
PROMOTION

• Sales Promotion provides an incentive for the
  consumer
  
• Sales promotions often take the form of rewards
  programs, partnerships (generally with airlines)
  and special events (special rates)
  
• Recent example is between Sheraton and Yahoo
• Rewards programs reward regular guests for
  continued patronage
  
• Special deals try to boost business during
  traditionally slow periods