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Chapter 12. Competition in the Lodging Business. DEFINITION OF MARKETING. Marketing is “communicating to and giving…customers what they want, when they want it, where they want it, at a price they are willing to pay” (Lewis, 2000). COMPETITION IN THE LODGING BUSINESS.

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Chapter 12 l.jpg

Chapter 12

Competition in the Lodging Business


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DEFINITION OF MARKETING

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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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)


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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


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