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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

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chapter 12

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
  • 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
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

competition in the lodging business5
  • 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
competition in the lodging business6
  • 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
competition in the lodging business7
  • “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
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”
the product9
  • 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
the product10
  • 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
the product11
  • 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
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
food service13

Reasons to outsource:

  • Financial considerations
  • Ability to focus on core competencies
  • Strategic intents
  • 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)

Special rates will include:

  • Corporate
  • AAA
  • Government
  • Preferred
  • Association
  • 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
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
  • 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)
  • 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