Chapter 4

2. Chapter 4 Competitive strategies

3. Chapter objectives After going through this chapter, you should be able to: • describe how hospitality organizations vary in their segmentation, positioning and differentiation strategies • understand the characteristics of hospitality firms that impact on marketing practice • carry out a competitive analysis, using Michael Porter’s Five Forces model • understand the role of branding in hospitality organizations • appreciate the international significance of major players in the hotel and restaurant industry

4. Competitive environment Hospitality competitive environment: • dynamic • intense • turbulent since more supply than demand in most market segments Segmentation, positioning and differentiation strategies key to creating strong hospitality brand and building sustainable competitive advantage

5. Segmentation strategies Mass marketing: • responds to similaritiesof consumers’ needs and wants • companies offer standardized product to satisfy customers • benefits to the company include a standardized operation, leveraging significant savings in purchasing, production, staffing, promotion via massive economies of scale Differentiated marketing: • identifies differences between the needs and wants of various market segments • multi-brand hospitality companies develop individual marketing programs for each market segment • helps increase overall sales and market share by providing more bedrooms in different branded hotels, or more covers/tables in different branded restaurants, in the same locations, with each brand serving different market segments • specific marketing programs developed for each segment Focused, concentrated or niche marketing: Hospitality companies that concentrate their marketing programs on a single-market segment adopt a focused or concentrated or niche segmentation focus (can be a market segment (luxury) or geographic (Carribean)); focus on a single segment enables hospitality operators to develop expertise in that market segment

6. Figure 4.2 The process of segmentation, targeting and positioning in hospitality

7. Targeting • Intense competitive environment forces hospitality firms to try and create a distinctive marketing offer • Selection of target markets provides a focus for the development of positioning and differentiation strategies • Identifying target markets needs and wants, and identifying company strengths to match target needs and wants, provides starting point for developing a positioning strategy

8. Differentiation • Dilemma for hospitality operators – virtually no significant differences between competitor core products • Generic products which do not have any real differences are described as commodity products • Tangible elements of a hospitality experience (bed, meal, drink) are so similar that they are commodity products • Innovations/improvements quickly copied or imitated by the competitors • Some hospitality brands have distinctive images compared to their rivals • The design and maintenance of a distinctive position in the minds of target markets is the focus of a positioning strategy

9. Positioning Objective positioning: • refers to tangible, physical attributes, e.g. size of bedroom, facilities, the menu items • purpose of objective positioning is to use a tangible attribute as the main differentiator from competitors but commodity product attributes easily imitated by competitors • objective positioning not effective long-term strategy Subjective positioning: • focuses on the intangible aspects of the offer or customer experience • perceived image of brand may not necessarily reflect the true product/service • what matters is the customer’s perception of the offer • offers hospitality operators opportunity to effectively position the offer because positioning strategy is linked to intangible attributes that are difficult for competitors to imitate

10. Positioning strategies Positioning strategies are designed from answers to two questions: • Which competitor brand(s) should the company position against? • How should our brand be positioned? Typical hospitality positioning strategies: • product feature or special attributes • price/quality • customer benefit • use or usage • user Positioning maps • plot competing hospitality products using two or more attributes on to a map • attributes include: • price, quality, location, reputation, value for money, product/service quality, range of facilities • note the relationship between quality and price; normally a brand must stay within its price/quality product class

11. Figure 4.3 Hotel positioning map

12. Understanding the competition Some hoteliers and restaurateurs claim their product is so unique that they ‘do not have any competitors’ Reality is all hospitality businesses operate against many different types of competitors Macro-competitors: • indirect competitors from different industries that compete for consumers’ disposable income against hospitality: • major household purchases (e.g. motorcar) compete with luxury holidays • supermarket easy-to-cook meals compete with restaurants • shops that sell alcohol for consumption at home compete against bars

13. Figure 4.4 Five Forces analysis

14. The bargaining power of customers (buyers) • Reflects strength of buyers’ bargaining position, especially price, which customers have over suppliers • Customers purchasing larger volumes of bed-nights with low switching costs (i.e., it is easy and economical to change supplier) • Leverage strong bargaining force in the competitive environment Examples: tour operators, who book thousands of customers in to hotels, have a strong bargaining position and can demand lower prices from hotels Individual customers have a weaker bargaining position if demand is high and capacity is low, but when demand is variable and capacity high then individual customers have stronger bargaining power

15. Bargaining power of suppliers (including employees) Suppliers, including employees, can negatively influence the attractiveness and profitability of a sector by increasing their prices (or wages) and thereby increasing industry costs and reducing profit margins. Powerful suppliers are those organizations that control the supply of goods and services to the hospitality industry. This varies from country to country. Examples include: • monopoly suppliers controlling electricity, gas or water supplies • oligopoly suppliers, which are concentrations of only a few major suppliers in one sector • owners of computerized reservation systems • powerful trade unions, which can negotiate improved pay and conditions on behalf

16. Threat of new entrants The threat of new entrants is dependent on barriers to enter, including: • ability to generate economies of scale and experience • opportunities for product differentiation • amount of capital required to buy into the industry • access to the distribution channels In hospitality there are low barriers to entry in many sectors

17. Threat of substitutes Substitute industries provide competing offers that satisfy the same generic needs, or perform the same function for consumers Example is the convenience eating-out market that competes against substitute convenient eat-at-home products marketed by supermarkets Continual developments in technology keep changing the potential threat from substitute products Rapid development of mobile communications, personal communications and video-conferencing has presented a substitute product for the hotel meetings market

18. Intensity of rivalry between competitors Rivalry varies between industries and sectors Categories of rivalry: • conflict (efforts to destroy competitors) • competition (to provide better solutions to customer problems) • coexistence (rivals allow each other to operate in different segments) • cooperation (rivals cooperate in some activities such as purchasing) • collusion (illegal cooperation to fix prices) Rivalry is dependent on: • number of dominant players • levels of demand and capacity • personalities of competitors

19. Sustainable competitive advantage Companies strive to compete more effectively by creating superior competitor advantage based on critical success factors (CSF) – also called key factors for success Defining CSF enables a company to understand market position vis-à-vis competitors’ CSF need to deliver experiences/attributes most valued by customers Examples of CSF include: • lowest cost base and extensive geographic coverage for budget hotel brands • high service quality for exclusive hospitality events • highly regarded brand reputation and high brand awareness for international hotel chains • technical superiority in food production processes for fast-food chain restaurants • consistent standards of service in standardized hospitality branded concepts • easy to find locations and secure parking facilities for provincial business hotels competing in urban locations • superior service provided by well-trained and highly motivated personnel, in luxury country house hotels Competitive advantages that are easily copied have limited value

20. Branding • Branding is a core concept in hospitality marketing • The brand is the most overt manifestation of STP strategy • A hospitality brand immediately distinguishes one company’s offering from competitors’ • Brands help customers to identify what the product or company stands for – a badge of quality • Successful brands enhance company profits • Most discussion/research into hospitality branding relates to multi-unit chain operations • Many of the principles of brand management apply to individual properties – individual hospitality outlets can be perceived as brands

21. Defining the brand Brands are complex and have multiple dimensions, they are: • a legal instrument where a company owns the brand name, logo and design • a logo, which differentiates the offer with a visual identity and name, providing customers with quality assurance • an integral part of a company image, reflecting the culture, people, personality and reputation of the company • a shorthand symbol that is easily recognized by consumers • a risk reducer, giving consumers confidence that their expectations will be fulfilled – the brand as an unwritten contract adds value to the customer’s subjective experience Over time, the marketing investment in brands is rewarded by consumer goodwill and loyalty

22. Four brand concepts Functional: focuses on delivering core benefits of a hospitality service with efficient, well-designed processes, and no attempt to engage the customer in an emotional relationship Symbolic: addresses consumers’ ego needs and the desire to be associated with higher-status groups Experiential: focuses on sensory pleasures which stimulate consumers ‘Me Too’: simply imitates an existing competitor brand

23. Brand name A brand name should convey the essence of a brand to its target audience in memorable words or a short phrase International brands need to ensure their name translates, and sounds appropriate in other languages and that the logo is inoffensive Examples of brand types: Founder Hilton, Marriott Geographic Best Western Price Budget Inns Acronym IHG Market segment Luxury Collection Animals Red Lion Colours Green Tree Letters W Numbers Motel 6 Wacky YOTEL

24. Brand awareness and image Two key measures are used to monitor the effectiveness of brands: Brand awareness is measure of the brand’s visibility High-brandawareness= brand is well known and enjoys a high profile Low-brand awareness = consumers do not know the brand Brand image is a measure of the brand’s reputation High-brand image = brand has very good reputation Low-brand image = the brand has a poor reputation Brand awareness and brand image can be plotted on a brand matrix

25. Figure 4.6 Brand awareness and brand image

26. References and further reading • Connell, J. (1992). ‘Branding hotel portfolios’. International Journal of Contemporary Hospitality Management, 4, pp. 26–32. • de Chernatony, L. and Dall’Olmo, Riley F. (1998). ‘Defining a brand: beyond the literature with expert’s interpretations’. Journal of Marketing Management, 14, pp. 417–444. • Dev, C. S., Morgan, M. S. and Shoemaker, S. (1995). ‘A positioning analysis of hotel brands’. Cornell Hotel and Restaurant Quarterly, 36, pp. 48–55. • Frambacha, R. T., Prabhub, J. and Verhallence, T. M. M. (2003). ‘The influence of business strategy on new product activity: the role of market orientation’. Journal of International Research in Marketing, 20, pp. 377–397. • Jones, P. (1999). ‘Multiunit management in the hospitality industry: a late C20 phenomenon’. Journal of Contemporary Hospitality Management, 11, pp. 155–164. • Lander, N. (2006). ‘Steak and the city’. Financial Times Weekend, life and arts, 9/10 December. • Lovelock, C. and Wirtz, J. (2007). Services Marketing: People, Technology, Strategy (6th ed.). Pearson Prentice Hall. • Morrison, A. And Thomas, R. (1999). ‘The future of small firms in the hospitality industry’. International Journal of Contemporary Hospitality Management, 11, pp. 148–154. • Park, C. W., Jaworski, B. J. and Maclnnis, D. J. (1986). ‘Strategic brand concept: Image management’. Journal of Marketing, 50, pp. 135–145. • Perlmutter, H. V. (1969). ‘The tortuous evolution of the multi-national corporation’. Columbia Journal of World Business, 4, pp. 9–18. • Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. • Ries, A. and Trout, J. (1986). Marketing Warfare. McGraw-Hill.