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TRANSCRIPT
Marriott International Inc.
Andrew Branson, Benjamin Leung, Carlos Espinal,
Lawal Mogaji, Meshayla Campbell, and Stefanie Quintela
Texas A & M University – Commerce
1
Company History
John Willard Marriott and Alice Sheets Marriott decided to start a little A&W root beer
stand in Washington D.C. made up of nine stools, and eventually grew that business into one of
the most well-known hospitality service companies, Marriott International Inc. Shortly after
opening their doors to the A&W root beer stand, J. Willard and Alice S. started expanding their
menus to include hot Mexican food and eventually changed the name to The Hot Shoppe
(Timeline.marriott.com, 2014). A year later they expanded and opened two more Hot Shoppes
with one being a drive-in restaurant. The Hot Shoppe became a popular place to eat and
eventually, in 1937 they saw another market to serve customers, Hoover Airport. They started
catering boxed lunches from the Hot Shoppe to passengers at the Hoover Airport, one of the first
“in fight” meals. By 1953 Hot Shoppe became a publicly traded company opening at
$10.25/share and within a couple of hours of trading, they sold out shares. In 1965 they opened
their first fast-food restaurant and called it Hot Shoppe Jr. Eventually in 1993, Marriott splits
into two company’s Host Marriott Corporation and Marriott International Inc. The headquarters
for Marriott International Inc. is located in Bethesda, Maryland just outside of Washington DC.
It wasn’t until January 18, 1957 that the Marriott’s went into the hotel business. On that
day they opened a 365-room hotel called Twin Bridges Marriott Motor Hotel. One of the great
things about this hotel was that it had a drive-in registration desk, so customers didn’t have to get
out of their cars to check in. J. Willard Marriott decided not to stop with a few restaurants and
one hotel. The Marriott Company eventually partnered with Sun Line cruise ships and got in the
cruise ship business and also open two Great America theme parks (Timeline.marriott.com,
2014). Eventually through the 1980’s Marriott open other chains including: the Courtyard brand,
timeshare business called Marriott Vacation Club International brand, and Fairfield Inn. They
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also ended up opening their 500th hotel which happened to be in Warsaw, Poland which ended up
being the first western-managed hotel in Eastern Europe. In the 1990’s Marriot continued
expanding business which included: buying 49% interest in the Ritz-Carlton Hotel Company,
acquiring Renaissance Hotel Group, opening TownePlace Suites, Fairfield Inn & Suites,
SpringHill Suites, Marriott Executive Residences, and eventually acquiring Execustay housing
company (Timeline.marriott.com, 2014).
Company Overview
Marriott International, Inc. (NASDAQ: MAR) is a publically held corporation with more
than 4,000 properties in 78 countries and territories around the world (News.Marriott.com,
2014). Marriott also operates and franchises under 18 brands, including: Marriott Hotels,
Bulgari, Courtyard, Fairfield Inn & Suites, Residence Inn, TownePlace Suites, and many more.
With all their membership and reward programs, they have more than 45 million members.
Marriott started out with A&W root beer stands and Hot Shoppes, and then in 1957 they
decided to try their hand in the hotel industry, and opened a 365 room hotel. Through the year’s
part of their business strategies for growth included entering into partnerships and acquisitions.
The partnerships included merging with companies like Sun Line cruise ship and The Ritz-
Carlton Hotel, while the acquisitions included: the Renaissance Group, Residence Inn, and
ExecuStay corporate housing company (Timeline.marriott.com, 2014). In 1983 they opened
the Courtyard brand which was designed to target the business traveler instead of those staying
for leisure. Marriott also tried to break out into another market by opening two Great American
theme parks in 1972 and entering the timeshare business in 1984 with Marriott Vacation Club
International brand (Timeline.marriott.com, 2014).
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At Marriott they are committed to encouraging and training their employees to reach their
full potential so they can have the skills they need to deliver exceptional customer service. They
are committed to supporting and protecting human rights and team with world organizations to
campaign against human trafficking (Marriott.com, 2014).
Marriott International, Inc. also fights to reduce their footprints by reducing energy and
water consumption by 20% by the year 2020, develop and build more green hotels, green their
multi-billion dollar supply chain, and educate associates how to conserve and preserve the
environment.
Social responsibility is also an important aspect and area for Marriott International, Inc.
and they are committed to providing food and shelter for those in poverty. In times of disasters
Marriott hotels are a place for shelter and food, while they also provide monetary contributions
to the American Red Cross and the International Federation of Red Cross and Red Crescent
Societies. They also encourage their members to help by donating reward points or cash to help
those in need (Marriott.com, 2014).
Industry Overview
In the past five years the hotel industry has grown an average of 4.5% from $136.4 billion
in 2009 to $162.6 billion 2013 (Hotels & Motels Industry Profile, 2014).
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2009 2010 2011 2012 2013120125130135140145150155160165
Industry Value
Year
$ Bi
llion
The value of the hotel industry comes from the revenue generated by hotels, motels, and
other lodging companies, through renting rooms and also through the food they sell (Hotels &
Motels Industry Profile, 2014). The largest segment of the hotel industry in the United States is
leisure and accounts for 73.1% of the total hotel market, while the other 26.9% of revenue came
from business travelers (Hotels & Motels Industry Profile, 2014).
LeisureBusiness
It is important for Marriott to continue marketing their product to those using hotels for
leisure. Marriott International, Inc. markets to either the business man or woman through their
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Courtyard and ExecuStay brand and those looking for a leisure time through their other brands
(Timeline.marriott.com, 2014).
Marriott International continues to grow their business by opening more hotels and
resorts worldwide through their many brand names. As of 2012 Marriott is among the top as far
as how many hotels and rooms they have available (Hospitalitynet.org, 2014).
11% 9%
17%
9%
11%15%
27%
International Market Share
InterContinental Hotels GroupHilton WorldwideWyndham HotelMarriott InternationalAccorChoice Hotels InternationalOther top 14 Hotels
The United States also accounts for 29.5% of all the hotels globally and American based
hotel companies have to fight hard internationally with many international hospitality companies.
In figure 3 we can see the industry value broken down throughout the world.
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United States
Asia-Pacific
Europe
Rest of World
162.6
151.7
141.1
95.7
0.295046271094175
0.275267646525132
0.256033387769915
0.173652694610778
Industry Value Globally% of Market $ Billion
The hotel industry is projected to grow 31.9% by 2018 to $214.6 billion (Hotels &
Motels Industry Profile, 2014).
2013
2014
2015
2016
2017
2018
162.6
171.7
181.8
192.1
203.1
214.6
0.046
0.056
0.059
0.057
0.057
0.057
Future Value Projection % Growth $ Billion
Based on future projections, hotels will need to raise their marketing techniques as to
reach as many tourists and business travelers as possible. There are billions of dollars spent in
the hotel industry as we can see from our graphs, and Marriott, having 4,000 hotels
internationally, and having a high customer satisfaction rate is set to earn even more in revenue
in the next five years, based off projections provided by Hotels & Motels Industry Profile.
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Environmental Scanning: Variable Identification
The group has done a review of the various industry and company documents and has
identified five environmental that have impacted the company in the past and may continue to
affect the company in the future. The five variables are Competition, Economic, Technology,
Demographics and Emerging Markets.
Competition
Marriott International, Inc. is a “worldwide operator, franchisor and licensor of hotels and
timeshare. It operates internationally under numerous brand names, with different price point and
service point. The chain has hotel and timeshare properties in 72 counties worldwide” (Marriott
International, n.d.). Marriott groups its brands into four segments: North American Full-Service
Segment, North American Limited-Service Segment, International Segment, and Luxury
Segment. The segments are differentiated by price point and market (International versus North
America).
The Marriott is one of the top five hotel chains in the world with “3916 proprieties
worldwide with 375,623 rooms” (Marriott International, n.d.). One of its main competitors is
Hilton Worldwide with 4,115 properties and 678,630 rooms. Hilton’s brand names include
Hilton Hotel, Double Tree Inn, Embassy Suites and Conrad. Another competitor is the
InterContinental Hotel Group with 4,732 properties and 693,000 rooms. InterContinental brands
include Intercontinental Hotels, Staybridge Suites, Candlewood Suites, Crowne Plaza and
Holiday Inn. Other competitors in the market include Kingdom Holdings Co., and Choice Hotels
International Inc.
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All competitor chains also offer numerous brand name hotels. Each of the brand names
has a different price and service point. Below is a sample list of hotels that compete directly with
Marriott in their market segment.
Hotel Brand Segments
Market SegmentMarriott
InternationalHilton Worldwide
InterContinental
Hotel Group
Luxury JW Marriott ConradIntercontinental
Hotels
Upscale Marriott Hotel Hilton Hotel Crown Plaza
Upper Moderate Courtyard Hotel Hilton Garden Inn Holiday Inn
Moderate Fairfield Inn & Suites Hampton Inn Holiday Inn Express
Economic
The economy is another environmental variable that can affect Marriott’s sales. There are
varieties of economic reports put out by government and non-government organizations (NGO)
that measure the economy’s performance. Three of the economic measures put out by the U.S.
government are Gross Domestic Product, Disposable Income, and Unemployment Rate. In
addition, the University of Michigan also put out a Consumer Sentiment Index to measure the
economy by polling consumers.
The U.S. Government defines Gross Domestic Product (GDP) as the market value of
final goods and services produced in the United States. During the U.S. Financial Crisis of 2007-
2008 and resulting Great Recession of 2009, the U.S. GDP declined to a low of -2.08% in 2009.
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In the same year (2009), Marriott’s net income fell to -$346 million. The chart below shows a
correlation of .93 between these two events. This indicated there is a statically significant
correlation between the GDP and Marriott’s net income.
Correlation Between Marriott Income and GDP (Recession)
Yea
r Marriott Income GDP % Change
2008 362 14,718.6
2009 -346 14,418.7 -2.08%
2010 458 14,964.4 3.65%
Correlation 0.937
Under normal economic conditions, Marriott’s net income did not correlate have a strong
correlation to the GDP. The correlation calculation is just .24.
Correlation Between Marriott Income and GDP
Year
Marriott Net
Income GDP % Change
2006 608 13,855.9
2007 696 14,477.6 4.29%
2008 362 14,718.6 1.64%
2009 -346 14,418.7 -2.08%
2010 458 14,964.4 3.65%
2011 198 15,517.9 3.57%
2012 571 16,163.2 3.99%
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2013 626 16,768.1 3.61%
Correlation 0.235
Another economic indicator of the economy is Disposable Income. The U.S. Government
defines disposable income as a person’s gross pay minus mandatory deductions. During the
Financial Crisis and Recession, disposable income declined along with Marriott’s net income. A
calculation showed there to be a .72 correlation between he events. This number is somewhat
significant but not to the degree of GDP’s correlation.
Correlation Between Marriott Net Income and Disposable Income
(Recession)
Yea
r Marriott Income
Disposable
Income
2008 362 10994.4
2009 -346 10942.5 -0.47%
2010 458 11237.9 2.63%
Correlation 0.716
Over an eight-year span, there has been no correlation between Marriott’s net income and
disposable income. The correlation between the two is .064. This is almost zero, which indicates
no correlation.
Correlation Between Marriott Net Income and Disposable Income
Yea Marriott Net Income Disposable % Change
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r Income
200
6 608 10036.9
200
7 696 10507.0 4.47%
200
8 362 10994.4 4.43%
200
9 -346 10942.5 -0.47%
201
0 458 11237.9 2.63%
201
1 198 11801.4 4.77%
201
2 571 12384.0 4.70%
201
3 626 12505.1 0.97%
Correlation 0.064
A third economic indicator is unemployment. The U.S. Government considers people
who are not working but actively looking for a job as being unemployed. As seen by the numbers
below, the rate of unemployment rose during the last recession. During the eight years period,
there has been a negative correlation between unemployment and Marriott’s net sales. This is
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expected since increasing unemployment means declining number of travelers and therefore
fewer hotels stays. The correlation for the last eight years is -.58.
Correlation Between Marriott Net Income and Unemployment Rate
Yea
r Marriott Income
Unemployment
Rate % Change
200
6 608 4.61%
200
7 696 4.62% 0.22%
200
8 362 5.80% 20.34%
200
9 -346 9.28% 37.50%
201
0 458 9.63% 3.63%
201
1 198 8.93% -7.84%
201
2 571 8.08% -10.52%
201
3 626 7.35% -9.93%
Correlation -0.578
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During the Recession, the correlation number increased -.61. The correlation is again
negative. This is again possibly due to the unemployed not being able to afford to travel. This in
turn affects Marriott’s net income.
Correlation Between Marriott Net Income and Unemployment Rate
(Recession)
Ye
ar Marriott Income
Unemployment
Rate % Change
200
7 696 4.62% 4.29%
200
8 362 5.80% 20.34%
200
9 -346 9.28% 37.50%
201
0 458 9.63% 3.63%
Correlation -0.614
The final economic indicator is put out by the University of Michigan. It is a measure of
consumer sentiment. The University conducts a survey of consumer’s attitudes to the economy.
This survey has a somewhat significant correlation to Marriott’s net income with a score of
0.715.
Correlation Between Marriott Net Income and Consumer
Sentiment
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Yea
r Marriott Income
Consumer
Sentiment % Change
200
6 608 87.30%
200
7 696 85.60% -1.99%
200
8 362 63.80% -34.17%
200
9 -346 66.30% 3.77%
201
0 458 71.80% 7.66%
201
1 198 67.40% -6.53%
201
2 571 76.50% 11.90%
201
3 626 79.20% 3.41%
Correlation 0.715
The correlation however decreased when measured during the recession. This is counter
to the GDP and .suggest that when the consumer sentiment is down, more people chose to stay at
the Marriott. However the difference in score in minor.
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Correlation Between Marriott Net Income and Consumer
Sentiment
Yea
r Marriott Income Consumer Sentiment % Change
2007 696 85.60% -1.99%
2008 362 63.80% -34.17%
2009 -346 66.30% 3.77%
2010 458 71.80% 7.66%
Correlation 0.651
Technology
Technology is changing how companies do business. Companies’ that do not understand
the new relationship will fail. Examples of companies that fail to adapt include Borders and
CompUSA. These two companies were once the leader in their field. When they could not adapt
to the new competition from Amazon, both went out of business. The impact that technology
brings to the Hotel industry is change to travel booking market and the ability for customers to
compare pricing.
Technology has changed how travelers make reservations. The travel agent is no longer
necessary as user book trips online. Online hotel booking is now one of the most popular
methods to find a room. The choice of online website to find a room is massive. However, four
companies control 95% of the U.S. market. They are Expedia (with 40% of market share), Orbitz
(with 21% of market share), Travelocity (with 18% of market share) and Priceline (with 11% of
market share). The four companies are attempting to win market share by competing on price.
By doing so, the price being offered alone or as part of a package may actually be lower than the
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hotel website. This has forced Marriott to offer a “Best Rate Guarantee”. “If you find a lower
hotel rate, they will match the price and give you an extra 25% discount” (Marriott International,
n.d.). Hilton and other hotels also offer similar guarantees.
Customers are now easily comparing prices between hotels. 72% of people who book
hotels use the internet to book rooms. 43% of people consider price relevant when booking a
room. With pricing information so readily available, the key to winning customers is keeping
them satisfied. Customer satisfaction is the best way to move beyond the online price war. When
customers are satisfied, they will consider paying a higher price to continue to receiving that
satisfaction. This in turn will mean the customer will rely less on the four major travel websites
and go straight to the Marriott website.
Changing Demographics
The market for travel has expanded from Baby Boomers (born 1946 to 164) to
Generation X (born 1965 to 1976) to Generation Y (born 1977 to 1994). Each of the groups have
different taste in travel. Part of this was from the expansion of tourist travel in the 1980s and
1990s. This was when tourism expanded to non-Western countries such as Asia and Africa. The
result is travelers now want more diversity in their trips. The need for diversity is especially true
in Generation Y. They are looking for the next new hip trend. This in turn has led to travel
companies offering different activities and destinations... This means a trip to San Francisco is
no longer highlighted by a stay at the Hyatt Regency located along the Bay and riding the cable
cars. Instead Generation Y will stay at the funky boutique hotels along the borders of the
Tenderloin district, drive to Sonoma (not Napa) for wine tasting then party in South of Market
(SOMA) at night.
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The boutique hotel industry is a rising market. The Oxford dictionary defines Boutique
Hotels as “A small stylish hotel, typically one situated in a fashionable urban location.” There
are already some big chains such as Kimpton Hotels in the boutique hotel niche. Although small
by Marriott standards, it has 61 hotels in 27 cities in the U.S. At first Marriott did not recognize
the need for a boutique hotel. Arne Sorenson, CEO of Marriott was quoted as saying that he “felt
that boutique or “lifestyle” hotels weren’t a big enough business (Igginbotham, 2014)”. Marriott
soon recognized the growth market and has created its own brand called Moxy Hotels.
According to the Marriott Q4.2013 10k, the brand is a “design-led, lifestyle budget hotel develop
around the needs of Generation X and Y travelers.” The first Moxy is expected to open in Milan
in mid-2014. Marriott also partnered with Ian Schrager, a “Boutique Hotelier” to start the
EDITION (sic) Hotel. There are currently two EDITION hotels with 11 more being constructed
in the next three years, they will be located in “fashionable urban areas” such as New York, Abu
Dhabi, Shanghai, and Bangkok.
Emerging Markets
Operating in international and emerging markets country such as China has both risk and
rewards. The risk range from barriers that prevent repatriating earnings back to the U.S. to
expropriation of property by a foreign government. The risk is increasing as the world’s
countries begin to develop protectionist policies (Moyo, 2014). This can be seen in the latest
round of trade talks by the World Trade Organization. Called the Doha round, the negotiations
broke down in July 2008 and no significant progress has been made since then. The risk is of
course offset by advantages. One is the growth of emerging market such as Indonesia, Qatar and
China. Their growth can offset weak economic growth in the U.S and help stabilize Marriott’s
net income.
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Year 2013 2012 2011
Indonesia GDP 5.8% 6.3% 6.5%
China GDP 7.7% 7.7% 9.3%
Qatar GDP 5.6% 2.6% 14.8%
U.S.A. GDP 1.9% 2.8% 1.8%
Currently Marriott operates in 72 countries. Approximately 17 percent of its revenue
from 2013 is from overseas. There are 661 (or 20.30% of all Marriott) properties and 153,325 (or
29.35% of all Marriott) rooms located outside the U.S.
One of the main objectives every firm should try to achieve is to create a competitive
advantage. In fact, a significant amount of organizational resources are spent trying to stay ahead
of the competition. Marriott International Inc. has been ranked at 219, up from 230 in 2013 and
ranking as the top hotel company in the Hotels, Casinos and Resorts category in the coveted
Fortune 500 list. This is not an easy accomplishment in this sector. The hotel industry is highly
competitive, which impacts the ability to compete successfully with other hotel properties for
customers. It is highly fragmented and no one has more than 20 percent of the market share.
Competition in this industry is usually based on the quality of the rooms, meeting facilities and
services, restaurants, aesthetics, price, location and other factors. Although Marriott is located in
over 80 countries, it falls behind the competition with regards to presence across the globe.
Marriott’s top competitors include Starwood Hotels, Choice Hotels International, Hilton Hotels,
InterContinenal Hotels, and Orient-Express Hotels.
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In an effort to step in the right direction, Marriott International Inc. plans on opening
1,300 more hotels (about 6 properties per week) by 2017 globally. That would bring its total
number of properties to well over 5,000. The more visibility any service corporation has, the
more valuable their brand becomes. Brand recognition helps to attract first-time as well as repeat
business customers. In this industry, brand influences many of its customers to make their
booking decisions well in advance of interacting with the product. Most hotel customers do not
“test drive” a hotel before making a reservation. They do not lay in the beds, eat at the
restaurants, or visit the location before making a decision. A hotel’s brand image is instrumental
in being one of the only things under the hotel’s control that can influence a consumer’s
decision-making process.
A major factor in this industry is the increasing competition in the area of global branded
offerings. Marriott was one of the first to introduce the concept of foreign brand awareness when
it entered China in 1991; however, its competitors have begun doing so more pro-actively.
Starwood Hotels & Resorts planned a limited service luxury brand, named “Project XYZ” and
Hyatt Hotel Corporations purchase of AmeriSuites brand and subsequent re-branding to Hyatt
Place are steps in this direction. Globalization is an important driver in an industry that’s
dominated by international players. “There has been a big shift in global growth,” Marriott CEO
John Sorenson said. “Today, we are in a position where we’re opening as many hotels outside
the U.S. as in the U.S. And the bulk of the business of those hotels is about local business or
regional business. It’s not about long-haul American travelers anymore.” As a result, Marriott
has begun changing to accommodate cultural nuances. Their international locations no longer
cater to just American tourists; they now have cultural ambiances of that particular location for
the natives.
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Marriott is also included in this year’s FORTUNE “The Best Places to Work” list and the
magazine’s The World’s Most Admired List, which measures a company’s corporate reputation.
In an industry with so much competition, reputation is extremely important. The practice of
building and maintaining a good reputation requires a company to deliver and exceed the
promised quality of goods or services. Having a good reputation increases a firm's sales, attracts
more customers because of word-of-mouth activity, and cuts customer departures (Rogerson,
1983). It can also prevent a customer from moving to a competitor.
In the United States, the Hotels and Motels industry has grown by 4.6% in 2013 and
reached a value of $162.6 billion. By 2018, this industry is forecasted to have a value of $214.6
billion which is an increase of 31.9% since 2013. Carl Berquist, chief financial officer at
Marriott, expressed to investors that he expects revenue per room to rise between 4 and 6 percent
each year until 2017. Using these metrics, he predicted profits could rise from 19 to 23 percent
which could equate to as much as $1.1 billion in that same period. “Our investment facility is
straightforward: Our principal focus is growing our management and franchise business,”
Berquist said.
Marriott International Inc.’s net Income for the 2nd quarter of 2014 grew year on year by
7.26%, while most of its competitors have experienced a significant drop. Revenue growth year
on year was at 6.77% for Marriott while the competitors only saw an increase of 2.99%.
Revenue growth quarter on quarter was at 5.8% while competitors only saw a 1.95% rise. As
shown in the chart below, retrieved from Etrade.com, Marriott (MAR) has excelled above the
competition with regards to stock performance YTD. Year-to-date, because of such high
revenues, Marriott has already repurchased 9 million of its shares for $467 million, which is
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equal to about 4.6 percent of the float.
Overall, the hotel industry is doing quite well this year with regards to the market. In the
fourth quarter of 2013, results for this sector have been decent with regards to both beat ratios
(percentage of companies coming out with positive returns) and with growth. The earnings "beat
ratio" was 50% and the revenue "beat ratio" was at 53%. The total earnings for this industry
increased by 12.0% in the fourth quarter compared to the 12.1% increase in the third quarter. The
total revenue grew by 3.3% in the quarter versus the 3.2% increase we saw in the third quarter.
For 2015, the hospitality industries earnings are predicted to grow around 15.7%. For 2015, this
industry is expected to expand around 4.4% with 6.2% growth in full year 2014.
Marriott expects investment spending in 2014 will be approximately between $800
million and $1 billion. This includes about $150 million for maintenance capital spending and
about $193 million related to the purchasing of Protea Hospitality Holdings. Also included in
investment spending are other capital expenditures (including property acquisitions), new
mezzanine financing and mortgage notes, contract acquisition costs, equity and other
investments. Assuming all of the aforementioned investment spending, approximately $1.35 to
$1.6 billion could be returned to shareholders through the repurchasing of shares and
dividends.
The change in landscape is mainly because technology “is the single greatest force
affecting change in the hospitality industry” (Connolly and Olsen, 2000, p. 73). There is no
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doubt that information technology is drastically changing the competitive landscape of this
industry and altering how hotels conduct business and reach their customers. Everything from
the way customer’s book rooms to how they check in and out has changed over the past decade.
The impact of the internet has been profound, especially in the hotel industry. It has provided a
gateway of information which factors into the decisions customers make as to what hotels they
consider and why. According to Porter (2001) the internet is a technology that can be used for a
good business strategy in any industry. Although the Internet alters industry structures and levels
the competitive playing field, often negatively impacting profitability, it can be used to promote
greater profitability if utilized properly. The five forces that impact competitiveness which are
outlined in Porter’s 1980 work are: barriers to entry, threat of substitutes, bargaining power of
buyers, bargaining power of sellers, and the rivalry among existing competitors. In 2001 Porter
considered these factors and how they were affected by internet technologies. The great irony of
the internet is that the benefits it creates are the very things that make it more difficult for
companies to “capture those benefits as profits.” Porter (2001) stated it was making information
easily accessible or reducing the annoying purchasing process.
The technological advances in recent decades have also had a significant impact on the
customer, producer and the customer–producer exchange processes in service transactions.
Industries go through transformations with the introduction of new technologies (Kostreva,
1990) especially in the case of the hotel industry. The continued advancements in technology
will be used in this industry to change it as more and more firms become technologically
oriented in their service production and delivery functions. “We have a world in which
technology is much more profoundly integrated into everyday life,” Sorenson said. “If you go
back even 10 years ago, you’ll find that technology was part of our economy, but today you see
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technology everywhere.” In an effort to provide customers with the latest technologies, Marriott
is introducing things such as mobile apps that allow guests to check in and out of their rooms.
Another app they’ve introduced helps meeting planners request more coffee and pastries without
leaving the conference room. They have also modernized their rooms and common areas by
including the availability of Wi-Fi service.
One of the other ways Marriott International Inc. will uphold a competitive advantage
through technology is by maintaining an Agile IT environment. The Agile methodology creates
an environment that is more flexible and adaptable to changing requirements than the traditional
waterfall approach. Marriott does this by using cutting edge solutions—including several IBM
mainframes, a multitude of applications built in house and an open standards-based service
architecture. Competitors try to imitate this strategy, according to Marriott’s vice president of
information resources, Misha Kravchenko.
One of the aforementioned applications built in house which is responsible for supporting
the reservations in their almost 5,000 properties in over 80 countries is a system called
MARSHA. “All of our reservations are routed through MARSHA so we can apply dynamic
pricing rules to sell every room we can, which in our industry is called last-room availability,”
Kravchenko says. “Others don’t track that, so they don’t have a real handle on how many rooms
they have to offer. Because we do, we can provide dynamic pricing, which allows us to charge
depending on a number of factors, such as how long someone will be staying, in which market
they’ll be staying, and when they’re staying. All of this is calculated immediately, at the time
when someone is shopping for a room, to create the correct pricing model for that individual.”
Marriott International Inc., according to brand experts, is boring. In a society where
everything seems be a popularity contest and where purchasing decisions are based on the fame
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of a brand, this can be a game changer. CEO John Sorenson states “We have to be as strong with
the X’s and Y’s as we are with the boomers, I don’t think any of the big brands in the hotel space
have really won them over.” Marriott expects an increase in globally minded millennial
consumers, also known as Generation Y or people born roughly between 1980 and 2000, to
account for a third of the business-room nights in the United States by 2020. That does not mean
the Gen X folks should be ignored. As shown in the chart below, based on the Gallup's 2014
Hospitality Industry Study, even though Gen X’s are outnumbered by Gen Y’s, they definitely
spend more money than the younger group, spending on average $538 at the hotel they stayed in
during the last year, versus an average of $351 spent by the Gen Y’s. The study also shows that
only about one in five Gen X’s reported that they were committed to a particular brand after their
last hotel stay (22%). This shows that they are still waiting to be won over by a particular hotel
brand.
Marriott competitors are aware of this and are hard at work trying to win over these
younger business travelers. In an effort to attract this demographic, Marriott has made
significant improvements to some of their key locations. For example, the Chicago Marriot
O’Hare made $40 million dollars’ worth of improvements, including an attractive bar which has
always been a weakness for them (analysts believe this is due to their Mormon roots). Also, the
Detroit Marriott at the Renaissance Center has begun a similar $30 million dollar overhaul. They
have also begun a new ad campaign labeled “Travel Brilliantly”, estimated to cost $9 million
25
over the next 3 years. These ads are TV and web based and includes the statement “This is not a
hotel. It’s an idea that travel should be brilliant. The promise of spaces as expansive as your
imagination.” Marriott is also offering a free smartphone app combining reservations with
games called Xplor. This app allows players to win loyalty club points by completing challenges
at virtual hotels.
The financial collapse of 2008 and the ensuing Depression had a major impact on
consumers spending habits, especially when it came to recreational travelling. There is now sign
that Americans are traveling a lot more and willing to spend more money when doing so. This is
great news for the hospitality industry who suffered greatly with low occupancy during the
economic downturn.
After decades of looking to the US for growth, Marriott International Inc. has decided to
set its sight overseas for expansion. They are in the process of increasing their global presence
which currently makes up about 25% of their total revenue. As you can see in the chart below,
Marriott has been working stringently on global growth. They intend on opening over 200
luxury and lifestyle hotels over the next 3 years. This was a part of the $15 billion investment
made by its owners and franchisees. By the end
of 2016, 15 Ritz-Carlton branded hotels are
being planned for China, Morocco, Egypt,
Saudi Arabia, Mexico, Tunisia, Bali, Indonesia,
and Macao. Also, an EDITION-branded hotel is
planned for Miami Beach this year and this
brand will debut in New York City's landmark
26
Clock Tower building in 2015. There are also hotels scheduled to be unveiled at Abu Dhabi,
India, China, Bangkok and West Hollywood as well as in Times Square by 2017.
The JW-Marriott Hotels and Resorts brand plan on debuting in Italy in 2015. The brand
is also on course to open its Marriott Moxy brand this month in Milans Malpensa Airport. This
brand is focused on a pan-European expansion by the end of 2016 which includes locations like
Munich, Berlin, Frankfurt, Oslo, London, and Aberdeen. In the next 10 years, Marriott expects to
have around 150 hotels under this particular brand.
One of the primary forces that influence competition in any industry is the threat of new
entrants. In the hotel industry, product differentiation plays a great role by forcing competitors
to incur expenditures to retain existing customer’s loyalty. This means that the new entrants (or
existing competitors for that matter) must invest more on things like advertising strategies and
renovations in order to retain interest and to build their brands equity. This makes it difficult for
independent smaller hoteliers to enter the market and pose a real threat. Also, attractive deals in
terms of customer service are very important for hotels because it allows them to distinguish
themselves from their competitors.
The hotel industry is known for having high capital costs and a high percentage of fixed
costs to total costs. The high capital costs require that from the beginning, a hotel must operate
to achieve the most cost effective use of its resources. This includes the capital used for
construction, furnishings and equipment, preoperational expenses, advertising, market research,
and various other things. This makes it difficult for the largest companies to get established let
alone any potential new entrants. In hotels, cost advantages that are independent of scale will
also act as a barrier for new entry. Meaning, hotel chains such as Marriott International Inc. have
been in the industry for a very long time which gives them the cost advantages that are not easily
27
available to any new entrants. These advantages include the best and cheapest raw materials
used throughout the facilities, proprietorship of patents and trademarked technologies (i.e.
applications built in house). Even the benefits of learning and experience have an impact (Dess
et al., 2004), having established their infrastructure years earlier at lower costs, in strategic
locations, and at low borrowing costs.
In this industry, hotels are usually located in clusters. You can usually find one in
walking distance of another. Therefore, the threat of a substitute product or service in this
industry is unavoidable. The challenge for hotels is to establish a product that a customer would
desire over competitors. The internet provides more information making the market more prone
to substitution threats. This is why it is critical for a hotel chain to have an internet presence if
they want to stay competitive. Marriott is aware of this and has begun to create programs that
rely on the use of the internet to increase brand recognition. One of these programs uses social
media to reward their customers with up to 2,000 PlusPoints (these points are similar to frequent
flier miles) per month when they Tweet, re-Tweet, post on Instagram and use Foursquare for
check-ins while referencing Marriott.
Technology also empowers the buyers by giving them the information required when
making an informed decision on where to reserve a room. It is now very common for a customer
to book a reservation for a hotel room online. They can make a decision based on best price,
location, amenities, restaurants, etc. without having to contact any hotels or travel agents which
can influence their decision. There are even websites out there like Cheaphotels.com that will
negotiate deals or look for bargains on behalf of the customer. This will shift the bargaining
power to the buyer, as the Porter model predicts, and it will reduce the cost of switching so that
the loyalty a customer may have had for a particular brand is no longer a factor.
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Also, those customers who reserve rooms in large volumes (i.e. travel agents) and who
have low switching costs (ability to use a competitor) take advantage of a strong bargaining force
in this competitive industry. An example of this is when a wedding coordinator books 50 rooms
for an event, they have the power to negotiate for a group discount and shop around for the best
deal. On the same note, those customers who make reservations for only one night, very
infrequently, have little to no power.
Bargaining power of supplier in the hotel industry is minimal since it relies on a lot of
manpower to run their facilities and provide good services to their customers. That makes the
hotel’s trained personnel, property owners, developers, real estate companies, architects, and
marketing companies their main suppliers, some of who are responsible for daily operation.
The rivalry between competitors in this industry is aggressive. Although most of the
competition is between the large branded chains, there is a large number of independent hotels in
the market that have the ability to take business from them. The larger chains obviously have a
competitive advantage which forces the independent hotels to develop strategies that will attract
customers.
Environmental scanning can be used to assist management in formulating their strategic
plan. Having an in depth understanding of how trends impact your organization plays an intricate
role in helping firms gain control of their market. A successful organization such as Marriot is
reliant upon the ability of its leaders and employees to adapt the rapidly transforming external
environment.
Environmental Trends Impacting Marriott
Strategic management scholars typically view environmental scanning as a prerequisite
for formulating effective business strategies; Moreover effective scanning of the environment is
29
viewed as essential, to the successful positioning of competitive strategies with environmental
requirements and the attainment of outstanding business performance (Beal, 2000). There are
multitudes of emerging environmental trends affecting the hotel industry (Lewis, n.d.). It is up to
managers to make sensible decisions reflecting emerging strategic issues that could significantly
impact their businesses (Anderson & Nichols, 2007). Marriott’s vision focuses on combating
these trends by aspiring to lead global hospitality with its creation of global economic
opportunities and by being a positive force for the environment (Principles of Responsible
Business, n.d.).
Technological Trends
With technology growing like wild fire, many hotels are influenced by the impact they
have on their consumers. The thought of technology creates a vision for Marriott’s Operation
Committee as to how they will even design the room. The room must enable guests mobility in
which they are able to access their technological devices anywhere in the room. Mastering this
will ensure that guests are comfortable with any device they bring to the space (Watkins, 2013).
The modern traveler wants to have experiences built around their personal needs. More
and more hotel guests of today travel with countless amounts of personal devices and
entertainment content. A Smart Brief poll showed that 45% of hotel guests travel with at least
two devices and 40% travel with three or greater (Watkins, 2013). Marriot has addressed this
technological trend by upgrading their hotel room design, ensuring guests have the electronics
(adequate and easy to reach plugs as well as bandwidth capabilities) and ergonomic support
(seating and surfaces) that they need (Watkins, 2013).
The customer is the root of Marriott’s innovation movement (Principles of Responsible
Business, n.d.). Studying customer behavior and collecting data from qualitative and quantitative
30
studies is Marriot’s approach to understanding new trends and technologies. This strategy has
been successful for Marriot in the past, in which they take great pride in being the first hotel to
issue remote controls in their hotel rooms (Overly, n.d.). From check-in to check-out and every
service in between, Marriott International is evaluating ways that technology can improve its
hotel business (Trejos, 2013). Those technologies include a wide array of mobile amenities to
simplify guests stay inside the hotel, as well as experimentation with social networking, text
messaging, and location-based services (Overly, n.d.).
With the continued requests of guests worldwide, Marriott released a mobile apple
accessible via both Apple iTunes and Google Play for apple and android users. Guests at
hundreds of Marriott hotels are now able to check-in with just a few taps of their mobile phones
by using the Marriot Mobile Check In App. Marriot Rewards Members are given the opportunity
to check in to their hotel rooms via text after 4pm the day before check in and a follow up text
will be sent when their room becomes available. A mobile check in desk is available for guests
once they arrive at the hotel so that they may pick up their pre-programmed key card, eliminating
the primitive necessary communication with employee personnel (Trejos, 2013).
Marriott seeks to transform their guests experience from average to heights of the unseen
in reality (PR, 2014). Focusing on the Next Generation traveler, Marriott partnered with the
Academy Award-winning creative studio Framestore, in creating a virtual teleporter. Released
early September 2014, the virtual travel experience is offered to you by a telephone booth-like
structure equipped with a headset, wireless headphone and 4-D sensory elements (Trejos, 2014).
The preview for this new technology was held at the lobby of a Marriott Hotel Guests reported
first seeing the hotel lobby and next they saw 360-degree images of Hawaii's Wai'anapanapa
Black Sand Beach in Maui, complete with the sounds of crashing waves and mist spraying on
31
them (Trejos,2014). Their next trip transported them to London and lifted them slightly off the
ground enabling them to see the dizzying skyline from the viewpoint of the Tower 42 skyscraper
(Trejos, 2014). The Teleporter is touring eight select Marriott properties from September 2014 to
November 2014. Guests as well as the public will be offered the chance to teleport themselves at
Marriott Hotels in New York, Boston, Washington D.C., Atlanta, Dallas, San Diego, San Jose
and San Francisco (PR, 2014).
Global Trends
The iconic Marriott Hotels are in pursuit of self-transformation and reasserting its
position as an innovation leader with the usage of bold campaigns in stating their claims and
gaining the attention and engaging next generation travelers (Hospitality Net, 2013). Marriott’s
new “Travel Brilliantly” campaign is focused to engage Generation X and Generation Y
travelers, those born from the late 1960s to the early 1980s and from the early 1980s to the early
2000s, respectively (See how we're innovating travel, n.d). It is a brave approach in amplifying
the brand's dedication to leading the future of travel. The campaign includes commercials
appearing on mobile devices, on websites such as Hulu and during shows such as "Jimmy
Kimmel Live, (Trejos, 2013)."
The Website, www.travelbrilliantly.com is a platform that allows consumers to see the
new innovative features provided by Marriott as well as make new requests or suggest
revolutionary ideas to enhance the technology and features provided by Marriot (See how we're
innovating travel, n.d). The first phase of Marriott's new campaign in Asia will see a 30-second
video advertisement displayed online by popular news outlets in China, India and Australia, such
as Youku, PPTV, YouTube, Fairfax Media, BBC India and CNBC India from the end of August
(Hospitality Net, 2013). Phase two will see the Marriott Hotels brand partner with
32
TripAdvisor/Daodao by promoting engagement and participation through the use of Key
Opinion Leaders and bloggers to curate editorial content on the brand's four key pillars to enable
people to Travel Brilliantly (Hospitality Net, 2013).” Marriott's new mobile app will eventually
allow guests to check out and make other service requests.
In Bethesda, Maryland on September 17, 2014- Marriott International, Inc.
announced that hotels across the company’s portfolio have collectively donated more than 1.5
million bars of soap to Clean the World®, a non-profit organization that recycles and distributes
hotel hygiene amenities to communities in need (Marriot News Center, 2014). With the
increasing concern of “Going Green” and Global Preservation, Marriott is Clean the World’s
largest hospitality partner. More than 60,000 of their rooms are participating in the recycling
program (Marriot News Center, 2014).
Political Trends
The political climate as well as government legislations affects the hospitality and hotel
business. As a hotel with brands and branches all over the globe, Marriott has do deal with
different types of political environments and legislations. Some of the challenges from these
political trends may be as a result of new legislations/laws and sometimes as a result of
government’s inability to enforce laid down restrictions or regulations. In cities like Barcelona,
New York and Paris, the number of residents renting out their apartments to tourists for short-
term stay has increased over the years. Despite the efforts government agencies to restrict this
market, the number of listings for rentals in New York and Paris has continued to increase
(Brass, 2014). The inability of the government agencies to properly enforce these restrictions’
becomes a challenge for hotels like the Marriott who will lose some of its customers to these
short-stay rental residences. Governmental action can also present a challenge for hotels. It is
33
estimated that only about $5 of every $100 spent by a tourist from a developed country stays in
the developing country’s economy (Negative Economic Impacts of Tourism, 2013). This
negative economic impact of tourism is called leakage, and governments that want to reduce
leakage can increase hotel taxes or encourage local hotels.
Government legislations such as tax laws can also present challenges to hotels operating
within the environment. In Lagos, Nigeria, a state where Marriott operates a number of its
brands, The Hotel Occupancy and Restaurant Consumption Law 2009 which imposes a 5% tax
on consumption of goods and services in hotels, hotel facilities, event centers and restaurants
within the state, was passed into law . This law passed by the Nigerian Supreme Court in July
2013 - after about 4 years of litigation (The Supreme Court Judgment on Hotel Licensing and
Regulation, 2013). The impact of this judgment however was that since the law had been gazette
since 2009, hotels and other stakeholders, had to remit consumption tax whether charged or not
charged to the tax authority from as far back as 2009. This development will have a telling effect
on the bottom line of the hotels accounts especially for hotels that didn’t charge customers the
consumption tax in the period under review.
Economic Trends
Marriott hotel is affected by the Global economy as well as the individual economies of
countries in which it operates. Economic downturn in Europe, weak economic conditions in
Africa and other parts of the world as well as economic disruptions in the US due to government
actions affect the demand for the company’s services. The Marriott Annual Report (2013) cites
the negative effect of the U.S. federal spending cuts and limitations on its business. This is due to
US governmental travel being a significant part of the Marriott’s business. Employment levels
and income also affect demand for hotel business. Walls and Freitag (2012), stated that upper
34
priced hotels, such as Marriott, Hilton etc are more reliant on corporate bookings and are
therefore more closely linked to movement in corporate incomes and profits than lower priced
hotel brands which are more reliant in populations with high levels of employment and income.
More stable economies that bring about better income for corporate bodies, in-turn translates to
higher demand and more business for Marriott.
Social Trends
There are several demographic and cultural aspects of the external environment that
affect customer needs. Age is one of the major demographic factors and a hotel such as the
Marriott has to be able to accommodate the needs of customers of all age groups. Customers in
their 20s and mid 30s have an obsession for technology, design. Hotels have to be remodeled to
have Wi-Fi, outlets where iPads, cellphones, laptops etc. can be plugged, stylish and modern bars
and furnishing (Morrissey, 2012). Hotels also have to an online at most times, because unlike the
older generation that go to the hotel manager when they have a problem at the hotel, the younger
generation would rather go to twitter and other social media sites to vent their complaints
(Morrissey, 2012). The challenge for the Marriott in this situation would be to balance the
provision of hotel facilities such that it would appeal to customers of all ages.
Another social trend is sexual orientation, the Marriott has to transmit a message of
sexual equality, and it has done this with its social media campaign called #LoveTravels.
Marriott is a sponsor of Lesbian, Gay, Transgender and Bisexual Pride Week events in
Washington, D.C., New York City and San Francisco in 2014 (Rhodan, 2014). According to
Whoever You Are, Wherever You Go - #LoveTravels, (2014) on the company’s website, the
#LoveTravels, is a multicultural campaign that conveys the company’s commitment to make
everyone feel comfortable being who they are, everywhere they travel.
35
Industry Analysis
The hotel industry has evolved since its first modern appearances as the City Hotel in
1794 in New York City, the Tremont House in 1829 in Boston and the Buffalo Statler in 1908
(IRS, 2014). Today’s hotel industry is mature, competitive and global earning $583,589.1
million in total revenues 2010 with an expected compound annual growth rate of 7.8% 2010-
2015 (Global Hotels & Motels, 2011). The industry is broken into 2 marketing segments,
leisure and business with the leisure segment representing the largest share at 76.9% in 2010
(Global Hotels & Motels, 2011). In order to develop a competitive strategy, managers should
consider and evaluate the five competitive forces in the industry i.e., potential entrants, buyer
power, supplier power, substitutes and rivalry among existing firms (Porter, 1980). According to
Michael Porter, profit potential in a given industry directly relates to the level of strength of these
forces (1980).
Potential Entrants
In any industry new entrants can shake up even the most stable. One example that comes
to mind is Southwest Airlines entry into the Airline Industry in 1978 after significant industry
deregulation. In order to determine the level of threat of potential entrants, one must analyze the
barriers to entry as well as the expected retaliation from other firms in the industry. Barriers of
entry into the hotel industry include large capital outlays required to start a new business, brand
equity, access to geographically favorable locations, the need to diversify portfolios and
globalization (Global Hotels & Motels, 2011; Tavitiyaman, Qu, & Zang, 2011).
Entry into the hotel industry is possible but only at an astronomical cost. A potential
entrant would need to acquire buildings and supplies in a location with significant customer
demand (Jones, 2013 & Lee et.al, 2012). According to Forbes, the initial cost to build a small
36
hotel that could compete with Grade A hotels runs $5,600,000 with an additional $60,000 to
stock a 62 room hotel (Jones, 2013). Additional costs are required to pay employees, suppliers,
utilities, and marketers thus only investors with large amounts of capital could enter the industry.
Currently Marriot International, Starwood Hotels, Wyndham Worldwide, Accor SA, Best
Western International and Intercontinental Hotel Groups (IHG) lead the hotel industry and
populate many prime locations by virtue of their size and global reach (AHLA, 2014; Global
Hotels & Motels, 2011; US Hotels & Motels, 2010). All of these hotels use their brand names to
create differentiation and build allegiance with customers and developers (Tavitiyaman, et. al.,
2011). In order to cut large fixed costs typical to the industry, these leading hotels have
diversified their portfolios through franchising and hotel management (Global Hotels & Motels,
2011). This business model has improved revenue streams while minimizing liabilities further
strengthening their competitive advantage in the industry (Global Hotels & Motels, 2011; US
Hotels & Motels, 2010).
Finally, the last barrier to entry includes the growing industry trend of globalization and
decline of domestic lodging (Oxford Economics, 2013). In a recent study conducted for the
travel industry, Oxford Economics found that since the global recession in 2008-2009,
international lodging has surpassed domestic lodging growing at 20% compared to 5.8%
domestically (2013). In the same report, Oxford Economics forecasted that international
lodging’s continually annual growth at 5.1% and domestic lodging’s growth at 3.4% annually
(2013).
37
2002 2006 2010 20140
1
2
3
4
5
6
DomesticInternational
Although globalization has in fact improved the economic performance of the leading hotels in
the industry, it is costly and requires strategic management and integration at all levels increasing
the industry leaders’ competitive advantage over new entrants (Alexande & Korine, 2008).
Based on all of the above, the risk of new entrants is moderate.
Buyer Power
Buyer power can drive prices down in any industry and spur competition. According to
Porter, buyer power is high if the purchases involve big volume, product quality is of little
importance, product standards are undifferentiated, switching cost are low and buyers have full
information regarding products/services available (1980). In the hotel industry buyer power has
the potential to be high due to low volume purchases, relatively undifferentiated product
standards, low switching cost and buyers increased knowledge of room prices and availability
via the internet (Lee et. al. 2014; Global Hotel & Motel, 2011; Marriott SWOT, 2012). This was
the case during the economic downturn of 2008 – 2009. Tourism slowed and hotels were left
unable to fill vacancies. Online travel agents like Expedia emerged as a leading distribution
channel for the then desperate hotel industry; soon, many hotels began to discount themselves
38
Billions
into bankruptcy (lee et. al, 2014). Marriott refused to discount itself into oblivion. Instead, they
strengthened their own online reservation system adding a ‘best rate guaranteed’ and focused on
their loyalty card program and customer service to provide differentiation (lee et. al, 2014;
Marriott SWOT, 2012). Soon, Hilton, Wyndham and Starwood followed suit with similar
strategies to reduce customer buyer power.
In order to stay in tune with potential buyer power, the leading hotels have had to
improve quality and services to create differentiation and improve customer loyalty. A recent
study published in the Journal of Business found that Hilton, Marriott and Four Seasons had the
most positive online presence in 2012, measured by customers’ positive online conversation,
across social networks, forums and blogs (2013). One interesting finding in the study was the
degree of importance customers placed on shower water pressure as opposed to the level of
comfort mattresses provided (Journal of Business, 2013). This would indicate that hotels should
focus on water pressure to improve value and decrease buyer power.
Based on all of the above buyer power is moderate.
Supplier Power
Supplier power when high can lower profit margins in any industry. The variables that
determine the level of supplier power are similar to those used to measure buyer power (Porter,
1980). Suppliers in the hotel industry include, property owners and developers, real estate
companies, interior design and furnishing companies, marketing companies and information and
computer technology (ICT) companies (US Hotels & Motels, 2010). Fortunately, no supplier
dominates the hotel industry leaving this competitive force low (Tavityaman, Qu, & Zhang,
2011).
Threat of Substitute:
39
Like supplier power, the threat of substitutes in the hotel industry is fairly insignificant
(Kim & O, 2008; Tavitiyaman, Qu & Zhang, 2011). The threat of substitutes would be high in
an industry with low switching costs, cheap alternatives and beneficial alternatives (US Hotel &
Motels, 2010). In the hotel industry the substitutes have been historically identified as staying
with friends or family, renting or owning a recreational vehicle for travel and camping (Global
Hotels & Motels, 2011; US Hotels & Motels, 2010). Many researchers believe that these
alternatives to lodging are created out of necessity based on the purchasing power of the
customer indicating that this threat would fade away as purchasing power improves. This
analysis and historical view may be why new internet companies like Airbnb have caught the
hotel industry by surprise. Airbnb is a platform technology business that connects people with
extra rooms or empty apartments to travelers in need of lodging. Airbnb, founded in 2008,
received a $2.7 billion valuation and booked 10 million rooms globally in 2013 (Carr, 2014;
Choudary, 2014). This valuation is closely approaching Choice Hotels International Inc.’s
$3.07 billion market value but falls short of Marriott’s $20.4 billion, Hilton’s $24.1 billion,
IHG’s $9.1 billion, Wyndham’s $10.1 billion and Sheraton’s $15.7 billion market values (Yahoo
Finance, 2014).
Based on all of the above, the threat of substitutes is moderate.
Degree of Rivalry
Rivalry is the amount of head to head competition within an industry. According to
Porter (1980), the degree of rivalry within an industry is strong if there are a large number of
competitors who are equally balanced, the industry is growing slowly, switching cost and
differentiation is lacking and exit costs are high. The hotel industry meets all of the
characteristics Porter identified indicating a strong degree of rivalry.
40
The seven leading hotels are mammoths in the global hotel industry with current market
values ranging from $8.3 billion (Accor) to $24.1 billion (Hilton) (Yahoo Finance, 2014). Are
they competitive? Just this month the industry in New York launched a $3 million campaign
against the newest industry threat Airbnb (Langfield, 2014). In 2007, Hilton was sued in federal
court by Starwood Hotels and Resorts (Sheraton) for allegedly stealing sensitive documents
related to Starwood’s W franchise (Cohan, 2014).
The hotel industry struggled during the economic depression and as the global economy has been
slow to grow post-recession so has the hotel industry. The majority of growth is happening in
China, India, Africa and the Middle East where most of the industry leaders who are equally
balanced are all currently investing. Additionally, the industry has low switching cost and lacks
in differentiation which adds to the degree of rivalry. Finally, the hotel industry as a whole is
very asset heavy where the assets are very specific and difficult to liquidate. This forces firms in
the industry to stay and compete despite slow growth and low revenues. Based on all of the
above the degree of rivalry is strong.
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