Chapter 4 Competitive strategies After going through this chapter, you should be able to: * Describe how hospitality organizations vary in their segmentation,

Chapter 4Chapter 4

Competitive strategiesCompetitive strategies

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

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

Mass marketing:* responds to similarities of 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 indifferent 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 single-marketsegment adopt a concentrated or focused or niche segmentation focus can be a market segment (luxury) or geographic (Carribean) focus on a single segment enables hospitality operator to develop expertise in that market segment

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

* 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

* 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) so similar 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

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

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

Figure 4.3 Figure 4.3 Hotel positioning mapHotel positioning map

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

Figure 4.4 Figure 4.4 Five Forces analysisFive Forces analysis

* 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 tohotels, 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

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

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

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

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

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 CSFs need to deliver experiences/attributes most valued by customers

Examples of CSF’s include:* lowest cost base and extensive geographic coverage for budget hotel brand* 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

* 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

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 add value to the customer’s subjective experience

Over time, the marketing investment in brands is rewarded by consumer goodwill and loyalty

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

A brand name should convey the essence of a brand to its target audiencein 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, MarriottGeographic Best Western, Price Budget InnsAcronym IHGMarket segment Luxury CollectionAnimals Red LionColours Green TreeLetters WNumbers Motel 6Wacky YOTEL

Two key measures are used to monitor the effectiveness of brands:

Brand awareness is measure of the brand’s visibility

High-brand awareness = 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

Figure 4.6 Figure 4.6 Brand awareness and brand imageBrand awareness and brand image

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