In the management world, strategy refers to a plan created to reach an organization's minor and main goals by following a coherent sequence of actions. A robust strategy takes into consideration both the strength and weaknesses of the organization to achieve a goal. Just like in any business, strategies also play a crucial role in running a successful hotel chain. Mainly, competitive strategies play a critical role in it. Competitive strategies differ from general strategies because they involve a thorough analysis of the competitive environment. It is a must in the hospitality industry, which is always crowded.
Forces Affecting Competition In The Hotel Industry
Five fundamental competitive forces are working in the hotel industry. Firstly, it includes the threat of the entry of a potential competitor. Secondly, it consists of the danger of substitute services or products. The third and fourth factors include the bargaining power of the client and the suppliers. Lastly, it contains the rivalry that exists among the current competitors. Therefore, when one is developing a competitive strategy, it takes into account all these five crucial forces. Listed below are the different sub-parts of competitive strategies which are often used to create successful hotel chains.
1. Cost Leadership
In the cost leadership strategy, the idea is to use a cost advantage to gain a competitive edge. In this strategy, the hotel reduces its cost as much as possible, giving them an advantage over its rivals. However, numerous factors are required to implement it. Firstly, the hotel should have a high market share and performance. Technology plays a critical role as it ensures the production of goods at a low-cost price. With the overall low price, the hotel chains using this strategy continue to make prices until the profit margin of the rival disappears.
Marriott International has used the cost leadership strategy to create its successful hotel chain. First, its Fairfield Inn is a reasonably priced hotel that offers limited services. Later, it replaced it with its SpringHill Suites, which again provides a few benefits but at a fair price. Then, they created TownePlace Suites, which is designed for visitors who prefer a more extended stay.
2. The Differentiation Strategy
Hotels that use differentiation strategies ensure that at least one of its elements is perceived as unique by both the clients and suppliers. Only hotel chains with specific skills and capacities can implement the differentiation strategy. Also, this strategy has wider margins with higher prices. Furthermore, the wide margins in this strategy give better bargaining power to the clients and suppliers.
The Grand Hyatt works on the differentiation strategy. When people hear about this hotel chain, it often connects it with business destinations, whether conferences and meetings are hosted. The hotel carries that image by providing its customers with sophisticated leisure and business facilities, world-class conference facilities, a banquet and a specialized program.
3. Market Niche Strategy
This strategy has its foundation in focusing on a specific market segment. Subsequently, it limits the scope of any competition. Hotel chains using the market niche strategy position themselves in the market niche to gain a competitive advantage. However, there are many risks associated with this strategy, the biggest being the competitors using a submarket to flourish.
In the limited service segment, the Accor hotel chain has made itself a leader in the market. Similarly, we have Cendant Corporation in the roadside tourism segment, which holds prime importance.
What Strategy Should The Hotel Chains Opt For?
The right strategy depends upon numerous factors, including resources and skills. Big companies and hotel chains with easy access to resources can go for the cost leadership strategy. The same holds true for the differentiation strategies too. However, a strong USP is a must to enact the differentiation strategy.
Similarly, hotels that are just getting started and are small or medium-sized should go for market-niche strategies. Even though the bigger hotel chains can also use this strategy, they prefer the former two strategies because of their low risk.
One can also go for a mixture of different strategies, which can prove advantageous too. However, it is essential to remember that hybrid strategies in the hotel industry often result in a mid-position for the hotels because of their low effective performance.