PLC Analysis of Hilton Worldwide - Case Study Example

 PLC Analysis of Hilton Worldwide Hospitality industry is one of the largest and fastest growing industries in the world (Walker, 2006, p. 4, Clarke & Chen, 2012, p. 5) because of greater disposable income for recreation and leisure in most countries. The growth potential of hospitality industry is a challenge as well as an opportunity for all different types of hospitality firms such as hotels, lodges, restaurants, resorts, recreation, and so on. Hospitality firms attempt to grab better slice of this opportunity by implementing various effective strategies whereas they also face challenges of rigorous competition since all they aim at achieving competitive advantages to stay stronger in the market. Hilton Worldwide, one of the most influential brands in hotel industry, has emerged to be the fourth largest hotel group in the world. ‘Hilton’ has been highly successful in creating stronger brand equity in a way that its name is often used as an alternative name for ‘Hotel’. This piece of research paper addresses various management strategies and underlying principles with a view to examine how these strategies are practiced by Hilton Worldwide and how they have helped the company reach its goals. Introduction In today’s competitive marketing contexts, Hilton’s innovation and strategic activities promised to revolutionize the business opportunities of hospitality so as to gain competitive advantage and long-term profitability. The business strategies and ideas implemented by Hilton Worldwide were more or less capable of building highly strong brand image and stronger competitive defense against major other players in hospitality industry. As Porter (1998, p. 29) noted, an effective business and competitive strategy should always take an offensive or defensive action against competitive forces in order to create a defendable portion in the market. This paper presents an analysis of the operational and competitive positions and management strategies of Hilton Worldwide with the help of various strategic analysis tools such as PLC, BCG Matrix, Porter’s five force analysis, SWOT, Ansoff Matrix etc. The paper focuses on major strategies of Hilton Worldwide including innovation, brand loyalty etc. Hilton Worldwide: Company profile Hilton Worldwide, formerly known as Hilton Hotels, started as a small hotel by Conard Hilton in 1919 in Cisco, Texas (Hilton International, 2007) has now become one of the largest hotel groups to attract travelers, developers, partners, team members and others as their preferred venue. With more than 3,800 hotels and resorts in 91 countries in 10 brands such as Doubletree, Embassy Suites, and Hampton and with more than 630,000 rooms around the world, (Hiltoninternational.com, 2012), Hilton Worldwide is now fastest growing in terms of revenues, room-occupancy, customer loyalty and best value of the service. In recent years, hospitality firms started considering revenue management a priority for ensuring better revenue results. It is because, as Avinal (2004, p. 52) noted, hospitality firms that have applied revenue management techniques such as price strategy have disclosed an increase of 7 percent in their revenues. Revenue management is a systematic process of managing capacity profitability that a hospitality firm is involved in selling right inventory to the right customers for right price and at right time (Ingold, Yeoman and McMahon-Beattie, 2000, p. 3). Hilton Hotel has a specific arrangement of Revenue Management Consolidated Centre (RMCC) to support prosperities in achieving higher market share and profitability (Hiltonworlwide.com, 2012). Hilton’s revenue for the financial year 2011 was US $ 8 billion, just behind the 8.7 billion of Accor. As shown in the depiction below, Hotel Intercontinental is the market leader with US $ 17.7 in revenues and Marriot International is the second largest hotel group with US $ 12.3 billion. On-going property extension has been one of the main drives to Hilton’s success. Despite major economic and other challenges of crisis and market fluctuations, Hilton Worldwide has always been focusing on adding properties to its international hotels. In 2009, Hilton Worldwide added 302 new hotels and more than 45,000 new room facilities. In 2008, it opened 327 new properties (eturbonews.com, 2010). As of very latest report, the company proposes to launch new 11 hotels and resorts in China by 2012 with a view to seize the better opportunities of hospitality in China. China is expected to grow to triple the size of Japan by 2020 and Hilton is planning to extend its global hotel services to welcome more Chinese with ‘Hilton Huanying’ Program (Horton, 2012, p. 16). PLC analysis of Hilton Worldwide Products and services that firms offer to its customers go through various life-cycle stages. The theory of product life cycle states that there is a time period between the launch of a new product in to the market till it is fully withdrawn from the market. As this theory suggests, a product or service progresses from its infancy through growth phase to the maturity phase and finally to the decline stage (Reid & Bojanic, 2009, p. 284). When it comes to Hilton Worldwide, it offers both products and services to customers. When it launches a new hotel in a new country or region, for instance, its new 11 hotels to be launched in China, they are very likely to have relatively less sales, room occupancy etc in the beginning. During product development and introduction stages, product or service attracts relatively less numbers of customers and therefore the hotel will be unable to cover the costs incurred for setting up the business. Hilton Huanying is a new service Hilton Worldwide recently launched. It is now in its introduction stage and is getting people attracted to it. It is still somewhat unknown to many of Hilton’s customers. Once Hilton Worldwide launches this new service throughout its branches across the world, more and more customers, especially Chinese customers, will come to like it and hence the sales will grow. Once this new service is almost known to all the potential customers and when this new service attracted maximum potential customers, this can be said to have reached its maturity. Each and every product may, at some time, get matured and start decline. Product life cycle stages especially growth stage may cease in couple of days or stay as longer as hundreds of years. Hilton Worldwide looks ahead and aims at seizing better opportunity of Chinese economy for the years to come and therefore the ‘Hilton Huanying’ may stay longer according to its attraction, quality, value proposition, customer satisfaction, ‘welcome’ aspects for Chinese people. BCG Matrix of Hilton Worldwide Some companies often face indeterminacy about whether to stop or continue marketing a product or service. BCG (Boston Consulting Group) designed a matrix to allow managers to examine the products and services of a company in order to decide on whether to stop or continue making and marketing them. As Enz (2009, p. 246) noticed, BCG matrix is highly useful in planning cash flow for a firm. BCG Matrix is based on business growth rate and relative market share. Business growth rate refers to the growth rate of an industry that the firm is involved in. Relative market share is estimated by calculating the ratio of business unit-size to the size of its largest competitor (Enz, 2009, p. 246). BCG matrix is useful for providing an overview of the products and services of the firm and the financial resources likely to be required for now and for future. It also provides a basis for future development in terms of what specific products or services are required to be developed and marketed (Fyall and Garrod, 2005, p. 78). The above depicted BCG analysis of Hilton illustrates that the company is ‘Star’ since it has achieved competitive advanatge due to its concetration and cost leadership stratagies. Michael Porter reckoned concentration, cost leadership and differentiation as the most important stratgies to secure competitive advanatge (Schaltegger, Burritt and, 2003, p. 188). A concentration strategy involves concentrating on improving, enhancing and furthering developments on what one business is already doing. In this strategy, all the resources a business invests will be directed towards continued development of a known product (Smit, Brevis and Cronje, 2007, p. 103). Hilton continually develops its products, extending markets to wider regions, improving quality aspects throughout its hotels, adding more numbers of rooms and more numbers of hotels worldwide. Cost leadership strategy refers toan integrated set of actions considered for producing goods or services with those features that custoemrs always accept at lowest possible costs relativle to the same of competitors. Firms that implemented cost leadership strategy always provide standardized products or services to its customers (Hitt, Ireland and Hoskisson, 2008, p. 106). Hilton’s services are acceptable to cost customers and its products as well as services worth the cost. The concentration and cost leadership strategies of Hilton Worldwide helped it achieve competitive advantage and thus to maintain large market share in the rapidly growing hotel and motel industries. The ‘Star’ in BCG matrix represents those firms that have additional growth potential and their profits are ploughed back to business as investments for future developments (Daft, Kendrick and Vershinina, 2010, p. 288). Hilton is ‘Star’ since it has relatively stronger market share and an ongoing growth in terms of profitability, revenue generation and stock vale. Hilton can be considered as ‘Star’ because of the following: Hilton is one of the fastest growing and fourth largest hotel groups. It has larger investments in properties around the world. It has extensively invested in innovation. It has achieved dominant market share and market position, and It always looks, acts and reacts for the future. Ansoff matrix Analysis of Hilton Worldwide The Ansoff matrix is widely used an effective tool for analyzing business growth potential and as a rout-map for the managers to help them take proper decisions about their products, services and market growth strategy. It is first introduced and developed by Igor Ansoff and published in the Harvard Business Review in 1957 (Meldrum and McDonald, 2007, p. 126). The Ansoff Matrix takes in to account four basic elements; they are market penetration, product extension, market development and diversification. The growth, success and effectiveness of marketing depends largely on whether the company produces and markets new or existing goods or services in a new or existing market. Ansoff Matrix analyzes these four elements and helps managers identify whether the company is able to grow with the new or existing products in the new or existing markets (Cheverton, Foss and Hughes, 2005, p. 131). As far as Ansoff Matrix of Hilton Worldwide is concerned, it is very evident that the company is penetrating in to new markets with new as well as existing products and services. Hilton Worldwide is attempting to penetrate markets with existing products. For instance, it proposes enhance hotel facilities and service quality to the existing firms around the world. It also targets new markets with existing products and services. The company proposes to launch 11 new hotels in China. As it did in previous years, the company will be looking ahead to open new hotel branches in more countries and thus it always looks at developing new markets by innovating the existing services or products. Hilton Worldwide achieved the Hotel Development Award for the year 2011(Business Wire, 2012). ‘Hilton Huanying’ is a strategic marketing program that Hilton Worldwide attempts to attract Chinese customers illuminates how the company bring new services in the existing as well as newer markets. It generates newer ideas and convert them to profitable service to be marketed with a view to ensure long term profitability. Hilton introduces new products and services in new markets and that is how it diversifies. The Double-Tree and Hilton Garden Inn are example of this. In October 2012, Hilton has entered in to an agreement with New Tropicana Las Vegas as a strategic partnership and franchise agreement, which in turn has brought Hilton back to Las Vegas almost after 14 years of its absence (hospitalitynet.org, 2012). This Double-Tree provides customers with amenities such as sweet dreams sleep experience, Wake-up Double-Tree Breakfast, buffet, and spacious workout facilities. In September 2012, Hilton Worldwide has proudly announced the signing of a management agreement to operate Hilton Garden Inn Hotel in Montevideo, Uruguay (hotel-online.com, 2012). Porter’s Five-Force Analysis Porter’s five force analysis is one of the most useful strategic analysis tools that help managers and marketers identify the severity of competitive rivalry with in an industry. This analysis attempts to measure and evaluate the factors that determine the competitive strength of a firm within its industry domain (Henry, 2008, p. 69). Cheverton (2004, p. 80) noted that Porter’s five force analysis comes in two stages, one is the analysis and the second is the conclusion and action. Porter’s five force model considers the five major forces in the market; they are competition, bargaining power of suppliers and buyers, threats of new entrants and substitutes. With closer study and analysis of these five forces of a firm, Porter’s five-forces analysis gives conclusion regarding the competitive rivalry the firm faces from its counterparts. The five-force analysis of Hilton Worldwide, as depicted below, shows that the company’s stronger brand image and higher investments in innovation as well as property-expansion are reduce the competition rivalry. However, as far as hotel industry is concerned, threat of substitute is greater since there are large numbers of substitutes available in the market. Small treats such as packaged ready-to-eat or ready-to-drink food and drinks are closer substitutes to hotel products. Switching costs also will be less as customers can easily obtain substitutes. Though hotel products may face challenge of substitutes, the services are very less likely to face such challenges because hotel can always attract people to the supreme quality in-restaurant services. It becomes highly successful if the hotel can offer greater opportunities of entertainment, fine dining experience, casinos and so on. As Hayes and Miller (2010, p. 365) stated, restaurants, hotels and resorts have wider possibilities to convert the existing customers to loyal customers if they can offer valuable and quality services. Farmers, companies, retailers and wholesaler, who are the suppliers in hotel industry, may have relatively lower or medium bargaining power since demand for fresh, quality, natural and fine materials is higher. Suppliers’ numbers are large in hotel industry and therefore the threat Hilton Hotels face will be relatively less. In contrast, bargaining power of buyers seems to be bigger since customers have large numbers of substitutes and always seek best quality for food and drinks. It can also be viewed as an opportunity for Hilton Worldwide, because the company is well-known for the quality and any investment it makes in retaining and enhancing the quality would certainly bring better returns. Because, as Pollin (2008, p. 88) stated, low price is never a priority for hotel customers, but service quality if of greater concern to them. SWOT analysis of Hilton Worldwide Strengths Weaknesses Strong brand image that ensures steady revenue-growth Wide range of hotel services Debt restricting and liquidity position Exposure to premium market cause increase in operating costs Opportunities Threats Robust growth in hotel and motel industry Launch of iPhone and iTouch application, Alliance with AT&T High Competition Terror attacks in different countries Strengths Hilton as the fourth largest hotel groups in the world has attained very strong brand image around the world. As it operates more than 3,800 hotels in 91 countries, it has obtained a strong customers base in a way that its programs, seasonal offers and newer facilities always attract certain customers who are loyal to the company. Its portfolio of brands include Waldorf Astoria, Conrad Hotels & Resorts, Hotels & Resorts, Hilton, Doubletree, Embassy Suites Hotels, Hilton, Garden Inn, Hampton Inn & Suites, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton, Grand Vacations (Datamonitor, 2011). The company provides customers with luxury, upscale, mid-priced, extended-stay or vacation etc. city centre hotels such as Waldorf-Astoria offers better amenities for travelers. Thus, the company offers wide hotels services throughout the world. Moreover, from 2010 onwards, the company started reducing its debt position by almost $ 4 million by reducing the outstanding debts from 20 billion to 16 billion US dollars (Datamonitor, 2011). Weaknesses Hilton Worldwide operates its premium segments in luxury with more than 39 hotel properties in the brand of Waldorf Astoria. This exposure to the premium market causes Hilton Worldwide incurs high costs in operating the business (Datamonitor, 2011). Opportunities Hilton is going to launch some new hotels in emerging markets including China. Over the past few years, the GDP growth and economic prosperity in emerging countries have increased in the disposable income to have contributed to the growth of lodging, hotel and all other hospitality industry firms. For instance, according to recent reports, Indian hotels generated total revenue of $ 3,800 million in 2009. Similarly, Chinese hotel industry generated total revenues of $ 24,500 million in 2009. Hilton Worldwide has entered in an agreement with AT&T to enhance premium online and Wifi services across its hotels. In order to improve the customer experiences of convenience in room-booking, placing orders etc, Hilton has launched comprehensive iPhone and iTouch applications in the lodging industry in 2009 (Datamonitor, 2011). Threats The severe competition in the hotel and motel industry poses significant challenge on Hilton Worldwide. There are large numbers of players in hospitality industry and many of them are global players too. Moreover, as Hilton Worldwide operates in more than 90 countries, its firms are prone to anti-social and terror activities. It has been found that terrors often make use of hotels and international resorts for designing, planning and developing the attacks and therefore it seems to be a bigger threat to the company. Conclusion This paper presented a detailed strategic analysis of Hilton Worldwide with help of various analysis tools such as Product Life Cycle analysis, BCG Matrix, Ansoff Matrix, Porter’s five force and SWOT analyses. Based on these analyses, following findings can be summarized. Hilton Worldwide, being the fourth largest in Hotel groups worldwide, is highly strong in brand image and steady revenue growth. Its strategy of generating newer ideas and converting them to newer products will help the company achieve competitive advantage. Hilton is ‘star’ since it is fastest growing and highly reputed for quality services. The company brings existing products and services to newer markets and introduces newer products and services for both existing and newer markets. 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