External Analysis of the Hotel Mandarin Oriental - Case Study Example

21 February External Analysis of Mandarin Oriental, San Francisco Hotel Introduction Mandarin Oriental, San Francisco ispart of a global conglomerate of luxury hotels based in Asia. It is found on the top eleven floors of California Center at Sansome Street. The organization enjoys five star ratings and prides itself in provision of world class hospitality services. Visitors mostly value its spectacular views as well as its friendly staff. The external analysis will revolve around factors in San Francisco, the United States in general, as well as source countries. Political factors Mandarin Oriental depends on international consumers from Europe, Asia, Latin America and the Middle East. Political turmoil in some of its frequent source countries could keep consumer numbers down (Smith 58). It is for this reason that the organization must market itself equally across all corners of the globe. On the other hand, if a country happens to have political events like elections, then members may select the organization as a venue for political strategizing. Businesses in the hospitality sector are greatly influenced by currency fluctuations. When the dollar weakens due to political events at home, international leisure travelers are the ones who benefit. Therefore, hotels like Mandarin Oriental can record higher numbers of leisure travelers from Asia and Europe when this arises. Losses that arise from a weakened dollar may be mitigated by additional income from foreign countries. Social factors Luxury hotel consumers are quite selective in choosing holiday destinations. They often settle for places with attractive geographic features. San Francisco is richly endowed with such features. It is a coastal city surrounded by the Pacific Ocean on different levels. Additionally, it has several museums, theaters and Golden Gate Bridge to boast about (Wengen 8). Visitors are often attracted to the area owing to these unique sights. Furthermore, the city has a wide range of cultures and ethnicities. For this reason, international business or leisure travelers will feel at home in the destination. Currently, US consumers expect certain business standards from their supplier of choice. Corporate social responsibility is top on this list, so hotels must engage in ethical business practices. This implies that their administrators or parent bodies should not be involved in any scandals. Furthermore, leisure and business consumers care about the environment. Service provision in luxury hotels ought to possess green elements. Unions are also other social factors that affect luxury hotels in the US. Most hotels in San Francisco are unionized. This places considerable strain on administrators concerning operating expenses. Unions are inflexible and may place restrictions on workers’ earnings, packages and work policies. Unite Here is the largest hotel trade union in San Francisco and has negotiated a number of contracts with luxury brands (Law 9). One of the unionized organizations is Mandarin Oriental. Hotels must pay healthcare costs, pensions and a series of other requirements, which may discourage external stakeholders. Economic factors Mandarin Oriental is located in San Francisco, which is currently in recovery mode, economically. Unemployment levels are yet to reach the pre-economic downturn levels as they currently stand at 9.6% (Law 12). However, spending power in the city is slowly increasing. This implies that local businesses that the consumer luxury hotel services in the area now have a greater capacity for expenditure. International travel is increasing thus indicating that prospects for future business are promising. Globally, the economy is recovering from its previous levels in 2009 and 2010, and this has a similar positive effect on international arrivals in the United States. The hotel’s occupancy rates are directly related to the number of international travelers. Therefore, if the economy is improving, then rate pressures will not be high. Such factors have direct implications on how profitable Mandarin Oriental can be. Luxury hotels are affected by economic factors because these determine their overall expenditure. Mandarin has had to cut down on costs in order to keep guest services consistent over the past five years. However, sometimes these cost-cutting measures may push the organization to cut down on certain service components (Mandarin Oriental Hotel Group 55). Eventually, the strategy may keep consumers away if they can find another alternative that has maintained its normal prices. Institutions in the luxury business are always looking to expand and become more competitive. Sometimes this may be done by extension of the business into surrounding spaces or by introduction of new services. All these activities require financing that stems from banks. The state of the economy can determine lending institutions’ willingness to give out loans. Additionally, it determines interest rates and repayment figures to be paid by the organization. Technological factors Online travel agents currently facilitate leisure and business travels around the world. They allow visitors to book spaces at the last minute. It is up to the concerned luxury hotels to work with these online agents in order to market themselves properly. Furthermore, hospitality providers need to become more flexible with regard to room allocations. The flexible nature of the internet means that guests can change their demands at moment’s notice. It also provides them with opportunities to compare prices regardless of where they are located in the world. Luxury hotels must step up their campaigns and make themselves stand out in these demanding situations Technology has also provided new opportunities for marketing and advertisement. Social media and internet click-through advertisements, accord players with opportunities to reach as many global consumers as possible. Consumers also expect certain technologies when in these facilities. Their rooms need to have wi-fi access and they should be able to access service through technologically advanced methods (Smith 15). Supplier power The luxury hotel industry depends on a series of service providers for existence. Interior designers are critical for the organization because they keep the brand fresh. It is through their efforts that the company can maintain an aura of sophistication and elegance. Numerous interior designers exist in San Francisco and throughout the country. However, getting a provider that can capture the company’s core attributes is not easy. For this reason, architects and hotel designers working with the firm do have an upper hand in the arrangement. Bargaining power of buyers Buyers in the luxury hotel industry are a well-informed group. They benefit from restaurant and hotel reviews from travel magazines, agencies and a myriad of online publications. Mandarin Oriental must maintain excellent quality throughout; otherwise, it could suffer from bad ratings, which could hurt its brand. Since the organization targets the high-end market, then opinions held by high-profile individuals could affect it tremendously. Celebrity endorsements are quite common in the luxury hotel industry. Most times, they are done subtly and in a manner that maintains its upscale nature. On the flipside, luxury business consumers in San Francisco need hotels like Mandarin Oriental. This huge demand was seen during 2009 when occupancy levels had dwindled dramatically during that time. However, luxury hotels in the city were able to sustain 70% to 80% residency (Law 12). Such occurrences indicate that even during economic recessions, a business consumer still needs such a service. The huge demand for their offerings thus neutralizes the buyer power that stems from elevated information access. Bargaining powers for these consumers are relatively low. Competitive rivalry San Francisco is relatively small compared to other cities like New York. Luxury hotel rooms are also moderate in number, and may sometimes be inadequate during peak seasons. Even growth of these hotel rooms has been quite low over the past decade. A sizeable number of hotels opened during the first few years after the dot com bubble. However, after the bust, only a small number were able to open thereafter. Regardless of this relatively small number, the few players that are in the market have been competing on the basis of price. In the past five years, rates have reduced by 25%. Four Seasons, Ritz Carlton and Mandarin charged between $190 and $340 (Banker 22). Differences between stakeholders’ charges were large thus showing that a certain level of competition exists. On may presume that luxury consumers do not care much for price; however, a number of them would settle for cheaper alternatives if similar service levels can be maintained. Threat of substitutes Visitors usually visit luxury hotels for leisure; regardless, they have a number of alternatives that may provide accommodation and luxury even if this comes at an extra cost. Taking voyages in luxury ships may be such an alternative. Not only does it bring visitors closer to nature, but it also accords them peace and serenity that is unrivalled in the city. Alternatively, consumers may opt for luxury guest houses if they make arrangements with locals. However, because providing high-quality hotel services is relatively difficult at such a small scale, then luxury hotels have a very low threat of substitutes. Threat of new entrants The threat of new entrants is relatively low in the luxury hotel industry. One requires a lot of capital in order to create a four or five star luxury hotel. The most prohibitive aspect is the price of real estate. Mandarin Oriental currently occupies eleven floors of its building. Potential investors would need to either own or lease such premises (Szulanski 4). Furthermore, they must invest in superior interior décor, incorporate entertainment facilities like restaurants and spas, and provide a series of several other basic amenities. These requirements are prohibitive to many business persons. Furthermore, because the Unites States is a saturated market, a number of investors would shy away from entering it. It is particularly difficult to enter the luxury hotel market because success also depends on one’s location. A potential site ought to have certain outstanding physical features, like water bodies or city establishments. Furthermore, the location should have enough international businesses to attract consumers to the hotel. These factors are difficult to find in one instance. Therefore, Mandarin Oriental is relatively shielded from new entrants. Conclusion Generally, the luxury hotel market in the US and in San Francisco specifically, has been growing. This follows recovery after the 2008 global economic recession. Competitive rivalry is moderately low owing to a small number of service providers. However, susceptibility to international factors like a decline in leisure consumers, fluctuating currencies and online booking may place luxury hotels at risk. Generally, it is difficult to enter this industry, so older players are relatively secure. Organizations like Mandarin Oriental should strive to maintain high quality standards in order to remain profitable. Works Cited Banker, Coldwell. The residences at Mandarin Oriental. 2013. Web. 21 Feb. 2014. https://secure02.mgm-mirage.com/ccbroker/forms/july2013_specialreport_mandarinoriental.pdf Law, Jaime. San Francisco market update-recovering from recent economic recession. 2011. Web. 21 Feb. 2014. http://www.hvs.com/Content/3089.pdf Mandarin Oriental Hotel Group. Annual report 2010. 2010. Web. 21 Feb. 2014. http://photos.mandarinoriental.com/is/content/MandarinOriental/corporate-09AnnualP Smith, Sarah. The global luxury hotels market- key trends and opportunities to 2017. 2013. Web. 21 Feb. 2014. http://www.prweb.com/releases/2013/11/prweb11358955.htm Szulanski, Gabriel. Mandarin Oriental Hotel Group. 2009. Web. 21 Feb. 2014. http://www.insead.edu/facultyresearch/faculty/documents/Mandarin_Oriental-A-w.pdf Wengen, Deidre. San Francisco hotels make big economic impact. 2014. Web. 21 Feb. 2-14. http://www.lodgingmagazine.com/san-francisco-hotels-make-big-economic-impact/ Read More