Hotel Grand Chancellor, Hilton Adelaide and IBIS Melbourne - Example

Information and Systems for Competitive Advantage Assessment 2 Name Grade Course Tutor’s Name Date 1. Executive summary This report contains an industry analysis of the accommodation sector in Australia. The report features three hotels namely Hotel Grand Chancellor, Hilton Adelaide and IBIS Melbourne. Using porter’s five forces, the report has established that the three hotels face low bargaining powers from both suppliers and buyers. Additionally, the report has established that the threat of new entrants is minimal owing to the vigour that established hotels market their brands hence creating customer loyalty. The threat of substitute services is high because the accommodation industry is diverse. Finally, the report has identified that competitive rivalry is high in Australia’s accommodation sector. The report has also analysed the business models pursued by the three hotels and notes that Hilton Adelaide and Hotel Grand Chancellor have almost similar business model, there is a slight difference, which is evident in the unique service offers that Hilton Adelaide gives. IBIS Melbourne on the other hand pursues a business model that provides flexible and affordable accommodation choices to customers. The report further analyses the competitive strategies in the three hotels and notes that Grand Chancellor pursues a segmentation strategy. Hilton, on the other hand has embraced the differentiation strategy. IBIS is perceived as pursuing a cost differentiation strategy. The three hotels respond differently to Porter’s five forces, something that largely depends on their respective competitive strategies. The report also investigates the value chain of each hotel and the internal arrangement that each business pursues to remain competitive. 2. Industry analysis To conduct an industry analysis of the three hotels – i.e. Hotel Grand Chancellor, Hilton Adelaide and IBIS Melbourne - requires one to understand that although the hotels may have different star ratings, they operate in the same industry. Specifically, this report will review them based on accommodation services only. Porter (1985 cited by Tavitiyaman, Qu & Zhang 2011, p.648) came up with an industry analysis framework that this report will use. Porter had argued that an industry can be analysed based on the bargaining power that buyers and suppliers separately have, the threat posed by new market entrants, the threat posed by substitute products and the rivalry that exists among competing firms. As Tavitiyaman et al. (2011, p.648) note, suppliers in the hotel industry, and especially in the accommodation sector have relatively low bargaining powers. Many suppliers are willing to offer services hence the low bargaining powers. Similarly, buyers’ bargaining powers is low especially during seasons when accommodation is in high demand (Tavitiyaman et al. p. 648). The hotel industry also face low threats from new entrants because as Tavitiyaman et al. (2011, p. 648) note, hotels are known for aggressive marketing campaigns, which create brand awareness and enhance consumer loyalty thus making it hard for new entrants to penetrate the market. The threat from substitute services is high because the hospitality industry has other providers who offer competing services. Finally, Tavitiyaman et al. (2011, p. 648) note there is stiff competition in the hotel industry, which is brought about by numerous and diverse service providers, the absence of switching costs or differentiation among competitors, and the arguably slow industry growth. 3. Distinct Business Models Linder and Cantrell (2000, pp. 1-2 cited by Al-Debei, El-Haddadeh and Avison 2008, p.2) define a business model as the explanation of how a profit-oriented company intends to or makes money. The three hotels have different business models as indicated below: Hotel Grand Chancellor (HGC) As a 4-star hotel, HGC targets business or family customers. From its ‘Rooms & Suites’ link on its website, the hotel indicated that its rooms have work desks, lavish bedding facilities, broadband internet connection, and premium television cable channels (Grand Chancellor Adelaide on Currie 2015). Arguably, the services offered in the hotel are able to cater for its target customers well. Families would ideally find the cable TV, plush beddings and internet connectivity useful, while the business travellers would find the work desks, internet connectivity and lavish bedding useful. HGC offers different rooms and suites, which cater for different customers’ needs. Arguably, by availing a wide choice of accommodation alternatives to their customers, the hotel is able to capture a diverse number of customers, whose bookings depends on their needs or preferences. Hilton Adelaide Hilton Adelaide is a 5-star rated hotel. Its business model is similar to the HGC above, except that its rooms and suites portfolio is more detailed. For example, the hotel has three categories of accommodation offers namely guest rooms, suites, and executive rooms. Additionally, guest rooms are divided into three categories hence offering customers a wider choice. The Hilton also targets families and business travellers and has designed the accommodation facilities with the needs and wants of diverse customers in mind. Working areas, internet connectivity and LCD TVs are common features in all its rooms and suites (Hilton Adelaide 2015). IBIS Melbourne As a 3-star rated hotel, IBIS Melbourne business model is clearly designed to target travellers who need affordable choices compared to what is offer in higher rated hotels. For example, the hotel has standard rooms with a queen bed, a double bed or a single bed. The hotel also has apartments with different bed choices. Room fittings are standard, but customers need to pay extra money in order to use Wi-Fi, high-speed internet or high-speed transmission (Hotel IBIS Melbourne 2015). 4. Competitive force analysis Michael Porter (cited by Tanwar 2013, p. 12) developed generic competitive strategies (see figure 1), which he argued could explain the different strategies that firms pursue in an effort to be competitive. Figure 1: Porter’s Generic Competitive Strategies Source: Tanwar (2013, p.12) When combined with Porter’s five forces discussed in section 2 above, the generic strategies provide insight into how competitive a firm would be in a specific industry. Based on the business models pursued by HGC, Hilton Adelaide, and IBIS Melbourne, it is clear that each of the three has a different competitive strategy. According to Tanwar (2013, p.12), cost leadership seeks to appeal to customers based on cost competency. IBIS seems to be pursuing the cost leadership competitive strategy. When reviewed based on Porter’s five forces, however, IBIS’s competitiveness would depend on whether the cost leadership is designed in a manner that deters new entrants into an industry. Additionally, cost leadership in IBIS should be reviewed against bargaining powers that both buyers and suppliers have. For example, despite its affordable pricing, IBIS should be able to insulate itself from powerful buyers and suppliers to be competitive. In relation to the threat of new substitutes, IBIS should be able to use low pricing to defend its business against substitutes. Finally, the hotel should be able to compete well in the industry based on the pricing of its services. Tanwar (2013) further noted that segmentation strategy focuses on a specific market scope. By focusing on business and family travellers who can afford to pay for a degree of luxury, HGC seems to be pursing the segmentation strategy. To gauge the hotels competitiveness using Porter’s five forces, it would be important to establish whether segmentation develops the hotel’s competencies in a manner that enables the competencies to act as entry barriers for new market entrants. As noted in section 2 above, competition in Australia’s hotel industry poses a significant entry barrier to new entrants. Segmentation also means that buyers have less bargaining powers, because even though they would like to alternate between a hotel like HGC and others, which are similar, HGC’s unique offers make it hard for such alternation to happen. Supplier power is arguably be higher in firms that pursue differentiation strategy. For example, a hotel like HGC contracts renowned suppliers to avoid disappointing their customers. Such suppliers charge a premium for their reliable services. Fortunately for HGC, it can always pass the costs to its customers. Segmentation also means that HGC offers targeted services to their customers. Specialisation reduces the threat of substitutes that such hotels would pose to HGC. Finally, rivalry is low because only similar rated hotels pose a major competitive threat to the two hotels in their respective star-rated categories. By offering rooms and suites that are distinct from what HGC has, Hilton Adelaide, is arguably also following a differentiation strategy that would enable it stand out from other 5-star rated hotels. Reviewing this strategy based on Porter’s five forces reveals that Hilton appeals to loyal customers thus posing an entry barrier to new market entrants. Additionally, since its services are arguably superior compared to lower rated hotel, buyers would not have much bargaining power because the hotel industry does not have many alternatives to the services offered at the Hilton Adelaide. Supplier bargaining powers may be high due to the quality and reliable supplies needed by Hilton Adelaide to satisfy its high customer requirements. However, costs associated to high supplier bargaining powers can easily be passed to customers hence meaning that the hotel’s competitiveness is not affected. As a 5-star hotel, Hilton Adelaide has differentiating factors that make it appealing to a specific segment of consumers. Such factors reduce the threat of substitutes because consumers would not find substitutes easily. Finally, the differentiating strategy builds brand loyalty for Hilton Adelaide thus reducing rivalry between the hotel and its competitors. 5. Business responses to the forces How the three hotels - Hilton Adelaide, HGC, and IBIS Melbourne - respond to the Porter’s five forces depends on the generic strategy that each of the three hotels pursue. As noted in section four above, Hilton Adelaide pursues a differentiation strategy, while HGC pursues a segmentation strategy. On its part, IBIS Melbourne pursues a cost leadership strategy. Based on the foregoing understanding, it is likely that by following a differentiation strategy, Hilton Adelaide responds to Porters five forces by enhancing its service provision in order to ensure that its raises the entry barriers in order to dissuade new market entrants. Porter (cited by Tanwar 2013, p. 12) notes that in pursuit of customer loyalty, firms that pursue a differentiation strategy appeal to consumer loyalty through valuable and unique product or service offers. In response to buyer power, Hilton Adelaide probably sets prices, and this means that its targeted consumers do not have much bargaining leeway. Hilton Adelaide’s response to supplier bargaining is based on the quality of their supplies and the availability of other suppliers who can do an equally good job supplying what Hilton customers need. On its part, HGC can respond to the five forces by developing competencies (e.g. free Wi-Fi and work areas) in response to market barriers. By setting prices, the hotel ensures that bargaining power among buyers is minimal while understanding the supply market and identifying potential suppliers reduces the bargaining powers that suppliers have. HGC seems to respond to the threat of new substitutes by offering specialised services. Finally, the hotel appears to respond to rivalry within the market by focusing on specific consumer segments. Unlike HGC and Hilton Adelaide, IBIS Melbourne seemingly responds to Porter’s five forces by lowering prices and by so doing, poses an entry barrier to potential new market entrants. The hotel responds to bargaining powers by buyers by offering them lower prices. However, its low prices mean that suppliers do not have much bargaining powers over IBIS. To defend its business against substitutes, IBIS arguably uses low prices to appeal to particular customers. Finally, the hotel responds to the market rivalry by price-based competition. 6. Value chain Investigation of internal arrangements within individual businesses At Hilton Adelaide, value chain includes inbound logistics, which include accommodation services, food and beverages and the interior design. Operations is also a part of the hotel’s value chain, and as Hilton Adelaide (2015) notes, this involves transforming goods and services and making them acceptable to customers. For example, accommodation facilities need to be cleaned regularly and thoroughly. Outbound logistics is another component of the value chain and include delivering satisfactory services to customers. After sale services are also vital in the value chain and include such things as handling customer complaints. The value chain at HGC is arguably a reflection of its response to Porter’s five forces and the competitive strategy it pursues. For example, by offering specialized services, the hotel ensures that its customers get value for money. It also engages with suppliers to ensure that customers are treated with quality and timely services. Finally, the hotel offers after sale services that are intended to enhance customer loyalty (Hotel Grand Chancellor Adelaide on Currie 2015). At IBIS Melbourne, the value chain is no different from what is offered in Hilton Adelaide and HGC. The only difference is that based on the how the hotel responds to Porter’s five forces. For example, because the hotel competes on price, customers do not receive premium services like they would at the Hilton. However, they still get value for their money as reflected in the cleanliness, friendly service providers, and good after sales services that they receive from the hotel. References Al-Debei, M, El-Haddadeh, R & Avison, D 2008, ‘Defining the business model in the new world of digital business’, Proceedings of the Fourteenth Americas Conference on Information Systems, Toronto, ON, Canada August 14th-17th 2008, pp. 1-11, viewed 10 May 2015, . Hilton Adelaide 2015, Rooms & Suites, viewed 10 May 2015, Hotel Grand Chancellor Adelaide on Currie, Rooms & Suites, viewed 10 May 2015, . Hotel IBIS Melbourne 2015, Discover the Hotel IBIS Melbourne Hotel and Apartments, viewed 10 May 2015, < http://www.ibis.com/gb/hotel-1564-ibis-melbourne-hotel-and-apartments/index.shtml#>. Tanwar, R 2013, ‘Porter’s generic competitive strategies’, IOSR Journal of Business and Management, vol. 15, no.1, pp. 11-17. Tavitiyaman, P, Qu, H & Zhang, H 2011, ‘The impact of industry force factors on resource competitive strategies and hotel performance’, International Journal of Hospitality Management, vol. 30, pp. 648-657, viewed 5 May 2015, . Read More