Strategic Management Analysis: Marriott International - Essay Example

 Strategic Management Analysis: Marriott International Strategic Management Analysis: Marriott International 1. Introduction Marriott International is an American-based, well-diversified hospitality organisation founded in 1927 by J. Willard Marriott. Marriott was a Mormon missionary who, in 1927, opened a root beer stand with his wife in Washington D.C. in an effort to provide much-needed beverages to travellers and locals. Overwhelming response and profit from this entrepreneurial effort led to expansion into a small chain of restaurants and hotels (Rosenwald 2007). In 1992, Marriott Corporation split into two entities, Marriott International and Host Marriott Corporation in an effort to build on brand equity and also diversify hospitality holdings. In 1995, to further diversify the business portfolio, Marriott International acquired a 49 percent stake in the Ritz-Carleton Hotel Company, providing a new brand experience that included upscale lodging properties catering to higher-class consumers. This investment ultimately led to the development of a variety of very profitable timeshare properties, now giving Marriott International an annual profit of approximately 12 billion USD (Marriott International 2011). The highly-diversified business model that now consists of over 1300 lodging properties is able to build on long-standing brand recognition and brand personality to ensure longevity and gain profitability in a very mature market. In this particular industry, there is considerable strategic emphasis that must be placed on competitive marketing promotions in order to differentiate the hospitality brand from other food and lodging competitors in multiple international markets. Thus, in order to fully understand the strengths and weaknesses of Marriott and also the company’s strategic focus, it is necessary to focus on brand-building and use of brand equity as significant strategic objectives. Marriott operates in highly competitive markets domestically and internationally where the main focus is establishment of customer relationship management, engaging in activities that retain current customers and improve customer loyalty (Buttle 2005). 2. Product life cycle analysis It is significantly difficult for Marriott (and competition) to successfully differentiate their hospitality brands in order to maintain competitive edge and also instil a sense of loyalty in key market segments. The markets in which Marriott operates are saturated with competition, in the United States where smaller and less-expensive competition is ever-present in certain market regions and abroad where developing nations such as China are developing new and innovative hospitality brands entering important profitable markets. Because of the vast diversity of brands and lodging options, it is paramount to focus primarily on the U.S. market in order to provide a legitimate and coherent analysis of market opportunities and current strategic focus. Marriott International maintains several flagship hotels with a full range of services and amenities, ranging from three to four-star accommodations. Brands in the United States include Courtyard by Marriott, Residence Inns, and Fairfield Inns (Thompson 2008), which are less-affluent accommodations considered mid-range, generally three-star accommodations. Supplementing this diversity is the Hilton branded hotels in the business’ portfolio, including Embassy Suites, Hampton Inns, and Doubletree Hotels and Suites (Thompson 2008). Herein lays the difficulty for Marriott International in terms of expanding the life cycle of its hospitality service businesses: Attempting to create differentiated service provisions in markets that are segmented and targeted differently depending on consumer demographics and psychographic characteristics. The life cycle of existing service models at Marriott International is highly dependent on market attitudes, lifestyles, and sentiment about brand service quality and reputation. Unlike other industries operating outside of the hospitality industry, Marriott is able to renew existing services by repositioning the brand in key markets and improving amenities and then utilising effective promotion to publicise these differentiated changes. Thus, Marriott is able to postpone the ultimate decline stage of its service model and continue to provide consumers with a perception of evolution and newness to ensure longevity in a very mature market environment. Marriott International offers an array of in-house restaurants in its lodging properties, both for mid-priced and more affluent accommodations in its holdings. Spas, food and beverage merchandising at domestic airports, and profitability from the Marriott rewards program continue to provide profit, expand brand equity opportunities, and extend the product life cycle in this mature and highly competitive market. As an early entrant in the U.S. market, Marriott maintains a significant branding advantage over competition as consumers in this industry are highly risk averse and will generally only be loyal to brands that provide satisfaction through excellence (Kalyanaram and Gurumurthy 2008). Therefore, adequate training in customer relationship management and service excellence are primary recruitment and retention strategies for Marriott to create a consumer perception of service quality and service evolution to stay relevant and vital in the mature market environment. Komninos (2002) iterates that it is often quite difficult for a business to recognise certain decline signals of a service until it is too late and revenues start to become depleted. Marriott seems to recognise this, proactively developing human capital culture within the business models to ensure service excellence and perceptions of consumer satisfaction. Fairholm (2009) offers that the development of a service-oriented corporate culture requires a transformational leadership methodology that decentralises hierarchies of control and where corporate leaders regularly communicate with employees, inspire and teach, and recurrently impart vision and mission to gain cultural loyalty with internalised staff. Deming (2002) reinforces that nearly 85 percent of all business failures stem from direct management failures, thus the role of management as transformational leaders that consider employees one of the most critical brand-building success factors serves to elongate the service life cycle by establishing a customer-centric culture at all Marriott properties. 3. Five Forces and BCG Matrix analyses Porter (2012) identifies the five externalised threats to Marriott, including threat of new entrants, buyer and supplier power in key markets, threat of substitutes and competitive rivalry. As previously identified, competitive rivalry in the U.S. market is substantial where promotional activity is a significant investment for customer retention and loyalty construction. For Marriott, the most substantial threat to the business is the high level of buying power maintained by segmented markets, including factors of price sensitivity, product differentiation, and brand identity. Marriott cannot utilise a singular promotional or incentives program to gain loyalty as markets are sporadically segmented and targeted based on lifestyle characteristics and socio-economic demographics. Thus, in order to sustain a successful and profitable brand, the business must focus on building customer satisfaction in all dimensions of service provision. Farris et al. (2010, p.102) define customer satisfaction as “the number of customers, or total percentage of customers, who report positive experiences with the brand or its services”. Marriott must develop a variety of evaluation tools, both quantitative and qualitative, to determine what attitudes, needs and perceptions are maintained by existing or potential customers to ensure high levels of service quality. The only methodology available to Marriott to prevent defection to other brands or reduce the high volume of buying power with key market segments is to establish a superior service quality reputation both through human capital and tangible service delivery and design. For Marriott, because of its focus on catering mostly to higher-resource consumers, the business must be concerned with the egocentric characteristics of many different affluent markets. It is only after a hospitality organisation has developed brand attachment that a consumer will begin to shed egocentric attitudes to what is referred to as a more reciprocal brand relationship that leads to ultimate loyalty (Aron, Aron and Smollen 1992; Muniz and O’Guinn 2001). A singular bad experience with Marriott or lack of service quality provided by Marriott International employees will lead to negative word-of-mouth. Most consumers in upscale hospitality industries are considered principle-oriented buyers, or those with higher financial resources that demand more attention and service during their hospitality experience (Boone and Kurtz 2007). Principle-oriented buyers are price sensitive when service quality is perceived to be inferior to competition and most markets demand and generally have very high self-esteem and very cultivated tastes (Mishra 2012). Because of this, buyers dominate the market with buyer control that is only reduced when Marriott appeals to these initial egocentric values in a way that outperforms service quality of competition. Furthermore, Marriott is currently considered a star under the BCG Matrix of market share and profitability. In this category, a business is able to produce considerable revenues due to high growth, but also consumes cash due to high operating costs, labour costs, and facility management and development costs (ICMBA 2012). However, due to high competition in the U.S. market and the ability of new entrants to continue to saturate markets, there is not much opportunity for Marriott International to become a cash cow. That is, unless the business diversifies its current portfolio to include new investments supplementary to lodging and food and beverage management. Add to this the aforementioned maturity of this market, it is likely Marriott will remain a star unless it the organisation can manage to reduce considerable expenditures in operations management. The high operating costs for Marriott International are observable within its 2011 Annual Report where revenues of over 12 billion USD returned a net income of only 198 million (Marriott International 2011). Nearly all of the business’ revenues were allocated to operational and shareholder costs that continue to prevent evolution to becoming a cash cow on the BCG Matrix. 4. Strategic management strategies and market presence Establishing joint ventures is the market entry strategy of choice for Marriott, using its corporate brand name linked with other reputable hospitality companies as a competitive advantage. This year, Marriott partnered with Gaylord Hotels, very upscale four-star establishments, that will now honour Marriott Rewards points (PR Newswire 2012), a very profitable supplementary customer relationship management strategy tool. Rather than seek acquisitions which is common with many hospitality industries, Marriott recognises market maturity and the high operational costs of current property holdings and pursues similar joint ventures to avoid adding more expenditure burden to its operational model. There are only a handful of existing three-star and four-star hospitality brands that have considerable brand loyalty and brand recognition with profitable markets, thus acquisitions may not necessarily provide Marriott a profit advantage. The high costs of training investment, facilities redevelopment, and human resources needed to promote the Marriott service philosophy with acquired business staff is simply not worth the financial or labour investment to seek acquisition strategies in new markets. Strategic management accounting is a considerable resource with Marriott International, allowing managers to recognise where costs should be more effectively allocated and link operations expenditures with strategic intention. Collier and Gregory (1995) iterate that the hospitality industry is highly homogenous, with a significant degree of competitive rivalry to gain market share and satisfy consumers. Wu (2007) emphasises the importance for hospitality firms to strike an appropriate budgeting balance between cost drivers and revenue drivers in key markets where accounting practices must take a holistic view of the business model that includes strategy, branding and promotion, and facilities development/management. Predicting demand and capacity are difficult in markets where there are limited barriers to market entry by competition, where there is international growth in hospitality firms stemming from developing countries, and where supply chain costs continue to rise due to inflation, fluctuating currency values, an economic slowdowns in key supplier regions internationally. Thus, establishment of a strategic management accountant provides insight into market preferences and cost allocations appropriate for strategic intention which for Marriott involves incremental market expansion with joint ventures or direct investment into new property development. Using the PEST analysis diagram as a relevant example, Marriott’s establishment of a strategic management accountant satisfies the linkages between high buyer power and unpredictable demand patterns that stem from lifestyle trend changes or brand attitudes existing in key affluent markets. The sociological dimensions of market characteristics make Marriott International highly dependent on routine external market analyses that include surveys, questionnaires, and a variety of other qualitative research methodologies. Thompson, Gamble and Strickland (2005) recognise that market research planning is a critical dimension in the hospitality industry that is also linked with costs and assets needed to provide service excellence necessary to achieve brand loyalty and improve Marriott brand equity. The strategic management accountant and executive-level leadership at Marriott International must segregate relevant versus irrelevant revenues to determine what are the most burdensome opportunity costs for each strategy undertaken by Marriott leadership. Relevant costs are those directly involved with new strategic objectives, such as the costs of property renovation to improve brand reputation in attractive and profitable markets (Wang and Yang 2001; Cagwin and Bouwman 2002). Such renovation projects to transform a three-star establishment into a more affluent and higher-priced facility exceed millions of U.S. dollars, thus the strategic management accountant and executive leadership must consider the long-run costs and benefits of such an investment as it pertains to satisfying competitive advantage and whether it will promote more valuable long-run brand equity. 5. Implications for Marriott International As previously identified, there is not a singular market; Marriott’s customer segments are widely dispersed and targeted largely due to their psychographic characteristics identified through market research efforts. This places significant cost burden in marketing promotion for the firm, exceeding 80 million USD in 2011 solely for the United States markets (Marriott International 2011). Marriott has developed online promotional activities, in-house promotions at lodging facilities, and considerable investment in television promotions that are very effective for Marriott’s desired, targeted U.S. consumers. The United States consumer represents a fickle and price sensitive series of buyer segments, thus high-cost television advertisements must represent a rather holistic strategy to gain market attention and promote the firm’s incentives programs such as Marriott Rewards. The high costs of promotion in this industry are significantly justified by the high buyer power in these markets, unpredictable lifestyle trends and attitude changes with consumer markets, and the vast competitive rivalry that exists in key profitable markets. This is why marketing costs are so much higher for Marriott International than other industry leaders since profit and revenue growth are monumentally dependent on consumer sentiment and loyalty. Therefore, since promotion is a critical strategic resource to sustain growth in this mature market, any feasibility studies conducted must include human capital development and training as imperatives to achieve competitive advantage. Marriott maintains a very strong cash position and revenues to justify ample credit to provide for capital investment in new facilities development or renovation of aging lodging infrastructures, however this strength is somewhat offset by changing consumer dynamics that fluctuate patron volumes that make it difficult to establish long-run loyalty over competing hospitality brands. It cannot be stressed enough that human capital is the most critical aspect of maintaining advantage over other hospitality companies as these are the proverbial gatekeepers of service delivery and service excellence not achievable simply through facility management and structural aesthetics. The company is simply not in a position to seek a multitude of direct investment strategies for new facilities development as a significant volume of its notable revenues are allocated to operational expenses. Maintaining over 12 billion in revenues and publicising only a 198 million net income illustrates the many operational cost burdens faced by Marriott International. It makes more fiscal and strategic sense to use service personnel as the most critical development resource for ensuring customer satisfaction so critical to sustaining positive brand reputation as training and development costs are significantly inferior to new facility construction and development. Without the support and dedication of employees under a cultural development model, Marriott International would be hard-pressed to establish such satisfaction and brand loyalty even with significant capital investment in facility management or improving service variety and choice at the firm’s many hospitality properties. 6. Evaluation and conclusion The most notable strengths identified through research regarding Marriott International is the company’s ability to recognise that operational changes must occur that are in-line with lifestyle trends of consumer markets imposing a flexible strategic model. This means that staff and executive leadership at Marriott must maintain a great deal of short-run thinking as it pertains to brand-building, whilst also balancing long-run intentions related to capital investment in new facilities development. Marriott operates in a favourable political environment where democratic leadership promotes successful independent business operations and where significant technological tools are available to enhance service delivery. These include online booking for convenience, establishment of incentives-based programs such as Marriott Rewards, and various ERP and BRP software programs to ensure cost-effective supply chain methodologies. With price sensitivity being felt by consumers in the United States due to economic slowdowns and global recession impacts, Marriott is shrewd in using joint venture strategies to expand its international brand presence without devoting significant investment into market expansion through acquisition or direct capital investment. It would simply be too much of a budgetary strain to negate service excellence as a primary strategy and instead rely on aesthetic renovation to achieve world-class brand status. There seems, also, to be a balanced environment as it relates to supplier power in this market referring again to the Five Forces model proposed by Michael Porter, as switching costs for both Marriott International and suppliers is relatively low in a saturated and mature hospitality market. Though pricing advantages or bargaining advantages are not present within the supply chain for Marriott, the business operates in a highly diversified supply market with limited barriers related to transportation costs and infrastructure development. This allows the company to examine where cost reductions can occur or where cooperative supply agreements can be more easily developed than in other international regions of the world where competing hospitality companies are somewhat held hostage by high supplier power in the market. Thus, a strength for this business is geographic in nature to achieve successful cost reduction and effective cost allocation related to supply. Using joint venture strategies and building human capital are benchmarks for Marriot International success in strategic management and to reduce cost risks associated with operations. References Aron, A., Aron, E.N. and Smollan, D. (1992). Inclusion of other in the self-scale and the structure of interpersonal closeness, Journal of Personality and Social Psychology, 63(4), pp.596-612. Boone, L. and Kurtz, D. (2007) Contemporary Marketing, 13th ed. London: Thompson South-Western. Buttle, F. (2005). Customer Relationship Management: Concepts and technologies. Oxford: Butterworth-Heinemann. Cagwin, D. and Bouwman, M.J. (2002). The association between activity-based costing and improvement in financial performance, Management Accounting Research, 13(1), pp.1-39. Collier, P. and Gregory, A. (1995). Strategic management accounting: a UK hotel sector case study, International Journal of Contemporary Hospitality Management, 7(1), pp.16-21. Deming, W.E. (2002). Chapter 6 in J. Beckford (ed) Quality: An Introduction, London: Routledge. Fairholm, M. (2009). Leadership and organisational strategy, The Public Sector Innovation Journal, 14(1), pp.26-27. Farris, P.W., Bendle, N.T., Pfeifer, P.E. and Reibstein, D.J. (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance, Upper Saddle River: Pearson Education ICMBA. (2010). The BCG Growth-Share Matrix. Internet Center for Management and Business Administration. [online] Available at: http://www.netmba.com/strategy/matrix/bcg/ (accessed October 24, 2012). Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: Pioneers versus late arrivals [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed October 24, 2012). Komninos, I. (2002). Product life cycle management, Urban and Regional Innovation Research Unit, p.8. [online] Available at: http://www.urenio.org/tools/en/Product_Life_Cycle_Management.pdf (accessed October 25, 2012). PR Newswire. (2012). Gaylord Hotels Joins Marriott International – Becomes Marriott Rewards Newest Brand Offering Unique Experiences, More Choices. [online] Available at: http://www.prnewswire.com/news-releases/gaylord-hotels-joins-marriott-international----becomes-marriott-rewards-newest-brand-offering-unique-experiences-more-choices-176559471.html (accessed October 31, 2012). Mishra, S. (2012). VALS 2 Segmentation, MIT Sloan. [online] Available at: http://www.franteractive.net/VALS2-html. (accessed October 24, 2012). Muniz, A. and O’Guinn, T. (2001). Brand Community, Journal of Consumer Research, 27(4), pp.412-432. Rosenwald, M. (2007) Root Beer Roots, The Washington Post. [online] Available at: http://www.washingtonpost.com/wp-dyn/content/article/2007/06/26/AR2007062601413.html (accessed October 24, 2012). Thompson, A. (2008), The Five Generic Competitive Strategies: Which one to employ?. [online] Available at: http://www.scribd.com/doc/92580197/Five-Generic-Business-Level-Strategies-Thompson-Et-Al-Chap5 (accessed October 23, 2012). Thompson, A., Gamble, J. and Strickland, A.J. (2005). Winning in the Marketplace, 2nd ed. McGraw Hill. Wang, X. and Yang, B.Z. (2001). Fixed and sunk costs revisited, The Journal of Economic Education, 32(2), pp.178-185. Wu, G.H. (2007). The cost drivers, revenue drivers and value chain analysis in strategic management accounting, International Journal of Knowledge, Culture and Change Management, 9(2), pp.69-78. Read More