Importance of Branding Strategy and Brand Positioning in the Case of Shangri-la Hotel - Essay Example

Marketing Plan - Importance of Branding Strategy and Brand Positioning in the Case of Shangri-la Hotel - ID Number & Code Instructor’s Name Date Total Number of Words: 3,269 Executive Summary Since 1971, the brand name of Shangri-la hotel was positioned as a luxury five-star hotel. Using effective branding and brand positioning strategies, the top management of Shangri-la hotel was able to charge a premium price for its hotel products and services. This study analyzed the significance of branding and brand positioning in contemporary international tourism. Aside from discussing the business benefits associated with the use of effective branding and brand positioning strategies, this study also tackled some strategic ways on how to effectively communicate the company’s promotional activities to its target customers. Using the case of Shangri-la hotel, this study will highlight the specific branding and brand positioning strategies used by this particular hotel company. In relation to the need to serve the price-sensitive customers a.k.a. the brand switchers, this study discussed the advantages and disadvantages of using a separate brand name. At the end of this study, the bsuiness benefits associated with the use of brand extension strategies were tackled in details. Table of Contents Executive Summary ............................................................................................................... 2 Table of Contents ................................................................................................................... 3 1. Introduction ................................................................................................................ 4 2. Literature Review ....................................................................................................... 4 2.1 Branding Strategies used by Shangri-la Hotel ............................................ 4 2.2 Benefits Associated with Shangri-La’s Branding Strategies ...................... 8 2.3 Significance of Branding and Brand Positioning in the Contemporary International Tourism ................................................................................. 9 2.4 Discuss Potential Problems or Limitations which may Impede the Business Success of Shangri-la Hotel ........................................................ 12 3. Conclusion and Recommendations ............................................................................ 13 3.1 Conclusion .................................................................................................. 13 3.2 Recommendations ...................................................................................... 14 References ............................................................................................................................ 15 - 18 Chapter 1 – Introduction Shangri-la is one of the most well-established hotel brands worldwide. In 1971, the first Shangri-La hotel was built in Singapore (Shangri-La, 2013a). Eventually, the company decided to expand its business operation in other countries. Throughout the entire Asia Pacific region, Europe, North America and the Middle East, Shangri-La hotels and resorts own at least 72 five-star hotels under the brand name Shangri-La (Kuhm, 2011; Shangri-La, 2013b). With the use of brand extension, the company is using the brand name “Kerry” and “Traders” to serve the hotel needs of people who are more price conscious (Kuhm, 2011). Branding is more than just the use of a company name, logo, or a trademark (Kotler, 2000, p. 404). In response to the business success of Shangri-la Hotel as a brand, this report will focus on discussing and analyzing how this particular company was able to create competitive advantage with the use of effective branding strategies. As part of going through the main discussion, this report will first discuss the branding strategies used by Shangri-la Hotel and how this company was able to benefit from its branding strategies. Eventually, this report will tackle the significance of branding and brand positioning in the contemporary international tourism. Prior to conclusion, this report will identify and discuss potential problems or limitations which may have impede the business success of Shangri-la Hotel. Based on the identified problem or limitation, several recommendations will be provided at the end of this report. Chapter 2 – Literature Review 2.1 Branding Strategies used by Shangri-la Hotel The target customers of Shangri-la hotel are the elite or those individuals who are willing to pay a premium price for a hotel food and lodging services. Since 1971, Shangri-la has purposely positioned its brand as a hotel company that offers luxury hotel products and services (Shangri-La, 2013a). As a luxury hotel brand, Shangri-la offers world-class quality food and beverages, peaceful and clean environment, and elegant, modern, and inspirational architectural and interior design (Shangri-La, 2013c). By positioning its brand as a luxurious five-star hotel, Shangri-la has the competitive advantage to charge its potential customers with a premium rate (Schmitt and Rogers, 2008, p. 79; Urde, Greyser and Balmer, 2007). To strengthen the brand of Shangri-la hotel, the company can use advertising to “build brand loyalty” (Kottler, 2000, p. 598). To strengthen the company’s brand image, the top management of Shangri-la should combine the use of sales promotion and marketing public relations to capture the interest of the public consumers (Kottler, 2000, p. 410). For example, through the use of either social networking sites or e-mail, the top management of Shangrila can easily advertise the company’s special offer such as bridal packages, etc. (Facebook, 2013; Keller and Lehmann, 2006). When spreading the news about its bridal packages, the company can take advantage of print advertisements on bridal magazines (Shangri-La, 2013d). According to Schmitt and Rogers (2008, p. 69), “brand is associated with an exotic and outstanding service experience”. It means that customers who are satisfied with the quality service they receive from Shangri-la staff and personnel will increase the chance wherein these customers will have a stronger brand recognition and stay loyal to the company (Luo and Bhattacharya, 2006; Szwarc, 2005, p. 5). For this reason, the process of continuously improving the hotel products and services offered by Shangri-la will also help in terms of strengthening its brand. In most cases, continuous improvement in Shangri-la hotel’s products and services can be achieve by extending necessary training and development programme that could further improve the hospitality and overall service coming from its staff and personnel (Shangri-La, 2013e). In general, there is a very medium-high threat of new entrant within the international hotel and lodging industry. As a common knowledge, it is very expensive to construct a world-class hotel. Although very few business people will be able to build a world-class hotel, a lot of business people will be able to construct cheaper hotels or motels (i.e. one-star, two-star, three-star, four-star hotels, etc.). As a five-star hotel, Shangri-la hotel is charging its customers with a premium rate. Since very few people can afford the hotel products and services offered by this company, a lot of people would prefer to stay in a cheaper hotel/motel. For this reason, it is clear that the threat of substitution is very high. The high threat of substitution increases the bargaining power of the customers. Given that only 3% of the travellers can afford the premium rate of Shangri-la hotel, the company would automatically lose the chance of being able to serve the rest of the 97% of the entire travellers who cannot afford the room rate of Shangri-la. Since the company is losing a huge market potential coming from the price-sensitive customers, the top management of Shangri-la had no other choice but to re-examine the benefit of using effective brand strategies as a way to open new business opportunities for this company (Kottler, 2000, p. 413). Brand switchers are those people who are looking for low-price hotel services with good value (Kottler, 2000, p. 598). To serve the price-sensitive customers a.k.a. the brand switchers, it is not wise to decrease the room rate of Shangri-la hotel because doing so will not only cause serious damage to the brand equity of Shangri-la but also discourage some of the elite and wealthy people from paying a premium rate for Shangri-la’s lodging and food services. Instead of decreasing the room rate of Shangri-la hotel, this company decided to create an entirely new brand and position it as a more affordable hotel and lodging company that is affiliated with Shangri-la hotel (Kerry Hotels, 2013; Traders Hotels, 2013). For example, the top management of Shangri-la purposely built and operate the “Traders Hotel” in order to serve the lodging needs of the price-sensitive customers (Traders Hotels, 2011). To serve the price-sensitive customers in Beijing and Shanghai, the top management of Shangri-la hotel decided to build and operate the Kerry Hotel back in 2011 (Kerry Hotels, 2013). (See Figure I – Brand Positioning of Shangri-La Hotel, Traders Hotel, and Kerry Hotel below) Figure I – Brand Positioning of Shangri-La Hotel, Traders Hotel, and Kerry Hotel The use of a separate brand has been effective in terms of allowing the top management of Shangri-la hotel serve the price-sensitive customers. However, as compared to the use of brand extension strategy (Yeshin, 2006, pp. 123 – 125), the use of a separate brand name is more costly in terms of allowing its target customers gain recognition and awareness with the brand. Furthermore, the use of a separate brand name requires more time and marketing strategies before the company will be able to establish a new brand image. 2.2 Benefits Associated with Shangri-La’s Branding Strategies Shangri-la has been quite successful within the global hotel and lodging business. However, the number of close competitors in the world market will continue to increase over the next few years. For this reason, the company will always be struggling in terms of being able to maintain and strengthen its position as the Asia Pacific’s leading five-star hotel company (Eaton, 2010). A brand can be use to create familiarity or make Shangri-la’s target customers feel special and associated with the brand. Therefore, one can say that a brand name is something that is relevant to the emotional, physical, and psychological benefits that the general public can receive out of supporting or purchasing Shangri-la hotel’s product and services. Aside from increasing the company’s corporate value and power within the international hotel and lodging industry (Kim, Jin-Sun and Kim, 2008; King, 2008), the use of effective branding strategies has made Shangri-la able to create a strong brand image as “one of the world’s finest hotel and resort company” (Shangri-La, 2013b). Other benefits associated with Shangri-la’s branding strategies include allowing its target customers to easily identify the brand and make them feel associated with the brand (Fuchs, 2008). The concept of “perceived brand quality” is referring to the customers’ perception or feelings on brand association. In general, a high-perceived brand quality, brand loyalty, brand awareness and brand associations are among the basic elements of brand equity (ONeill and Mattila, 2010; Schmitt and Rogers, 2008, p. 194; ONeill and Xiao, 2006; Kim and Kim, 2004; Yoo, Donthu and Lee, 2000). Depending on how the people would perceive or feel about the hotel ambiance or the quality service they will receive from the Shangri-la hotel staff and personnel, the customers may develop either a high- or low-perceived brand quality (ONeill and Mattila, 2004). Since it is important to create a high-perceived brand quality, the hotel manager should focus on establishing a strong brand. Several studies explained that the use of a strong brand is effective in terms of creating “added value”, “higher perceived brand quality”, and “higher equity” to Shangri-La (Cai, Gartner and Munar, 2009, p. 52; Back, 2005; ONeill and Mattila, 2004). Aside from making the company able to easily attract more local and foreign investors, having a strong brand name can help strengthen the loyalty of Shangri-la customers (ONeill and Mattila, 2010; ONeill and Xiao, 2006; Cai, Gartner and Munar, 2009, p. 52). Because of the customers’ loyalty and a high-perceived brand quality, more people will be willing to pay a premium price for their hotel services (Schmitt and Rogers, 2008, p. 79; Urde, Greyser and Balmer, 2007). 2.3 Significance of Branding and Brand Positioning in the Contemporary International Tourism The study of contemporary international tourism focuses on analyzing the “interrelationships between consumers and producers and the variety of experiences that are created” (Cooper and Hall, 2008, p. 5). It means that the marketing manager of Shangri-la hotel should be able to fully understand the close link between branding, brand positioning, the quality of products and services offered by the hotel company, and the overall experiences of the general public with regards to the products and services offered by the hotel company (Kim and Kim, 2004). Basically, one of the main reasons why the marketing manager of Shangri-la hotel should fully understand the close link between branding, brand positioning, the quality of products and services offered by the hotel company, and the overall experiences of the general public with regards to the products and services offered by the hotel company is because “the service and tourist experience does not exist independently of the direct interaction between the consumers and producers” (Cooper and Hall, 2008, pp. 5 – 6). To be able to fully understand the significance of branding and brand positioning in the contemporary international tourism, it is best to first provide the definition of branding and brand positioning. For instance, branding is “defined as a name, term, symbol, design or a combination of these factors to position the identity of a product or service in the minds of the consumers” (Prideaux, Moscardo and Laws, 2006, p. 73). On the other hand, Rao and Steckel (1998) defined brand positioning as “the relative perception of it within a signficant group of customers” [cited in Manhas, 2010, p. 18]. It means that brand positioning is all about positioning the brand within a specific product category (Sujan and Bettman, 1989). To be able to position a brand in the market, it is crucial on the part of the marketing manager to be specific on how the company would want to position the brand based on how the target consumers should perceive and differentiate the products and services offered by a hotel company in comparison to what other lodging businesses would offer the public consumers. Through brand positioning, the top management of Shangril-la hotel can easily create and establish brand awareness, brand familiarity, and brand loyalty among its target customers (ONeill and Mattila, 2010; ONeill and Xiao, 2006; Kim and Kim, 2004). Likewise, through brand positioning, the customers will be able to easily perceive the products and services offered by a hotel company based on the hotel classification (i.e. one-star, two-star, three-star, four-star hotels, etc.) (Sweeney and Soutar, 2001). The significance of branding and brand positioning in the success of a contemporary international tourism can be noted with the benefits associated with the use of effective branding strategies. Through the use of effective branding strategies such as brand positioning, Kumar (2007) explained that hotel companies will be able to create a “niche in the minds of the target segment” [cited in Manhas, 2010, p. 18]. Furthermore, through the use of brand positioning, Kotler and Keller (2006) mentioned that businesses such as a hotel company can easily create a strong positive brand image. By creating a strong positive brand image via brand positioning, hotel company such as in the case of Shangri-la hotel can easily develop a strong customer base and a higher brand equity (Manhas, 2010). Likewise, the process of creating a strong positive brand image via brand positioning can somehow increase not only the overall customer satisfaction but also the end-consumers’ loyalty to the brand (ONeill and Mattila, 2010; ONeill and Xiao, 2006). Branding and brand positioning has a significant impact over the interrelationship of Shangri-hotel and its target consumers. For instance, through the use of effective brand positioning and other branding strategies such as the use of market segmentation technique, the target consumers of Shangri-la hotel can benefit from the positive brand value or a positive brand association offered by the hotel company (ONeill and Mattila, 2010; Kim and Kim, 2004). Since Shangri-la hotel has initially positioned its hotel brand as a luxurious five-star hotel (Kuhm, 2011; Shangri-La, 2013b), its target customers can benefit from the prestigious atmosphere and services offered by this particular hotel company. In relation to the mutual benefits that Shangri-hotel and its target consumers are receiving from the hotel company’s brand positioning strategy, one can easily conclude that the use of effective branding strategy can help create the development of brand loyalty (O’Neill and Xiao, 2006). As a result of the mutual benefits that Shangri-hotel and its target consumers are receiving from the hotel company’s brand positioning strategy, the use of effective branding strategy somehow play a significant role in terms of increasing the market shares of Shangri-la hotel (ONeill and Mattila, 2004). 2.4 Discuss Potential Problems or Limitations which may Impede the Business Success of Shangri-la Hotel The branding strategy used by Shangri-la hotel has been quite effective in terms of positioning its brand in the market. First of all, it is a good decision on the part of this particular hotel company to use a separate hotel brand and location to cater the hotel and lodging needs of price-sensitive customers. By serving the hotel and lodging needs of the price-sensitive customers, the top management of Shangri-la hotel had the opportunity to capture a market share within the low-end hotel industry. As a result, the process of serving the hotel and lodging needs of the price-sensitive customers somehow increases the annual sales and revenue of this particular hotel company. One of the limitation or weaknesses of Shangri-la hotel’s branding strategy is that the company failed to maximize the benefits of using brand extension. Brand extension is defined as “an effort to extend a successful brand name to launch new or modified products or lines” (Yeshin, 2006, p. 123; Ambler and Styles, 1997). Through the use of brand extension strategy, the top management of Shangri-la hotel could have save a lot of money out of launching its affiliated hotels (i.e. Kerry Hotel, Traders Hotel, etc.) (Yeshin, 2006, p. 123). There are quite a lot of benefits associated with the use of brand extension strategies. Among these benefits include: (1) gaining immediate recognition about the new brand; (2) it is a lot cheaper on the part of Shangri-la hotel to promote the new product line with a well-established brand; (3) it will make it much easier on the part of Shangri-la hotel to create a new brand image for its new product line; (4) the public consumers are already aware of the brand repulation, value, trustworthy, and reliability; and (5) immediately increases the new hotel company’s customer base among others (Yeshin, 2006, p. 125). As compared to the use of hotel brands like the Kerry Hotel or the Traders Hotel, the brand name of Shangri-la hotel is already well-established and widely known by billions of people in different countries around the world. According to Lane and Jacobson (1995), travellers and business people who are looking for a hotel are most likely to patronize the brand they trust. For this reason, the use of brand extension technique could have made it a lot easier and cheaper on the part of its top management group to easily convince people to patronize the hotel services given by either Kerry Hotel or the Traders Hotel. For example, instead of using the brand name “Kerry Hotel” or “Traders Hotel”, the top management of Shangri-la hotel could have simply use a brand extension such as “Shangri-la Inn”, etc. Confusing the public consumers with the use of multi-branding strategy can lead to brand dilution (ONeill and Mattila, 2010). To avoid confusing the public consumers with the use of multi-branding strategy, several studies strongly recommend the need to limit the use of brand extension to a maximum of three (ONeill and Mattila, 2010; Jing, de Ruyter and Wetzels, 2002). Chapter 3 – Conclusion and Recommendations 3.1 Conclusion The success of Shangri-la hotel within the hotel and lodging industry is caused by the use of effecting branding strategy. By positioning the brand name Shangri-la hotel as one of the world’s luxurious five-star hotel, the company was able to take advantage of being able to charge its hotel products and services at a premium rate. Not all people can afford the premium price of Shangri-la hotel’s lodging services and other food-related products. To serve the hotel needs of price-sensitive customers, the top management of Shangri-la hotel decided to create several hotels under the brand name “Kerry Hotel” and “Traders Hotel”. Shangri-la’s marketing decision to serve the price-sensitive customers is good. However, the process of using a separate brand name made the company unable to maximize the business benefits associated with the use of brand extension strategy. 3.2 Recommendations To make it easier and cheaper to serve the hotel and lodging needs of the price-sensitive customers, this study highly recommends the need to use brand positioning and brand extension strategy. Through brand positioning, the top management of Shangri-la hotel would learn more about its target customers. In most cases, this can be done by conducting a marketing study that focus on analyzing the marketing mix of its new hotel line. By implementing the use of brand extension strategy, the top management of Shangri-la hotel can easily make its new target customers gain immediate recognition and brand awareness about the new hotel. References Ambler, T. and Styles, C. (1997). 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