International Marketing Challenge at Hilton Hotels and Recommended Solutions - Case Study Example

International marketing challenge at Hilton Hotels and recommended solutions Name Subject & Code Instructor Institution Table of Contents Table of Contents 2 Introduction 3 Background on Hilton Worldwide 4 SWOT Analysis 5 Strength: 5 Weaknesses: 6 Opportunities: 7 Threats: 7 Analysis of problems 8 Recommendations 10 International segmentation 10 Country-level aggregation 11 Conclusion 13 References 14 Introduction During the recent years, the concept of marketing has become less restricted to product promotions. Rather, it has transformed into a full-fledged process of creating a long-term brand image in an increasingly globalised world (Dumitrescu & Vinerean 2010). A simple definition of marketing is to formulate strategies while anticipating customers needs while aiming to keep and retain them (Chung 2007). The process of marketing, whether in the hospitality industry of elsewhere, entails a succession of activities associated with promoting products, devising marketing strategies, and providing good customer service (Pereira & Almeida 2014). On the other hand, international marketing refers to a set of processes associated with performing business activities directed at enhancing the flow of a business’ products and services to customers in multiple countries for profit (Ghauri and Cateora 2011). The international context makes up the significant complexities and diversities that multinational corporations like Hilton Worldwide have to contend with, as they have to address the needs of heterogeneous customers. The increased globalization of the business world complicated the process of international segmentation in marketing, particularly for Hilton Hotel as it is highly dependent on product differentiation and standardized marketing strategies to ensure profitability (Norhayati 2016; Fabrizio 2016; Hilton Worldwide 2014). Hilton has traditionally used an un-segmented strategy as it targets tourists and business travellers in its leisure hotels where uniform products and marketing activities are performed at the global level (Harmer 2010). Critically, Hilton has disregarded the fact that not all customers are equally receptive to its standardised product offering and that the sizes of the market segments differ among countries. This rationalizes the need for the hotel to adopt an international segmentation strategy. This paper critically investigates a major issue that Hilton Worldwide is currently facing before making recommendations for a way forward. Background on Hilton Worldwide Hilton Worldwide Holdings is currently considered as the largest hospitality company globally. The hotel chain was founded by founded by Conrad Hilton, as Hilton Hotels, in 1919 in Dallas, Texas. Over time, it acquired many hotel brands and expanded across the United States and globally (Cederholm 2014). It is currently a major luxury hotel with global chains. It is currently made up of nearly 3,500 hotels operating in nearly 80 countries Blackstone, a global conglomerate, later acquired the hotel chain in 2007. As of the last quarter of 2013, Blackstone owned 76% of the company’s shares. Hilton has experienced speedy growth -- averagely 40% growth in the number of rooms (Cederholm 2014). However, in the international market, the company faces significant competition in the highlight fragmented hotel and hospitality industry, because of many small and medium-sized companies, where none dominates or totally influences the industry. Revenues in the international market have as a result highly unpredictable. Despite this, Hilton is estimated as having the highest global market share in terms of room supply of more than 5%. While nearly 85% of its operations are centred in the United States market, it is currently intensifying its expansion in the international market, particularly in Africa and the Middle East, Asia Pacific region and where it has a small market share of 3% and 1% respectively (Cederholm 2014). While revenue from the global market makes up a small proportion of the company’s total revenue, it has in the recent past concentrated on expanding operations in a few strategic locations. As a result, since its acquisition by Blackstone in 2007, its room count in the international market expanded by 47% in 2013, up to 148,900 from 101,000 rooms (Cederholm 2014). Currently, the hotel is seeking to capitalise on the growing demand growth in emerging markets, such as China, India, South Africa, Russia, and Brazil. SWOT Analysis Strength: Hilton Hotels’ major strength lies in its location advantage. Each of the Hilton hotel chains is strategically located in easily accessible places in major cities. The places can easily be located by public transport as well as in proximity to popular tourist sites. This ensures constant customer flow throughout the year. The high quality of services the company offers is also part of the hotel’s key strength, as a differentiation strategy. This has created a reputable brand image globally. In fact, the brand is a global leader, as is only second to Marriott International. This also implies that the Hilton brand, as it is associated with quality, is popular globally. This ensures that the company does not have to invest hugely to market the brand (Hilton Worldwide 2015). Another major strength lies in its diversified portfolio. Hilton Hotels maintains a diversified product portfolio rooted in pricing and service offering, consisting of 9 divergent brands, such as Homewood Suites by Hilton, Conrad Hotels & Resorts, Hampton Inn & Suites, Embassy Suites Hotels, Waldorf-Astoria Collection, Hilton Garden Inn, Doubletree, and Hilton Grand Vacations. Hilton Hotels maintains a popular loyalty Programme. The Hilton HHonors programme is reputable in the hospitality industry. Since 2007, the company expanded its loyalty programme by introducing Experience Rewards, which offers its more than 17 million members highly personalised services. At any rate, by strongly focusing on its loyalty programme, the company has managed to retain consumers as well as to develop brand loyalty in the highly competitive hospitality industry (Hilton Worldwide 2015). Weaknesses: Hilton has mostly focused its marketing strategies in the domestic US market, which currently accounts for more than 85 percent of the hotel’s chains. The focus on the U.S. market has meant that much of the company’s advertising services are highly relevant to the United States yet out of touch with the reality in other foreign markets. Much of Hilton’s marketing appeal has depended on its standardized marketing strategies. For instance, since 2007, the company has depended on its "Travel Takes you Places" global campaign, which it launched in 2006. The company invested US$1 billion to reconnect with its global customers at emotionally, particularly its major segments like tourists and business travellers. The campaign played an instrumental role in boosting the company’s overall sales by enticing customers to buy Hilton's unique offering despite the location or price. Again, in 2007, it launched an advertising campaign dubbed "be hospitable" in line with the hotel’s core business strategy that is rooted in the philosophy of Conrad Hilton, the hotel’s founder, who emphasized hospitality of its staff. The campaign that cut across the company’s global operations was effective in ensuring that customers associated the hotel’s customer service with quality. However, while these standardized marketing strategies have resonated with the company’s traditional customers in the U.S. and U.K. domestic market, they have not worked effectively in the emerging markets. Clearly, the main challenge for Hilton’s standardized marketing strategies is the issue of resonating with the heterogeneous customers with diverse needs in different countries the hotel operates (Hilton Worldwide 2015). An additional challenge for the hotels is that it has apparent gaps in its brand portfolio. The company has no lifestyle brand, despite the fact that its DoubleTree campaign had managed to lead to the development of lifestyle independent hotels. It appears that Hilton is contented with its current line-up and is not considering to expansion of its brand portfolio further. Opportunities: Effective marketing strategies have a potential to promote Hilton Hotels’ dynamic growth in emerging markets, when targeted at emerging market segments like the developing urban middle class in the emerging markets like China, India, Russia, and South Africa the dynamic tourism industry in these countries. The hotel has a potential to cater to more customer segments through its diversified portfolio. The technological revolution has a potential to provide the hotel with diversified internet marketing means to reach various segments of the global market. It can persist on commitment to online marketing to enhance its marketing strategies and to reduce marketing costs (Hilton Worldwide 2015). Threats: The apparent decline in the business travel has meant less revenue. Hilton Hotels depends significantly on business travellers. This means that the negative implications of a decline in economic conditions in addition to constant pressures to cut prices, specifically in the United States, means the company faces a considerable threat to its performance in future. The apparent downturns in air travels globally also affect the company’s marketing strategies. The rise in the price of fuel has compelled airlines to reduce capacity, particularly in the US and European markets, forcing them to cut flights during the winter season. This has affected the hotel’s demand, as it mostly targets tourists and business travellers (Hilton Worldwide 2015). Analysis of problems International market segmentation has become a significant issue of concern in the development and positioning of products and services in the hospitality industry (Alhassan & Ahmed 2014). It assists multinational corporations to target prospective customers at the international segment level as well as to acquire a suitable positioning across international borders (Steenkamp & Hofstede 2002). While this should be the case, the main challenge for Hilton Hotel to effectively contend with the issue of heterogeneous customers with diverse needs in different countries the hotel operates. This is because Hilton uses a multi-domestic strategy in its international segmentation. The strategy has enabled it to approach each country it operates in a separate segment. According to Steenkamp and Hofstede (2002), companies that use multi-domestic strategy select countries of operation based on their local advantages. In using this strategy, Hilton has managed to tailor its national brands to the needs that groups of customer share in each particular country. However, Hilton has tended to focus its marketing strategies in the domestic US market. This means that much of its advertising are in touch with the United States yet out of touch with the reality in other foreign markets. Steenkamp and Hofstede (2002), suggests that when companies use this strategy, they should develop distinct pricing, distribution, and advertising strategies are created to target customers in each country of operation. At the same time, management of competition is restricted at national rather than international level (Maria et al. 2008). This implies that strategies for the competition are carried out on a country-to-country basis. The competition in other countries is not taken into consideration (Williams & Page n.d.). Additionally, in segmenting its markets, Hilton, while operating in line with a multi-domestic approach, has come up with standard segmentation techniques specifically designed for each domestic market it operates in. Again, in using this method, international segmentation has become, for the most part, a challenging issue for Hilton Hotel, particularly as it adopts a pan-regional and global strategy of international marketing, where it uses standardized marketing strategies for all its worldwide operations. Hilton’s marketing appeal has mainly relied on its standardized marketing strategies, such as "Travel Takes you Places" global campaigns. The standardized marketing strategies have not worked effectively in the emerging markets. A major challenge for Hilton’s standardized marketing strategies is that of resonating with the heterogeneous customers in the global market. Indeed, the hospitality industry in national borders has become less significant as an organizing principle for international activities (Fatawu & Ahmed 2014). Hence, it has rendered a multi-domestic strategy to be less appropriate. For Hilton Hotel, this trend has been accelerated by the global trends, such as an expanding world travel, increased tourism, globalization of tastes and lifestyles, greater application of global media as a form of advertising, and increased use of information and communication technology globally. Such forces continued to drive Hilton Hotel to extend its operations in international markets and to target international market segments. At it had globalised it strategy, Hilton has benefitted from declined cost of marketing and advertisement because of economies of scale. In spite of this, Hilton has not been able to serve the whole heterogeneous population of customers in its global operations through its standardized marketing strategies. In some cases, it has recognized that categories of customers in diverse countries tend to share some things in common compared to other customers in the same country (Luigi & Simona 2008). As a result, it has resorted to serving the needs of different segments transcending national borders. Recommendations International segmentation International segmentation can help the hotel to structure the heterogeneity existing among customers and countries and assists in identifying segments that the hotel can target more effectively and efficiently (Burkard 2003). Fundamentally, the objective of market segmentation is to split the market into singular categories of customers who are at variance in their response to an organisation’s marketing mix strategy. In this way, the organisation can adapt its marketing mix to each specific segment and, as a result, to make efforts to satisfy the needs of a target segment. The same goal applies to an international marketing scenario (Lynn, 2011). As Hassan & Craft (n.d.) suggest, when an international market is characterized by a significant level of heterogeneity, a multinational company should use tools that can help it identify basic patterns of similarity capable of providing a means for global integration at both operational and the strategic level. Steenkamp and Hofstede (2002) contend that segmentation is as a result particularly vital for multinational corporations that look to conceive and implement more efficient global marketing strategies. In Wedel and Kamakura’ (2000) view, international segmentation provides an answer to the standardization versus adaptation complexity as it provides a conceptual framework that can be used to offer marketing programs and products that can be standardized in many countries of operation as it helps target similar customer segments in diverse countries. As an application of the standardized marketing strategy in many countries of operation leads to economies of scale, it enables cutting back on average production costs, distribution, and advertising (Zou 1997). When customers in the targeted segments have similar needs, these strategies are bound to be extremely effective (Wind & Bell 2012). Therefore, international segmentation brings about both the advantages of standardization by lowering marketing and advertisement cost and the advantages of adaptation, such as serving the needs of customers. Country-level aggregation In international segmentation, the level of aggregation to be adopted is country-level aggregation. In this strategy, all information regarding customers within a country are aggregated, which are afterward used to form groupings of countries depending on the level of similarity of a specific segmentation. An alternative form is aggregating of consumers within any specific region (Bolton & Myers 2003). This will be specifically important when Hilton pursues a geographic differentiation strategy. For instance, the company may consider treating the geographic segments of emerging markets in East Asia and South Asia differently when it markets its services. Hassan and Craft (2004) explain that a justification for considering geographic segmentation, particularly when it is rooted in country aggregates, is that it facilitates the development of cost-effective segments. This comes about as a result of centralization of activities, like logistics, sales management, and production. Therefore, to address the inadequacies of the current approach that the company uses, it should adopt a two-stage international segmentation approach (Fuller et al. 2005). In the first stage, Hilton will need to undertake macro-segmentation. The process of macro-segmentation refers to a process of classifying the countries of operation into separate groups (Anon 2012). In the second stage, Hilton will need to do micro-segmentation. The process of micro-segmentation refers to putting customers for each country into different segments or clusters identified in the first step (Bijmolt et al. 2003). During the first macro-level stage, general segmentation of countries into different bases is performed. The bases may consist of the observable phenomenon, including their cultural or demographic similarities, or unobservable ones like values and lifestyles. This will allow managers at Hilton Hotel to screen out countries they could consider unacceptable, such as countries with low-buying power or high political risks, or where is a lack of fit with the corporate objectives (Helsen et al. n.d). On the other hand, the micro-level phase is like standard segmentation in a certain specific country although most customer segments would overlie across countries instead of being limited to one specific country. For Hilton Hotel, the criterion for this segmentation would be the same as the segmentation basis for standard market segmentation, such as demographic segmentation, values and lifestyles, income and social class. For instance, Hilton would need to target customer segments representing the middle and senior aged professionals who have high-income levels and belong to the high-income group. It will also target people with interest in pursuing luxury lifestyles who can be charges premium prices (O'neill & Mattila 2010). As regards Psychographic Segmentation, Hilton would need to extend beyond demographics to examine how individuals feel and behave. This will involve targeting individuals who are highly ambitious and seek for self-expression of their high status in the society by staying in a 5-star hotel. Hilton will also need to use benefits segmentation, by executing the segmentation based on the benefits customers can expect from its services. The perceived benefits Hilton can promote through advertisement include the sense of high status or achievement that customers can get by associating with the hotel (Petzer et al. 2008). The proposed approach would not demand coordination among countries of operation, as products and services would be generated based on local needs and adapted to satisfy local needs. Conclusion As established, a Hilton Worldwide faced a major challenge in serving the heterogeneous customers with highly diverse and ever-changing needs in different countries it operates. This is because Hilton’s marketing appeal has mainly relied on its standardized marketing strategies, such as "Travel Takes you Places" global campaigns. The standardized marketing strategies have not worked effectively in the emerging markets. Here again, the main challenge for Hilton’s standardized marketing strategies is the issue of resonating with the heterogeneous customers with diverse needs in different countries the hotel operates. Additionally, because Hilton uses a multi-domestic strategy in its international segmentation, it had tended to focus its marketing strategies in the domestic US market. This means that much of its advertising are in touch with the United States yet out of touch with the reality in other foreign markets. The hospitality industry in national borders has become less significant as an organizing principle for international activities. Hence, it has rendered a multi-domestic strategy to be less appropriate. As a result, Hilton has not been able to serve the whole heterogeneous population of customers in its global operations through its standardized marketing strategies. It is recommended that Hilton should consider using international segmentation, as it has a potential of helping the hotel to structure the heterogeneity existing among customers and countries and assists in identifying segments that the hotel can target more effectively and efficiently. This will enable the company to adapt its marketing mix to each specific segment and, as a result, to make efforts to satisfy the needs of a target segment. International segmentation is expected to bring about both the advantages of standardization by lowering marketing and advertisement cost and the advantages of adaptation, such as serving the needs of customers. 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