Overcoming Increased Competition in the UK Hotel Industry - Assignment Example

? Marketing approaches for overcoming increased competition in the UK hotel industry Table of contents Introduction 3 2. Hotel industry in UK 4 2.1 Characteristics and trends 4 2.2 Competition in the UK hotel industry 5 3. Marketing and hotel industry in UK 5 3.1 Marketing and external organization environment 5 3.2 How marketing can be used for overcoming competition problems in hotel industry of UK 9 3.3 Criteria of evaluation of marketing policies used for controlling competition in the hotel industry of UK 13 4.Conclusion 15 5. Recommendations 16 References 17 Appendix 19 1. Introduction The development of business activities in a particular market is depended on the existence of a balance among the market’s competitors. In this way, the equal participation of enterprises in the growth of market is secured. However, in practice, problems are likely to appear when having to apply the market principles related to competition. The challenges set can be many, mostly related to the lack of effective marketing policies for ensuring the equal promotion of firms within each one of the market’s industries. At this point, the identification of the characteristics of the marketing environment is considered as critical in order to understand the needs of industries and organizations and to develop valid assumptions regarding the measures required for protecting competition. In accordance with Dibb and Simkin (2001) the marketing environment can be characterized as ‘those external trading forces that directly or indirectly influence and organization’s acquisitions of inputs and generation of outputs’ (Dibb and Simkin 2001, p.199). The marketing approaches appropriate for managing the increasing competition in a specific sector, the hotel industry, of the UK market, are reviewed in this paper. Reference is made to the characteristics of the marketing environment, as described above, but also to the differentiation of competition, compared to the past, as mostly resulted by the high development of technology worldwide. The current status of the hotel industry in UK is also described aiming to show the ways in which marketing could help the industry’s firms to face competition, which seems to be continuously increased. It is made clear that marketing can highly support firms in the hotel industry against competition. However, it is necessary for the relevant plans to be designed and promoted using particular criteria, which are analytically presented below. 2. Hotel industry in UK 2.1 Characteristics and trends Hotel industry is one of the most important sectors of UK market. In accordance with Seaton and Bennett (1996) the strength of the industry can be related to its flexibility, meaning the availability of a wide range of rooms covering the needs of all visitors. It is also noted that ‘short – stay bookings’ (Seaton and Bennett 1996, p.315) which result to an important part of the industry’s profits, are carefully planned in hotels across UK ensuring that short-term visitors, which are most visitors in UK, are fully satisfied with the accommodation services provided across UK. In terms of marketing, reference should be made to the different approaches used by managers of hotels in UK in order to promote their enterprise. In this context, hotel groups are likely to emphasize on ‘brand through brochures’ (Seaton and Bennett 1996, p.315); on the other hand, ‘independent hoteliers tend to use price and market destination techniques’ (Seaton and Bennett 1996, p.315). The performance of the industry can be characterized as rather disappointing. In accordance with a recent report, in 2009, firms in the particular industry had ‘to freeze recruitment at a percentage of 25%’ (Prospects 2009); another 24% of firms in this industry have ‘cancelled their plans to employee new staff’ (Prospects 2009). The performance of the UK hotels from 2003 up to 2009 is presented in Graph 1, Appendix. Despite the market pressures, ‘106 new hotels (with a capacity of 11,800 rooms) opened in 2011’ (British Hospitality Association 2011), showing the efforts of the industry to resist to the global economic turbulences (see also Graph 2, Appendix). Heller (2011) notes that the hotel owners across UK are trying to beat competition by keeping the prices of their rooms low and investing on renovation. In the research developed by Heller (2011) it was revealed that a percentage of 41% of hotel owners expect their profits to be increased within 2011. 2.2 Competition in the UK hotel industry The UK hotel industry is characterized by a high differentiation among providers: hotel groups have a key share of the market but there are many other accommodation sites of low capacity, which are also classified as hotels. The competition in the specific industry is quite high, and it is further enhanced through the limitation of the sector’s profits. Entrepreneurs use different strategies in order to increase the competitiveness of their businesses, as explained in the previous section. On the other hand, Papatheodorou (2006) notes that a radical integration can be identified in the hotel and airline industries in UK, meaning that hotel groups are likely to cooperate with specific airline services providers. However, the specific type of cooperation has not led to the benefits expected and for this reason, vertical integration in the specific industries has been kept at low levels. 3. Marketing and hotel industry in UK 3.1 Marketing and external organization environment In order to understand the role of marketing in regard to a firm’s external environment, it would be necessary to explain the elements of external environment, as developed in markets worldwide. In accordance with Ferrell and Hartline (2010) external organizational environment can be divided into two major categories: the macro factors and the micro factors. Micro factors refer to the political, economic, social, technological, environmental and legal conditions in which a firm operates. These sectors are analyzed in the context of PESTEL analysis, a tool for identifying the key characteristics of external organizational environment, meaning its macro factors. At the next level, the micro factors of external organizational environment refer to sectors that are directly related to the organization, such as customers, competition and suppliers (Ferrell and Hartline 2010). Both macro and micro factors of external organizational environment can highly influence the organizational performance. It is for this reason that the role of these factors is carefully reviewed when the progress of organizational initiatives is evaluated. One of the key characteristics of a firm’s external environment is the following one: the interaction between the firm and its environment is continuous but not standardized. This means that these factors can differently affect organizations, even those operating within the same industry. For this reason, when checking a firm’s external environment it should be necessary to set in advance the criteria on which the relevant task will be based. Competition, the factor of the external organizational environment reviewed in this paper, can strongly influence the performance of firms in all industries. In fact, because of the increased power of this factor on organizational activities, specific legal frameworks have been developed globally for ensuring fairness in competition. Marketing can help to face problems resulted from increased competition in a particular industry. However, the marketing strategies chosen need to be carefully reviewed in advance as of their alignment with the existing legal framework on competition, in the context described above. Through a different point of view, the role of marketing in facing problems related to external organizational environment is limited. Indeed, in the study of Lamb, Hair and McDaniel reference is made to the following fact: external organizational environment is quite powerful and cannot be changed using marketing or other organizational strategies. Thus, the involvement of marketing in resolving critical organizational problems resulting from a firm’s external environment should be carefully planned, ensuring that the measures taken are feasible, in terms of their resources and the market conditions and that a time limit set for the achievement of the relevant targets. Since the external organizational environment cannot be changed, or else such initiative would take a long time to be completed, the benefits expected are not secured. Lamb, Hair and McDaniel (2011) note that despite external organizational environment cannot be changed, this fact cannot lead to the assumption that a firm is ‘helpless towards its external environment’ (Lamb, Hair and McDaniel 2011, p.105). It is explained that a firm can intervene in the external events, which are part of its external environment. In this way, the firm can ‘shape its external environment’ (Lamb, Hair and McDaniel 2011, p.105) creating environmental conditions which favor its activities. The development of initiatives for shaping external organizational environment is characterized as ‘environmental management’ (Lamb, Hair and McDaniel 2011, p.105). At the next level, Lamb, Hair and McDaniel (2011) note that in terms of marketing the external factors that are important for organizational performance can be categorized as follows: ‘social, demographic, economic, technological, political, legal and competitive’ (Lamb, Hair and McDaniel 2011, p.105), i.e. no differentiation is made among macro and micro external factors; rather, all the above factors are considered as being equal parts of external organizational environment. This fact increases the significance of competition as a factor influencing organizational performance. In any case, the introduction of marketing policies, which have been already tested in the industry involved, can help the industry’s firms to achieve a stable growth, even if changes in the firm’s external environment are not significant. In other words, the involvement of marketing in facing problems of a firm’s external environment would not be direct; rather, the marketing policies introduced should help the firm’s image in the market to be improved and the firm’s internal operations to be organized more effectively. This means that the resolution of critical problems in a firm’s external environment, which is quite difficult to be changed, is depended on the changes of the firm’s internal environment. In any case, the success of such initiatives would require the support of employees. The development of strong resistance in regard to changes in a firm’s internal environment would lead to the increase of a firm’s challenges in its external environment. The interaction of marketing with organizational environment is analyzed in the study of Blythe (2008). The above researcher that marketing environment can be equalized with the organizational environment; from this point of view, marketing environment is influenced by a series of factors, such political, technological, legal and so on. It is noted that the responses of managers to the challenges of the marketing environment, can have two different forms: reactive managers consider that marketing environment cannot be changed; for this reason, marketing plans should be appropriately customized to the characteristics of marketing environment (Blythe 2008). On the other hand, proactive managers aim to change the organizational environment, a target that is, by their view, feasible to be achieved (Blythe 2008). For this reason, it is the organizational environment that it is alternated in order to fit the marketing plans, and not vice versa. Klopper (2006) gives a different explanation of the structure of external environment. He notes that ‘market environment is the first level of the external environment, a fact allowing marketers to control its variables’ (Klopper 2006, p.39). In accordance with the above view, market environment, as critical for deciding on the marketing schemes used for confronting a series of market challenges, including competition, is not extensive and it can be easier monitored and evaluated. The power of a proactive manager to develop initiatives within such market environment would be significantly increased. 3.2 How marketing can be used for overcoming competition problems in hotel industry of UK Competition is a factor that highly affects the strategic decisions of organizations in all industries. In the hotel industry of UK, competition tends to be continuously increased, probably under the influence of the Olympic Games 2012 in London. Firms operating in the industry are trying to improve their position towards their rivals and increase their market share. In accordance with Lamb, Hair and McDaniel (2011) competition requires not just the understanding of the competitor’s current status but also the forecasting of competitors’ future performance. In this way, measures can be developed in advance for preventing the expansion of the competitors within a particular industry. On the other hand, Fleisher and Bensoussan (2007) note that the identification of the characteristics of competition as an element of the organizational environment has become more difficult because of the following fact: the range of competitive factors has been significantly increase, compared to the past. It is explained that, in the past, competition was based on ‘seven factors, known also as ‘marketing mix’ or ‘7Ps’, i.e. product, price, place, promotion, people, physical evidence and process’ (Fleisher and Bensoussan 2007, p.38). Today, competition has been related to a series of complex factors, such as ‘supply chain, information systems, corporate culture and human resources management’ (Fleisher and Bensoussan 2007, p.38). Complexity in regard to competition also refers to the modes of interaction between competitors and their stakeholders. In addition, complexity can refer to the radical increase of amount produced (in terms of products) or of the types of services provided (Fleisher and Bensoussan 2007). In this context, marketers who are interested in developing effective marketing plans have to review carefully all elements of the organizational environment, as indicatively described above, ensuring that any potential risks related to the changes attempted will be avoided. In any case, the increase of complexity of competition, as an element of the external environment can lead to the following increase of time and resources required for the identification of the marketing plans that could respond more effectively to the needs of the industry or the organization involved. In accordance with Sheth and Sisodia (2006) the theory that most effectively explains the role of competition in modern organizations is the ‘resource-advantage (R-A) theory of competition’ (Sheth and Sisodia 2006, p.73), which is based on the following idea: the elements of the environment can be characterized as resources, which are further divided into: ‘financial, physical, legal, human, organizational, informational and relational’ (Sheth and Sisodia 2006, p.73). The above theory highlights the fact that resources, as parts of the organizational environment, are ‘heterogeneous ’ (Sheth and Sisodia 2006, p.73). Emphasis is also given on the important of market segments but also on the ability of resources to offer to the organization a competitive advantage towards its rivals. The value of the resource – advantage theory of competition is also highlighted in the study of Bradley (2005). The above researcher notes that the particular theory helps to understand the importance of organizational resources in increasing the competitiveness of modern organizations. It is explained that in the context of the above theory, market segments and heterogeneous resources are of critical importance for facing competition. The incorporation of both tangible and intangible assets in the organizational resources is considered as another importance characteristic of the above theory compared to the previous theories on competition, which were based only on homogenous resources. Reference should be made, for example, to ‘the theory of effective competition which is based on the concept of differential advantage’ (Hunt 2002, p.140). The above theory promotes the idea that a firm should not decide to enter a particular industry unless it can ensure that it has a critical advantage, which will allow to the firm to survive within the particular industry (Hunt 2002). The theory of differential advantage is less complete, compared to the resource-advantage theory, since the latter offers the chance to firms to enter the market even if they are not fully prepared to face competition; the acquisition or the development of the firm’s resources during its operation in a particular industry is expected to help the firm to increase its competitiveness and secure its position in its industry (Boone and Kurtz, 2011). In accordance with Ferrell and Hartline (2010) the identification of marketing strategies that can help a firm or an industry to overcome its competition challenges is based on the following fact: managers in the specific organization, or organizations, need to be capable of understanding the status of competition within their industry. This means, that facing competition requires the identification, primary, of the competitors and their strengths/ weaknesses. More specifically, it is noted that before developing any key measures for facing competition, managers should set a series of questions, like the following ones: ‘a) who are our competitors, b) which are their key strengths and weaknesses, c) which are their capabilities and d) which would be the response of our external environment in the case that our marketing strategies would be changed’ (Ferrell and Hartline 2010, p.102). In other words, the identification of marketing strategies that should be used for facing competition would not be the primary initiative of managers trying to strengthen the position of their firm towards its rivals. Rather the identification of the characteristics and the power of the firm’s competitors should be set as a priority; then, the strategies that would be used for facing competitors could be chosen. The direct-to-consumer marketing is suggested as a marketing strategy that can help a firm to improve its position towards its competitors; it is noted that the specific strategy has been successfully used in USA (2007) for increasing the awareness of consumers on pharmaceutical products (Ferrell and Hartline 2010, p.101). The introduction of marketing plans for facing competition in the hotel industry of UK requires that all aspects of competition, as developed in the particular industry, are identified and appropriately evaluated. The above view is highlighted in the study of Thomas (1995) where reference is made to SWOT analysis, as a tool for evaluating competition, along other factors of the organizational environment, before developing critical organizational decisions. It is also explained that the terms for evaluating competition in the global market have been changed, mostly because of the following fact: the power of markets worldwide has been differentiated: markets which were considered as rather weak in the past have become quite powerful, such as the Chinese market or the Indian market (Thomas 1995). On the other hand, markets that have been, traditionally, quite powerful have lost a significant part of their power, a fact resulted by the inequalities in debts and cash flow in countries internationally. From this point of view, the criteria for evaluating the level of competition in industries around the world should be differentiated taking into consideration the conditions of the local economy and the challenges that the country involved has to face as a member of the international community. 3.3 Criteria of evaluation of marketing policies used for controlling competition in the hotel industry of UK The marketing strategies used for facing competition in the hotel industry of UK should be closely monitored, as of their effects on the industry’s performance, meaning both the short and long term effects. Indeed, the key aim of marketing is not the achievement of short-term benefits, but rather the development of a plan that can secure a long-term growth, even if this target is often difficult to be achieved (Weitz and Wensley 2002). The UK hotel industry is characterized by strong competition, as already explained earlier. The effectiveness of the marketing schemes used by firms operating in the industry in order to improve their performance would be evaluated using the following criteria: a) the profits of the firm’s industries in the quarter that follows the introduction of the new marketing policies, b) the level of reservations made; reference is made both to short-term and long-term reservations, for example the reservations that a hotel managed to arrange for next summer, c) the views of customers are included in feedback-documents; these are questionnaires completed by customers after leaving a particular hotel These documents are critical in order to understand the level at which a hotel’s marketing plan managed to persuade customers in regard to the quality of services provided; in particular these documents can be used as a verification that the claims of a hotel’s marketers in regard to the particular hotel are valid and respond to the quality of services currently provided by the specific organization; d) the views of consumers on a particular hotel, or the UK hotel industry in general, as included in on-line forums and discussion boards, meaning especially the networking sites and other Internet tools that provide such type of communication (Chaffey 2009), and e) the level of trust of stakeholders; for instance, the increased level of credit towards the firms of the industry shows that trust of financial institutions and suppliers in regard to the particular industry is high, a fact that can help the industry’s firm to further strengthen their position in the local and the global market (Fyall and Garrod 2005). The increased trust of stakeholders towards the organizations operating in the particular industry indicates, among other facts, that the marketing strategies of the industry’s firms have been quite successful positively influencing customers, suppliers, creditors and other stakeholders. Finally, the level of the industry’s promotion in critical events, for instance in major athletic events, like the Olympics 2012 in London, indicates the level at which appropriate marketing schemes have been employed for highlighting the industry’s key advantages. The participation of the industry’s firm in the funding of important social initiatives, such as the fundraising for supporting certain members of the community (Lancaster and Massingham 2010), would also prove the effectiveness of marketing as a tool for promoting the industry as a critical part of the UK market. 4.Conclusion In accordance with the issues discussed above, the control of competition as a factor influencing external organizational environment in the hotel industry of the UK is a challenging task. The specific industry seems to change continuously, being influenced by both internal and external factors, meaning the problems of the firms operating in the industry but also the turbulences in the global economy. At a first level, the industry can be characterized as quite powerful, in terms of its performance; however, the continuous increase of competition within the industry has caused severe problems to the industry’s firms. More specifically, certain firms of the industry have focused on the continuous improvement of their facilities and infrastructure; the other firms of the industry which do not have the necessary funds for developing such task are threatened, having to face a continuously increasing competition. Marketing could help the firms in the hotel industry of UK to increase their competitiveness, even without investing high amounts of funds. On the other hand, the review of existing literature on marketing and its potential involvement in the limitation of problems related to external organizational environment revealed the following facts: marketing can help firms to avoid major problems in their external organizational environment but its contribution in the achievement of the above target is not high, in the terms that a firm’s external environment cannot be changed, as explained above. However, marketing can influence external environment, even indirectly, leading to the change of existing balance among the industry’s firms. This means that even firms that do not have the funds available in their competitors can improve their position in their industry by adopting innovative and well-planned marketing plans the benefits of which can be made clear both in the short and the long term. At this point, the following issue needs to be highlighted: the success of particular marketing schemes in the UK hotel industry is not depended only on the external environment, but, mainly on the conditions in the internal organizational environment. Also, the capability of managers involved in the relevant project to understand all aspects of organization’s environment is critical for the successful implementation of marketing policies in organizations operating in the particular industry. In addition, the establishment of a series of measures, as indicatively described below, could be used for limiting the risks in regard to the use of marketing as a tool for facing important problems in the external organizational environment. 5. Recommendations The establishment of a series of marketing schemes for controlling competition in the hotel industry could help the industry’s firm to achieve a competitive advantage towards their rivals. However, the success of the relevant plans would be depended on a series of factor, including the internal and external environment, the level of participation of the industry’s stakeholders, especially employees, and the availability of necessary resources. There are certain measures that could increase the chances for success of the marketing policies introduced in the hotel industry of UK: a) the marketing schemes used in other industries of the UK market would be reviewed, at the level that assumptions can be made regarding the potentials of marketing to increase the power of firms towards their competitors within the UK market, b) the requirements of the marketing policies chosen should be carefully reviewed; the costs involved should be in balance with the benefits expected, as possible, c) the risks of the marketing policies introduced in the hotel industry would be reviewed; these risks are not involved only with the cost of the relevant projects but also with the resources engaged in the realization of the particular policies. For example, if a critical part of a hotel needs to be kept closed, for developing marketing-related activities, for a significant period of time, this fact could negatively affect the hotel’s profits, especially if referring to a high-peak period; this event could also affect the long term profits of the organization, referring to the regular customers of the hotel who had to cancel their reservation because of the event; d) the time required for the achievement of the targets set should be clearly set in advance; any failure to meet the deadlines could lead to losses, as explained above, eliminating, in practice, the benefits of the marketing policies which were developed for supporting the industry’s performance. References Blythe, J. 2008. Essentials of Marketing. Essex: Pearson Education. Boone, L., and Kurtz, D. 2011. Contemporary Marketing. Belmont: Cengage Learning. Bradley, F. 2005. International marketing strategy. Essex: Pearson Education. British Hospitality Association. 2011. New Hotel construction continues into the year. Available at: http://www.bha.org.uk/ [Accessed at 12 December 2011] Chaffey, D. 2009. Internet marketing: strategy, implementation and practice. Essex: Pearson Education. Dibb, S., and Simkin, L. 2001. The marketing casebook: cases and concepts. Belmont: Cengage Learning. Ferrell, O., and Hartline, M. 2010. Marketing Strategy. Belmont: Cengage Learning. Fleisher, C., and Bensoussan, B. 2007. Business and competitive analysis: effective application of new and classic methods. London: FT Press. Heller, L. 2011. UK hotels reveal trends to beat competition in 2011. Big Hospitality. Available at http://www.bighospitality.co.uk/Trends-Reports/UK-hotels-reveal-trends-to-beat-competition-in-2011 [Accessed at 12 December 2011] Hunt, S. 2002. Foundations of marketing theory: toward a general theory of marketing. New York: M.E. Sharpe. Klopper, H. 2006. Marketing: fresh perspectives. Cape Town: Pearson South Africa. Lamb, C., Hair, J., and McDaniel, C. 2011. Essentials of Marketing. Belmont: Cengage Learning. Lancaster, G., and Massingham, L. 2010. Essentials of Marketing Management. Oxon: Taylor & Francis. Papatheodorou, A. 2006. Corporate rivalry and market power: competition issues in the tourism industry. London: I.B.Tauris. PriceWaterHouseCoopers. 2008. UK hotels: Slowdown not Meltdown. Available at http://www.ukmediacentre.pwc.com/imagelibrary/downloadMedia.ashx?MediaDetailsID=1108 [Accessed at 12 December 2011] Prospects. 2009. Hospitality. Future Trends. Available at http://www.prospects.ac.uk/industries_hospitality_future_trends.htm [Accessed at 12 December 2011] PWC. 2011. UK Hotels Forecast 2011 and 2012. Available at http://www.pwc.co.uk/hospitalitydirections [Accessed at 12 December 2011] Seaton, A., and Bennett, M. 1996. The marketing of tourism products: concepts, issues and cases. Belmont: Cengage Learning. Sheth, J., and Sisodia, R. 2006. Does Marketing Need Reform?: Fresh Perspectives on the Future. New York: M.E. Sharpe. ?homas, M. 1995. Gower handbook of marketing. Aldershot: Gower Publishing, Ltd. Weitz, B., and Wensley, R. 2002. Handbook of Marketing. London: SAGE. Appendix Figure 1 – Performance of UK hotels from 2003-2009 (Source: PriceWaterHouseCoopers. 2008) Graph 2 – Certain new, luxury hotels in London (Source: PWC 2011) Read More