Celebrity Hotel Venture in China - Case Study Example

OPPORTUNITY ANALYSIS REPORT Celebrity hotel venture in China 1. Introduction The Chinese tourism environment sustains a large infrastructure consisting of hotels and multiple shopping outlets, based on strong economic growth in the region. Since 2006, domestic tourism has increased 17.9 percent, totalling nearly 623 billion Chinese Yuan in revenues (travelchinaguide.com 2010). This growth in domestic tourism is fuelled by stronger disposable incomes from more educated citizens and more job opportunities. Chinese consumers are very interested in Western culture and actively want to know more about it and be exposed to Western values (Emmons 2002). At the same time, growth in the hotel sector has given the business a new opportunity for innovation in tourism: the establishment of celebrity hotels. The concept of this innovation is recruiting famous celebrities from the United Kingdom, Canada and the United States (or required celebrities domestically) to enhance the hotel stay and improve their demand for being affiliated with well-known film, radio or sports stars. Unlike the traditional hotel environment, the entire vacation package will be centred around a specific celebrity or group of famous individuals where they can share experiences, ask questions or simply become actively involved with the highlighted personality. 2. Description of the venture For the first year of operations, the venture will consist of a 3-star hotel facility that is affordable and inviting to the Chinese citizen with growing resources stemming from higher education and better white collar job opportunities in the country. In China, 3-star hotels have the following amenities: air conditioning, television and radio services, cosy furnishings, shopping outlets, massage parlours, child care facilities and karaoke halls (chinatrips.net 2005). Opening a facility like this will require recruitment of multiple levels of staff with specialised skills and training in order to provide excellence in customer service. The facility needs to be equipped with the amenities that a celebrity is accustomed to as they will be staying with the hotel during the duration of their recruited itinerary. “Innovation is driven by the ability to see connections, to spot opportunities, and to take advantage of them” (Bessant & Tidd 2007, 6). This hotel is innovative as it provides a new level of tourism that includes famous individuals which fits the demand levels of Chinese consumers as they become more progressive and with lifestyles similar to that of individuals in Western nations. In the mobile market, growth in acceptance of foreign and domestic celebrities is noticed in the high demand for celebrity screen savers that are providing high sales revenues to various mobile providers (Johnson 2005). Growth, also, in the film industry has given Chinese consumers higher exposure to famous individuals and they are growing accustomed to celebrity as part of their regular, modern lifestyles. The hotel will consist of a single facility that is operated by a staff of approximately 30-40 well-trained individuals with customer service skills, health and well-being, and foods service knowledge. The hotel will have only twenty rooms, therefore saving the costs of operations and also to personalise the celebrity experience without having to be dissatisfied with wait times or crowds. It will be marketed as an exclusive hotel experience that is not open to the public so that it is positioned with the idea of luxury, at an affordable price. Chinese consumers are very price sensitive (Suessmuth-Dyckerhoff, Hexter & St-Maurice 2008), therefore this must be taken into consideration when determining an appropriate pricing structure for the hotel bookings. The celebrity will make full use of the amenities in full view of interested clients who will be able to interact fully with the recruited personality during their entire stay from aspect of service to another. 3. Industry and market analysis The goal of the hotel is not to gain international tourists, but to capitalise on domestic travel growth. In China, women are becoming much more involved in consumer purchasing decisions and the concept of housewife is no longer relevant in this region (Wheller 2009). This is important to consider when analysing the potential market for the hotel as all marketing literature and communications should be geared toward this more progressive Chinese female consumer. At the same time, it is the young adult population that is most interested in celebrities and there is a “huge audience” in this market group for entertainment (Johnson 2005, 1). Further, because of their notorious price sensitivity, there is also much growth in loyalty programmes where consumers are basing their decision-making on club and membership card availability that provide discounts and other reward incentives (Chen, Zhang, Yuan & Huang 2008). Innovation, as described, is recognising a new opportunity and then acting upon it, therefore the hotel must develop a loyalty programme to ensure loyalty and return patronage to the facility. Sandoff (2005) identifies that human beings are essential to service success in tourism industries and are generally sensitive and emotional based upon the service environment and their experiences. This means the hotel must provide a rewarding environment where human resources is a priority focus, including training on customer needs and values as well as how to interact successfully with well-known personalities. China has high growth in skilled labourers with knowledge in service delivery, therefore staffing and operations are feasible in this market. The following table highlights the current availability of hotels in China, based on star ratings, showing there is ample service knowledge especially in running a 3-star facility: Source: ibisworld.com.cn 2010 4. Competitor analysis Research did not identify any hotels with a similar celebrity package theme, therefore it is innovative and unique, therefore having many opportunities to make a positive name for the brand if the business can market and position itself properly. Under Porter’s Industry Structure Diagram, there are then no threats of substitutes at the time of new market entry. This has many advantages for building a positive brand reputation and for advertising quality and exclusivity without much concern for competition. However, China’s economic growth has provided many different hotel competitors with 3-star ratings though none of these are currently offering celebrity-based packages and programmes. China has approximately 900 3-star hotels with the ability to provide competitive actions that are available to both the domestic and international traveller (chinatrips.net 2005). These hotels provide all of the same amenities as the celebrity hotel, except without the high quality and luxury attitude that will be provided by this brand. Since this is an entirely unique concept for hotel function, competition can be minimised through appropriate advertising that is geared toward the young adult target markets. Growth in Internet use by this market and their demand for e-commerce, which has grown over 1,000 percent in the last decade (researchinchina.com 2010), the online forum will be targeted with the highest volume of communications to persuade travellers to choose the celebrity hotel over generic 3-star competition. For the older markets, their more progressive travel needs that are atypical to the housewife sightseeing vacationer will be marketed with partnerships with different travel agencies with half-page advertisements in their travel brochures. The operational costs of marketing will be included in the service budget and will be necessary to give the celebrity hotel more visibility and product recognition with market groups most likely to book with the business. Moreover, there must be less emphasis on price in marketing because of Chinese citizens’ price sensitivity. Instead, quality and exclusiveness will be the focus of all advertising. The pricing structure is going to be considerably higher than most traditional 3-star competing hotels in order to recapture the costs of celebrity recruitment and operations. However, the level of service quality and interaction should offset any concerns about the higher price tag attached with booking packages. 5. SWOT analysis In order to make this business a success, it was necessary to examine the strengths and weaknesses of the hotel service model, as well as different opportunities and threats that might pose challenges to successful operations. Strengths Strong emphasis on human resources and employee relations to improve service dimensions and quality of the experience. Less costs associated with employee training due to high volume of skilled workers in China. Flexible management structure that is horizontal rather than vertical to provide better quality communications between staff and leadership. Weaknesses Little pre-existing experience with celebrity that must be learned over time to improve quality. Need to recruit expatriate leadership from Western countries to provide knowledge about celebrity lifestyles and values – High costs in recruitment at the leader level. Opportunities Ability to use photos and testimonials from well-known celebrities to enhance advertising presence. Improvement of reward programmes and loyalty schemes to build higher word-of-mouth from satisfied clients. Threats Competitors might adopt a similar celebrity model to erode sales revenues. Risk of increasing price sensitivity in target market groups. Possibility of higher employee turnover rates due to the many demands that will be placed on staff to handle celebrity issues. One of the most budget-sensitive issues is gaining leadership support from Western individuals that are more familiar with celebrity needs and lifestyle. However, the business analysis identifies that domestic management talent has little understanding of these needs since this is an entirely new business concept. Costs of recruitment might exceed those of industry norms for other 3-star hotel competition since these expatriate leaders will likely demand higher salaries for their job transfer to China. Adding marginal price increases to different service elements, such as restaurant and massage activities, should be transparent to consumers who are interested in staying with the celebrity hotel. 6. Conclusion There are enormous opportunities for profit success and growth in this concept based on the Chinese acceptance and demand for famous personalities. By keeping the hotel exclusive with an element of luxury, it should be able to compete with 4-star hotels and seize some of their market share. It will be excellence in advertising that will make this possible by giving the celebrity hotel more online presence and with direct partnerships with travel agencies across China. The quality of the service interaction directly with the famous personalities is what will set the celebrity hotel apart from any competitive threats without a similar business model. It is the strong emphasis on human resources and human relations that will ensure more celebrity bookings and keep employees satisfied so as to reduce costs associated with high volume training. All research conducted shows this to be a business with positive growth opportunities. 7. References Bessant, J. & Tidd, J. (2007) Innovation and Entrepreneurship, Chichester: John Wiley & Sons. Chen, J., Zhang, C., Yuan, Y. & Huang, L. (2008) “The nature of the emerging C2C electronic market in China: A case study from social network theory and CRM perspectives”. [online] http://www.ifipwg94.org.br/fullpapers/R0052-1.pdf (accessed September 1, 2010). Chinatrips.net. (2005) “China hotels” [online] http://www.chinatrips.net/ten_major_hotels.htm (accessed September 2, 2010). Emmons, N. (2002) “Hard work key to success at Ocean Park Hong Kong”, Amusement Business. 114, 46, p.8. Johnson, S.K. (2005) “American entertainment content to launch on Chinese cell phones. World’s largest market to receive massive influx of popular entertainment content”. [online] http://www.prweb.com/releases/2005/05/prweb235855.htm (accessed September 2, 2010). Researchinchina.com (2010) “China e-commerce profit model report 2006-2007”. [online] http://www.researchinchina.com/htmls/Report/2008/3468.html (accessed September 3, 2010). Sandoff, M. (2005) “Customization and standardization in hotels – a paradox or not?”, International Journal of Contemporary Hospitality Management. 17, 6/7, pp.529-536. Suessmuth-Dyckerhoff, C., Hexter, J. & St-Maurice, I. (2008) “Marketing to China’s new traditionalists”, Far Eastern Economic Review. [online] http://www.mckinsey.com/locations/greaterchina/mckonchina/pdfs/marketing_to_china.pdf (accessed September 3, 2010). Travelchinaguide.com. (2010) “China Tourism” [online] http://www.travelchinaguide.com/tourism/ (accessed September 2, 2010). Wheller, J. (2009) “Consumer trends – TNS perspective”. Asian Development Bank. [online] http://www.slideshare.net/joewheller/china-consumer-trends-tns-perspective-2009-oct (accessed September 2, 2010). Read More