Porters Five Forces Analysis for Hotel Industry

BARGAINING POWER Of SUPPLIERS The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. The two key suppliers to the Hotel industry are: Labour Real estate

Over all the suppliers in this market are defined as property owners, developers and real estate companies, interior design and furnishings companies, architects, management and training service providers, marketing companies, industry consultants and ICT manufacturers. [1]

1. Number of Suppliers

Moderate (3)

- Significant number of real estate companies for a given locality - Few reliable ICT providers to manage property - Small no. of quality training providers and skilled employees - Substitutes for property (real estate agents), designers, employees etc are available - Hotels have higher bargaining power and can easily switch between suppliers - Suppliers are highly unlikely to forward integrate into the hotel business - Hotels could backward

2. Availability of substitutes High (4)

3. Switching cost

High (4)

4. Suppliers's threat of forward integration 5. Industry's threat of

High (5) High (4)

Industry¶s threat of backward integration is pretty high since large hotel chains like ITC or IHCL would have no qualms expanding into the real estate business or developing employee training facilities in-house.Hence hotel companies have a much higher bargaining power .So does skilled labour and quality training . .backward integration integrate to own their own real estate company . Therefore in terms of substitute suppliers industry attractiveness is moderately high. These few powerful players are indispensible to the suppliers. Similarly the industry¶s contribution to both cost and quality is relatively high. Switching between real estate agents is not going to affect a particular Hotel company significantly.Supplier contribution to cost is low . Contribution to quality High (4) 7. Substitutability of the suppliers is also quite feasible and inexpensive. Industry's importance to High (4) supplier Overall.Property development and real estate companies add to the quality . Contribution to cost Moderate (3) 8.The few powerful players in the hotel industry are indispensable to their suppliers 6. However in terms of quality. Unlike the supplier¶s threat of forward integration.They could have their own training wing . the number of suppliers for the Hotel industry is quite large and each supplier is very small in size compared to the leading players in the industry. training centers for employees and ICT manufacturers who provide IT systems that for property management are relatively more difficult to replace.Most suppliers are much smaller companies compared to hotel companies .

RV etc is not popular in India .Losing one customer in not going to make a difference. Availability of substitutes: Medium (3) 3.Buyers are numerous and small in size.Corporate guest houses for the business traveller .Overall bargaining power of suppliers is low and industry¶s attractiveness in terms of supplier bargaining power is high (4).Informal accomadation with friends and family is a viable alternative . .Buyers are price sensitive except in the premium segment .Alternate means of accomodation such as camping. BARGAINING POWER OF BUYERS The bargaining power of buyers determines how much customers can impose pressure on margins and volumes.Multiple substitutes for a given hotel or brand is available . Buyer's threat of backward integration: High (5) .Switching costs are negligible .Leisure traveler . Switching cost: Low (2) 4. The end-users of the high-end hotel industry are: .Customers are will not construct a hotel or buy a place of residence for each 1. .Their bargaining power is low. Number of Buyers High (5) 2. .Business traveler .Customers who require space for conferences or other events .

Contribution to quality: Low (2) . spas etc. buyers are very affluent. except for the RV.Low chances or forward integration . hotels also provide additional facilities and services such as restaurants.In the mid-segment. Loss of a single customer has little impact on a hotel company and this drives down the buyers bargaining power. corporate guesthouses for business travelers and other informal means of accommodation with friends and family. are used my hotels to improve the quality of customer's stay . of very small profitability .Additional amenities. location rent (like close to airport) etc. training of staff. Industry's threat of forward integration: 6. Contribution to cost: Low (2) 8. . However the industry does have several substitutes such as camping and recreational vehicles for tourists. . there are numerous buyers. Therefore their contribution to quality as well as cost for the buyer is very high. Similarly buyers threat of backward integration is almost impossible and so is the industry¶s threat of forward integration. bargaining power of buyers and the industry attractiveness in this respect is moderate (3.place they visit 5.In the premium segment. Buyer's profitability: High (4) This industry has numerous customers who are relatively very small in size. gyms. Overall.Low buyers profitability .Additional facilities such as spas.5). Apart from the provision of accommodation.Brand image is very important in this industry and leads to extra cost . gyms etc. Switching cost for all these options is very low. and they have greater bargaining power compared to the mid-segment High (5) 7.

Labor. Economies of scale High (5) .Brand names and values are very important in attracting and retaining customers .BARRIERS TO ENTRY 1.Very important to operate a chain of hotels in multiple locations.The tourism industry receives government support .ICT is very is very important for property management etc.Highly differentiated .High economies of scale .Low switching costs .This reduces the dependence on tourism trends at any given location . Brand identity 4. Government protection Moderate (3) 9.Eg: Incredible India -High exit barriers -Specialized assets for the industry 2. infrastructure etc. Access to technology 7. Switching costs 5. . Access to raw material Moderate (3) High (4) 8. Companies use a their strong brand names to attract new customers and retain old ones. Capital requirement High (4) Low(2) High (4) 6. land and other essentials are easy to obtain . Exit Barriers Low (2) Brand names are very important in the hotel industry. Product differentiation High (4) 3. Besides. economies of scale . especially for the premium segment . decor. are very expensive .Branding is very important .Capital intensive .Staff.

Negligible for informal accommodation . tied down in fixed costs.Very high for informal accomodation .Large hotel chains have greater bargaining power Availability of close substitutes Medium (3) Switching costs Low (2) Substitute's price value Low (2) Profitability of the producers of substitutes High (4) . the industry is moderately attractive (3. Profitability of hotel chains is drastically higher than individual operations.Close substitutes such as informal accomodation with friends and family . The hospitality industry is strongly influenced by travel and tourism trends.Producers aren't as profitable .is also a huge factor in this industry. Being a capital intensive industry with a large amount of it. [1] Government protection for the tourism industry is very high and this in turn rubs off on the hotel industry making it thereby making the industry attractive in general.Corporate guesthouses for business travelers . Similarly high exit barriers due to specialized assets makes the industry less attractive.Moderate for other leisure accommodation . A new entrant cannot compete with established players in terms or quality and price if they cannot establish significant economies of scale.44) THREAT OF SUBSTITUTES A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. Hence in terms if Entry barriers.[1] . They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. makes entry even the more difficult.Alternate forms of leisure accomodation such as camping and RVs . This category also relates to complementary products.

corporate guesthouses for business travelers and other informal means of accommodation with friends and family. low (2. are known Excess capacity Large Low 2 ‡ ‡ Only 69% rooms are occupied Tourism industry is seeing strong growth . and hence. making their price values very high and the switching costs very low.75) COMPETITIVE POWER OF RIVALRY PLAYERS This force describes the intensity of competition between existing players (companies) in an industry. Factors Comment Attractiveness Remarks No. Compared to the hotel industry.The major substitutes for the hotel industry are camping and recreational vehicles for tourists. This makes the industry attractiveness in terms of substitutes. of competitors Small High 4 ‡ Small number of large operators Industry growth Moderate Moderate 3 ‡ ‡ Annual growth rate of 13% Mature industry Highly capital intensive Strong brand image commands a very high price premium Fixed cost Differentiation High High Low High 1 4 ‡ ‡ Switching cost Openness of terms of sale Low Open Low High 2 4 ‡ ‡ Low cost switching to similar brands Price break up into cost. High competitive pressure results in pressure on prices. these are much cheaper alternatives. on profitability for every single company in the industry. margins. taxes etc.

With moderate industry growth the overall attractiveness of industry in terms of competitors is low (2. But Hotels also face excess capacity since one 69% of their rooms are occupied on an average.75) Overall the industry is moderately (3. .28) attractive. They have very strong brand names and identities and high stake in this industry which requires very high fixed costs.Strategic stakes Large Low 2 ‡ Although large hotel companies have diversified they still have a majority stake in the hotel industry There are a few large hotel chains that dominate the industry in India.