ICA_Case 6_Note on The Global Hotel Industry

Q1: Evaluate the hotel industry using Porter’s Five Forces Model.

Competition Rivalry: High

• When competition rose → Shift to new markets(especially foreign markets)
• To increase competitive edge, hotels increased their room portfolio (eg: Hilton Hotels
Corporation & Accor Group increased their number of rooms)
• With decline in Global tourism, companies started paying more attention to target
markets. Personalized and Client-focused strategy was deployed.
• To withstand competition, hotels started personnel development programs to train their
staff. (Eg. Ritz Carlton)
• Increase in average room price increased Four Seasons’ efficiency
• Ability to maintain high occupancy was also a differentiating factor (Eg: Edge for Four
Seasons)
Threat of Substitutes: Low
• Considering the high market competition among several international hotel chains and
their continuous innovation in terms of service provision, there is very low threat of
substitutes.
• With the growing industry, as mentioned in the case, it becomes price sensitive when it
comes to comparison between various competitors. But in today’s time, with the
development of other establishments such as motels and AirBnBs it provides the
customers a more affordable range of options. But at the same time, they do not pose a
threat when it comes to all the high quality customised services as per the customer
demand being provided at the hotels.

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ICA_Case 6_Note on The Global Hotel Industry

Threat of New Entrants: Low

• Hotel industry is very capital intensive i.e. in both creating one or acquiring one.
• Hence, considering the international brands such as Hilton Hotels, Marriott, Taj etc. it
is very difficult for any new entrant to provide the quality of services matching the
already established brands.
• New entrants might get successful at a local level if they provide authentic local
services and provide competitive rates for services or small luxury setup like British
chain of Myhotel.
Bargaining power of Buyers: High
• Bulk purchasers of hotel rooms have higher bargaining power as they can significantly
influence the pricing of the hotels.
• Individual travellers are not that significant and daily business travellers are less price
sensitive and are likely to be loyal to some extent
• However new age tech savvy not so frequent customers compare prices look for a lot
of options online and switch easily
Bargaining power of suppliers: High
• The relationship between the hotel company and supplier was more of a strategic
alliance than service provider.
• There were three main categories of suppliers - architects, vendors of food and general
suppliers that affect the quality of hospitality of the hotel.
• Suppliers and hotel companies functioned as equal partners and operated in a
partnership for mutual gains and benefits
• With such a high level of influence of the suppliers on the hotel industry, suppliers have
a very high bargaining power.

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