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Competitive Strategy for the Hospitality Industry.
By Robert A. Rauch, CHA
Thursday, 12th February 2015
 

Developing a business strategy is admirable but executing the strategy is the key: 

Based on this, I thought I would try to simplify the essence of strategy for today’s hospitality leaders. One simple strategy is to differentiate our operations via intangible assets.

As an example, customer relationship management or new and innovative products and services can provide differentiation from our competitors.

One strategy that has been employed frequently is the “balanced scorecard.” Simply put, this system allows a company to measure budgets and financial measurement devices as well as non-tangible assets such as customer relationships and brand awareness.

According to the book The Strategy Focused Organization by Robert S. Kaplan and David P. Norton, “an exclusive reliance on financial measures in a management system causes businesses to do the wrong things.”

Kaplan and Norton believe there are four basic strategic themes:

  • Build the franchise " in the case of hoteliers, this applies to the individual franchisee as well as the brand managers " optimize that brand name!
  • Increase customer value " today’s savvy customers may pay to stay in a luxury hotel, but they will require value for that dollar.
  • Achieve operational excellence " satisfactory service is not good enough with today’s fickle consumer, great service is now required. Provide “unanticipated” or “wow” service.
  • Be a good corporate citizen " I have found that this comes back in the way of increased revenues, better employees and hence more repeat business.

The authors describe five steps necessary to create a strategy-focused corporation:

  1. Translate the strategy to operational terms
  2. Align the organization to the strategy
  3. Make strategy everyone’s job
  4. Make strategy a continual process
  5. Mobilize change through executive leadership

These are not difficult concepts, however, they require the hospitality industry leader to come across to all employees and explain the strategy. In my experience, today’s hoteliers lack organizational strategy which can lead to severe problems down the road. In this next section, we’ll discuss positioning, a cornerstone to any marketing strategy.

Positioning Strategy

According to Philip Kottler’s book Marketing Management, not all brand differences are meaningful or worthwhile. Kottler uses the Westin Singapore’s ad that it is “the world’s tallest hotel.” Is this relevant to most guests?

After the September 11, 2001 attacks, height could actually have been a disadvantage. How does one determine what positioning strategy to utilize? Kottler reviews seven areas (I included examples from hospitality for each area):

1/ Attribute positioning

  • Size, number of years in business, etc.

2/ Benefit positioning

  • Fantasy experience at various theme parks

3/ Use positioning

  • An airport markets a 15 minute massage for a traveler on the go

4/ User positioning

  • Magic Mountain as a theme park for “thrill-seekers”

5/ Competitor positioning

  • We’re better than a regular hotel because we have all suites and a free breakfast

6/ Product category positioning

  • Use of the word resort hotel can create an image of a full-service lodging environment

7/ Quality or price positioning

  • Best value claim

In the case of any company in our industry, it is paramount to create a grid of qualities comparing our businesses with the competition. For hotels, I like to rank location, brand, restaurant, lounge, meeting space, amenity package, ambience, cleanliness, design, website, use of social media, etc.

I like to apply certain “weighting” of the results such as a higher weight or importance for location and brand than for the cocktail lounge or restaurant. When the differences in attributes are apparent, then one may select certain differences to promote via communications strategy. Naturally, these attributes must be evaluated as the product goes through its natural life cycle.

Each product type has a different “ramp-up” period. A limited-service hotel will hit full stride faster than a full-service hotel in like or similar circumstances. Different circumstances, such as a recession or a weak current market due to over supply will have impact as will the appearance of too many products under the same brand or marketing umbrella.

Each stage in the product life cycle " introduction, growth, maturity and decline " has a different strategy requirement according to Kottler.

The following grid explains his strategy for product, price, distribution, advertising and sales promotion:

What are the dynamics of hospitality industry competition? Looking at the airlines, it is obvious that meal quality does not appear to be on the “radar screen” (pardon the pun) of corporate decisions.

However, the hotel industry has gone through a major change whereby suite hotels that include breakfast and a light dinner have a competitive advantage. What other strategies can we employ? Team up with golf courses, rental car firms, spas, tennis clubs, etc.

Operational enhancement initiatives and cost containment strategies are critical. These efforts may include short-term measures such as staff layoffs or schedule reductions. Long-term solutions such as revenue management, inventory control, purchasing systems and improved service standards are always helpful in profit improvement initiatives.

What’s the bottom line on strategy? If executed well, strategy can provide for strong market share in the hospitality industry. It’s required in today’s competitive environment.

Many hospitality businesses already have the foundation for a sound strategy. All of us can improve by executing a well thought-out plan.

Robert Rauch, CHA, is a nationally recognized hotelier and President of R. A. Rauch & Associates, Inc., a leading hospitality management and consulting firm. Rauch has over 35 years of hospitality-related management experience in all facets of the industry. Widely recognized as the \`hotel guru,\` Mr. Rauch maintains a blog where he expounds upon insights and trends in the hospitality industry at www.hotelguru.com . Along with the blog, he also publishes Hospitality Innsights, an electronic newsletter that is distributed monthly.

Mr. Rauch held nearly every position in the hotel business including General Manager of full-service Four Diamond hotels for Hilton and Embassy Suites. His education includes a bachelor’s degree in Hotel Administration from Western International University and a master’s degree in Tourism Administration from Arizona State University. He is a Certified Hotel Administrator and has served as chairman of numerous tourism organizations nationally and in the western U.S. He has been directly involved in developing several leading brand hotels, some of which the firm still owns and manages. R. A. Rauch & Associates, Inc. currently operates hotels in California, Arizona and Colorado with several under development.

www.rarhospitality.com 

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