Recession in the Hotel Industry

Recession in the Hotel effortA commercialize proposeing surround comprises of macro and micro elements. Marketers should consider just about(prenominal) internal and external environments to understand the whole of the commercialize in which they propensity to sell their products or dos (Masterson and Pickton, 2004).Norm preciselyy, in a time of recessional, nodes do non spend too a lot bullion on everywheresea vacations (Mintel, 2009), beca put on they see them as a luxuries. One could expect, in that locationfore, customers would like take victimize city breaks or a internal holiday. Businessman in any case whitethorn conduct cypher priced modification for their business trips.More everyplace, consumer-spending position has diminished, as they admit had to draw-in their purse strings, although levels of personal expendable income drop been maintained to a percentage point because of historically gloomy(a) interest rates. Mintel(2010) estimates that personal disposable income stagnated amidst 2004 and 2009. The hotel assiduity has been nonably change by the recession.Environment analysis using some(prenominal)(prenominal) models as, PRESTCOM, Porters Five Forces, SWOT Analysis and Segmentation gouge be utilise to examine the effect of the recession upon the hotel labor and for this reason models bequeath be used in this report.2.1.1 POLITICALUp to 1978, the hotel industry erupted rapidly tho later that date, the providence increasingly became marketplace-oriented. This improvement created a much better environment for the industry in which to develop (Hornsby, 1990). consort to Kotler (1996), the semipolitical environment strongly affects the cordial reception industry. The political environment is comprised of laws, government agencies and compact aggroups that define and limit the activities of various organisations and individuals in society.Further much, the EU has proposed plans to sponsor holidays for individuals who do not wear enough m superstary to trip up. fit in to Travel weekly (2010), these plans assist many customers with financial lines to film a holiday. For example, young persons elderly from 18 to 25, disabled total deal and pensioners, etc. The idea to help these throng travel was put for contendd by Antonio Tajani, the EU Commissioner for Enterprise and Industry, who say that a holiday is a valet right.Therefore, this proposal could actually bring on use of goods and serve wells and offer individuals to a greater extent opportunities to realize holidays. Perhaps this great power be good wises for the hotel industry during the recession.2.1.2 REGULATORYAn environment that is regulated protects companies from all(prenominal) other(a). While closely businesses praise the virtues of emulation, they try to counteract it when it affects them. Another focusing is try to restrict a caller-outs unfair dealings and illegal transactions. Furthermore, convention also aims to protect consumers from unfair business practices. If unregulated, firms might interpret unsafe, pocket-size quality products, poor services, be untruthful in their advertising or deceive through packaging and pricing.VisitBritain, the body, which aims to call down UK tourism, has launched a 6.5 million advertising campaign outside the UK to promote the affordability of Britain as a destination. However, it calls for this investment to be matched by the UK government have so far been unsuccessful (Mintel, 2009).Moreover, hotel and eating place taxes have get down a popular source of revenue for topical anesthetic anaesthetic government. Hotel taxes atomic play 18 supposed to be used to backup man tourism however, how this money is spent has been subject to liberal interpretation. Therefore, hotel managers should make sure that these taxes, which be designated to promote tourism, atomic bend 18 used properly and effectively.2.1.3 ECONOMIC FACTORSO ne occurrenceor that complicates the incident is the weakness of the pound a dupest the Euro and Dollar. Sterling has lost value rapidly over the last year. In July 2008, one pound would still buy $2 still by November 2008, it was worth only $1.48, the lowest level for 6 years. Similarly, at one point the pound was al most(prenominal) comprise in value to one Euro. While this is bad spic-and-spans for concourse buying goods or travelling outside the UK, it also means that UK goods and services sprain more winningly priced from the point of view of Euro Zone or regular army travellers (OGrady, 2008)The economicalal environment is comprised of the following factorsWage inflation During a recession wages might amplification. It is depends upon decisions to cut or increase wages that be made by employers. Therefore, hotel managers should pay more aid to income distri howeverion as well as average earnings.Price inflation In a recession, if the economy redresss then commodi ty prices ordain rise. This factor will influence the decisions customers make whether to travel or not.Gross internal help product per capita (GDP) The most important economic factors ar customers purchasing powers and spending patterns. GDP can indicate the magnitude of these factors, because total purchasing power depends on watercourse incomes, prices, savings and credit. Hotel managers, therefore, must be awargon of study trends in income and changing consumer-spending patterns.Exchange rates The UK economy has weakened, the value of the pound against the Euro has decreased and therefore, customers might choose domestic tourism for their holidays.Even during a recession, customers still holiday but prefer to take short breaks to reward themselves. Mintels Annual analyze of Spending Priorities in 2009 showed that holidays remain the targeting concern for consumers, despite the recession.Furthermore, all other leading consumer priorities showed little change compargond t o pre-recessionary times.Specifically, hotels in the UK appear relatively cheap since the fall in the value of sterling and hence more harming to inclimax travellers and holidaymakers. At the same time, this means it is less glossy for UK holidaymakers to travel to the Euro Zone or USA and more attractive to inhabit at home.2.1.4 SOCIAL FACTORSThe age visibility of the UK world is increasing. Furthermore, Mintels (2009) exclusive consumer seek reveals that older adult usage of cipher hotels is slightly below the bailiwick average however, it is somewhat more than for young people.However, even during the recession, some people remain unaffected and they still stay in luxury hotels, much(prenominal)(prenominal) as, the Ritz or the Hilton. They do not cargon about the cost because they lead a luxurious lifestyle. Although these people have not changed their pattern of spending, however, most customers will be affected by the recession and they might prefer to choose ciph er and not mid-range hotels when they travel.2.1.5 TECHNOLOGICAL FACTORSTechnology has a significantly affected the hotel industry in many ways, for example, Travelodge launched a free iPhone cover that allows users to locate their five neargonst Travelodges by GPS. They can see the availability, prices and disc entourage. Moreover, customers can reserve their accommodation or check-in by via internet. In addition, they can obtain in seduceation via new plat bring ins, such as, Facebook or Twitter. These and other technological advances help companies to set out more effective in the marketplace, however, internet penetration levels and demographic breakdowns might make operators use of this distribution blood line ever more viable. If firms adopt useful technological advances, they will gain a emulous edge.2.1.6 COMPETITION FACTORSSince hotels are a service industry, human resources have become an indispensable element of the market. If the turnover ratio of employees is low , the sensory(a) of employees will be strong. As a result, the company will have the advantage of competition.The main substitutes who could replace the customers decision in the UK hotel market are those from other countries. Foreign customers may plan to visit the UK from places where they live, such as, France and Spain. However, untaught House or Bed Breakfast hotels and so on which could also threaten substitutes in the UK domestic hotel industry.Hotels find themselves with different problems compared to their entrants. These problems include a exalted barrier of exit and entry costs with the investment. Thus, the oversized jacket crown investment required to build a hotel represents a sunk cost.Hotels may not meet all their debt payments, taxes and other fixed costs but they can produce enough profit to cover their costs. Even they are perhaps prepared to operate at a loss sort of than close their doors completely. However, when there is an over supplement of hotels but the total number of rooms remains the same, the result will be a price war within the industry.2.1.7 ORGANISATIONAL FACTORSA Hotel manger should decide how to engage with the process of student lodging focal point using his/her capability and skills and be able to adjust and develop it to adapt to customer necessarily and preferences. For example, if a hotel could provide a advanced quality service or promote a particular customer-desirable exertion then client return ratio will be increased. However, the problem that calculates the hotel industry is recruiting qualified staff that can satisfy the standard of service required by customers. Most service employees lack the knowledge and skills to provide a service that meets international standards. This may be because employees have not received adequate training in the skills that are required.For instance, Whitbread has decided to circularise 1,700 Premier Inn rooms across the UK during 2009 and 2010. Whitbread is planning to increase their market share of the UK hotel industry. It will begin to achieve this by building up its market position and providing customers with cost-effective packages (Mintel, 2009). It also plans to develop their booking platform, resurrect their sales and put into place the next phase of its revenue management remains.2.1.8 MARKET FACTORSIn the market arena, the most important thing is the customer firms should affirm the clients they call for to reach and their market segmentation.At the end of 2007, the UK hospitality as well as the hotel industry worldunsubtle had been hardly affected by the recession and many commentators predicted that this would last until at least 2010. In the course of a few months, by early 2009, consumers had radically changed their attitudes and consumption. The optimism that had been expressed earlier could not be sustained (Mintel, 2009).The number of business travellers choosing budget hotels for their commercial trips is increasing. Mo reover, the sense datumt of this trend corresponds to the beginning of the recession in 2008. umpteen companies have reduced their budget for commercial travel in receipt to recessionary conditions therefore, commercial travellers now use budget hotels quite an than mid-market ones. jet-propelled plane holidays and the effect of frequent air travel upon the environment are be raised as concerns (Bainbridge, 2009). Customers who want to reduce the effects of their pollution upon the environment choose to holiday within the UK (Bainbridge, 2009). However, these concerns are not entirely upright for the UK hospitality industry because overseas tourists share these beliefs, so this could reduce inbound tourism into the UK.Saving the environment, however, is currently a relatively low antecedency for most consumers but studies indicate that green issues will gradually become more important in the future (Key Note, 2009).A previous lease has claimed that more customers prefer to h oliday in the UK because of green considerations and as an alternate to flying abroad. Therefore, in 2008, travellers might choose the ferry to holiday as a greener alternative (Key Note, 2009). figure hotels have made important investments in order to close the gap with mid-market leaf blades. The three top most change brands in term of advertising awareness are Premier Inn, Travelodge and pass Inn Express.2.2 SWOT analysis2.2.1 StrengthsThe UK, like many other countries, after rapid economic training with an open policy has now become one of the worlds most attractive places for travellers. On a positive note, the hotel market in the UK is a strong and sophisticated one that offers a wide range of wefts, which could meet different types of customer needs. This includes internationally famous brands as well as smaller individual enterprises. Moreover, there is a decently promotion and support system in place for tourists through organisations, such as, VisitBritain.Moreover , the range of hotels offering different prices could meet individual consumer needs. Luxury, middle range, budget and even the democracy house hotel could satisfy every consumer. In addition, the growth of the budget hotel sector opened up a wider range of clients to the hotel market.In the past ten years, cod to the rise in the level of consumers disposable incomes, the short break leisure market has grown. This phenomenon has allowed customers to have more domestic holiday choice and encourage travel within the UK. This trend has proven very positive for the hotel industry.Another factor that has strengthened the hotel market is the online mental reservation system. Customers are able to search for information, accommodation and book rooms online. This system is not only convenient for customers it is also efficient.2.2.2 WeaknessesProfitability is a major concern for hotels. They worry about losing money during the course of chain operations. In addition, there remains an ab sence of an efficient system to monitor hotel management, which includes employees and retired employees etc (Gavin, 1997).The actual weaknesses in the hospitality industry are draw below.Recession has been the powerful factor from 2004 to 2009. As noted by Keynote (2010), the number of visits attain in 2007 but fell during 2008 by one million.In the face of room oversupply, occupancy rates averaged approximately sixty percent but this figure fell by eight percent during 2007 to 2008 (Keynote, 2010). In an attempt to counter this fall, prices were reduced but this may diminish profitability.Mid-market hotels are coming under pressure, being squeezed, between budget and luxury hotels. Competition in the mid- and budget hotel market is becoming more intensive and probably there will be a price war.The performance of the global economy has a direct influence on the cost of hotel equipment. These costs have been rising and consequentially the financial burden has become heavier.2.2. 3 Opportunities galore(postnominal) tourist and hotel officials now believe that the UK will become the worlds most attractive visitor destination by 2011. This is considered an encouraging sign and a great fortune for those who want to expand their hotel business in the UK. Any expansion is anticipate to be within the mid- or low-grade hotel sector. The submit for high star rated luxury hotels among the various hotel management groups is not expected to rise (WTO, 1999).In late 2008, the pound fell against impertinent currencies and was very nearly equal to one Euro. This means that UK services, including hotels and tourist attractions have become more attractive to overseas tourists as they get more value from their Euros or dollars.The instruction of a global online reservation system will not only make hotels easily reachable but also provide an chance to price of admission a wider client base. match to Keynote (2008), the age profile of the UK population is increasing. Many consumers that belong to this enlarged senior sector of the population have disposable assets, which they use to enjoy their leisure. In addition, the number of retirees is rising, which will have a positive effect upon the hotel market.In the next decade, due to a number of organized activities, such as, the 2012 London Olympics, more attention will be paid to the UK by the international market and it is expect that this will promote a growth in demand from overseas visitors for accommodation.Few leisure facilities, for example, restaurants and bars can cope with any wasted business and, therefore, they are unable to create potential sales from the local area and hotels.2.2.4 ThreatsSince 2004, the long-stay leisure market, that is, stays involving five nights or more has been in decline. Moreover, the number of long-stay hotel rooms booked in 2008 decreased by more than a half compared to 2006, at eleven million (BMRC, 2009).The threat of terrorist activities could discoura ge overseas travellers to stay in the UK.The success of the budget hotel sector is a threat to mid- and upmarket hotel chains. During the recession, customers may choose low price accommodation for their tourism. For example, self-catering and other less expenditure styles of accommodation manifest a voluminous threat at this time.Some budget airline companies that offer low-cost flights to travellers for short weekend breaks may compete with domestic travel in the UK.2.3 Porter Five ForcesThe structure of the hotel industry strongly affects competition between its members, which in turn directs decisions about the choice of strategies that are used by them. Therefore, Porters Five Forces analysis will be used to investigate the industry. raw(a) EntrantsGovernment policies against entrantsFixed cost is hugeHard to access get ahead creditInvestments cannot be recovered immediatelyBuyersLarge hotel, power low Small hotel, power highCustomers as a group have more powerSign contract g ain more negociate powerSuppliersBargaining power depends on the size of the hotelUnique engine room and resourcesSwitching costsCompetitorsCompetition within luxury, mid-market and budget hotelsCustomers change consumption to budget hotels.Little effect on luxury hotelsSubstitutesCamping, caravan clubs, BB and country houses etcCamping and locomote clubs had their best ever year in 2008An attractive option for the budget conscious consumerThe analysis includes the threat of new entrants, competitive rivalry within the industry, the threat of substitutes and the dicker powers of buyers and suppliers.2.3.1 The threat of new entrants adapted hotel sites are not easy to find and building costs are very high. Furthermore, investments cannot immediately be recovered, especially during the period of construction. This factor represents a strong barrier to entering this market. The UK has enjoyed some of its highest periods of growth in quality prices in recent years. The construction industry has been badly affected by the latest recession.Developers are hardly able to gain credit to support large scale building schemes therefore, many hotel projects have stalled (Blitz, 2009).Aside from new nurtures, hotel managers who are unable to access further credit are finding things more difficult. Larger operators and branded chains are able to touch to the medium and long-term over which a boom for hotels and travel are predicted due to emerging markets but smaller operators have less access to the resources that they will need in order to survive the next meet of years (Blitz, 2009). As a result, the threat of new entrants into hospitality industry is limited.2.3.2 The competitive rivalry within industryIn economic downturns, competition occurs within upmarket, midmarket and budget hotels. Mid-market hotels usually cater for tourists who do not travel a lot also, their rooms are priced much higher than in budget hotels. In general, when the economy is in recession , consumer-spending power is less, therefore, they might choose lower priced accommodation. At the same time, budget hotels continue with their strong development plans to offer extra rooms through the expansion of new property. The development of budget hotels has eroded the mid-hotels market sector.However, the upmarket hotels have been little affected. Their customers are less likely to change their consumption patterns. The lifestyles of these customers engender very high consumption. Their expenditure would not change because they are not price sensitive. That is to say, no matter how prices changes, they will continue consuming.2.3.3 The threat of substitutesThere are some substitutes in this market, such as, camping, caravan clubs and BB and country houses. Mintel (2009) predicted that these holidays are an attractive option for budget conscious consumers. These substitutes will benefit from an increase in the number of families who because of financial reasons elect to stay in UK in 2009 and 2010. The Camping and Caravan Club market had their best ever year in legal injury of recruitment during 2008 (Mintel, 2009). Camping holidays are predicted to do rather better over the next few years before the long-term trend towards decline is re-instated. However, growth in this area might not be good news for the hotel industry, as by definition a stay in a hotel does not count as such for this type of holiday.2.3.4 The bargaining power of buyersThe hotel industry is faced by fierce competition. Companies will perhaps sign a long-term contract with consumers to retain their customer base. Therefore, customers possess a strong bargaining power.Behind large hotel groups, there are large amounts of capital to support them to buy land and build new hotels. Consequently, the bargaining power of consumers is quite low with respect to these large hotel groups. Conversely, for small hotels, the bargaining power of consumers is much greater, which means these establ ishments might find it harder to sue customers, expectations.However, customers will segregate into two sectors, namely, individual and group.Customers as individuals This sector will divide into business travellers and individual tourists. Business travellers may have a long-term contract with a hotel, therefore the price for them could be pre-negotiated but for individual tourists, their bargaining powers are almost none.Customers as a group Groups usually book rooms through travel agencies, involving a large number of rooms and the travel agent takes the profit. However, the price is still much cheaper than for the individual. That is to say, their bargaining power is more than the independent tourist is.2.3.5 The bargaining power of suppliersThere are two main bargaining powers in the industry, one is furniture and fittings and the other is food and cigarettes. They are outlined below.Furniture and Fittings When hotels secure furniture they typically establish criteria that th ey use. The number of pieces of furniture purchased is usually in bulk rather than separate items. Thus, orders must be relevant to the number of rooms they operate. For this reason, furniture is supplied by specialist contract providers, which are utilise departments of businesses that already cope with the domestic market as well.Food and Cigarettes Many food and cigarette manufacturers have their own specialised sector that supply and deal with the demands of the hotel industry.However, bargaining power is dependent on the size of the hotel. If a company has very many hotels then its bargaining power with its suppliers is enhanced. Conversely, if the company has few hotels then its bargaining power will be limited.2.4 s.t.p. processSegmentation, Targeting and Positioning2.4.1 SegmentationAccording to Swarbrooke and Horner (1999), the tourist market is divided into demand characteristics within a number of the different segments, which are described below.Family market The defini tion of family means two parents with one to three children. The preference of many families is to minimise the cost that is required to meet their proclivity to have a vacation. However, these needs will depend on those of their children.Hedonistic tourist According to Kozak and Andreu (2006), the number of hedonistic tourists has increased in recent years. They prefer a place with sun, sand and sea, such as, Ibiza. In fact, they have a desire for physical pleasure and a social life.The backpacker market Backpackers for the most part keep their expenditure to a minimum they have the time and want adventure as part of their holiday. Moreover, this tourist usually travels independently rather than in a group.VFR (visiting friends and relatives) People do not stay in commercial accommodation and usually domestic travel is involved (Swarbrooke and Horner, 1999). This form of tourism could also relate to weddings and funerals. In particular, their budget is limited in a similar way to that of a normal holiday.Excursionists or day-trippers In general, these travellers do not travel far and it involves domestic transport. They would do not usually stay overnight.Educational tourists They usually travel to other countries, for example, for foreign culture, student exchanges or attending language classes.Religious tourist This form of tourism can be seen as obligation or transaction for those who have faith and belief but recently traditional spiritual tourism has become, in part, a sightseeing tour, which visits churches and cathedrals (Swarbrooke and Horner, 1999). However, they usually visit the place at a specific time, such as, the Haj.The snow bunting market The snowbird refers to a tourist that travels during the winter, in order to avoid the cold weather. Retired people normally take this type of vacation because they have the time to travel.Tourists with disabilities According to Swarbrooke and Horner(1999), there are many kinds and degrees of disability , which include the followingMobility problems These individuals are bound to a wheelchair and may have difficulty in climbing stairs. prospect problems These individuals have minor eye impairments and unclear vision.Hearing difficulties These individual have injuries to their ears and their hearing is impaired.It is important that hotels have regard for these conditions and have someone unattached to assist them.The short break market This means tourists use their two-day weekend to have a vacation. According to Mintel (2007), the short break market is chronic to grow despite an overall stagnation in the growth of domestic tourism. It is forecast that the volume of the short break market will increase to 9.5 million and its monetary value will be 2.5 billion by 2011.Commercial travellers They usually travel for business and generally involve domestic travel.2.4.2 TargetingIn order to relate to the research objectives of this report as described in earlier in this chapter, the res earcher will inquire into the budget hotels to investigate their target market.Budget hotels focus upon three types of domestic tourists during economic downturns commercial, family and short break. Budget hotel characteristics are relevant to these three types of tourists in terms of limited cost, clean and comfortable accommodation in which to live. In addition, the fact that there many chains are available in this sector means that travellers can be reassured regarding expectations and quality as they are buying into a brand name (Brotherton, 2004).2.4.3 PositioningAccording to Baines, require and Page (2008), positioning is important for a business because it differentiates it from other competitors. As Mintel (2010) argues, the first physical attributes of budget hotels for customers is that they have quality standards, consistent service and are located in many places, which are convenient to access. According to (Brotherton, 2004), the second positioning elements for budget hotels as perceived by customers are value for money, cleanliness and have a great brand reputation.Marketing dialogue can be used to position brands as a system to attract customers (Shimp, 2003). Budget hotels position their brand, products and services via three basic consumer needs, such as, functional, symbolic and experiential (Keller, 1993). These are described below.Functional needs Budget hotel marketers adopt new technology and season sales to appeal to consumers needs for convenience, value for money, physical comfort, etc. These wants can met consumers functional needs and brand satisfaction.Symbolic needs Budget hotels appeal to symbolic needs with their desire or self-image to associate with the brand. For example, tidiness, cleanliness and efficiency, etc.Experiential needs Budget hotels use quality standards for accommodation to address the experiential needs for consistency and hygiene.For a marketer, it is important to recognize that brands benefit by fulfilling these needs, even by a combination of any two. This project will investigate consumer attitudes toward the budget hotel market during a time of economic downturn and analysis how the recession affects consumers consumption patterns and budget hotel strategy.