|Subject Title||Hospitality Management Simulations|
|Assessment Title||Assessment 1 – Individual Report|
|Learning Outcome/s (found in the|
|2 & 3|
|Word count||1,500 words (+/- 10%)|
|Assessment instructions||Position Report Instructions|
For this assignment you will need to write a 1500-word position report on a specific hotel (preferably 4 or 5-star hotel of an international hotel chain), taking into consideration the strategic and tactical management decisions that they would need to take to increase their market share, and analyse any available financial and economic data to inform managerial decisions.
This report should explore the current situation this hotel is in. You should utilise at least two theoretical models in your positional analysis (e.g. SWOT, PESTLE and Porter’s Five Forces Analysis).
Present your findings as a research report (1500 words) using the following structure:
ASSESSMENT 1: INDIVIDUAL REPORT
Hilton Hotel & Resorts, in spite of its substantial growth aspects in the international market, confronts the issue of the decreased market share of 12% internationally due to increase in its service charge for a similar quality of products as offered by others in the market. The report presents a position analysis of the hotel with particular regard to applying insights gained through PESTEL and Porter Five Forces analysis in this respect.
This report presents an exploration of the current situation of eminent US-based hospitality organization, the Hilton Hotel & Resorts. The report has aimed to produce a position report on the hotel considering its gradually increased operating expenses in many different fields of operations and its impacts on overall profitability and market share of Hilton in the world market. Moreover, product positioning of Hilton with higher cost and its potential effects on its customer base has necessitated the development of this report. The discussion involves the application of the PESTEL framework and Porter Five Forces analysis for the organization along with applying Product Positioning Map of Hilton
Current Position of the Hotel Chain
Hilton Hotel & Resorts has shown considerable growth in the international market, where it had surpassed Marriott's portfolio to become the most valuable individual hotel brand in the world. In terms of property values (5700 properties worldwide) and market share (58% in terms of rooms), the hotel reflects a strong position in the international hospitality market. However, during 2016-2019, the overall operational cost of the hotel has increased due to enhanced investment in labour, maintenance, and construction and room service operations. According to Kibe et al., (2019), the average rate of daily expense in maintenance and labour for Hilton has increased by 2.7% ($186.64) during 2018-2019, resulting in almost over 2% decrease in revenue per room of the hotel. Hilton Hotel has faced the issue of gradually growing operational expense for the last five years. As stated by Net (2020), its total operating expense per market share in 2017 was $6,999, which reached $7,474 (in 2018) and $7,795 (in 2019). Similarly, from perspectives of its total expense in managed and franchised properties, this has increased to 1,926 million (2018) from 1,809 million in 2017. Therefore, this enhanced cost of operation is resulting into high service cost in Hilton Hotel and thereby dissatisfaction of customers, which had caused fall of market share by almost 12 % in its combined markets of US, EU and Asian countries.
Figure 1: Unattractiveness of Hilton's Service
(Source: Net, 2020)
In international hospitality market, political stability of USA, Germany, UK, Japan and other EU nations have positive impacts on Hilton. Still, political unrest in Asian and different Middle East nations causes complexity in taxation rate, trade regulations and tariff status of its service.
Periodic fluctuation in the rates of savings, interest and foreign exchange rates affects comparative economic advantages of Hilton’s operations in the international market. Hilton has limited scopes of discretionary income in various EU nations due to inefficient financial markets (Espino-Rodríguez & Gil-Padilla, 2015). Frequent change in labour charge, high corporate tax and pricing regulations results in the enhanced operational cost of Hilton.
While operating in cross-border level and cross-cultural situations, Hilton faces the problem of appropriately skilled and trained employees for hospitality service and thus bears the high cost of training and skill development for expatriates in the international market (Huang & Cai, 2015). This additional financial burden results in higher service change from customers worldwide.
The higher cost of advanced technology affects the cost of logistics and value chain structure for the hotel though speedy technology disruption helps in its service quality maintenance.
In most of the EU nations and the USA, Hilton faces fluctuation in its steady profitability due to different environmental standards and laws. For instance, in Florida and Texas, Hilton faces different liability terms for environmental disaster or mishaps.
Hilton has to deal with strict employment, health & safety and data protection regulations in the international level of business.
The above analysis of the external environment of Hilton's operations makes it clear that in the international market, the organization faces a significant degree of financial burden due to political, economic, social and technological factors mainly in those markets. Thus, these factors bring the challenge of increased operation cost for Hilton.
Bargaining power of Customers:
In international hospitality market, presence of market leaders as Hyatt, Marriott, Accor Hotels, Ritz-Carlton and Mandarin Oriental enhances the bargaining power of buyers of Hilton. Thus, the customers have other choices for leaving Hilton due to its increased service cost presently (Cederholm, 2014). Therefore, higher bargaining power of customers is a significant threat to the organization.
Bargaining power of suppliers:
Hilton has almost 4000 suppliers worldwide, and huge order volume and uniqueness of products and services are of excessive importance to the suppliers (Net, 2020). Therefore, the switching cost for the suppliers is high. Moreover, Hilton runs the Supplier Diversity Program for the development of socially diverse suppliers. Thus, the bargaining power of suppliers is lower.
The threat of substitutes:
In the hospitality market, the market leaders as Marriott, Hyatt or Ritz-Carlton present a significant level of values for customers by offering wide range of quality products, specially technology-fuelled direct and indirect substitution of products (Pimentel, 2019). Almost all the hotels are offering a healthy equilibrium in the quality and cost of products. Therefore, for Hilton, the threat of substitute is high.
For Hilton, there is excessive market rivalry due to presence of Marriott, Hyatt Regency, Renaissance, Sheraton, Ritz-Carlton and other international hotel chains. Thus, market rivalry is intense.
Threat from new entrants:
Due to difficulty in achieving the economies of scale in the market of 4 and 5-star hotels and massive product differentiation, Hilton has lower threats from the new entrants.
Therefore, clearly in the highly competitive market of operations, Hilton faces a challenge due to the higher power of customers and high threat of substitutes. Various competitors of the hotel are offering high quality services in suitable costs, resulting in more natural switching opportunity for its customers in international markets.
The positioning map of Hilton Hotel & Resorts clear reflects that it offers high quality products at high prices that are just similar to those offered by other industry leaders like Boutique Hotel and Best Western (Sanchez, 2019). However, this is important to note that the service cost of Hilton is higher than other hotels providing similar services (Hilton is placed in the extreme right of the High price-High Quality quadrant). Thus, clearly, Hilton is demanding higher cost for the equal quality of service in the as provided by others in the market, resulting in the switching of its customers.
The overall discussion provides a clear reflection of the fact that in spite of steady growth and competitive position in the world hospitality market, Hilton Hotel & Resorts is confronting the issue of high operation expense and thereby higher cost of its products and services. Financial analysis of the operational overhead of the hotel directs to a gradual increase in expense per market share as well as liability for managed and franchised properties (1,809 million in 2017 and 1.926 million in 2018). Therefore, the high operation cost of Hilton has resulted in the issue of more top service cost leading to the dissatisfaction of its customers. Moreover, there are factors like high corporate tax, pricing regulations, the high price of technology and for expatriates training. From the analysis of porter five forces, it is clear that high bargain power of customers is another threat for Hilton due to scopes of easier switching over to other hotels because of its higher service cost (Cederholm, 2014). In addition, explanation achieved from the product position map of Hilton also leads to a similar point of view. Therefore, the management in Hilton has to focus on developing and execution of strategies for operation cost reduction of the hotel and thereby reducing the service cost for customers.
Conclusion and Recommendations
From the above discussion, it is to conclude that gradual increase in overall operation cost of Hilton Hotel is leading to the dissatisfaction of the customers, precisely because of the reason that Hilton is charging higher service cost from customers for similar quality services as offered by other star hotels in the market. Therefore, undoubtedly, Hilton is facing the issue of decreased market share and profitability due to enhanced switching scopes of its customers.
Under this situation, the management of the hotel needs adoption of Cost Leadership strategy for gaining competitive advantage in the market by lowering its operation cost in every aspect, which would depend on operational efficiency and cumulative experience development in the organization. For succeeding in Cost Leadership approach, Hilton Hotel & Resorts might implement Lean principle of operations through avoiding financial investment in unnecessary operation steps and thereby reducing overall operation coats and cost of products and services offered by it. Moreover, Hilton would charge industry average prices instead of charging higher for the similar quality services in the market. Therefore, the management of the hotel would focus on proper execution of the strategy of enhancing market share and profitability by low pricing option for all its products. However, Hilton has to reduce the overall expense of employee training, labour cost and cost of maintenance and room services in the international market.