Research Paper (undergraduate), 2010
42 Pages, Grade: A
2 Marketing Techniques
2.1 Market segments
2.4 Distribution & Promotion
3 Human Resource Management
6.1 Background information on the case study hotel
6.2 The Prague Hotel Website - practical example
6.3 Search Engine Optimisation (SEO) - practical example
6.4 Search Engine Advertising (SEA) - practical example
6.5 Social Media Advertising (SMA) - practical example
6.6 Web controlling - practical example
6.7 Bookassist Booking Engine, Corporate & Loyalty System
6.8 Omena Hotels Case Study
6.9 Porter’s Five Forces Analysis of the hotel industry
Businesses operating in the hotel industry not only have to cope with fierce rivalry, they are also subject to external threats which have the potential to influence customer demand and eventually occupancy and profit, such as economic downturns. If a hotel aims to succeed and prosper in the long-run, it undoubtedly needs to establish a remarkable strategic position and achieve sustainable competitive advantage through the adoption of an enlightened approach in terms of marketing and human resource management. In this respect, it is arguable that clear internal and external communication, a high standard of quality, consistency and flexibility are critical determinants of success.
This paper attempts to make appropriate recommendations corroborated by academic and practical knowledge that should contribute to the turnaround of the ailing Prague Hotel. The recommendations are based on the case study information provided in the appendix. Given the increasing importance of the internet the paper devotes considerable attention to online marketing activities. In particular, it focuses on online distribution, web design, search engine optimisation and online advertising, but it will also refer to market segmentation as well as product and pricing strategies. The impact of information technology on the hotel industry is highlighted by a separate case study of the hotel chain Omena Hotels. In addition, an industry analysis using Michael Porter’s Five Forces model is provided in the appendix.
Since employees make a significant contribution to guest satisfaction and eventually business success, the paper refers to the key factors that affect employee motivation, satisfaction and retention. Due to the complexity of the aspects covered in this paper and the need to clarify some of them more comprehensively, appendices are provided that include more detailed information and practical examples.
In a highly competitive marketplace it has become essential to extend a company’s product range in order to target more than just one market segment. In the case of the Prague Hotel it is recommended to “target segments in which it can profitably generate the greatest customer value and sustain it over time” (Kotler, et al, p. 69).
In addition to the existing target customers which are airline staff, business travellers, students and backpackers, the Prague Hotel could take advantage of seasonal local events, the 18-hole golf course situated nearby, the newly constructed “Aquapalace”, which is the biggest water park in central Europe (Aquapalace Praha, 2010), and its image being one of the most romantic cities in the world. Tailor-made packages could therefore attract especially those people that would like to combine culture, sightseeing, shopping or leisure activities. This approach can be highly supportive to sell empty rooms, in particular on weekends. Moreover, the existing conference facilities are perfectly suitable for weddings, birthday parties and so forth. Hence, the Prague Hotel might even attract those people that seek the ideal venue for such events. When it comes to the hotel restaurant and coffee shop, the Prague Hotel could give them a particular name and offer certain specialities in order to make them more interesting for external guests. Many hotels, especially those of large hotel chains, have given their food and beverage outlets distinctive names which attract significant attention from internal and external guests alike.
By adopting the approaches mentioned above the hotel targets different market segments with “different kinds of customers but [still focuses on those] with the same basic wants” (Kotler, et al, p. 69). Thus, the overall revenues of the hotel are not primarily dependent on a single source of income and it will therefore more easily be capable of generating high profits and surviving a recession in the future.
The Prague Hotel has to meet all the needs of its pre-determined target customers in order to persuade them to book the hotel in particular rather than another. Even if the major market segment of the Prague Hotel is business travellers, it is of paramount importance to focus on certain services and amenities that meet the demand of all of its target customers and improve the perceived value of the hotel as a whole. In this respect it is worth mentioning that it is vital to know what guests really want. The travel market is subject to permanent change and in it could therefore be useful to “introduce on-line and in-house questionnaires so you can find out what your guests are really looking for instead of offering them what you want to offer” (Kossakowska, 2010).
Without question, all the rooms and facilities need to be clean, in good condition and well equipped in order to appeal to the guests. Yet with regard to services and amenities business travellers, for instance, might also appreciate free high-speed WIFI internet, free on-demand newspapers through the “NewspaperDirect” System with a choice of 1500 different issues from all over the world (NewspaperDirect, 2010) as well as room service, dry cleaning and laundry service, secretary services or a business centre. In addition, conference guests may expect having state-of-the- art audio and video equipment or high-performance laptops at their disposal, and appreciate collaborating with a competent hotel sales person who provides assistance during the planning process. Airline staff, for instance, demand quiet rooms, room service and wake-up calls. Tourists and sightseers, on the contrary, may expect free city maps or brochures and competent front office staff with a sound knowledge about the city itself, local events as well as places of interest or nightlife. Focusing on tailored offerings as mentioned before might help the Prague Hotel “to extract the maximum value from both high- and low-profit customers” (Rigby, 2010, p. 62).
However, it goes without saying that despite the effort spend to offer services and amenities that are highly demanded by guests, all employees need to be well trained and skilled in order to effectively accomplish all the tasks. This, indeed, will lead to outstanding customer service and high perceived value. Yet this is not enought, because good services and amenities can still be imitated very easily by competitors. Consequently, in order to distinguish the Prague Hotel more effectively from its peers and better exceed the expectations of guests, staff have to do even more. It is crucial to offer guests unexpected complementary services and incentives whenever possible. For example, guests could be offered a free room-upgrade as long as the hotel isn’t fully booked out, since such “random acts of kindness may be a small cost, but result in great reviews and goodwill” (O’Mahony, 2009).
Defining an appropriate pricing strategy is certainly one of the most difficult marketing tasks. Since every hotel offers a distinctive product which comprises its facilities and intangible services, potential guests can hardly compare or evaluate different prices in an accurate manner and will often be influenced by past experience and word-of-mouth. Studies have shown that a poor price perception causes guests to defect to competitors and negatively influences satisfaction and loyalty alike (Hellstrand, 2010).
Kotler et al (2009, p. 308) suggest “product-bundle pricing” as an effective means to sell hotel products and services. Creating packages for different target customers that include appreciated services and amenities will “transfer surpluses from one component to another to expand the market.” Furthermore, product-bundle pricing also avoids price wars, increases the value for a product and hides the price of the core product.
When it comes to the current pricing strategy of the Prague Hotel it is questionable whether a discount of 25% for business travellers is reasonable. It is widely known that price discounts can be easily matched by rivals and this offers all but competitive advantage. The same holds true for the 20% discount offered to airline staff. It is highly recommended to cut discounts down to a minimum and significantly improve the existing facilities and include special services that add real value. This will positively affect the guests’ price perception and contribute to increasing satisfaction and loyalty. Also, the profit margin will be higher accordingly. It must be kept in mind, though, that the Prague Hotel must strike a balance between offering higher discounts or lower discounts with added services in order to avoid that corporate businesses defect to a cheaper rival. In that case the Prague Hotel should consider “price-adjustment strategies” such as discounts based on volume or time of purchase, meaning the more rooms are reserved and the earlier the booking is made, the less expensive the rate will be (Kotler et al, 2009, p. 308).
In fact, there is still another way to reward guests and offer price incentives. For example, the Prague Hotel could introduce a loyalty program for its regular guests, which provides them significant advantages and incentives the more and the longer they stay at the hotel. And this can be very lucrative for the hotel too, because it “is easier and less expensive to keep existing clients rather than find new ones” (Kossakowska, 2010). Bookassist has developed a multifunctional Corporate & Loyalty System that would perfectly meet the needs of the Prague Hotel. (A brief description of the system can be found in the Appendices on page 21.)
Since the invention of the internet and the World Wide Web many industries have been dramatically disrupted. Numerous businesses found themselves unable to compete in the light of the digital age. In Schumpeter’s terms the internet emerged as a “gale of creative destruction” that has markedly changed the rules of the game (Grant, 2005). In fact, the internet has increased buyer power and reduced switching costs, limited the barrier to entry, intensified competition on a global scale and facilitated disintermediation. Today, virtually every company irrespective of its location has the potential to become a competitor (Porter, 2008). Moreover, the internet allows gathering competitive intelligence easier than ever before (Chaffey, 2009).
Companies that were keen to adapt to these changes could achieve both cost and differentiation advantages (Dess et al., 2010). In this regard hotels in particular could reap benefits on both the buy-side and sell-side of the supply chain. In effect, maintaining relationships with suppliers and exchanging information about the supplies needed was costly and time-consuming in times of paper-based systems (Laudon et al., 2007). Likewise, many individual hotels often lacked buying power over their suppliers and resources to compete with their bigger rivals.
New technologies have markedly facilitated the relationship between hotels and their suppliers. According to Chaffey (2009) the benefits of e-SCM comprise increased process efficiency, reduced complexity and costs as well as improved data integration and innovation. This is exemplified by Hogast, an Austrian purchasing association, which enables member hotels to combine their resources to improve process effectiveness, lower overall costs and increase collective buying power. Hogast developed a sophisticated e-procurement system that allows hotels to buy supplies from selected suppliers and compare prices, gain market intelligence and envisage trends 24/7. The system can be interconnected with a hotel’s enterprise and stock management system to enhance information processing and decision making (Hogast, 2011).
When it comes to the sell-side of the supply chain, however, the impact of the internet has arguably had the most significant influence on hotels. In effect, hotels by their very nature have to cope with the perishability and seasonality of their service offering. In effect, a room which remains unsold today is virtually worthless tomorrow. Hotels therefore, more often than not, had to rely on intermediaries such as travel agencies or tour operators to sell their rooms to potential customers (Buhalis, 2003). In this respect, the increase in households with internet access and the rising acceptance of online payments paved the way for the development of online intermediaries and booking platforms, such as booking.com, expedia.com or lastminute.com. In fact, today more than 70% of households in many European countries have internet access (Internet World Stats, 2011), whereas the majority use the internet to gather information or purchase travel products (Burns, 2005; Cox et al., 2008; O’Mahony, 2009; BazaarVoice, 2011). As such, this shift comes with no surprise since online intermediaries, as opposed to their bricks-and-mortar rivals, provide customers with greater choice, convenience, price transparency and comparison, ease of use and access. Hotels, on the other hand, benefit from the vast reach of potential customers, dynamic packaging, direct bookings and specialist knowledge of sales representatives (Turner, 2011). There has been ongoing d about the negative aspects of online intermediaries. Whilst they can be particularly beneficial for hotels to fill empty rooms during a recession where people travel less often, they also entail high commission costs, lack of power and control (Enz, 2003).
However, the internet enabled hotels to overcome the dependence on any intermediary as they can cut out the middleman through developing their own direct channel online. For example, the Austrian wellness hotel “Larimar” attracted customers from France and Belgium via its website, even though it did not collaborate with intermediaries in these countries (Müller, 2007). Hotels can take advantage of the fact that “consumers are now used to this online approach, are locked into this new methodology, and are likely to continue the trend of internet research and booking” (O’Mahony, 2009).Yet many hoteliers seem unaware that it is not enough to merely be present on the web. A hotel website should “create a pleasant experience for the user”, ensure lock-in and provide an easy way to book a room in order to avoid customer defection (Huang, 2009). Given the popularity of smart phones it is also worth considering the costs and benefits of mobile-friendly websites and applications (Miniter et al., 2011; Chipkin, 2011).
Another pivotal advantage of the internet is the myriad of opportunities with regard to communications. Prudent hotel marketers integrate traditional offline campaigns with online initiatives, such as search engine or affiliate marketing, in order to generate website traffic and sales. For example, the Intercontinental Hotel Group (IHG) advertises via Google AdWords and enables independent media owners to promote its products in exchange for a commission (Google, 2010; IHG, 2011). Furthermore, IHG could increase sales through mobile advertising and a dedicated mobile version of its website (Google, 2011). There are also other online services offered by ebay.com, priceline.com or groupon.com that can be integrated in yield management initiatives to increase customer demand, yet it must be born in mind that heavy discounts might adversely affect brand equity (Killian Branding, 2011). (It is worth mentioning that the internet has enabled a plethora of new business models to arise, which is exemplified by the Omena Hotels case study provided in the appendices.)
If hotels lack occupancy and profit this could stem from an inappropriate distribution strategy. It has always been vital for hotels to establish a network of distributors such as wholesalers and individual travel agencies in order to sell as many rooms as possible. Even though this inevitably entails high commissions and administration fees, it is particularly important to have reliable distributors during times of a recession where people are inclined to travel less often.
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