Tourism Essays - Hospitality Industry

Select a sector of the tourism or hospitality industry and discuss how the changing business environment is likely to affect its future growth.

“Modern marketing managers practice in a consistently changing environment necessitating the need for the formalisation, implementation and evaluation of strategic marketing plans.” (Phillips, Davies and Moutinho, 2001) Nevertheless, despite the advocated benefits of strategic marketing planning, there is very little concrete empirical evidence or research to back up this claim, making it very speculative, despite appearing to be common sense. As such, it is very difficult to accurately determine how the changing business environment is likely to affect future growth in any sector, as no one appears to be able to accurately predict how the business environment will behave next. Nevertheless, this piece will attempt to determine how the changing business environment has impacted on the strategic planning in the hotel industry, and thus attempt to predict how it will impact on performance in the future.

Phillips, Davies and Moutinho’s (2001) study examines the relationships between strategic marketing planning and performance, extending the knowledge of strategic marketing planning and performance by focusing on the service industry, and providing potential controls for market-level influences, by restricting itself to the hotel sector.. The study examines the interactive effects of strategic marketing planning and performance, and its findings suggest that the issue is not whether strategic marketing planning affects performance, but rather what marketing capabilities are required to enhance performance. Indeed, Lecoustay (2004) claims that today, in spite of high-tech, constantly developing, computerised systems; it is still the revenue, or sales manager who makes the difference with his knowledge, flexibility, vigilance and reactivity to rapid changes in the environment. As such, this appears to be one area in which the changing business environment will not significantly, or predictably, affect future performance, as long as management skill levels remain at a relatively constant level.

However, with the interconnectivity of the various electronic distribution channels, the distribution opportunities are tremendous, as hotels now have access to a unique, massive and complex system: the Internet. This is increasing transparency and making all type of rates available to everyone: for instance, some promotional offers are, through a specific distribution channel, and targeted at a particular market segment. Nevertheless there are currently some limits to online marketing techniques, including the need to ensure that the pricing structure is coherent, in order to address all market segments, and also a need to understand each segment. This coherence of the pricing across the distribution channels is fundamental to success in the long term, thus hotel management must still be aware of the benefits of good revenue and distribution management. Given that these still rely very much on how advanced the respective manager is in spotting the changes in the environment, reacting and adapting his strategy, and that the complexity of the electronic distribution also requires increasing levels of expertise from the persons operating the levers, Lecoustay’s (2004) work still relies heavily on the skills of the people involved, and thus this will still determine growth potential for the foreseeable future.

Zhen and Denise Chang (2003) conducted similar research into strategies utilised by hoteliers, although their work focused strongly on the tourism industry in Ontario, Canada. They also found that limited research exists on the current strategic issues and thus they conducted a pilot study via e-mail survey, attempting to identify the current strategic issues and strategies implemented by hotels in the current environment. Results showed that among the most concerning issues are a lack of financial and government support, changing customer needs, increasing power of customer purchasing through the Internet and the top internal environment concern is related to human resources. As such, although changing customer needs and increasing purchasing power are a concern for many in the hotel industry, there is very little evidence to suggest that this will affect growth overall, rather it may punish individual firms who fail to adapt to the changing environment.

The increasing purchasing power, and availability of the Internet as a search and booking tool, adds credence to Kotler’s (1997) argument that, regardless of the initial success of the brand position in the market, any may have to be forced to reposition it later. Similarly, Trout and Rivkin (1995) state that today is more the time for repositioning than positioning, which is strongly due to the changing marketing environments that influence any organisation, including the hotel industry. Given this need, Hassanien and Baum (2002) undertook a study of the cost to hotels, in terms of the constant need for the renovations, which are inevitably essential for hotels to stay active and alive in the market. At any one time almost every hotel has recently been renovated, is under renovation, or is waiting for renovation, and Hassanien and Baum argue that hotel positioning and property renovation are inseparable in the hotel industry since most innovation is attained through renovation, and innovation is vital in any changing business environment.

One of the, potentially very real, costs that the changing business environment can create is the cost to the business when a manager undermines the trust of his staff, by constantly changing expected performance standards and goals. To measure such an effect, Simons (2002) hypothesised that when employees sense an inconsistency between what their bosses say and do, it sets off a cascade of effects, and in order to measure this expected chain reaction, Simons surveyed several thousand employees at 76 U.S. and Canadian Holiday Inn hotels. Workers were given a questionnaire and asked to rank how closely their managers’ words and actions were aligned something the author refers to as ‘behavioral integrity.’ Simons then queried the employees about their commitment and the service environment at their hotels, and correlated the workers’ responses with the hotels’ customer satisfaction records. The results were striking; with no other single aspect of manager behaviour having as large an impact on profits as did the integrity of a boss. The paper also identified several reasons why maintaining integrity is hard, such as sticky labels, competing stakeholders, shifting policies, changing fashions, unclear priorities, and blind spots, many of which can be seen to be due to the changing business environment, but many of which are also due to managerial skill and performance level.

It is argued by Verma and Plaschka (2003) that so called ‘choice modelling’ can yield valuable insights for market-driven strategy development, by revealing customer clusters, suggesting the potential effects of changing levels of value drivers, assessing overall brand equity, and identifying customers’ switching barriers. The authors also claim that the stream of research on customer choice modelling published over the last few years has provided hotel managers with the potential knowledge and ability to implement such strategies throughout the hospitality industry. It is thus interesting to note that the new technologies and other capabilities that for a part of the modern competitive environment are only used by the authors to help gather data and implement these models, with the actual design and analysis still strongly dependent upon the managers skills and experience.

In conclusion, irrespective of the up or down economic cycles, new technology and more demanding consumers mean that today’s business environment in the hotel sector, and the tourism industry in general, is even more competitive than during any other time in recent history. To a certain extent, companies can re-engineer, restructure, and cut costs, but at the end of the day any firm must identify a sustainable and profitable business model that will nurture growth, and in the hotel industry this must be strongly based on the skill, attitude and professionalism of the hotel managers. Creating a sustainable and profitable business model can prove to be as ruthless as any political campaign, and can often resemble all out war with companies determined to drive out competitors. As such, provided that hotel chains can continue to recruit and train high quality managerial staff, with the ability to react to changing market trends, whilst also coping with new technology and maintaining the support of staff, then these hotels have nothing to fear from the rapidly changing environment. However, should managers in any hotel not be up to scratch, these hotels can expect to see their business shrink rapidly, and the cutthroat environment may see them disappear altogether.

References:

1. Hassanien, A. and Baum, T. (2002) Hotel repositioning through property renovation. Tourism & Hospitality Research; Vol. 4, Issue 2, p. 144.
2. Kotler, P. (1997) Principles of Marketing. Prentice-Hall Inc, Englewood Cliffs, New Jersey.
3. Lecoustay, J. (2004) General Overview Statement from the Industry: “Flexibility, Reactivity and Coherence” Are a Must in Our Fast Changing Environment. Journal of Travel & Tourism Marketing; Vol. 16, Issue 4, p. 5.
4. Phillips, P. A. Davies, F. M. and Moutinho, L. (2001) The Interactive Effects of Strategic Marketing Planning and Performance: A Neural Network Analysis. Journal of Marketing Management; Vol. 17, Issue 1/2, p. 159.
5. Simons, T. (2002) The High Cost of Lost Trust. Harvard Business Review; Vol. 80, Issue 9, p. 18.
6. Trout, J. and Rivkin, S. (1995) The New Positioning: The Latest on the World No. 1. McGraw-Hill, New York.
7. Verma, R. and Plaschka, G. (2003) The Art and Science of Customer-choice Modeling: Reflections, Advances, and Managerial Implications. Cornell Hotel & Restaurant Administration Quarterly; Vol. 44, Issue 5/6, p. 156.
8. Zhen L. and Denise Chang, G. (2003) Strategic issues faced by Ontario hotels. International Journal of Contemporary Hospitality Management; Vol. 15, Issue 6, p. 343.