The Hotel Industry And The Mauritian Economy Marketing Essay

After five years of unprecedented growth fuelled by an buoyant local market and building on a regional expansion strategy in Maldives and Reunion Island, Mauritian owned Coastline Hotels Group (CHG), a major operator of resort hotels has seen its earnings and profitability nose dive as a result of rising operational costs, lower yields and occupancy rates, customer dissatisfaction and a falling market share. The global recession, a fall in overall Tourist arrivals from its major target markets, changing customer requirements and trends and losing 60% of its share value over the last six months have only added to CHG’s problems, thereby an urgent need to strategic re-assessment, redirection and re-positioning.

Since independence in 1968, Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with major industrial, BPO, financial, and tourist sectors. Much of the Mauritian success story can be attributed to its Tourism industry. Mauritius is predominantly a holiday destination for beach-resort tourists. It possesses a wide range of natural and man-made attractions, enjoys a sub-tropical climate with clear warm sea waters, attractive beaches, tropical fauna and flora complemented by a multi-ethnic and cultural population that is friendly and welcoming. These tourism assets are its main strength, especially when backed up by well-designed, well run hotels, and reliable operational services and infrastructure.

1.3 Coastline Hotel Group (CHG) – An Introduction

CHG, founded in 1987 is a major player in the Mauritian hotel industry. It engages in the operation and management of seven resorts comprising 1200 rooms in Mauritius. CHG has grown from new entrant to a major player within 6 years through sustained acquisitions for its expansion. CHG thus also owns and manages hotels in other islands of the Indian Ocean such as Reunion and in Maldives.

While the whole Tourism industry as a whole continued to suffer amid the global economic slowdown, CHG has seen revenue and profitability fall dramatically posting a 365.07 million rupee ($12 million) pre-tax loss for 2009 against a profit of 277.04 million in 2008, while revenue fell to 2.39 billion from 2.47 billion. The outlook for 2010 seems as uncertain, and despite an increase in room capacity, the group’s revenue for the nine months stagnated at rupees 1.7 billion and will optimally end with 2.27 billion, still way down 2.47 billion it reached two years ago.

CHG’s outlook in the current environment remains challenging. This project looks at assessing the strengths, weaknesses, opportunities and threats of CHG to determine CHG’s strategic position and determine how CHG can improve its strategic positioning, operational efficiency and profitability.

PART 2- SWOT Analysis

2.0 Introduction

This chapter will aim at assessing CHG’s internal strengths and weaknesses, its opportunities and threats through an analysis of its external general environment also called macro environment, its specific external, also called micro environment and conducting an organisational audit. It will conclude with a SWOT analysis on an enlarged TOWS model.

Strengths and weaknesses are internal to a company. They determine strategic capabilities of an organisation which rest on its resources and competences. It is important to understand what these are, how to analyse and evaluate them and, ultimately, how to use this analysis in developing strategies and plans. The end objective of internal analysis is to identify threshold capabilities and capabilities for competitive advantage. These include tangible and intangible threshold resources, unique resources, threshold and core competences which would allow CHG to compete effectively and stay ahead of the game.

Organisations do not exist in a vacuum but in an environment, and it interacts with the environment in which it operates. This interaction is not a one-way but a two-way process, with the organisation being influenced by outside factors over which it has no control.

Opportunities and threats are part of an organisation’s industry and macro environment. Identifying and analysing opportunities and threats in an organisation’s environment allows the company to determine how best to build on opportunities and avoid threats. It also helps deciding in which areas resources need to be committed or diverted.

Assessing CHG’s strengths and weaknesses, opportunities and threats will entail analysing CHG’s general external environment or macro environment, its specific external environment or micro environment and conducting an organisational audit.

2.2 Analysis of CHG’s general external environment

Key drivers for change are environmental factors that have a high impact on the success or failure of strategy. A common model used for analysing the general external environment or macro environment of organisations such as CHG is the use of the PESTEL model. Analysis of the general environment using the PESTEL model allows scenarios to be developed about the future. The macro environmental factors that affect CHG are as follows:

Political/Legal

Government sensitivity and support to the Tourism sector through its promotion arm

corporate tax has been reduced from 30% to 15%

Economic

Economic growth rate has stagnated around 3%, well below the sustainable 6.5% projected

Inflation has been below the projected 6%

Social

Improving standards of living are creating a sizable local market of holiday makers

Changing local lifestyles, health consciousness and welfare are creating new segments for hotel spa services

Technological

Extensive use of online information sources is further customising holidays and adding to delivery complexity

Online booking is promoting disintermediation

Increasing use of technology is improving management information systems and customer relationship management (CRM)

Environmental

Greater environmental awareness is turning the concept of green tourism into a unique proposition

Environmental pressure groups are monitoring pollution and waste disposal by large institutions

2.3 Analysis of CHG’s specific external environment

Common models used for analysing the specific external environment of organisations, also known as the micro environment of organisations such as CHG is the use of the Porter’s 5 Forces model (appendix 7) and analysis of the competitive market structure. Porter has suggested that it is the “collective strength of these forces that determine the attractiveness of the industry. Organisations should tend to find a position in the industry where it can either defend itself against these forces or influence them in its favour.

Analysis of the specific environment along Porter’s 5 Forces model reveals the micro environmental factors that affect CHG as follows:

Barriers of Entry/Exit

The hotel industry is characterised by high initial investment costs which act as barriers to both entry and exit

Failing companies are often subject to acquisitions often not reflecting their real worth

Availability of substitutes

The hotel industry is a highly competitive one where core products and offerings can be very similar, thereby the need for differentiation

Communication of differentiating factors is crucial for customers to recognise differences

Bargaining power of Suppliers

Over dependence on intermediaries such as wholesalers can affect margins

Bargaining power of Customers

More customers are shopping on line for best deals

Customisation is making customer satisfaction more complex and costly

Competitive Intensity

The industry remains competitive

Operations management and marketing is key to profitability

2.3.1 Analysis of Competitive Market Structure and Positioning

Competitor analysis forms part of specific general environment analysis. It allows companies such as CHG to better understand their own position by examining it against its competitors. Competitors are companies adopting similar segmentation, targeting and positioning as well as similar product offerings. This is the basis for what Porter calls “competitor analysis”. Competitor analysis involves looking at the competition’s strategies whether it is profit growth, revenue growth or market share growth. It also considers how they are competing, whether in terms of price, quality, customer service or some other factor.

The mapping of strategic groups in a particular industry can provide information about the competitive structure of the industry and the opportunities and constraints with respect to development.

CHG by its size, resources and exposure forms part of the leading 3 groups of hotels in Mauritius and as such can be considered a challenger as opposed to the two established leaders, namely the New Mauritius Hotels group and the Sun Group. These hotels have very distinctive market positioning and pricing and have adopted a clear differentiated leader’s strategy. The Sun group markets its hotels under the “One and Only” resort brand and two of its four main hotels, namely Le Touessrok and Le Saint Geran are among the best 20 hotels in the world. This is the result of a highly differentiated strategy that they have adopted and which they have marketed over years. The same applies for the NMH group. Their long established specific hotel marketing supported by the Beachcomber umbrella brand is well recognised and they too have adopted a highly differentiated strategy.

Compared to these two main competitors, CHG as a relatively new comer does not have a clear positioning strategy and its corporate brand name under which it market its hotels does not carry the same weight.

2.4 Internal audit and appraisal of GHG

Internal Audits and Appraisals are part of internal analysis which allows Organisations to identify and analyse its resources, competences costs and performance. This exercise helps to balance its resources and cover

-the mix of activities which collectively make up the organisation’s overall portfolio, and how well these complement one another

-the balance of skills and personalities of employees and they are linked together for competitive advantage-the flexibility of the organisation’s resources and how well they are able to adapt to a changing environment

Porter’s value chain is an excellent technique to conduct an internal appraisal. Porter developed the Value Chain concept to refer to working teams functioning as service units and classified these activities as being either primary (core) or secondary (support). The goal of the value chain is to create value which is greater than the cost of its creation, the difference between the two being margin. Analysis of CHG’s value chain presents the following:

Infrastructure/ General Administration

Has limited strategic capabilities and strategic planning systems

Coordination of value chain activities among organisational subunits is questionable

High cost of funding for capital expenditures and working capital

Good public image, corporate citizenship and relationship with policy makers.

Human Resource Management

Inappropriate rewards systems, for motivating and challenging employees.

Low level of employee motivation and job satisfaction

Technology development

Inadequate management information system in general

Inadequate research and development

Procurement

Has not leveraged corporate procurement

Negative impact on timeliness and costs

Operations

Productivity, efficiency and inventory control lower as compared to key competitors

Marketing and Sales

Overreliance on wholesalers in travel industry

Low segment penetration

Image and reputation lower than main competitors such as the Sun group and NMH.

Low customer loyalty

Service

Fair level of service, promptness and attention

2.5 SWOT Analysis

A SWOT analysis summarises key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development. The aim is to identify the extent to which the strengths and weaknesses of an organisation are capable of dealing with changes taking place in the environment. A SWOT is really only useful in relation to competitors. (Johnson, Scholes, Whittington, 2008, Pg 119)

SWOT provides a guide to management action and provides an excellent framework for decision making. The central purpose of a SWOT analysis is to identify the strategies that will best fit CHG’s resources and capabilities to opportunities and threats of CHG’s environment, play down weaknesses, avoid threats or use creativity and innovation to turn them into opportunities. It further helps identify and align a set of strategies at functional/operational level, at business level and at corporate level. (Hill, Jones, 2008, Pg 9)

A full SWOT analysis for CHG is provided in appendix 1

2.6 Conclusion- Finding the best fit

To conclude, a fit needs to be drawn between strengths and opportunities all the while managing threats and weaknesses. CHG can build on advantages it has with the safe and secure location of its resort hotels as Tourists seek trusted resorts in the wake of international terrorism. Capacity building having reached saturation point, no new entrants in its main market of Mauritius may mean a more attractive market in the future. Improving standards of living and changing local lifestyles are creating new sizable local segments of holiday makers which CHG can target to beat seasonality and exchange losses. This added to lower interest rates may also ease the pressure of overgearing and improve profitability. CHG may further need to review its IT infrastructure to build on disintermediation and improve customer relationship management (CRM) for higher customer loyalty.

CHG can gain back competitive advantage and re-establish itself as a major player in the hotel industry. It can initially start reviewing its operations to re-establish operational efficiency and effectiveness, reviewing the strategic positioning of the company, its marketing, communication and branding approach to be more focused, identifiable and visible. It can review the quality of its Customer service and improve its general customer approach which will go a long way to re-establish its growth and improve its profitability.

CHG needs to adopt the following measures:

(a)Redefining objectives

Objectives for CHG need to be specific, measurable, achievable, realistic and timely such as:

Development of market share from 10 to 15% within a year by targeting developing tourist markets such as China/India and new local segments

Adopt a balanced scorecard approach on 4 critical success factors:

The financial perspective to be measured by profitability, cash flow improvement, growth in revenues and improved profitability, effective cost control and higher returns on invested capital

The customer service perspective to be measured by delivery and maintenance response times

The internal perspective on IT to be measured by its efficiency

The innovation and learning perspective with service leadership to be measured by speed to market and speed of imitation (adapted from Johnson, Scholes, Whittington, 2008, Pg 451)

Improving operations for profitability

CHG needs to look at improving on its operations to improve upon customer satisfaction, create loyalty for its differentiated offer. Assessing the contribution of an operation can be done through a number of performance objectives, namely:

Quality of goods and services provided by the operations

Speed with which it delivers its goods and services

Dependability with which it keeps its delivery promises

Flexibility of the operation to change

Cost of producing its goods and services

All these performance objectives have both internal and external effects. The internal effects of high quality, speed, dependability and flexibility are generally to reduce costs within the operation. (Pycraft, Singh, Phihlela, 1997,Page 65). Externally they create improved customer satisfaction which in turn leads to customer loyalty.

Improving general services level

CHG has to improve on the quality, speed, dependability, flexibility and cost of its services. Improving on these five levels would simultaneously impact on customer satisfaction which in turn lower CHG’s costs and improve profitability. (Appendix 6) These five factors are major determinants of a company’s competitiveness (Pycraft, Singh, Phihlela-1997,Page 52), especially in the context of the Hotel Industry which has to provide optimal service in a 24/7 environment.

Improving on the quality, speed, dependability, flexibility and cost of its services would allow CHG to attain five specific dimensions of service quality identified by Parasuraman, Zeithaml, and Berry (Zeithaml, Bitner 2003, Page 93), namely:

Reliability to delivering on promises

Responsiveness to help customers and provide prompt service

Assurance with employees knowledge and courtesy and their ability to inspire trust and confidence

Empathy showing caring, individualised attention give to customers

Improve on tangibles such as physical facilities, equipment, personnel, and written materials

Aim for Customer Quality and Satisfaction in Every Service Encounter (Appendix 9)

(Zeithaml, Bitner 2003, Page 112)

Establishing Customer Relationship Marketing for customer Loyalty

By improving on operation and service CHG would ensure customer satisfaction and build customer loyalty. This would mean attracting, satisfying, retaining customers to become long-term relationship customers. Customer enhancement is key as higher customer retention levels reduce marketing costs and improve reputation. To deliver outstanding service, it is essential to build a customer relationship focused culture by developing, motivating, and managing their employees to deliver exceptional personal service, build in continuous improvement and ensuring managers are the key change-agents. (adapted from www.teamtechnology.co.uk, by Susan and Derek Nash, 2010)

Reviewing its competitive position and branding

The issues of branding and brand perception are key to CHG’s revival. The entire process of branding involves creating a unique name and image for a service in the consumers’ mind, through advertising campaigns with a consistent theme. Branding aims to establish a significant and differentiated presence in the market that attracts and retains loyal customers. In today’s increasing global market where the consumers have enough choice to get confused brand loyalty is the only thing that can help a company to survive. In fact, it is the ultimate goal of any company. When a customer develops brand loyalty he not only thinks of his own benefit but also the benefit of the brand he is committed to. Brand loyalty differs by product, industry and sector. It is clear that the current corporate umbrella branding as Coastline Hotel Group has not really caught up customer attention despite heavy investment in Marketing.

It is therefore proposed that CHG dumps the corporate umbrella branding approach and switches to individual hotel branding and marketing which seem to be working very well for competitors. For example, the Sun group is branding individual hotels like “Le Touessrok” and supporting each individual hotel with the “one and only tag”. The NMH group too is marketing hotels under their specific names such as “Le Royal Palm” and supporting it with the Beachcomber network. This allows the two leaders to sell the distinctive features and unique selling proposition of the individual hotel all the while having the unique “one and only” tag. This completes and consolidates the differentiated approach they have adopted as business strategy. This differentiating factor, as per appendix 5 does not hold for CHG. Customer perception of CHG’s positioning is vague and the lack of a strong brand name does not help it, therefore the necessity of creating a strong brand for its future marketing.

3.5.1 Branding- the timing factor for CHG

Re-branding being a complex and risky exercise, it would be more judicious not to risk CHG any further in the short term, and plan the rebranding exercise over two years. Therefore the objective for the first year is to regain and re-establish market share and build on any new share within a year and to seek to be a serious challenger to the remaining two groups with a complete rebranding exercise within 3 years.

The Marketing objectives should be to improve market share from 10% to 15 %. This can be attained by appealing to and attracting a wider customer base, increasing customer loyalty and beating seasonality. Due to the seasonal nature of demand, revenues and room occupancy can vary significantly during peak and non-peak periods. CHG can make a special effort by appealing to two local segments which are developing, namely affluent and sizable nouveaux riches and the health consciousness and welfare seekers.

CHG should be positioned as affordable luxury, similar to Bowman’s Hybrid strategy (appendix 3) stressing the differentiated elements of each individual hotel, immaculate service and affordability, not in the sense of lower pricing but in the sense of value for money. This will meet and exceed customer expectations which in turn will be a strong basis on which to build customer loyalty.

CHG should also complement its Marketing effort by re-hauling its online booking system and improving customer response. This will help CHG further reduce its dependence on intermediaries and be less vulnerable. Part of the margins saved from not paying intermediaries should be diverted towards improving the customer offering and the value for money perception. CHG should in the longer term use its unique natural environment to have systematic selective PR with the specialised international press on study and product knowledge tours, celebrity marketing and hosting of reality shows and prestige stunts. This will help raise the profile and visibility of the individual hotels and help establish their new identities.

3.6 Conclusion

Rewrite your conclusion and you are almost there!!!