The marketing environment in the hotel industry

This marketing environment is made up of the Macro and Micro environments. Marketers should consider both internal and external environment for understand the whole market which they want to sale their products or services (Masterson and Pickton, 2004).

Normally, in the time of recession, customer would not spend too much money for overseas holidays, vacation and travelling (Mintel, 2009), because they see holidays is as a luxury, therefore, probably customer prefer to change their consumption to short city break or domestic holiday travel, moreover businessman may chose the lowest price to get an accommodation for their business travel.

Moreover, consumer spending power has diminished as well as consumers have had to constrict their purse strings, although, levels of personal disposable income have been maintained to a degree, as a result of interest rates’ historic low. According to Mintel (2010) estimates that Personal disposable income stagnated in 2004 to 2009, the hotel industry has been notably crashed by the recession.

However, the environment analysis, such as PRESTCOM, Porter’s five Forces, SWOT analysis and Segmentation could be used to examine the effect in the recession. In order to have a full positive reception of the environments of the hotel industry, this is the reason why the models will be used in this report.

2.1.1 POLITICAL

The hotel industry had evolved very rapidly since the opening policy in 1978, after that the economy has gradually transformed to a market-oriented one. The reform has created a much better business environment for the hotel industry development (Hornsby, 1990).

According to Kotler (1996), The political environment is strongly affect hospitality industry, political environment is made up of laws, government agencies and pressure groups influence and limit the activities of various organisations and individuals in society.

Furthermore, The EU has proposed plans to sponsor holidays for the travellers who have not enough money to travel. According to Travel Weekly (2010), these plans assist many customers who facing financial problems or personal circumstances to have a vacation. For example, young person aged from 18 to 25, disable people and pensioners etc. The idea for help these people to travel was put forward by Antonio Tajani who is the EU commissioner for enterprise and industry, declaring that having a holiday is a human right.

Therefore, this proposal actually could stimulate consumer and offer them more opportunity to holidays. Perhaps this might be good news to the hotel industry to fight in the recession.

2.1.2 REGULATORY

Regulation environment is protects companies from each other. While most businesses praise competition, they try to counteract it when it affects them. Another way is try to restrict companies dealing any unfair and guilty transactions. Furthermore, regulation also aims at protecting consumer from unfair business practices. If unregulated, firms might make unsafe or low quality product and services, be untruthful in their advertising, or deceive through packaging and pricing.

VisitBritain, the body which aims to promote the UK tourism, has launched a £6.5 million advertising campaign outside the UK to promote the affordability of Britain as a destination. However its calls for this investment to be matched by the UK government have not so far been successful (Mintel, 2009).

Moreover, hotel taxes and restaurant taxes have become popular source of revenue for local government. In many case, hotel taxes are supposed to be used to support tourism, however the spending of this money has been subject to liberal interpretation. Therefore, hotel manager should make sure that those taxes designated to promote tourism are used effectively.

2.1.3 ECONOMIC FACTORS

One factor that complicates the situation somewhat is the pound’s weak status against the Euro and Dollar. Sterling has lost value rapidly over the last year or so. In July 2008, one pound would still buy $2, but by November 2008 it was worth only $1.48, the lowest point for 6 years. Similarly at one point £1 was almost equal in value to 1 Euro. While this is bad news for people buying goods or travelling outside the UK, it also means that the UK goods and services become more attractively priced from the point of view of Eurozone or USA travellers (O’Grady, 2008)

However, economical environment could be included by following elements:

Wage inflation – in the recession, the wage of labour might not be increased, it is depend on the decisions are decided to cut the wage or increase the wage by manager. Therefore, hotel manager should pay more attention to income distribution as well as average income.

Price inflation – because the recession, if economic decline, the commodity price will rise. It will influence the decision customer make to travel or not.

Gross domestic product per capita – the most important economical element are the customer purchasing power and spending patterns, GDP can Indicate these elements, because total purchasing power depend on current income, price, savings, and credit, hotel manager must be aware of major economic trends in income and changing consumer spending patterns.

Exchange rates – because the UK economic is fall down, the exchange from a pound to Euro is decrease, therefore, customers might chose domestic tourism for their holidays.

Even in the recession, customers still prefer to take short break to reward them. According to Mintel’s annual survey of spending priorities in 2009 showed that holidays remained the leading concern for consumers, despite in the recession.

Furthermore, the leading priorities showed little change from pre-recessionary times.

Specifically, hotels in UK will appear relatively cheaper since this fall in the value of sterling, and hence more attractive to inbound travellers and tourists. At the same time, it means it is less attractive for the UK holidaymaker to travel to the Euro zone or USA, and more attractive to stay at home.

2.1.4 SOCIAL FACTORS

In the recent of time, the population of old generation in the UK is increasing. Furthermore, Mintel (2009) exclusive consumer research reveals that older adults are slightly below average in usage of budget hotels. However use is slightly more likely than young person.

However, even in the recession, a few people have not be affected, they still consume in the luxury hotel, such as Ritz or Hilton. They did not care the money, just because their lifestyle is luxury. Although those people did not change their consumption, most of customers still be affected by the recession, therefore they might prefer to choose the budget hotel not the mid-range hotel if they are travelling.

2.1.5 TECHNOLOGICAL FACTORS

Nowadays, technology has significant affected the hotel industry in many ways, for example, Travelodge launched a free iPhone application that allows users to locate their five nearest Travelodges by GPS, and they can see availability and prices, and book rooms. Moreover, customers can book their accommodation or check-in by Internet, or get the information which are required by customers on new Platform, such as Facebook or Twitter, these and other technological advances will help companies to be more effective in the marketplace, however Internet penetration levels and the demographic breakdown might be make operators’ use of this distribution channel ever more viable. If firms that adopt useful technological advance, they will gain a competitive advantage.

2.1.6 COMPETITION FACTORS

Since hotel is also a service industry, human resource has become an indispensable element to the market. If the turnover ratio of employees is lower, the centripetal of employees will be strong. As a result, company will have the advantage of competition.

After that, the main substitutes of the UK hotel market are the hotels which from other countries. Customers may choose their visit destination from abroad, such as France and Spain. However, Country house hotels or Bed & Breakfast are also could be the threat of substitutes of the UK domestic hotel industry.

In fact, hotels find themselves with a different problem for their competitors, which is a high barrier of exit and entry costs with the investment. Thus, the large capital investment required to build a hotel sunk cost. Hotel may not meet all the debt payments, taxes, and other fixed costs, but they can produce enough profit to cover their fixed cost. They perhaps operating at a loss rather than close their door completely. However, when hotel oversupplying, but the room supply remains the same numbers, as a result will be a price war for the whole industry.

2.1.7 ORGANISATIONAL FACTORS

A Hotel manger should decide how to engage the process of internal business, capability and skills. Moreover, adjustment or development to adapt to customer needs and preferences, for example, if hotel could provide high quality of service or doing some promotes activities customer return ratio will be increased. When the people go to a hotel first time what they primary concern is the appearance of the hotel, then will be the service quality of the hotel. But the problem which the hotel industry is facing now is finding qualified employees to provide services that could meet the standards of the customer. Majority service employees have lack of understanding of international service standards. This might because the hotel industry was closed to the West for so long.

For instance, according to Mintel (2009) points out that Whitbread decides to open 1,700 Premier Inn rooms across the UK during 2009 to 2010. Whitbread is planning to increase their market share in the UK hotel industry. It attempts to do this by building on its market position and providing its customers with cost-effective packages (Mintel, 2009). It also plans to develop their booking platform, enhance their sales and put into place the next phase of its revenue management system.

2.1.8 MARKET FACTORS

In the market sector, the most important thing is customer, firms should affirm the main customers they want to strive and the market they segments.

In the UK hospitality industry, as well as the hotel industry worldwide, has been hit hard by the recession which started at the end of 2007 and is predicted by many to last until at least 2010. In the course of a few months the economy in the UK has gone from boom to crisis and by early 2009 the attitudes and beliefs of consumers and businesses in the marketplace had altered radically from previous optimism (Mintel, 2009).

The number of business travelers who choosing the budget hotel for their commercial trip is increasing. Moreover, this trend starts at this time is match for the recession in 2008. Because many enterprises have reduced their budget for commercial travel, therefore, the commercial travellers used the budget hotel to in place of the mid-market hotels which they usually used before the economic downturn.

Another consideration is the rising concern with being ‘green’ and the impact of frequent air travel on the environment (Bainbridge, 2009). Consumers who want to reduce their carbon footprint and impact upon the environment are increasingly opting to stay within the UK (Bainbridge, 2009). What Bainbridge does not highlight, however, is that the new concern for green issues is not completely beneficial. Tourists from overseas will be equally concerned to cut their travel abroad, so this could also reduce inbound tourism into the UK.

Research is conflicting with some showing that interest in saving the environment is fairly low priority for the majority of consumers and other studies confirming the idea that green issues will become increasingly important (Key Note, 2009). A previous study also claims that more people are choosing to holiday in the UK because of a demand for a green and alternative to flying abroad. Similarly, the ferry lines entered 2008 assuming that demand would increase for their services as a greener alternative (Key Note, 2009).

Budget hotels have made important investments in order to get closer the gap with the mid-market brands. However, there are three top most improved brands for advertising awareness are namely, Premier Inn, Travelodge and Holiday Inn Express.

2.2 SWOT analysis

2.2.1 Strengths

The UK, just like many other countries, has now become one of the world most attractive destination for tourists after twenty years of rapid growth in economy with Open-door Policy. On a positive note, the hotel market in the UK is a strong and sophisticated one with a wide range of different options to appeal to a range of different types of customer and including internationally recognised brands as well as smaller individual operators. Moreover, there is a powerful promotional and supporting system in place for tourists through organisation, such as VisitBritain.

Moreover, the range of hotel and different price could meet each consumer’s needs. Luxury, middle range and Budget, even the country house could satisfy every consumer. Besides, the growth of the budget hotel sector opened a wider range of clients for hotel market.

In the past ten years, due to the consumer disposable income levels was raised, the short- break leisure market has grown, it make more travellers to choose to have a trip in the domestic. That was positive information for the hotel industry.

However, there has strength for hotel market which is the online reservation system. Customers could search the information for accommodation and booking rooms on the Internet. It not only convenience for customers, but also make it a system for enterprises.

2.2.2 Weaknesses

The benefit is always the first element of the hotels concerned. They worry about losing money during the course of chain operation. Then, the vested interest group which including employees and also retired employees etc. There still a lack of an efficient agency to monitor the hotel management companies after contraction hotels to the management party (Gavin, 1997). However, there are few Weaknesses of the hospitality industry as below:

Recession has being the major influence factor during 2004 to 2009. As noted by Keynote (2010), the number of visits peaked in 2007. However, there was a fall in 2008. During 2007 to 2008, the number of visits fell by one million.

In the situation of oversupplied, the occupancy rates keeps at an average around sixty percent. Nevertheless, it has fallen 8 percentages from 2007 to 2008 (Keynote, 2010). However, the price usually be reduced in order to increase the occupancy rates, this may also diminish the profitability.

The midmarket hotels are being under the pressure between budget and luxury hotels. The competitions of midmarket and budget hotels are more actively, there probably will become a price war between them.

The performance of the global economy has direct influence the cost of hotels’ equipment. Therefore, the cost has been rising up, the burdens of financial also has become heavier.

2.2.3 Opportunities

Many tourism and hotel officials now believe that the UK will be world’s No.1 tourist destination by 2011 or 2012. This has been considered as an encouraging statistic and great opportunity to those who want to expand their hotel business in the UK. Even though, it is a minority that can manage the high star class hotel among various hotel management groups, most of them manage the medium or low-grade hotel (WTO, 1999).

Furthermore, the pound fell against foreign currencies until at one point in late 2008 it was worth very nearly 1 Euro. This should mean that UK services, including UK hotels and UK tourist attractions, become more attractive to visitors from overseas as they get more for their Euro or dollar.

The development of global online reservation system will not only make hotels more easily reached, but also an opportunity to access a wider client base.

According to Keynote (2008), the ageing UK population is growing, in addition to these consumers with highly disposable property to use in their leisure time. Besides there are a rising number of old generation customers are going to plan their retirement life, which will be a positive chance to the hotel market.

In the next decade, the number of organized activities, such as 2012 London Olympic, will give UK more attention in the international market, promoted the growth of demand from overseas visitors to get accommodations.

There are few leisure facilities, such as restaurants and bars can provide scope for extra sales, as well as the opportunity to create potential sales from the local area to the hotel.

2.2.4 Threats

The long-stay leisure market which those travellers staying away for five nights or more has been in decline since 2004. Moreover, the number of long-stay hotel rooms booked in 2008 was half that in 2006, at 11 million (BMRC, 2009).

The threat of terrorist activities could discourage overseas travellers to have a holiday to UK.

The budget sector successful is a threat to the midmarket and upmarket hotel chains. In the recession, customers may choose the low price accommodation for their tourism. For example, self-catering and other less expenditure styles of accommodation form a bigger threat in this time.

Some cheap flight companies provide low-priced flights for travellers to have short weekend break sector. That might be a competition to domestic travel in UK.

2.3 Porter five forces

Because the structure of the industry is strongly affect the competition between the companies, while deciding the strategies which are used by firms. Therefore, Porter’s five Forces analysis will be used to investigate the hotel industry.

New Entrants

Government policies against entrants.

Fixed cost is huge.

Hard to access further credit.

Investments cannot recover immediately.

Suppliers

Bargaining power is depend on the size of the hotel.

Uniquely technology and resource.

Switching cost.

Buyers

Larger hotel, power low; Small hotel, power high.

Customers as group have more power.

Sign contract gain more bargaining force

Competitors

Competition within luxury, midmarket and budget hotel.

Customers change consumption to budget hotel.

Not affect Luxury hotel very much.

Substitutes

Camping, caravanning club, B&B, and country house etc.

Camping and Caravanning club had their best ever year in 2008.

An attractive option for the budget conscious consumer.

It is including the threat of new entrants, the competitive rivalry within industry, the threat of substitutes, the bargaining power of buyers and the bargaining power of suppliers. With following:

2.3.1 The threat of new entrants

As hotels are not easy to gather space to build and the costs of construction are very high. Furthermore, the investments cannot recover the period of the construction immediately. Therefore, it will become the barrier obstruction gradually, and the entry barrier is strong.

UK enjoyed some of the highest periods of growth of house and other building prices, and the construction industry has been particularly badly hit by the latest recession. Developers are unable to access credit to fund large scale building schemes, so many hotel projects have been stalled (Blitz, 2009).

Aside from new developments, hotel owners who are unable to access further credit are also finding things more difficult. While larger operators and branded chains are able to look to the medium and long-term, over which a boom for hotel and travel are predicted due to emerging markets, smaller operators have less access to the resources which will see them through the next couple of years (Blitz, 2009). As a result, the threat of new entrants is limited for the whole hospitality industry.

2.3.2 The competitive rivalry within industry

In economic downturn, the main competition occurs within upmarket, midmarket and budget hotels. Because of the mid-market hotels usually for tourists who not travel a lot, also their rooms are priced much higher than budget hotels. In general, when the economy is in the recession, the consumer spending power was decreased. Therefore, they might choose a lower priced accommodation for tourism. At the same time, budget hotel continued their strong plan of development to add supplementary rooms to their offer through the expansion of new property. Between these two hotels, the development of budget hotels has eroded to the midmarket hotels’ territory.

However, the upmarket hotels may not be affected too much at this time. The consumers who have been segmented to luxury hotels perhaps would not change their consumption patterns. It could be inferred that those consumers’ lifestyle is very high consumption, they would not change their attitude is because the price sensitive of them is inelastic which probably equal to zero. That is to say, no matter how the price changes, they will continue consuming.

2.3.3 The threat of substitutes

There are some substitutes in this market, such as camping, caravanning club, B&B, and country house. However, Mintel predict that these holidays are an attractive option for the budget conscious consumer, and will benefit from the increase of families who elect to stay in UK in 2009 and 2010 for financial reasons. They point out that the Camping and Caravanning club had their best ever year for recruitment of new members in 2008 (Mintel, 2009). Domestic camping holidays are predicted to do rather better over the next couple of years before the long-term trend towards decline reinstate itself. The growth in this area is not good news for the hotelier, as by definition a stay in a hotel is ruled out for this holiday type.

2.3.4The bargaining power of buyers

The hotel Industry is face in a fierce competition. Companies possibly will signs a long-term contract to remain their customer base. Therefore, customers in the bargaining process had a strong bargaining force.

Behind large hotels, there are lots of capitals to support them to buy the land and build a hotel. Consequently the bargaining power of consumers is quite low. Contrary, when the situation happened in the small hotels, the bargaining power of customers will be much greater, which means that might harder to fulfill customers expectations.

However, customers will be separated by two sectors, namely individual and groups with following:

Customers as individual – It be divided by business travellers and individual tourists. Business travellers usually might have a long-term contract with hotel. Therefore the price for them could be negotiated. As individual leisure tourists, the bargaining powers almost none.

Customers as group – they usually book rooms through travel agency. It would be a large number of the orders. In fact, these profits have been taking by travel agents. However, the price is still much cheaper than the individual. That is to say, their bargaining power is more than independent tourist.

2.3.5 The bargaining power of suppliers

There are two main bargaining powers in the industry, one is furniture and fittings, and another one is food and cigarette. They are outline below:

Furniture and Fittings – when hotels purchase furniture, they typically will make a standards and constant to use. The number of furniture purchased is usually large amount rather than as separately item. Thus, the orders must relevant to the numbers of rooms operated. For this reason, furniture is supplied by the specialist contract providers, which are department of business that cope with the domestic as well.

Food and Cigarette – many food or cigarette manufacturers have their own sector to supply and deal with the demands from the hotels.

However, the bargaining power is depend on the size of the hotel. If the company has a great scale, it could also have big power to bargain with suppliers. Contrary, if the company has small size of the property, their bargaining power will be limited.

2.4 STP process—Segmentation, Targeting and Positioning

2.4.1 Segmentation

According to Swarbrooke and Horner (1999), the tourism market is divided few demand characteristics in a number of the different segments which are outlined at below:

Family market – the definition of family means two parents with one to three children. The preference of many families is to use the minimise cost to meet their desires for having a vacation. However, these needs will depend on their children’s.

Hedonistic tourist – According to Kozak and Andreu (2006), the hedonistic tourists are increasing in recent years. They prefer to the place with sun, sand, and sea, such as Ibiza. In fact, they are desire to physical pleasure and social life.

The backpacker market – in this market, the backpackers generally keep their expenditure to a minimum, they have the time and want some adventures in their holiday. Moreover, this tourist usually is independent rather than as a group.

VFR (visiting friend and relatives) – this people do not stay in commercial accommodation and usually travel domestically (Swarbrooke and Horner, 1999). This tourism also could relate to weddings and funerals. Particularly, their budget is limited and just for a normal holiday.

Excursionists or day trippers – in general, these travellers do not want to travel too far normally domestic, and they usually would not to stay overnight.

Educational tourists – they usually travel to other countries, in order to learn different educations, for example, a foreign culture, student exchanges or attending language classes.

Religious tourist – it can be seen as obligation or duty for those who have faith and belief in their minds. But, in recent years, the traditional religious tourism has become a tour which to visit the churches or cathedrals (Swarbrooke and Horner, 1999). However, they usually visit the place at a specific time, such as the Haj.

The snowbird market – the snowbird means that tourist travels during the winter, in order to avoid the cold weather. However, this type of vacation normally is taken by retired people, because they have the time for travelling.

Tourists with disabilities – According to Swarbrooke and Horner(1999), there are many kinds of disability or degrees of disability, with following:

Mobility problems, they who are confined to a wheelchair and may have difficulty to climb stairs.

Sight problems, the people who has minor impairment to their eyes and difficult to have a clear vision.

Hearing difficulties, their ear have injury, thus they have not a complete hearing.

However, hotels should have more regards to them, or need someone to accompany them.

The short break market – it means the tourists used their two-day weekend to have their vacation. According to Mintel forecasts (2007), the short break market is continuing growing, even though the overall stagnation of domestic tourism. And the volumes will reaching 9.5 million and value rising to 2.5 billion in 2011.

Commercial travellers – they usually travel for their business, company delegate them to other place to sign contract or solve problem, generally for domestic travels.

2.4.2 Targeting

In order to relate to the objectives of this report, for this section, the researcher will undertake the budget hotel to investigate the target market of the budget hotels.

The budget hotels generally adopt three kinds of tourists to focus, such as commercial, family, and short break in economic downturn. Because the proposition of the budget hotel is matched with those tourists, limited cost, clear and comfortable accommodation to live, these all elements are concerned for the tourists. However, the fact that there are many chains available in this sector means travellers can be reassured regarding expectations and quality as they are buying into a brand name (Brotherton, 2004).

2.4.3 Positioning

According to Baines, Fill and Page (2008), Positioning is important for business because that could be differentiated from others competitors. As Mintel (2010) argues that, the first physical attributes of budget hotels for customers that they have standards quality and consistent service, also located in many places which are convenient to accessible for travellers. According to (Brotherton, 2004), the second positioning elements are perceived by customers that they are value for money, clean and great brand reputation.

Marketing communication can be used to positioning brands as a strategy to customers (Shimp, 2003). Budget hotels positioning their brand and products or services through three ways of basic consumer needs, such as are functional, symbolic and experiential (Keller, 1993). These are outlined at below:

Functional needs – Budget hotels marketers adopt the new technology and season sales to appeal to consumer needs for convenience, value for money, tangible and so on, these entire can met consumers’ functional needs and also be satisfied by brand benefits.

Symbolic needs – Budget hotels appeal to symbolic needs with their desire or self-image to associate with the brand. For example, tidy, cleanliness and rapid etc.

Experiential needs – Budget hotels use standards quality of accommodation to address the experiential needs for consistent and hygiene.

For a marketer, it is important to recognize that brands benefits, even combination of any two of them. However, this project will investigate the consumer attitudes toward the budget hotels market when they are in economic downturn. And to analysis how recession affected consumers’ consumption patterns and budget hotels strategy.

3. Marketing objectives and Strategies

3.1 AIMS AND OBJECTIVES

The main aim of this research is going to investigate the critical factors within consumers making decision to choose budget hotel for their holidays in economic downturn. In fact, according to Brotherton (2004), the author points out many critical success factors in UK budget hotel operations. However, this research will examine the how consumers perceive these main factors that concerned with decision making process. And also investigate the market segment of budget hotel in the UK in the recession. Furthermore, to investigate the consumer attitude those who have been segmented towards the budget hotel and holidays.

The report aims to do this by:

To analyse the market segment of the budget Hotel in the UK during the time of the recession.

To investigate how the economic downturn affected budget hotel in recent years.

To investigate consumer attitude towards the budget hotel and holidays in particular with hotel services marketing.

To examine the critical factors within consumers making decision to choose budget hotels.

The Service Marketing Mix

As the development of hospitality industry, services have become one of the most significant factors in a success company for marketing. The most benefit for hotels is to keep their customers return ratio, moreover, to attract more potential customer to visit (Yu, 1999).

However, according to Baines, Fill and Page (2008), as the traditional 4Ps ma