The Penhaligon Hotel
Organizational resources include human resource, the management and physical resources.
Penhaligon Hotel always regarded their staff as the greatest resources. The Group is currently employing a total number of 1,600 people in the region. They have a very loyal and experience group of people working for them at all levels. The majority of their senior staff has been with them for a long time and is very experienced. However, there is a quite high staff turnover in the lower levels. This could be a problem to the Group since staff turnover would cost them. Cost would include advertising and interviewing, and other hidden costs, such as time spent orienting and training the new employee, lost productivity, potential negative impact on member service, and lower department morale.
The group must act quickly to solve this problem. It is must for the organization to manage staff turnover to have a more effective recruitment, to reduce costs, to have better staff morale, to improve knowledge of the labor market as a whole and to have a more constructive development of the organization’s knowledge base. To this, the Group must consider retention strategies.
An effective retention strategy is comprehensive and starts with a commitment to examine the issue and work toward improving it. These would include salaries, benefits, communications, training, a supportive management staff, and, when possible, a promote-from-within philosophy. The following are some of the strategies (1999):
Another valuable organizational resource of the Group is the management. Their Board of Directors is generally young and dynamic. is the current managing director which is the sixth generation of the family to hold the post.
Moreover, another organizational resource is their physical resources which are their hotels. The Group has a total of 8 hotels, 3 were at the seaside and others were in the towns. All of these are large hotels. Currently, the group’s hotel falls into the accepted segments of upscale and upper upscale. Their hotels cater both business and leisure. They have a very high standard facilities and décor.
External Analysis
Market Environment
The popularity of the traditional Victorian style seaside hotel has declined in recent years. Three of their hotels are such seaside hotels. In addition, the number of tourist especially from the US has recently declined due to tourist concern at terrorists attack. In the global travel and tourism business, threats of terrorism continue to cause the travel industry to evolve.
PEST Analysis
Political
Several literatures claimed that there is no single universally accepted definition of political risk (1989; 1996; 1979; 1971; 1986). It is most commonly conceived in terms of government interference with business operation (1979). According to (1971), ‘political risk’ refers to the possibility that political decisions or events in a country will affect the business climate in such a way that investors will lose money or not make as much money as they expected when the investment was made.
Political factors that may affect the Penhaligon Hotel may include government laws and regulations. Restrictions on repatriation of capital, profit, and management fees can affect the operations of the hotel. In addition, regulation on the price controls for rooms and other charges in a hotel. Moreover, implementation of high corporation tax on hotel firms can affect the Penhaligon Hotel. Further, regulations on licensing restaurants, swimming pools, barber shops, night clubs, bars, etc., in a hotel also would affect hotels.
Economic
Demand is driven by business and tourist travel, which are closely linked to the state of the economy. The profitability of individual companies depends on efficient operations, since many costs are fixed, and on good marketing. Big companies have economies of scale in operations, can more easily raise capital and have strong name recognition. Small companies can compete effectively through favorable locations and specialty services. The industry requires large amounts of capital but operations are labor-intensive. Major sources of revenue are room fees, food, alcoholic drinks, and merchandise sales. The basic operations of hotels and motels consist of providing sleeping accommodations, housekeeping, maintenance, and a variety of personal services. In addition, hotels may provide restaurants, meeting rooms, event hosting, business services, and resort services like golf, tennis, swimming pools, fitness.
Combined demand for hotel rooms from leisure, business and group meeting segments has grown every year over the past 10 years except in the deepest part of the recession (1991), thus showing the underlying strength of the industry. As in other segments of the real estate industry the primary problem in the hotel industry has been excessive supply.
However, with the growth in supply currently being slowed to a trickle and demand continuing to grow at healthy rates in comparison with the overall economy, occupancy is increasing nationally, room rates are beginning to show sigh of growth, managers are showing a renewed focus on operating efficiencies and operating profits are rising at healthy levels.
Socio-Cultural
Hotel is affected by the structure of the tourist markets which is also affected by demographic and socio-structural factors and changes in these. However, population in the poor countries is continuously increasing. The relationship between the population age groups (child, youth, working population, retired) are shifting to fewer and fewer working people. The comparatively large proportion of retired people in the total population will also influence the structure of tourist demand.
In addition, the ongoing rise in the educational level of the population in recent years is closely related to growing demands in the labor market. Within employment there is a clear shift towards services, with particular demand for qualified service jobs. Tourism will continue to be closely tied to the relationship between working hours and leisure
Technological
Technology is both a driver of and a constraint to hotel industry transformation. Information technology is a driver because many of the capabilities required in understanding a customer needs and wants can only be enabled by technology. Increasingly robust applications, infrastructure, networks and global communications all at declining costs, are providing hotels with unprecedented opportunities to cost effectively deliver customized service.
Technology allows support functions to be centralized into the most cost effective locations. Technology will enable guests to participate in service delivery through the use of self-service technologies and the creation of innovative combinations of functions at the property level.
Competitive Analysis
The identified competitor of Penhaligon Hotel is the UK Marriott Group. The Marriott hotels have considerable expertise in the hospitality industry and in particular how restaurants are run. In addition, the company’s logistics are superb.
Porter’s Five Forces Model
Threat of New Entrants
Threat for new entrants are not so strong since establishing a upscale and upper upscale hotel for automobiles quite needed big amount of capital. Emergence of competitors requires the capital, required technologies, and management skills. However, there are still possibilities of new entrants in the industry.
Power of Suppliers
Bargaining power of suppliers is weak since the hotel supply business is quite fragmented and there are many competing firms. If an hotel decided to switch suppliers it would not cost the hotel that much. As a result, suppliers are extremely susceptible to the demands and requirements of the hotel, and hold very little power.
Power of Buyers
The bargaining power of consumers is strong since there are lot of competitors which can provide the same services and the switching to other identical seller would cost little or none to the customer.
Availability of Substitutes
Staying in an upper upscale or an upscale hotel may compromise a high cost. Travelers may seek another alternative to experience the same services at an affordable price. Travelers may find it more practical to stay at the lower level of hotels like the midscale types of hotels. Considering the time, money, personal preferences and convenience, the threat for substitutes is strong.
Competitive Rivalry
Highly competitive industries generally earn low returns because the cost of competition is high. There has been a considerable number of small hotels being establish which compete directly to Penhaligon Hotel.
Consumer Analysis
The Penhaligon Hotel caters both business and leisure. The ones at the seaside cater for a mainly leisure market with business guests. The others are mix of business and leisure. Predominantly their customers are composed of international guests.
Tourism will continue to be closely tied to the relationship between working hours and leisure which in turn related to filling the hotel rooms. As the number of travelers increase so with the consumers of hotels increase. In addition, the comparatively large proportion of retired people in the total population will also influence the structure of tourist demand.
Business Travel is solid, and its strength can be seen in hotel occupancy figures for properties used most by business travelers. Significant growth is predicted for tourism. The expectation is for the coexistence of partly-contradictory value systems, with a wide diversity of lifestyles, reflected in the structure of tourists’ desires and needs. Demanding, price-sensitive customers operating in a multi-optional mode with multi-layer, complex and partly contradictory consumption patterns and lifestyles will make it increasingly difficult for tourist service providers to anticipate consumer behavior and configure their services accordingly. The tourist industry will in future have to focus more on a “hybrid consumer” whose travel choices and vacation activities will be increasingly complex
If we consider worldwide demand it is clear that there has been strong growth in the volume of international travel. The number of long-distance travelers has also risen substantially in absolute terms. This considerable increase in the demand for tourism would likely increase the demand for accommodation which are supplied by hotels.
Strategy
The choice of competitive strategy is one of the most important decisions for small business success. In order to achieve high performance each strategy must be supported with appropriate resources and distinct competencies ( 1980). The effects of the strategies are determined by the characteristics of the resources and how they are combined. Contingencies like the firm’s age, size, competition, industry, and environment are also expected to be of importance, and may have a direct relationship on resources as well as on strategies, in addition to various effects on the relationships.
In the case of the Penhaligon Hotel, after assessing the organization’s resources and external analysis, it is recommended that the Group should adopt a differentiation strategy. Differentiation requires that business offerings have sustainable advantages that allow it to provide buyers with something uniquely valuable to them. A successful differentiation strategy allows the business to provide a product/service bundle of perceived higher value to buyers at a “differentiated cost” below the “value premium” to the buyers (1980). Differentiation usually arises from one or more activities in the value chain that create a unique value important to buyers.
A differentiation competitive advantage prescribes that a firm achieve and maintain a means of making its product unique from its competitors’ products (1983; 1989). The advantage of differentiation is based on the additional value the product possesses, for which the customer will pay a premium. While additional value may be created through a variety of means, such as quality, service, brand image, or distribution (1984), superior quality is the means of differentiation which is most often used (1983). Thus, successful differentiation permits a firm to command premium prices (1990) for this additional value. A differentiated product engenders customer loyalty, reducing customer sensitivity to price and protecting the business from other competitive forces which could reduce price-cost margins (1983).
Market Management
One approach to market management is through market segmentation. The increasing internationalization of consumers as well as the growth of technology has created important opportunities for marketers to target customers. Market segmentation is, briefly, the subdividing of a heterogeneous market into homogeneous subsets. Market segmentation involves the partitioning of a market into different sector according to the common characteristics. This marketing strategy has been gaining attention due to the realization of marketers of the diverse nature of customers
Today, there is a growing body of evidence suggesting that customers are very diverse. Thus, the heterogeneous nature of the market is a fundamental reality and the idea of recognizing a heterogeneous market rather than a homogeneous market is not insignificant. However, the idea of segmentation in practice is to find groups of customers and prospects who look at the market in the same way. Market segmentation focuses on groups of customers and groups of prospects.
Markets and the customers who make up those markets are not homogeneous (1968; 1956). (1956) suggested that segmentation, the division of a market into groups of customers who share certain characteristics or propensities toward a product or service, might be an effective way for an organization to manage diversity within a market.
With the trends of globalization and with the international guests of Penhaligon Hotel, international segmentation would best suit its market management. (1972) put forward the argument that segmentation is not just equally important in the international market, but in fact may be more important because international markets are more diverse than domestic markets. The development of international segmentation strategy has been alternately conceptualized as a linear process or as a portfolio of interrelated decisions (1981).
International segmentations involves two decision process. (1972) termed the first decision as the “macro” segmentation decision in which countries are classified and targeted based upon national market characteristics. The second decision is to analyze and sub-divide each qualifying target country by customer characteristics to form market segments (1972).
Similar in intent to (1972), the first decision presented by (1987) was referred to as “country screening”–selecting countries that qualify as potential markets. The second decision was termed “microsegmentation,” where consumers are classified based upon product predisposition and consumption patterns. Once these segments are identified, it is suggested that firms look for “strategically equivalent” segments across a range of countries that may be served with a common marketing mix. Strategically equivalent segments share a similar predisposition toward at least one type of product and exist in multiple markets. Like (1972), (1987) assumed a linear or hierarchical order to the decision steps.
Once segments have been identified, they must be appropriately grouped and managed. A number of authors have suggested that the scale of segment management may be multi-local (country by country), regional (based upon clusters of countries), intermarket (based upon a global customer segment which transcends national boundaries), or global in nature (2003; 1987;1991; 1993; 1994).
Some recent research suggests that a multi-local scale of segment management might enhance market performance (2000). Arnold (2000) uncovered a long-term trend toward higher performance among firms that allowed local control of distribution. “In the long run, multinationals come to see that it makes sense to continue working with independent local distributors who handle sales and distribution system [sic], even after the international companies have taken control of marketing strategy and major global accounts” (2000)
But for segmentation system to be both effective and actionable, (1998) suggests that it needs to meet four criteria. First, segments must behave as homogeneously as possible ( 1998). Many marketers confuse homogeneity with how people look, instead of how they behave. Second, an effective segmentation system must be able to quantify the size of the segment in any market of any size or shape ( 1998). Geographic-based, quantitative analysis is critical became segmentation is often used to measure market potential. Third, your segments must be locatable, so you can link to both internal and external lists ( 1998). The success of your retention, acquisition and loyalty programs depends heavily on the ability to use selected segmentation techniques to prioritize names within a list. Fourth, a viable segmentation system must help you to determine the most effective way to reach segments ( 1998). Knowing how segments respond to direct mail, in-store or telemarketing promotions, along with television, radio, newspapers and magazine advertising can be helpful in allocating your media budget and developing targeted campaigns.
Risks of Market Segmentation
The implementation of market segmentation may compromise some risks. First, market segmentation was viewed as being expensive. Second, full implementation would eventually mean that marketing efforts and marketing programs would have to be more insightful and more sophisticated than some bankers wanted to support. Third, market segmentation would mean that strong, well trained, well compensated marketing officers would have to be employed to make it work. Finally, market segmentation might be controversial, implying that some customers were more important to the hotel than others.
In addition, there would also some problems that may arise. One is availability of information. Information is required for effective market segmentation, information that is substantially beyond that which is available from the typical customer information system. Specifically, hotel must be committed to acquiring and using available information about customers and prospective customers to develop the multiple service relationships that are critical to improved profitability and retention.
In addition, the markets are large enough to support market segmentation and the necessary information is readily available. The challenge comes in developing delivery systems and promotional programs that work for the hotels and make sense for customers. Having promotional access to the customers and prospects is particularly important for success. Also crucial is having a system that delivers the services that are important to the individuals and households in the segment.
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