Markets and marketing, Peels hotel

MARKETS AND MARKETING

A CRITICAL EVALUATION OF PEEL HOTELS

1 Markets and Marketing

01st April 2013

To,

The Board of Directors,

Peel Hotels, London,

United Kingdom.

Dear Directors,

Attached is the report on the marketing plan and strategy to

increase brand image and market share of our company.

Executive Summary of the Report

Peel Hotels plc. is a mid-market hospitality industry which targets

to offer premier hotel keeping standards to its customers at key

locations in cities and towns of UK. The Company has nine hotels in

major cities and towns throughout UK and has annual turnover of £15

million pounds with 500 employees as staff (Peel Hotels, 2012).

Every hotel has its discrete specialty but by and large represents

the company’ desire to appease and exceed the expectations of

customers. The company offers extensive amenities such as banquet

halls, training and conference halls to meet the requirements of the

customers.

Following the poor performance of the hotels in financial year 2011-

2012, a report has been prepared to study the existing market

condition of London hospitality industry. Effort has been taken to

critically asses the hotels strategic position in the market by

referring to various market research reports and using Porter’s five

model tools.


The researcher has critically evaluated the hotel based on Porter’s

five forces model and has recommended the necessary changes the

organisation has to incorporate to sustain in the industry.

Table of contents of the report are in the next page.

Yours sincerely

ABC

(Consultant)


Table of Contents1 Overview Hotel Industry..........................................4

1.1 Peel hotels..................................................4

1.2 Choice of the organisation...................................4

2 Approach Followed................................................5

2.1 Introduction of Porter’s Five Forces.........................5

2.2 Five Forces of Porter’s Model................................6

2.3 Critical Evaluation of Porter’s Five Forces Analysis.........9

Statistical Analysis:..........................................9

Dynamical Analysis:...........................................10

Analysis of Options:..........................................10

2.4 Advantages and disadvantages of the model:..................10

3 Recommendation for Peel hotels..................................11

Conclusion........................................................13

Appendix 1: Overview Hotel Industry...............................14

Appendix 2: PESTLE Analysis for PEEL Hotels.......................16

References........................................................18


1 Overview Hotel Industry

Post-recession has seen rapid changes in the global economy in all

sectors of business and hospitality sector is susceptible to it. The

slump which the hotel industry faced during the recession has

changed as the economy is recovering. As the recovery is in

progress, the hotel segment still lags in the revenue-per-room and

occupancy percentage. To address the rising demand for hotel rooms

and services hotel owners have come up with pipeline of new hotel

developments and host of new constructions (STR & STR Global, 2012).

Hospitality sector in US has bounced back after the economic

downturn and is experiencing concrete progression. Europe is still

trying hard to deal with economic issues for years while developing

markets like China and India are evolving as a more significant

competitor in domestic and global travel and tourism (Ernst & Young,

2012). Detailed industry overview is discussed in appendix 1.

1.1 Peel hotelsPeel Hotels plc. is a mid-market hospitality industry which targets

to offer premier hotel keeping standards to its customers at key

locations in cities and towns of UK. The Company has nine hotels in

major cities and towns throughout UK and has annual turnover of £15

million pounds with 500 employees as staff (Peel Hotels, 2012).

Every hotel has its discrete specialty but by and large represents

the company’ desire to appease and exceed the expectations of

customers. The company was listed on AIM in 1998 and offers


extensive amenities such as banquet halls, training and conference

halls to meet the requirements of the customers (Peel Hotels, 2012).

The company has over the years invested all of its profits in

improving the quality and services of its hotels and passionately

maintains the overall cleanliness standards. In each of its hotel,

the company provides contemporary menus to its customers by enticing

them to eat in the hotel rather than going out by offering it in an

amicable atmosphere. With modern and the latest bedroom

accommodation, the viewpoint of the hotel is to be the choicest

hotel in the domestic market (Peel Hotels, 2012).

1.2 Choice of the organisationThe financial year 2011/2012 was the toughest in the history of Peel

Hotels, due to the additional 2.5% VAT and cut backs in government

spending, rise in energy charges and unequal costs in relation to a

Rent Review in Carlisle’ Crown and Mitre Hotel (Peel hotels, 2012).

In view of the impeding situation, the board of directors of Peel

hotels have not recommended dividend for the year. In this report

efforts have been taken to assess the critical strategic position of

Peel hotels, identify the key issues in the hotels and alternative

course of actions to bring about valuable change.

2 Approach FollowedIn this report Porter’s Five Forces model has been used to analyze

the Peel Hotels competitive position.


2.1 Introduction of Porter’s Five Forces The company’s competitive position can be evaluated using porter’s

five forces model. This model was originally created by Michael

Porter. The model often used in strategic planning is applied to

evaluate the market forces within the industry and to bring out

strategic recommendations. Due to its proven its usefulness in

numerous situations, it is one of the most commonly used business

strategy tool (Herzog, 2010).

The basic idea behind Porter's Five Forces model is made up by

identification of 5 fundamental competitive forces as shown in fig

1. According to Porter, there are five factors which act together to

control the nature of competition within an organization.

These are as follows

Threat of new entrants to a market

Suppliers or bargaining power of suppliers

Buyer or bargaining power of customers

Threat of substitute products

Degree of competitive rivalry (Schermerhorn, 2009)

Some analysts believe that government can be sixth force in the

model.


Porter’s five forces framework

Fig 1: Made by student (2013) Adapted from (Enz, 2009)

2.2 Five Forces of Porter’s Model Force 1: Barriers to entry

This relates to barriers that exist for new entrants to enter the

market. This force helps in predicting the future industry rivalry.

Competition exists in each and every business between the companies.

Nature of competition varies from expanding the business and


aspiring to stay in the higher position among the rival companies

are some of the examples. Extra capacity is added by the new

entrants into an industry, but the existing players in the sector

may lose their market share. Profitability attract new entrant in

the business.

Following are the factors to be considered in this section by an

organization:

Cost advantages

High initial investments and fixed costs reduce new entrants.

Brand loyalty of customers to existing players will reduce

chances for new entrants

Government and legal policies

Scarcity of essential resources

Supply channel of raw materials is controlled by existing

business organization,

Long term relation of customers with existing business

Switcher over cost high for customers (RapidBi, 2007)

Peel Hotels is a mid-market company. This segment is already has

excess capacity in UK compared to the other segments of the

hospitality industry (OTUS ANALYTICS, 2012). Although the

hospitality sector calls for high initial investments cost, new

entrants are ready to invest and take risk.

Force 2: Threat of substitutes

This force relates to availability of alternative product and

services which are similar to the organizations products and

services. Availability of alternative products and services at

lower prices with better performances will lead the customer to


change over from the organization. Price is one of the major reasons

for the switching over in service industry (Enz, 2009). Factors to

be considered in this are

Relationship with the customers or royalty

Costs encountered by the customer for switching over

prices of the substitutes (RapidBi, 2007)

Many customers are opting alternative substitutes as the switching

over cost is low for the customer; there are many mid-market segment

hotels available in UK.

Force 3: Bargaining power of buyers

Customers often are in a position to exercise pressure to reduce the

prices, or order higher quality at the same price, and consequently

reduce profits in an industry if are powerful. The level of

differentiation amongst the products of industry depends on the

level of bargaining power. Every customer is looking out for a

possibility to reduce the cost by alternate sources of suppliers

(Enz, 2009). The factors to be considered in this section are

Availability of alternate suppliers for the customers

Concentration of buyers,

High fixed costs in supplying industry

Availability of substitutes for the company’s products or

services

Low switching cost for customers.

Customers operating at low margins and are price-sensitive,

Possibility of customers manufacturing the product themselves,

Resource availability

Customer integrating backwards (RapidBi, 2007).


As mentioned above there are alternatives available for customers

and the switching over cost are low this gives the power for

customers of Peel hotels to squeeze out profits.

Force 4: Bargaining power of suppliers

Suppliers have ability to quote their products at a higher price

eventually squeeze the company’s profits. They have the ability to

influence the selling price of the resources they are selling.

Increased number of suppliers in the industry then it opens door for

organization to have wide variety of choice. Suppliers are in

powerful position when they are:

The industry lacks fragmented source of supply and is

dominated by a few large suppliers or there is monopoly of

suppliers

Recourse they supply is scarce and there are no alternative

substitutes for the particular resource,

Cost of switching over to alternative supplier is high for

company

Possibility of forward integration of suppliers to increase their

profit margins and set higher selling prices.

Reasons for forward integration:

Profitability of the buying industry is higher than the supplying industry,

It provides economies of scale for the supplier,

If the buying industry has been hindering its supplier in their development by being

reluctance to accepting its new products releases

Low barrier for new entrants for buying industry (RapidBi, 2007)


In such situations, the buying industry often faces a high pressure

on margins from their suppliers. The relationship to powerful

suppliers can potentially reduce strategic options for the

organization.

As Peels is a service oriented industry, human resources forms the

major part of the resources. The company which provides the

workforce for the organization should understand the requirement and

supply the right people. Further, other resources for the

restaurants and other parts of the hotels also should be meeting the

standards of the hotel.

Force 5: Rivalry among the existing players

This is another important force to analyze the degree of competition

among existing players in the sector. Intense rivalry leads to price

wars, investment by the rivals in to innovation & new products

developments and sales promotion which further increases costs

for the organization (Pickton & Masterson, 2010). Factors to be

considered in this section are:

Number of existing player in the industry

Operating strategy among the players

Product and services offered are similar and there is no

differentiation leading to price competition and price wars.

Growth of an organization is at the cost of competitor loss.

Excess capacity.

High exit barriers and cost condition (RapidBi, 2007).

As mentioned before the mid-market segment of UK hotel industry has

excess capacity. There is a tough competition between the hotels of

same category and almost each hotel is biting others market share.


In this situation it is necessary for Peels to be above average and

create a niche for itself.

2.3 Critical Evaluation of Porter’s Five Forces

AnalysisPorter’s model is an extensive toll used to provide valuable

information for three aspects of corporate planning:

Statistical Analysis: The model helps in identifying the attractiveness of an industry,

providing insight on profitability, thereby supporting the decision

of entering or exiting from the industry. Further it can be used to

compare the impact of competitive forces on the subject organization

with their impact on competitors in the industry (RapidBi, 2007).

Dynamical Analysis: Potential future attractiveness of the industry can be determined

using the model in combination with a PESTLE Analysis. The model

reveals more insights about the potential Political, Technological,

Socio-demographical, Economic, Legal and Environmental changes that

can influence the five competitive forces (RapidBi, 2007)..

Analysis of Options:Organizations can develop options to influence competitive forces in

a way that improves their own competitive position with the

knowledge about intensity and power of them. This will result in a

new strategic direction, such as a new positioning, differentiation

for competitive products of strategic partnerships (RapidBi, 2007).


The model allows the company to analyses market structure and

competitive situation in a structured and systematic way. It can be

applied to a particular company, market segments, industries or

regions. In the first step itself it is essential to determine the

scope of the market to be analyzed. This is followed by analysis of

the relevant forces for identified market and not necessary to

analyze with the same depth all elements of the competitive forces

(RapidBi, 2007).

The model is based on microeconomics and takes into account

complementary products and substitutes as well as the supply and

demand in the market, the relationship between cost of production

and volume of production, and market structures like perfect

competition or monopoly, oligopoly (RapidBi, 2007).

2.4 Advantages and disadvantages of the model:Advantages:

Aim of every business is to gain a competitive edge over its rival

firms, using Michael Porter's model of Five Forces context in which

the firm operates can be used to better. Attractiveness of an

industry structure can be analyzed using Porter's Five Forces model.

Using this tool, complex concepts can be represented in relatively

easily accessible formats. At all levels the model is simple and

easily comprehensible. Under each force, based on the suggested

point broad and sophisticated analysis of competitive position can

be develop which can be further used to create a strategy, plan or

taking an investment decision about a business or organization

(Bard, 2008). For Peel Hotels, this model is very useful to identify

the internal factors such as the industry rivalry, what is the


current market position of the group, how the industry is

interacting with its suppliers and customers and finally the

attractiveness of the industry for new entrants

Disadvantages:

However there are views expressed by theoreticians on this. Some of

them agree with the model but other say that the draw back in the

model is, it does not consider the essence of time when it comes

to how his forces interact with each other. Studies have shown that

at different levels of profitability industries can sustain (Hill &

Jones, 2009). The model views the business from outside. Within

industry it focuses on assessing competitive position, which can as

well be done using SWOT analysis. As SWOT analysis views external

and internal aspects of a business. The model assumes that buyers,

suppliers and competitors are unrelated and do not interact, Low

uncertainty and players in the industry plan for and respond to

competitive behavior which may not necessarily be true in all

situations.

Peel hotels being a hospitality industry, which is a service based

industry, it is necessary to identify external forces as well as the

internal forces. The industry has external forces affecting the

business such as the political, social, economic, technological,

environmental and legal factors (PESTEL).

Overall it can be concluded that though Porter’s five model has

drawbacks, for Peel hotels it is a very useful model as helps to

understand the current strength and weakness of the business and the

position of the organization in the industry. Using this model, one

can take a best decision towards the business. Hospitality is a


service oriented industry. Many problems in this industry can be

solved by identifying the weakness of the business and strengthening

on the power.

3 Recommendation for Peel hotels To reduce the bargaining power of suppliers:

Peel hotels can consider partnering with supply chains which are

supplying it the necessary resources. This will reduce to great

extent the suppliers bargaining power. The company can also identify

alternate source of supply for critical resources (Hill & Jones,

2009).

To reducing the treat of new entrants to the sector:

As hospitality is a very attractive industry it is essential that

the company takes necessary steps to increase minimum efficient

scales of operations to retain its market shares. The company has to

create a brand image for itself among other player. Should have tie

ups with various travel and tour operators (Schermerhorn, 2009).

To reducing the competitive rivalry between existing players:

The company is already facing tough competition by its rivals. It

has to retain its customers by offering discounts or attractive

packages. Further the company can also create a difference in its

services by introducing spas, casinos or other attractive services

the customer are looking for (Duval, 2007).

To reducing the bargaining power of customers:


The company can reduce bargaining power of the customers by offering

loyalty programmes. Provide value added services and incentives in

its hotels. Offer attractive discounts or packages to them (Bard,

2008).

To reducing the threat of substitutes:

Any customer will switch over only if he finds a better product or

service at a lower price, so the hotel can reduce the cost and offer

better services to the customer. For a hotel to operate successfully

a good brand name are essential and these campaigning methodologies

facilitate in increasing the brand image of hotel (Duval, 2007).


ConclusionThe financial year 2011/2012 was the toughest in the history of Peel

Hotels, due to the additional 2.5% VAT and cut backs in government

spending, rise in energy charges and unequal costs in relation to a

Rent Review in Carlisle’ Crown and Mitre Hotel (Peel hotels, 2012).

This has led the board of directors of Peel hotels not to

recommended dividend for the year. The company needs to make some

changes in its way of operation to sustain in the market. In this

report, hospitality sector in UK has been studied and using Porter

five forces model a recommendation have been given to Peel Hotels.

Hospitality has been an attractive segment in UK over the years.

There are many industries operating in this sector. The company need

a good marketing strategy in building brand image that impacts the

customer to an extent that they tend to buy the product or service

offered irrespective of the price.


Appendix 1: Overview Hotel IndustryHospitality sector in US has bounced back after the economic

downturn and is experiencing concrete progression. Europe is still

trying hard to deal with economic issues for years while developing

markets like China and India are evolving as a more significant

competitor in domestic and global travel and tourism (Ernst & Young,

2012).

Performance of Western European Hotel Markets in the year 2011

Table 1: Source Euromonitor International

Major players of the hotel industry have turned to explore other

lucrative developing markets such as far eastern countries as the

developed markets are saturated. Top the choice of most hotel owners

is China due to its rising economy and hence it is considered as the

fastest emerging market. Followed by China is India which is an

emerging worldwide business hub. The country offers attractive

investment proposals for exclusive and moderate-tier hotels.

Triggered by innovative styles of marketing campaigns which


focus on attracting visitors with diversified hospitality

preferences, a large number of travellers are enthusiastic in

visiting countries such as Russia, Brazil, India, China, and

Egypt (Ernst & Young, 2012).

There is a huge scope for upper scale hotels and mid-scale hotels in

these emerging markets for executive business travellers and

affluent leisure travellers. However, for those who are unable to

afford such upscale hotels, mid-scale accommodations are within

their budget. There are also a trend of home-like types of

establishments getting popular in these emerging markets such as

country inns and bed and breakfasts (Ernst & Young, 2012).

Global Performance by Region – May 2011 to May 2012 Comparison

Asia Pacific Americas EuropeMiddle

East/Africa

Year 2011 2012 2011 2012 2011 2012 2011 2012Occupancy Percentage (%) 64 65.5 61.4 63.4 71.2 70.5 53.3 60.4

ADR$134.56

$135.85

$104.38

$107.64

$149.19

$134.93

$148.68

$146.32

RevPAR$86.12

$88.94

$64.04

$68.30

$106.27

$95.11

$79.30

$88.39

Table 2: Made by student (2013), adapted from (STR Global, 2013)

Note to table 1:


Occupancy Percentage – Rooms sold divided by rooms available

ADR – Room revenue divided by rooms sold

RevPAR – Room revenue divided by rooms available

It is clear from the above figures that Europe’s hospitality sector

as a whole has not performed well in May year-on-year performance.

In May 2012, occupancy percentage, ADR and RevPAR has dropped as

compared to May 2011due to terrible economy in most of UK.

Luxury Up-market Mid-market Economy Budget0

100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,000Rooms by market level in UK

Rooms by market level


Appendix 2: PESTLE Analysis for PEEL

HotelsPESTLE analysis gives a picture of the external aspects affecting

the organization. Aspects considered are, political, economic,

social, technological, environmental and legal factors that would

affect the overall scheme of the organization (Lorat, 2009). With

the results of this analysis, opportunities can be further explored

and threats can be curtailed.

PESTEL Analysis

Political

factor:

Rules and regulations imposed by government

on hospitality.

Hospitality sector with the tourism increase

a country’s GDP.

Inbound tourism is majorly affected by

terrorism and wars.

Emerging markets in BRIC countries (China,

Indian, Brazil and Russia) can be explored

with diversified hospitality preferences. BRIC countries offers attractive investment

proposals for exclusive and moderate-tier

hotels

Economic

factor:

Recession has resulted in major losses in

hospitality industry as the disposable

income of individual has reduced.

Fluctuating exchange rates, taxes on

aviation industry, inflation have a negative


impact on tourism and hospitality industry.

BRIC nationals (Chinese, Indians,

Brazilians and Russians) tend to travel

often and have a huge amount of disposable

income (Kiessling, et al., 2009)Social

factors:

Change in work culture, where people have

fewer days of holidays in compared to

earlier, so they tend to spend more money on

shorter trips.

Hotels must continuously innovate to lure

customers, which results in high capital

expenditure (Mintel International Group,

2007).

Travel and leisure is gathering memorable

experiences, so customers will spend for

such occasions

Spas and sports clubs are no longer a luxury

in hotels and are necessary. These have to

be updated with state-of-the-art a facility,

which adds to capital investments

(Kiessling, et al., 2009).

Technological

factors:

Hotel can use e-marketing and internet tools

to improve its brand visibility and

marketing techniques at lower cost.

People travelling overseas prefer online

hotel reservations.

Expensive up to date technology is required

to be in line with the developing

technological innovations.


Environment

factors:

An increasing number of customers prefer

environmentally friendly products and

services, which may be expensive.

As a part of corporate socially responsible

business, many hotels are taking health and

safety certifications and if they do not

comply to standards must face serious

consequences.

Legal

factors:

Any changes to legislation affect the

hospitality industry

Luxury hotels are levied with high taxes by

the Government.

Table 3: Made by student (2013), Adapted from (Gill, 2006)


ReferencesBard, T., (2008) DOEE Getters Venture Basics 101 ECoursebook. Michigan:

Venture Basics.

Duval, D. T., (2007) Tourism and Transport: Modes, Networks and Flows.

Clevedon: Channel View Publications.

Enz, C. A., (2009) Hospitality Strategic Management:. New Jersey: John Wiley

and Sons.

Ernst & Young, (2012) Global Hospitality Insights, Top thoughts for 2013, London:

Ernst & Young.

Gill, R., (2006) Theory and practice of leadership. London: SAGE.

Herzog, C., (2010) Strategic Tools in Dynamic Environments. Norderstedt: GRIN

VerlagGRIN Verlag.

Hill, C. & Jones, G. R., (2009) Strategic Management: An Integrated Approach :

Theory. New York: Cengage Learning.

Kiessling, G., Balekjian, C. & Oehmichen, A., (2009) What credit

crunch? More luxury for new money: European rising stars &

established markets.

Lorat, N., (2009) Market Audit and Analysis. Norderstedt: GRIN Verlag,.

Mintel International Group, (2007) Luxury Travel. Mintel , Issue 12.

Peel Hotels, (2012) Peel Hotel, About us. [Online]

Available at: http://www.peelhotels.co.uk/

[Accessed March 2013].


Peel hotels, (2012) Peel Hotels Report and Financial Statement February 2012,

London: Peel Hotel.

Pickton, D. & Masterson, R., (2010) Marketing: An Introduction. London:

SAGE Publications.

RapidBi, (2007) RapidBi. [Online]

Available at: http://rapidbi.com/the-pestle-analysis-tool/

[Accessed February 2013].

Schermerhorn, J. R. J., (2009) Exploring Management. Melbourne: John

Wiley & Sons.

STR & STR Global, (2012) Global hotel construction pipeline report., London: STR

& STR Global.

STR Global, (2013) STR global. [Online]

Available at: http://www.strglobal.com/News/News.aspx

[Accessed 29 March 2013].


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