THE INDUSTRY ENVIRONMENT – THE FIVE FORCES MODEL
Threat of New Entrants: Barriers to Entry
In the hotel industry there are high barriers to entry, which help to lessen the threat of new entrants into the industry. One of the reasons for this is the huge amount of investment that is required for the building of these hotels, hiring employees and marketing. To make matters even more difficult, the hotel firms in the industry offer highly differentiated products. They try to gain customers’ loyalty to their individual brands by offering great customer satisfaction, quality services and accommodations and aggressively promoting their name. This makes customers less price sensitive, so new entrants would need to offer a more superior service compared to the existing firms in order to compete and this is not easy. Existing firms have large economies of scale which gives them a cost advantage. They have established relationships and experience throughout their time in the industry, giving them cost savings.
Being such a capital intensive industry with large economies of scale, high product differentiation and possible retaliation from existing players in the industry, this will definitely turn off new entrants from the industry.
Bargaining Power of Suppliers
The bargaining power of suppliers in the hotel industry is low. The supply of amenities, linens and furnishings is not the most critical component of a hotel’s success and there are a large number of suppliers with none of them being a dominant one, so the hotel firms’ business is important to them. There are a lot of choices of suppliers for the hotel firms to choose from with low switching costs. The bargaining power of suppliers “tend to have little influence on implementing competitive strategies, the hotel business is mostly driven by customers, competitors, and new hotel entrants” (Tavitiyaman, 2011). There is also no threat from the suppliers of them integrating forward into the buyers’ industry as they have no substantial resources and the products are not highly differentiated.
Bargaining Power of Buyers
The bargaining power of buyers in the hotel industry is low to moderate. There are a large number of customers, so they purchase a low volume in relative to the industry’s capacity. Therefore, the loss of a few customers has little impact on each individual hotel firm. Hotel firms also “seek to reduce customers’ power by creating loyalty programs that reward customers for repeat purchases and by differentiating product and service offerings” (Tavitiyaman, 2011). This makes the buyers’ switching cost higher.
However, nowadays there are a wealth of information available on the Internet which is easily available for anyone to access. Websites like Kayak.com helps customers to find information on different hotel rates and discover bargains. This especially has more of an impact on the bargaining power of buyers at the lower end of the hotel industry as they tend to be more price sensitive.
Threat of Substitute Products
The threat of substitute products is low for the hotel industry. There are substitutes to hotels like motels and hostels. However, they are not that big of threat because they are fairly different from each other. Customers of hotels are not very likely to compare hotels with motels and hostels. Motels and hostels do not usually provide the same luxuries and level of service as hotels do.
Motels and hostels are usually catered more to the budget-oriented customers. Motels are also known as “motor hotel” and are usually for shorter periods of stay. Motels are targeted to people on a road trip and need a place to rest, so they mostly found along the highways. Hostels can be for longer periods of stay. However, they do not have the same level of service and accommodation quality as hotels and are priced accordingly. For hostels, customers usually have to share rooms with others. Therefore, it does not offer the same level of privacy as hotels do.
Intensity of Rivalry among Competitors
The hotel industry has a high level of intensity of rivalry among the players within. The hotel industry is fairly concentrated with quite a number of players in it. However, the top four competitors are InterContinental Hotels Group (IHG), Hilton Worldwide, Marriott International and Wyndham Hotel Group. The rivalry is intense because there not much diversity with the products they offer. They are all committed to customer satisfaction through the quality of their services and accommodations in order to maintain their brand image and reputation. To make matters even more difficult, the social media now plays a big role in this too. People can easily share their experiences with the hotels with anyone, so they have to try to maintain their services and accommodations quality as much as possible in order to retain and gain customers. In addition to that, there are high exit barriers too. The fixed cost of the buildings, furnishing and servicing of the hotels are high and also the value of relationships with their investors, employees and customers.
The industry is also just starting to recover from the Great Recession of 2008 and 2009, so the growth is still slow. During the last few years, the industry growth was down to almost a halt with new hotel projects being put aside.
Attractiveness of the Industry and Interpreting Industry Analysis
After analyzing the hotel industry with the Five Forces Model, it does not seem to be a very attractive industry. As we can see from the Threat of New Entrants section, there are very high barriers of entry. Even if they could bare all of the huge capital requirement in order to start in the industry, they have to offer a more superior enough service compared to the existing players in the industry in order to get the loyal customers to switch to them. In addition to that, there is already a very intensive rivalry among the industry players. The industry has also just started to recover from the Great Recession of 2008 and 2009 that slowed down the growth a lot.

ORDER THIS ESSAY HERE NOW AND GET A DISCOUNT !!!