Hotel Industry Analysis

Essay by maneitoUniversity, Master'sA+, May 2004

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Industry Analysis

Economic turns affect almost all industries around the world. In particular the hotel industry is an erratic place to be when the economy is in distress. However, if a specific company can deal with economic pressures by marketing their differentiating attributes, a hotel can survive. Furthermore, in order to become successful within this industry one must examine several outlying forces.

For instance, the entry barriers to the hotel industry are relatively high. An expensive startup cost consisting of property, hotel, and staff are just the beginning. In order to compete against many of the corporate leaders one would need extensive amounts of advertising and marketing campaigns. However, at this particular time low interest rates and more investors have helped many new entrances to occur in this industry (Hotel & Motel Management). Although it seems positive for the industry with extremely low interest rates and more financial leverage, it may become a threat as the hotel industry becomes overcrowded.

Rivalry that occurs within this industry is becoming more intense as the number of new entries increase. Another contributing factor to the high rivalry within this industry is the fact that there are few differentiating factors between hotels. Within the different segments there factors such as price, quality, service, and reward attributes, but all of these are easily copied limiting a sustainable competitive advantage. The number of close substitutes are rising due do this increase in rivalry. For each segment there are several competing companies who offer the same attributes making differentiation difficult.

The bargaining power of suppliers is severely limited just because the power of the hotel chain buyers is so immense. The switching cost for a hotel chain from one supplier to another is fairly small. Along with the corporate buying power, the consumer bargaining power is strong...