Industry Analysis - Hotels, Motels, And Other Lodging Places

Industry Analysis Paper

Hotels, Rooming Houses, Camps, and Other Lodging Places

SIC Code 70

Table of Contents

1. Introduction (Very Important)

2. The Industry's Dominant Economic Features

Ð'* Market size

Answer: In terms of revenue $90 billion

Ð'* Scope of rivalry

Answer: Rivalry is very high in this industry because there are many firms that have very similar products

Ð'* Growth rate and what stage of the life cycle is the industry in

Answer: In terms of revenue 3.2% growth, the industry is in the emerging industry stage of the life cycle because the industry is re-emerging as international and domestic travel are continuing to grow, the hotel industry will grow along with it.

Ð'* Number of rivals and their relative size

Answer: There are hundreds of different hotel chains, but there are 6 major players in the industry. The top firms in the industry make up approximately 20% of the entire industry.

Ð'* Prevalence of forward/backwards integration, channels of distribution, pace of process and product technology change

Answer: Some firms have tried to forward integrate into the food and beverage industry or the health club industry with little success. The Marriott ended up having to backwards integrate after trying to tap into the food and beverage industry when it wasn't profitable for them. Technology change is not occurring much in the industry. Some firms are beginning to try and open some special boutique chain hotels but they will not open until the next year.

Ð'* Whether products are highly differentiated or very similar

Answer: Very similar

Ð'* To what extent are economies of scale in purchasing, distribution, advertising, etc. important

Answer: Economies of scale are somewhat important when it comes to purchasing, distribution, advertising, and other things in the industry because when large players like Marriott and Hilton control a lot of the market, they can demand lower prices from their suppliers, can demand to have their advertisements play at the best times, etc. A small hotel chain will not have the luxury of these economies of scale and many times people will just use their firm because it's the first one they see not because of advertisement.

Ð'* To what extent do learning curves exist

Answer: Learning curves are very prevalent in the industry among the major firms. Some of the firms have tried different segments of the industry, different target markets, and tried investing in different industries all together. These firms also have been around for many years and have gone through a couple economy recessions like when September 11th occurred. These firms have learned from these experiences and by testing different strategies and they know what works best for them.

Ð'* Are high rates of capacity utilization important for profitability

Answer:

Ð'* What are the historical levels of profitability?

Answer: The industry saw strong economic growth late in the 1980's and then in the early 90's until 1995 the economy went into a recession and the industry was not profitable. In 1995 the economy reached a stable point so the industries profits were some what at a medium. The industry's overall profitability increased by 15.5 million dollars from the mid 90's until 2000.

Ð'* Are there segments within the industry?

Answer: Yes

Ð'* If so, what are they, and how does their presence affect firms, strategies, competition, and levels of profitability within each segment?

Answer: Business segment, extended stay segment, luxury hotels, luxury resorts, select service market, and mid-market segment. These different segments affect firms because they target different consumers in the market. Firms must decide if they want to use a cost leadership strategy or a product differentiation strategy because segments like the business and mid-market focus on cost leadership, while the luxury hotels and luxury resorts focus on product differentiation. The competition is increased in the industry because although there are a lot of different segments, many times consumers only see the places as a hotel and don't always see much difference between them. Firms in the industry have to create ways to make them stand out to consumers. The extended stay and select service markets tend to have a higher profitability than the other segments in the industry.

3. Porter's Five Forces

Ð'* Purpose of conducting Porter's Five Forces Analysis

Answer: To identify the most common threats faced by the firms in this industry and to identify the conditions under which these threats are more or less likely to be present.

Ð'* Threat of New EntrantsÐ'--High, Moderate or Low?

Answer: Moderate to High depending on the firm in the industry. It would be easy for another hotel or motel to open in the marketplace, but some firms in the industry such as Hilton or Marriott already have an established name in the industry and have economies of scale that would make the threat of new entrants lower for them.

Ð'* Bargaining Power of BuyersÐ'--High, Moderate or Low?

Answer: Moderate to Low, depending on which firm in the industry you're referring to. A company like Hilton or Marriott will have more bargaining power than a small firm because of their economies of scale.

Ð'* Bargaining Power of SuppliersÐ'--High, Moderate or Low?

Answer: Low, there are many different suppliers for the needs of this industry. This industry is a service industry where there are numerous suppliers for the needs of producing their service. For example if