The hotel industry for decades was relatively complacent. The demand for hotel rooms generally exceeded the supply. During the 1980s the hotel industry experienced a building boom, and soon there was a decline in room occupancy (Michman & Greco 190). Management was confronted with the problem that hotels cannot be easily remodeled to satisfy customers’ changing needs and that a product differentiation strategy was needed to make an individual hotel distinctive from the others. To meet these challenges hotels carefully have been trying to match the service offering with the desired target market.
The strategy of lifestyle market segmentation was employed by the major players of international hospitality market (Taylor, Smith & Lyon 106). For instance, when Holiday Corporation learned that its midpriced Holiday Inn hotels were confronted with competition from budget hotels and luxury chains, Holiday Inn responded by expanding into the high- and low-priced ends of the market. Embassy Suites, a chain of multiple-room suites, targeted mainly upscale business travelers and Hampton Inn hotels, a limited-service chain, targeted value-conscious business or pleasure travelers.
Holiday Corporation also developed Homewood Suites, a chain of hotels designed for guests usually staying five or more nights. The Radisson Hotel has hosted many family reunions and has decided to actively pursue that market segment by advertising a reunion package for weekends. Residence Inn, a division of Marriott, specializes in providing accommodation on the long-term stays up to six months or longer (Michman & Greco 189). The purpose of this study is to explore what role the brand played in this process, how much it contributed to the success of the hotels in their competitive struggle for market share.
Towards this end we will examine the sources of competitive advantage for the international hospitality industry firms, consider the examples of successes of the hotels in international hospitality market as well as analyze their causes, and make the conclusions. The Brand as a Critical Source of Competitive Advantage for Hotels Many hotels has similar facilities and offer comparable services. Service tangibility can be increased by emphasizing service-provider reliability; hence the hotels face the necessity to make efforts to offer similar services to market segments with different demand patterns (Taylor, Smith & Lyon 105).
Although the hotels endeavor to standardize services, there is the danger that while these services may have more consistent quality and convenience, the personal touch may be lacking. Essentially, hotel management must determine what they can do either differently or better than the competition. Four key ingredients in the hotel industry are considered by the experts in the field to be important for either success or failure of the hotel: innovation, target market segmentation and image, physical environmental resources, and human resources (Contractor & Kundu 331).
For the purposes of our study we will consider deeply one of these ingredients such as image, especially its component branding. A brand is commonly defined as “a name, symbol, design, or mark that enhances the value of a product beyond its functional value” (qtd. in Cobb-Walgren, Ruble & Donthu 25). Why are businesses and consumers alike willing to pay so much for brand names? Stated simply, brand names add value. The added value that a brand name gives to a product is now commonly referred to as ‘brand equity’.
Brand equity usually falls into two groups: “those involving consumer perceptions (e. g. , awareness, brand associations, perceived quality) and those involving consumer behavior (e. g. , brand loyalty, willingness to pay a high price)” (Cobb-Walgren, Ruble & Donthu 27). Among the perceptual measures, one technique uses consumer preference ratings for a branded product versus an unbranded equivalent. Another approach treats brand equity as brand name importance, since the name of a brand is often its core indicator (Crimmins 12).
Brand knowledge is decomposed into brand awareness – recall and recognition, and brand image – a combination of the favorability, strength, and uniqueness of brand associations (Cobb-Walgren, Ruble & Donthu 27). Five key components of brand equity are considered to be awareness, associations, perceived quality, loyalty, and other proprietary assets such as patents and trademarks. There are some advantages to combining both consumer perceptions and actions into a single marketing measure of brand equity. It is well documented that attitudes alone are generally a poor predictor of marketplace behavior.
On the other hand, consumer perceptions are clearly a precursor to behavioral manifestations of brand equity (Crimmins 15). Scholars point out that “[C]onsumer behavior is, at root, driven by perceptions of a brand. While behavioral measures of purchase describe the existence of equity, they fail to reveal what is in the hearts and minds of consumers that is actually driving equity” (qtd. in Cobb-Walgren, Ruble & Donthu 26). Brand equity provides a strong platform for introducing new products and insulates the brand against competitive attacks.
The results of empirical studies suggest that a global reservations system and brand name are crucial strategic assets which enable a global hotel company to build and control a network of contractual alliances. Not only do these strategic assets yield additional income, such as a fee for each reservation made through the global reservation system, or separate royalties for the brand name component, but they also reduce the opportunistic behavior of franchisees and local partners because of the threat of withholding of these assets (Contractor & Kundu 340).
To meet diverse consumers’ needs the big international hotel companies try to employ strategies aimed at gaining associations of their brands with the certain kit of services targeted at different consumer groups. None of this is meaningful, however, if the brand has no meaning to the consumer. In other words, there is value to the investor, the manufacturer, and the retailer only if there is value to the consumer (Crimmins 14). As to the hotel business, most scholars consider registered brand names to be a potent source of competitive advantage in the international hospitality market.
It is connected with the fact that the potential threat of withdrawing permission to use the global company’s brand, reservations and support systems, moderates the opportunistic behavior of partners in each nation. In fact, this may be one factor which explains the high prevalence of equity and non-equity alliances in the hotel business (Contractor & Kundu 330). Service businesses generally are noted for their high level of mimetic or imitative behavior.
For instance, innovative airlines, which sought to use frequent flyer programs to build switching costs for customers, found that, very quickly, many other major airlines were offering similar incentives. Hotel firms have adopted many of the practices of their airline cousins in an effort to establish customer brand loyalty. The most obvious manifestation of this is the frequent-traveler programs which not only reward loyalty but enable the capturing of valuable guest data to facilitate the relationship (Taylor, Smith & Lyon 115).