The Macro Environment Analysis Economics Essay

The macro environment is made up of 6 uncontrollable external factors. These factors influence an organizations decisions, business and financial strategies as well as its overall performance. These factors are : Economic, Demographic, Social Cultural, Natural, Technological, and Political.

3.2 Demographic environment:

The demographic factor covers topics such as age, gender, date of birth, average family sizes and so on

.Population Growth

The United States has experienced a substantial influx of people. Within the last 10 years there has been an increase of over 33 million people, making the U.S. the most heavily populated nation in the world. A steady but constant population growth is expected for the next 50 years. We can expect an increase in the number of American guests at the Marriot Amsterdam. If the marketing strategy is tailored in order to draw more away from Hotels such as the Hilton. The situation in Europe is different than in the USA.

The European Union has a total

population of almost 500 million

inhabitants (27 states of the

European Union) whereas Europe

has 732 million inhabitants.

Within the next 40 years the

population is predicted to decrease

to approximately 630 million inhabitants

in 2050.

This can be seen as a threat in the long run because the impact on the industry is that the volume of the market will shrink as the total resident population will shrink. [i] 

3.3Economic Environment

Among the importance of people who make up markets is the importance of their purchasing power, level of employment, GDP, and rate of inflation which is determined by the economic environment. Both GDP growth rates increase on a low, but steady level. Due to the recession, it is likely that negative growth rates occur within the next five years for both western economies. Recovery is predicted on a very low level for the year 2012.

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India in comparison has a quite low GDP at the moment, but is predicted to catch up with big steps of over 100% per decade. With annually GDP growth rates of 6 to 10 percent during the last decade India is one of the world fastest growing economies. The latest recession hardly hit the country but recovery is predicted to take place more rapidly, profoundly and on a far higher level than in western economies.

Inflation

The inflation is an important indicator

for purchasing power in an economy.

Symptoms of inflation are increasing prices and

therefore consumer’s decreasing purchasing power. [ii] 

Credit crunch

By mid-2008 the financial crisis turned out as a result of the economic turn down, the sub-prime mortgage crisis and the collapse of the housing market. [iii] 

The collapse of the housing market led to a bank collapse resulting in a massive liquidity crisis. This became a worldwide problem: the ongoing credit crunch. Stock markets crashed worldwide. The credit crunch is affecting business as well as consumers. [iv] 

To conclude, this is a threat for any company because consumers are losing their purchasing power in the EU, US, Japan and UK. Besides that, consumers are more careful with their money because they want to save it in case that they will lose their job due to the economic crunch.

Saving rate

The saving rate reveals insights of the spending patterns

of one country inhabitants. This figure shows the

personal saving rate of the USA, Canada, UK and Germany.

Due to cultural differences the saving rate of Germany

and other European countries is traditionally higher than

those in Anglo Saxon influenced countries.

The more interesting development is the increase

of the saving rate in all four countries after the year 2007. This is caused by the credit crunch and the following recession. During times of economic downturn people tend to save money. They are becoming anxious about their jobs and the future. The increase of the saving rate is a potential threat because peoples spending priority lies on essential goods and services rather than on luxury items. The main market would be for business guests and “baby boomers” who do not mind spending some extra money in order to have the comforts they have become used to.

Income level of the target markets

Nations vary greatly in level and distribution of income and industrial structure. Our analysis is focusing on industrial economies and their consumers. These economies are seen as rich markets for all sorts of goods and services.

Unemployment

From 1993 up to 2009 the unemployment

rates for as well the EU, UK as for US

are increasing and decreasing

through the years. Increasing

unemployment rates are for each

company a threat because when consumers

loose their jobs their purchasing power

is decreasing. [v] 

The unemployment rate will average

9.2 percent in 2009, 9.6 percent is 2010 in the USA.

The forecasting average for 2011 is 8.9

percent and for 2012 8.7 percent is forecast.

The rising unemployment rate is a threat for the Hospitality industry in that consumers are more likely to save their money than spend it when unemployed. Even if they want our services they do not have the financial resources available to them.

3.4 Social-Cultural Environment

Corporate social responsibility (CSR) was developed as a type of self regulation. Typically integrated directly into the business model of the corporation. The premise is that the corporation that has integrated with CSR will conform to certain pre-determined “norms” of society when engaging in business. The “norms” would vary from legal, social, ethical, moral, environmental as well as an increase in concern over the various elements of the public. Elements such as, but not limited to; the community as a whole, customers and employees. Although this “moral business” concept appears to be sound CSR has come under constant criticism. Many claim the “moral” aspect of CSR is nothing more than a façade, allowing these companies to, in fact, exploits the situation at hand.

The psychological effect of terrorism is also a factor we have to keep in mind. The frequency of travelling is decreased by this occurring factor.

3.5 Natural factors

Macro factors are those factors that the company cannot influence itself, but these factors can certainly have a great impact on how the company is will perform. The Marriott hotel in Amsterdam lies in the center of the Netherlands with a sea climate. This means that all year round the weather will be mild with no extreme summer or winters. While these factors might not directly influence the performance of the hotel, others can. When looking at the volcanic eruption, which took place in the midst of April 2010, airlines cancelled all flights and passengers were stranded. While this at first presented a boom in occupancy due to stay-over’s, the long run presented problems as many meeting were cancelled. This presented a downfall in revenue; fortunately problems were solved after 2 weeks when the eruption ceased. The hotel can of course never fully predict certain circumstances but after this experience should be prepared for it.

Besides weather factors that will put pressure on business, the trend is shifting towards producing eco-sustainable business. Producing and running your business in a nature friendly way.

When looking at the hospitality industry we can give examples as not overly washing linen, using soap dispenser, recycled paper/pens, dividing trash, light sensors, special heating systems, laundry detergent.

3.6 Governmental

Due to relatively recent events there has been a major force affecting the hospitality industry. Of course due to the “shrinking world” phenomenon business travel has become more and more of a necessity but recreational travel has dropped substantially. “In hospitality, even before the attacks the picture didn’t look good. According to Smith Travel Research, U.S. hotel occupancy was 61.9% year-to-date through June 2001, a drop of 2.7% compared to the same period of 2000. RevPARs declined 0.4 % to $58.99. Preliminary figures indicate that occupancy rates and RevPARs were down 2%-4% in August of this year, compared to August of 2000 (Smith Travel Research).” Another strong political force which will affect the Marriot is the increasing worldwide attitude towards smoking. Currently, the Netherlands has an approach of only specialised areas or small, private establishments are permitted to allow smoking in their premises. Smoking in public places or train/bus stations is also prohibited. By offering a specialised and separate area (the Cigar Bar) there is a greatly increased likelihood of attracting a larger customer base. This is due to catering to a larger customer base demographic.

3.7 Technology

Improving productivity is the main goal of technology. Especially for information technology (IT). In studies there is proven that there is a relationship between IT investments and the productivity and performance of the business. Due all the new technology that has appeared over the years. Front office applications, restaurant and banquet management systems, and guest-related interface applications. We assume that these rapid changes in technology will continue. vii

3.8 Conclusion

Threats:

US dollar exchange rate for Euro will drop by 5% in 2011.

10% increase of energy prices in 2011.

Smoking prohibition.

Rapid change in technology

Opportunity:

Small growth in European economy of 1% in 2011.

Slow recovery of US economy and rise of GDP of 2% in 2011.

Corporate market in Europe will show a growth of 2%-5%.

10% increase of Chinese travelers in 2011.

International tourism in the Netherlands will grow 5%.

Rapid change in technology

Micro Environment

4.1 Market structure

Marriott hotel has a monopolistic competition, which means that the company faces a large number of firms each having a small proportion of the market share and slightly differentiated products. The main demand for the Marriott hotel is leisure and business guests.

Customers:

Segmentation Amsterdam The Netherlands

Business transient 53% 36%

Leisure individual 22% 37%

Tour groups 8% 7%

Conference 12% 15%

Others (crew) 5% 5%

Total 100% 100%

Business Transient:

Based on the following assumptions and information the Marriott can expect an increase of business transients compared to the previous years. The main points are as follows:

10% growth in 2010 in produced revenue of ASEAN (Thailand, Indonesia, Malaysia, Philippines, Singapore, Brunei, Burma (Myanmar), Cambodia, Laos and Vietnam), India, Turkey and Brazil.

UK’s GDP economy expects to rise 2.7% and economy is recovering slowly. (http://www.finfacts.ie/irishfinancenews/article_1019481.shtml)

American economy expects a rise in GDP of 2% and economy is recovering slowly.

European economy will grow in 2011 with 1%

The above information shows that the economies in the major segments for the Marriott are increasing. Thus, companies will have to send their employees again on business trips.

One downside of this assumption is decrease of the US dollar exchange rate of 5%. Therefore especially the American business guests will be more then price sensitive and expect to have more service included (e.g. internet). However as we are expecting that the British pound is increasing in 2011 we can assume that the British guests (20% of guests staying at the Marriott Amsterdam) will continue to travel.

Individual Tourists:

Based on the following assumptions and information received the Marriott can expect an increase of Individual Tourists compared to the previous years. The main points are as follows:

EU citizen are expected to have a growth of 5%

Expected growth of short breaks and weekend trips to cities.

As the GDP in the USA and UK are expected to rise, it can be assumed that it will have a positive correlation on the standard of living of citizens of that country. Only the US market will not increase tremendously as the exchange rate for the US dollar will decrease by 5 %. However the British Pound is expected to rise compared to the Euro.

Conference Participants:

Based on the assumption and information received the Marriott can expect an increase in conference participants compared to the previous year. The main point is as follows:

The same reasons as for business transients can be used to explain the increase of conference participants segment. Companies are expected to produce more goods and therefore will attend and conduct again trade show, conferences, meetings etc.

Tour Groups / Other Rates:

Based on the following assumption and information received the Marriott can expect a decrease in Tour groups and other rates compared to the previous year. The main reason is as follows:

As we are expecting a rise in the business transient, leisure guest, conference participants the Marriott will not be able to sell as many rooms through the discounted channels. Therefore the rooms sold to Tour groups will be less.

Contract:

Based on the following assumptions and information received the Marriott can expect an increase in contract rates compared to the previous year: The main reason is as follows:

In year 2010 the produced revenue was far above the expected budget. As Marriott Corporate Office is urging the hotels to put a focus on they contract rates we can expect again an increase in this segment. However Marriott Corporate Office advises the Hotels not to discount the rates less than 25% of the average daily rate (otherwise the head office needs to be contacted for approval).

4.2 Distribution Channels:

Business Transient

Individual Tourists

Conference part.

Tour Groups

Other

Social media

25%

10%

50%

25%

50%

Central Reservation System

34%

32%

40%

20%

GDS

27%

10%

30%

Travel Agent

2%

15%

10%

25%

30%

Hotel Website

12%

17%

20%

3rd party websites

16%

Social media is a very effective way of distributing, due to the snowball effect. Direct Sales by the hotel are of course also very important. The Central Reservation System of the Marriott is also used to distribute itself so are the Global Distribution System, Travel Agents (via GDS), the Hotel Website and Third Party Websites (Expedia etc)

4.3 Internal financial decisions:

Internal financial decisions consist of financial decisions made within the Marriott chain or the Marriott hotel Amsterdam itself, or financial opportunities within the company. The weaknesses and strengths are also a part of this. Marriott International as a stakeholder has more general objectives and goals regarding ecology, human rights, shareholder equity.

4.4 Public:

To know what the “public” or guests thinks of the Marriott hotel, they use: feedback forms, customer reviews. The reach the public we make use of marketing and media campaigns.

The presence of Social Media is getting more and more important and is already a successful marketing tool. But only the bad feedback on an online platform like Facebook, Twitter, MySpace etc will have a big influence on customer perception.

We assume that our public has a good overall image of the hotel. We do not exclude complains because you can’t anticipate on everything.

4.5 Company:

F&B shall become more coordinated in using international Marriott concepts for outlets. Two concepts will be uniformly implemented in Marriott hotels worldwide: The Midtown Grill and The Cigar Bar, as these concepts are now regarded as a standard feature of our hotels by loyal guests, especially US guests.

4.6 Competitors:

After studying and analyzing the Amsterdam Marriott’s budget for the first case assignment, in this chapter we will focus on the current and future market situation and developments.

No guests – no business! Therefore the Marriott hotel has to know its competitors by hard to be a step ahead and make use of its advantages to gain an even bigger share of guests and increase revenue as well as profitability.

Competition can be differentiated into four main forms:

product form competition

product category competition

general competition

budget competition.

In this assignment we will basically focus on product form competition as well as on general competition in terms of f & b outlets.

In case of the Marriott Hotel this means identifying and analyzing competitors, which offer and deliver the same kind of products and services.

Following characteristics were used for the selection process of hotel competitors:

shelter

dining

business facilities

high-quality interior

luxury ambiance

The current product competition consists of following hotels:

The Grand

Okura Hotel

Grand Hotel Amstel

The Hilton Amsterdam

Eden American Hotel

Since the Leidseplein offers more than 120 restaurants in close proximity, it is rather difficult to define and analyze competition. In the case of the Sorel’s Midtown Grill we chose competing restaurants offering similar cuisine and/or attracting the same customers.

Following characteristics are involved for selecting direct restaurant competitors:

location

cuisine

attire/atmosphere

opening times

The competition consists of following restaurants at the Leidseplein:

Café Americain

Los Argentinos

Barbecue Castell

Hard Rock Café Amsterdam

Gauchos Amsterdam

4.7 Possible future hotel competitors:

Due to a recovering world-economy and forecasted trends about “travel behavior/ travel patterns”of countries such as the USA, European, BRIC & ASEAN countries, overnight stays of business and leisure guests will increase in Amsterdam. As there is still sensitivity regarding price-value ratio, especially in the corporate business, following hotels are possible new competitors in 2011.

Hotel

Classification

Room numbers

Location

Date

Eden Amsterdam Manor Hotel

4****

100

Linneausstraat 89

1093 EK Amsterdam

March 2011

Conservatorium Hotel Amsterdam

5*****

130

Keizersgracht 62-64

1015 CS Amsterdam,

spring 2011

Art’otel

Amsterdam

4****

105

Close to Centraal Station

spring

2011

City Inn

4****

540

Oosterdoksstraat 4

1011 DJ Amsterdam

spring 2011

4.8 Market dynamics:

Interaction between hotel and f&b regarding demand and supply is efficient. But the changes and the dynamics of the market is beyond control of the hotel. Because the hotel business is not in an free (open) market.

4.9 Conclusion:

Threats:

Social Media

Possible future hotel competitors

Midtown Grill as a steak house to specific

Opportunities:

Commission will be reduced from 3% to 1%.

Growth of fixed contracts.

Growth of conference and banqueting segment

Cigar bar.

Occupancy

Social Media

Growth of business segment

Marketing Management 12e page 79