Analysis Corporate Strategies Followed By Intercontinental Hotels Group Marketing Essay

Intercontinental hotels group which is also known in short form as IHG has more guest rooms available under their banner than any other hotel group. IHG has grown from a very small company to a massive company handling various branded hotel properties under its wings. IHG has more than 650.000 rooms in over 4,400 hotels across 100 countries the total stays that are done by guest in the IHG properties is over 130 million every year. 1(IHG website)

With a clear view of what are its priorities, IHG’s main purpose is creating Great Hotels Guests Love with everything done focused on the guest & the staff. It operates hotels in three different ways as a franchisor, a manager and on an owned and leased basis. It also operates seven leading hotel brands InterContinental, Crowne Plaza, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites and Candlewood Suites. It also manages the world’s largest hotel loyalty programme in the industry known as the, Priority Club Rewards, which has 48 million members worldwide. IHG is molded around these three regions: The Americas; Europe, Middle East and Africa; and Asia Pacific. 2(IHG Annual Report)

1 Strategic Corporate Development History of IHG:

The formation of IHG has gone through various stages as any other company would have gone through which was taken successfully by William Bass who had a brewery in 1777 & slowly but gradually entered in the hotel industry by acquisition of a breweries like the Mitchell’s & Butlers in the 1960’s which grew considerably large which when the government realized issued orders in legislations that breweries cannot hold on a large number of pubs which then made Bass reduce the pubs it owned dramatically which triggered a huge amount of cash flow which gave Bass an ability to develop an international hotel business which started with the acquisitions of a few hotel groups like Holiday Inn in 1988 & also launched the Holiday Inn Express to be complementary to the Holiday Inn brand, side by side Bass grew his pub business side by side & acquired The Harvester Chain of Restaurants in 1994 & also launched its new brand of hotels known as Crown Plaza Hotels & resorts climbing up to the upscale hotel market.

1http://www.ihgplc.com/index.asp?pageid=16

2http://www.ihgplc.com/files/reports/ar2009/files/pdf/2009_Annual_Report.pdf

In 1996 bass tried to acquire ½ of Carlsberg Tetley which again was hampered by the UK government which helps Bass to come back on line & concentrate on the hotels & pubs divisions leaving breweries aside.

A year later in 1997 the hotel business focus becomes truly brand focused because Bass had already sold a few north American midscale hotels but held back to the brand name of the hotels through franchising agreements. Also that year Bass created & launched a new brand of hotels known as the Staybridge Suites which was targeted at the upscale hotel market. Staybridge suites became the fastest brand in this upscale segment to reach 50 units in America.

In 1998 Bass acquired the intercontinental hotel company, adding adding to its fold another upscale brand to its hotel portfolio. It was another considerable acquisition to cost saving & synergies to the fold of hotel portfolio run by Bass.

In 1999 Bass again acquired 550 handpicked high potential sites in UK & also a strong 3500 strong pub estate from allied domecq.

In 2000 Bass went on to acquire the Southern Pacific Corporation (SPHC) in Australia, which guaranteed Bass’s position as the leading hotel company in Asia Pacific. Later in the year Bass sold of his Bass breweries for 2.3 billion pounds. This was the final step by Bass to completely focusing on being the international hospitality retailer from being a domestic brewer – a process which took a long period of 10 years to complete. Over the period of time Bass sold off name of bass and changed the name to Six Continents PLC. a name which it bettered into to reflect the global spread of the group’s business.

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In the month of February 2001 Six Continents sold 988 of its smaller unbranded pubs for 625million pounds, which further funded the buying of the European Posthouse chain of hotels for 810million pounds. The acquisition of this company which had strategically placed hotels could be converted to Holiday Inn concentrating the Holiday Inn brand in UK & Europe. Later that year it went on to acquire Intercontinental Hong Kong for 241 Million pounds strengthening its position in the Chinese & Asia Pacific markets.

On 1st October 2002 Six Continents Plc announced its separation of the group’s hotel & soft drinks businesses (to be called Inter Continental Group Plc) from the retail business (to be called Mitchells & Butlers Plc) of which 700 million Pounds of the proceedings returned capital to shareholders. The whole procedure of separation was completed on the 15th of April 2003. Intercontinental Hotels Group Plc (IHG) from then on is a distinct, discrete company, listed in the UK & US stock markets.

In July 2003 IHG sold Staybridge Suites to Hospitality Properties Trust (HPT) & entered into a 20year management agreement. Later in the year they added a midscale extended stay brand Candlewood Suites to its portfolio.

In the year 2004 IHG announced the introduction of a new brand, hotel Indigo which focused on providing affordable boutique accommodation. In the same month, the group adopted new standards for selling and re-selling hotel rooms for guest stay through online travel companies.

Following the success of the Up Scale market brand of Staybridge Suites North America IHG launched its extension of Staybridge suites to UK in April2005. Also in 2005 IHG went ahead & disposed of its soft drinks 100% holdings in Britvic Plc. With this disposal IHG became a company with a pure hotel focus.

In 2006 IHG went ahead & signed a joint venture with All Nippon Airways (ANA), resulting the following projects – IHG ANA hotels group Japan – will be the largest international hotel operator in Japan, the world’s second largest hotel market. The deal saw the introduction of three new brands created for Japan. ANA-IHG, ANA-Crowne Plaza & ANA Holiday Inn.

In the year 2007 IHG announces that a worldwide relaunch of the Holiday Inn brand family, comprising Holiday Inn, Express by Holiday Inn & Holiday Inn Express. The re launch was done with the intention of giving it a refreshed & contemporary brand image. All the hotels were supposed to have completed the re launch in 2010 with the 1st re launch taking place in 2008.

In the year 2008 after the re launches of Holiday Inn taking place Staybridge Suites extended its brand more in UK & the first Hotel Indigo opened in London.

In 2009 the1500th hotel was relaunched over the 40% of Holiday Inn & Holiday Inn Express.

Strategy used from the start to the current time period:

Bass the main brain behind the whole formation of the Intercontinental Hotel Group has played a major role in the slow but steady growth of this company from a small company to a worldwide known company. Bass has grown this huge group through the basis of trial & error round which he has experimented in various concepts of owning & then selling then franchising & finally managing properties. Bass has being following the linear model of growth through various acquisitions. InterContinental Hotels Group PLC was formed by the separation of Six Continents PLC (previously Bass PLC) on 15 April 2003. The restaurant and pubs part of Six Continents became Mitchells & Butlers plc.

However, IHG’s brands trace their history back much further than 2003. Our Holiday Inn brand, one of the worlds most recognized was created in the 1950s by Kemmons Wilson in the US. InterContinental, another of our brands was created by Pan Am in the 1940s, when hotels were built in many of Pan Am’s destinations. 3(ihg.com)

Over the past few years, Intercontinental hotels group has maintained itself strategically to be more efficient and effective and make full use of their global status. A predominantly franchised and managed, fee-based business was the main focus of IHG.

The strategy that IHG followed made their income stream predictable with a strong cash generation which allowed it to continue in growth because all their new hotels were funded by third-party investment.

IHG went ahead and relaunched Holiday Inn in 2007 – and although the unexpected economic circumstances that came by IHG during that time period, it went on and got on with the $1 billion programme because of the belief of the heads of IHG that it was exactly the right time to go ahead with the relaunches. The relaunch went on to building back people’s perceptions of Holiday Inn. The guest wanting to try Holiday Inn with IHG with its value they’re giving the Brand once down another try and liking and accepting what they found. Guest satisfaction was going up and owners could see the Revenue per room’s out perform. “These economic circumstances might seem like a great reason to shy away from making such big changes, but time will show that it is both a very opportune and very effective initiative for this, our biggest brand”, as quoted by the CEO of IHG Mr. Andrew Cosslett.

3 http://www.ihgplc.com/index.asp?pageid=40

Current strategy used by Intercontinental Hotels Group:

Bass the main brain behind the whole formation of the Intercontinental Hotel Group has played a major role in the slow but steady growth of this company from a small company to a worldwide known company which currently has an operating strength of 4400 hotels with 130 million guests visiting a year and under its umbrella has and widely known and reputed hotel brands covering all the major segments of the market, also have a reservations system which consists of 10 call centers in 29 languages it has also strived to be the top leader in the market & has been able to position itself through its strategy of growing & doing retailing in hotel sector have been able to position itself among the 6 largest hotel market, much more than any other company.

Intercontinental hotel group has also been able to make the no.1 website for its guests & investors in 13 different languages. They also have a global sales team of 8000 to conduct the sales of the hotels situated all over the 100 countries that they have their presence.

Intercontinental hotels also has a loyalty programme which offers priority club rewards which are largest in the industry for over 48milllion of the guests which has been planned so strategically that .

It has been stated on IHG’s website that “We have moved from investing heavily in hotel properties to return to our roots as a hotel franchise and management company with only a few owned assets. This change of focus has led to an industry-leading asset sale programme. Since 2003 we have sold £2.9 billion worth of property. Many of these hotels have remained under our brands with management or franchise contracts, thereby creating a future income stream for IHG” 4 (ihg.com).

Over the past few months, IHG’s continued growth in new rooms has helped to put off some of the revenue lost from Revenue per room declines. Driving in coming revenue into the hotels had been a priority and its ‘system’ is the key to delivering this. Their system comprises of world class reservations centre’s, websites, global sales teams and Priority Club Rewards loyalty scheme and delivered 68 per cent of rooms revenue to the hotels in 2009. Reducing the overall cost base of IHG was crucial to managing through the downturn. IHG was already reducing costs to run the properties more effectively but with the economic downturn they steeped up the pace of change that was being gradually run. While they were reducing costs by taking better advantage of their way of operation as well their spread being worldwide, this also forced them to make reductions in the number of staff which unfortunately impacted jobs of IHG staff all over in the majority of properties. All these actions were taken in 2009 to reduce costs, while it was a very difficult period of the economic downturn; it allowed IHG to save a lot of cash and continue its investments in those things that attract guests to come to its hotels and revenues to the owners. The great working relationship that IHG shares with the owners of their properties, both directly and through the IAHI, which is IHG’s Owners’ Association, has also been major contributor to the quick recovery & also to the massive expansion taking place. By working alongside with the hotel owners, IHG’s able to focus on the guest experience and on delivering Great Hotels Guests Love. 5 (ihg.com).

4http://www.ihgplc.com/files/reports/ar2009/files/pdf/2009_Annual_Report.pdf

5http://www.ihgplc.com/index.asp?pageid=40

The 48 million members of IHG’s Priority Club Rewards programme remained loyal though the economic downturn and had been most supportive during the difficult times. Not only did these guests stay with IHG more often, they spent more when they did. A guest’s loyalty can never be taken for granted – it is something that can take years to achieve and seconds to lose. So IHG had made sure they have continued to add benefits to the loyalty programme right through the downturn, and made membership of it even more worthwhile. In 2009 it enrolled six million new members into the programme – that’s a significant number of people whose first choice will now be to stay in one of IHG’s hotels.

IHG’s future growth will be achieved predominantly through franchising and managing rather than owning hotels which in turn will drive down costs & increase profits by the fact that all the investment in the hotels would be done by third parties. Approximately 641,000 rooms operating under the Group brands are franchised or managed and 5,800 rooms are owned and leased.

The franchised and managed fee-based model is attractive because it enables the Group to achieve its goals with limited capital investment at an accelerated pace. A further advantage is the reduced volatility of the fee-based income stream, compared with ownership of assets.

A key characteristic of the franchised and managed business is that it generates more cash than is required for investment in the business, with a high return on capital employed. Currently 87% of continuing earnings before regional and central overheads, exceptional items, interest and tax is derived from franchised and managed operations.

The key features of our business model are represented in the following table and charts.

FRANCHISED

MANAGED

OWNED & LEASED

BRAND MARKETING & DISTRIBUTION

IHG

IHG

IHG

STAFF

THIRD PARTY

IHG supplies general managers as a minimum

IHG

OWNERSHIP

THIRD PARTY

THIRD PARTY

IHG

IHG CAPITAL

NONE

LOW/NONE

HIGH

IHG REVENUE

FEE % OF ROOM REVENUE

FEE % OF TOTAL REVENUE + % OF PROFIT

ALL REVENUE

TOTAL HOTELS

3.799

622

17

The Current Strategies followed by IHG Hotels Group:

• 90% of deals signed in scale markets and key gateway cities;

• 10 signings of Hotel Indigo and Staybridge Suites outside of North America;

• 439 hotels opened globally.

• Increased proportion of revenue delivery through IHG global reservations channels and PCR members direct by four percentage points to an average 68% of global hotel rooms revenue in 2009

• Major procurement savings made;

• Increased use of offshore transaction processing;

• Technology infrastructure developed to support owner management and loyalty marketing.

•Continued to cascade Great Hotels Guests Love in hotels and corporate offices;

•Meeting ongoing resourcing requirements to match hotel growth in scale markets;

• Managing employee engagement;

• Continued focus on attracting and retaining talent. 1,697 relaunched Holiday Inn and Holiday Inn Express hotels open around the world;

• Industry-leading Priority Club Rewards (PCR) loyalty programme with 48 million members, contributing $5.6bn of global system rooms revenue

•Green Engage sustainability management system developed (patent pending); rolled out to over 900 hotels by 31 December 2009;

•Extensive consumer research undertaken to quantify ‘green’ opportunity with consumers; and

(IHG annual report)

3 Future strategies to be used by Intercontinental Hotels Group:

“IHG’s prime focus should be on growing faster by making its brands the first choice for both guests and hotel owners. We will do this by building the hotel industry’s strongest operating system, focused on the biggest markets and segments where scale really counts.” 5 (ihg.com).

During these tough economic times, IHG had taken decisive action both to strengthen the efficiency of its businesses and to keep their course with its growth strategy. IHG should continue to invest in its staff, its systems and its brands, while moving even closer in working relationships with its hotel owners and partners. “With momentum and a united, winning spirit inside the business, IHG is well placed to make the most of the upturn when it comes”. As quoted by the CEO of IHG Mr. Andrew Cosslett.

IHG’s Ambition

IHG should focus on its core purpose of creating Great Hotels Guests Love as the moto has always been, which is a growing crave to deliver among other key performance indicators (KPIs), closely enduring top quartile shareholders returns when measured against a broad global hotel peer group. For the three-year period of 2007 to 2009, IHG was fourth among its peers on Total Shareholder Return (TSR) and should always remain focused and try to come to the 1st position. Measuring IHG against a collection of specific KPIs aimed at delivering its core purpose, cascaded to the hotel level. Successful performance against various combinations of these metrics would result in higher profitability..

IHG’s Future Strategy:

IHG’s strategy has seen significant development through 2009 as it moved to make its core purpose a reality, despite challenging economic circumstances. In 2009, IHG took a hard look at its operations and capabilities to focus on what really matters most to deliver Great Hotels Guests Love. It has backed this up with a major effort to align its staff and measure the most important drivers, resulting in a clear, target-based programme within the hotels to motivate teams and guide behaviors’.

IHG’s strategy encompasses two key aspects:

Where does it choose to compete; and

How will it win where it competes?

The Group’s underlying ‘Where’ strategy is that IHG would grow a portfolio of differentiated hospitality brands in select strategic countries and global key cities to maximise the scale advantage. The ‘How’ aspect of our strategy flows from our core purpose and our research at the hotel level as to what really makes a difference for guests. In support of this overall strategy there are key priorities – like ‘Where we compete’ and ‘How we win’. To help IHG’s hotels and corporate staff measure their efforts in achieving Great Hotels Guests Love, IHG provides clear metrics aligned with the four ‘How we win’ priorities against which progress is gauged. The Group strategy also translates into specific regional objectives and priorities. .

IHG’s Delivery System:C:UsersdDesktopUntitled.png

Driving demand

IHG’s operating system is made up of all the things we do to drive demand for our brands. This includes our advertising and marketing campaigns, our 10 global call centres, 13 local language websites, an 8,000-strong sales force, Priority Club Rewards – the world’s largest hotel loyalty scheme which has 48 million members – and all the advantages that IHG’s global hotel distribution and scale brings to brand awareness.

Hotel distribution

IHG has over 4,400 hotels in over 100 countries worldwide. Our brands are in the top 3 in 7 of the 12 largest hotel markets in the world.

When people travel, they look for familiar brands they know from home, increasing the demand for hotels that operate under our brands around the world.

Advertising and marketing

Each year, IHG’s franchisees pay a fee into a central fund. This fund is used on their behalf for marketing and promotions to drive guest demand for IHG’s brands. Brand sponsorships, television and print advertising campaigns and public relations activity across the globe are all ways in which the fund can be used.

Priority Club Rewards

IHG’s Priority Club Rewards is the largest hotel loyalty scheme in the world, with 48 million members.

Web presence

The 13 local language websites take over 7.4 million bookings a year – they’re a shop window for the hotels across the world under IHG,s banner, 365 days a year. www.holiday-inn.com is one of the industry’s most visited websites, notching up 75 million site visits in 2005. The websites operate in the following languages: Arabic, Chinese, Dutch, English, French, German, Hebrew, Italian, Japanese, Korean, Portuguese and Spanish.

Reservation system

IHG,s 10 global reservation offices are available to take hotel bookings from guests 24 hours a day in 26 languages including Arabic, Cantonese, Dutch, English, French, German, Hindi, Italian, Japanese, Mandarin, Portuguese, Spanish, Tagalog and Thai. They deal with 700 transactions per minute.

Sales force

IHG have a global sales force of more than 8,000 professionals throughout the world, talking about and selling the booking of hotels under our brands to individuals and companies.

Considering the future strategy which is goin to be used to the growth achievement of IHG are as follows:

Consumer understanding:

As one of the world’s largest hotel groups, IHG has gained valuable insights into where and how consumers seek hotel information and make reservations – across various channels and from various local, regional and global sources. This information has shaped the way we engage with our customers and enabled us to drive up returns for owners.

Global Reservations System

All IHG hotels benefit from the world’s most advanced reservation system – Holidex Plus.The system links more than 230,000 terminals worldwide and processes over 130 million stays a year – that’s about 700 transactions per second. This is serviced by our 12 worldwide reservation centres which receive up to 14 million calls annually in 15 different languages.

Global Distribution Systems (GDS)

Our reservation systems also link with all the major GDS, the channel of choice for travel professionals and large corporate buyers. This gives us global around the clock access to the travel trade.

IHG online

Our websites continue to be a fast-growing reservation channel. They offer a comprehensive, customer-friendly and secure booking service in 13 languages and provide a low cost of sale. We receive more than 5 million unique web visitors per month and also benefit from the lowest clicks-to-book rate in the industry.

Worldwide sales

IHG’s worldwide sales team is more than 8,000 strong. As well as generating new revenue, the team also manages key corporate and agent accounts and provides local hotel sales support to maximise revenue and keep IHG hotels top of mind. 6 (IHG.com)

Some Of the Future Milestones to be achieved:

• Continue international roll-out of Staybridge Suites and Hotel Indigo;

• Execute growth strategies in agreed scale markets;

• Continue to leverage scale and build improved strategic position during the economic downturn

Increase global sales force effectiveness;

• Continue further procurement programmes to identify efficiencies;

• Begin migration to next-generation revenue management IT systems;

• Continue focus on owned and managed estate margins and return on capital employed

(ROCE), especially in our key InterContinental assets.

• Drive greater efficiency and simplicity through better use of technology;

• Focus on developing skills to support the key goals for responsible business, guest experience and financial returns.

•Complete Holiday Inn repositioning roll-out;

• Continue to simplify brand standards process to improve owner returns without impairing guest experience;

• Continue to enhance experience for PCR members in hotels and across global reservations

channels; increase IHG business from PCR members

•Continue to roll out the Green Engage sustainability management system to 100% of our owned and

managed hotels and expand into the franchised estate in all three regions; and

• Focus on innovation within new and existing brands to deliver valued ‘green’ related hotels

and services to guests.

(IHG annual report)

6 http://www.ihgplc.com/index.asp?pageid=293