Five Forces Model Marriott International Marketing Essay

1. Apply the five forces model to the industry in which your company is based. What does this model tell you about the nature of competition in the industry?

Marriott International, Inc. is a global hospitality leader that has shown continuing signs of prosperity and dominance in its industry. This company, based out of Bethesda, Maryland, has made its mark globally through the operation and franchising of hotel and lodging facilities scattered throughout the Americas, Africa, Europe and Asia-Pacific. According to the IbisWorld database, Marriott International Inc is the leading player in the global hotels and motels industry; employing about 137,000 people in about 69 countries. In order to further understand the nature of competition in this industry one should first examine its external environment; more specifically the forces that drive it. The five forces model that shall be analyzed is comprised of buyer power, supplier power, threat of new entrants, threat of substitutes, and degree of rivalry.

Buyer Power

The buyer power in this industry can be qualified as moderate, as its players are constantly offering ways to reduce it. In the global hotel and motel industry a primary strength a player has to have in order to flourish is strong brand recognition. A strong brand recognition not only aids in attracting first time customers, but it also entails repeat business since switching costs can be trifling in this industry. Price competition alone is not a good stimulator of this force, yet innovation undeniably is. Companies are always trying new ideas to capture a diversified set of consumers, ranging from the middle class to the premium segment. By utilizing new styles of design to superior facilities, such as gyms, spas, even integrated golf complexes, a vast fragmented group of consumers can be captured through an increase in the value they receive. For primary players in the industry the impact of losing a customer is not such a considerable threat to business; they will retain the one’s they have and strive for new ones through a variety of strategies.

Supplier Power

The supplier power in this industry can be qualified as moderate, mainly due to the circumstances that create advantages to suppliers. First of all, suppliers in this industry are comprised of a variety of positions; from property owners, developers, real estate companies, architects, to marketing companies, suppliers can take on many shapes. Due to the fact that this industry is very labor intensive, the players within it have to take on effective strategies to bargain. The degree of quality and accessibility of the supplier’s equipment and services are a primordial part for the success of a company. Hotel managers usually have to rely on technology and advanced systems to manage, analyze, and locate good prospective properties that will complement the hotel’s profitability. Since most of this technology is acquired through separate suppliers, their bargaining power is considerably strengthened. Furthermore, as the quality of training employees are provided with is congruent with the quality of service they provide, the suppliers of high quality guidance may have a source of power over the firm.

Threat of New Entrants

As the hotel industry has experienced a substantial degree of growth over the past few years, it is very likely that new entrants will be attracted. This industry is very influenced by tourism and travel trends which create prime opportunities for competitors to enter the market. Even though there has been an economic downturn globally, the expectations for the hotel industry continue to be positive and growth is most likely going to continue throughout the year. The threat of new entrants appears to be stronger in the Asia- Pacific region specially, as the number of tourists continues to grow and new flight pathways are unveiled. In this industry new entrants may surge as small, independent sole proprietors, yet the likelihood of their success is uncertain. In order to sustain revenue growth in the premium market, where the highest profitability is usually found, a large scale of initial capital is required; this can present itself as a strong deterrent to new entrants. Moreover, new entrants may be constrained by foreign investment restrictions and regulations, as well as restrictions in terms of purchasing real estate abroad.

Threat of Substitutes

The existence of substitutes outside the realm of the hotel industry’s boundaries may increase the chances of customers switching to alternatives, yet the threat may be assessed as restrained. Substitutes for this industry include alternative types of lodging, such as RV’s, camping, even informal visits to friends and family. Even though these substitutes do exist, and switching costs may be low, they usually do not provide the same utility as a hotel does. The basic function of a place to stay may be fulfilled by substitutes, but the added benefits, such as restaurants and spas, are better provided by hotels. The threat of substitutes may exist in this industry, yet it is no match for an entity with a strong brand equity that provides customer satisfaction

Degree of Rivalry

The threat of rivalry for this industry can be considered moderate due to mostly financial and logistical factors. Most of the hotel industry’s key players are large branded chains, yet there are a large number of independent companies currently in the industry. The larger chains have a powerful competitive advantage by being able to use their higher level of revenues to diversify into other businesses. On the other hand smaller companies have to struggle to devise strategies of survival and innovation, which can be a complicated task. The capital availability key players have allows for a higher degree of global diversification; insulating them from volatile market conditions. The pursuit of global expansion, through acquisitions and franchising, can be a strong manifestation of the industry’s competitive nature. Furthermore, many large chains have started to use an asset light business model to stimulate expansion; by divesting and raising capital, competitors can invest in a broader set of operations and businesses. This therefore increases the level of competitiveness between rivals.

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This model as a whole demonstrates how the nature of competition for this industry is based on the strength of the industry’s drivers of demand, and a company’s operations. Companies in this industry not only compete against others within the industry, but with other industries as well. Competition is often based on price, yet the provision of superior quality amenities and services is a strong differentiator. The nature of competition is driven by location, as the popularity of an area will enhance demand, and rating a hotel receives; encompassing a premium quality of facilities and service norms. Most importantly, the nature of competition is driven by the demands and expectations that guests seek to be matched by staff and management.

The nature of competition for this industry is also influenced by the fact that some travelers decide on what competitor to chose based solely on brand. To some customers in this industry brand equity and image serve as an imperative guarantee for high quality services and facilities. A competitive advantage can be maintained by constantly keeping up with customer expectations and providing them with features that competitors lack.

For some travelers, hotel branding and image associated with an establishment or franchised name is as important as a guarantee of superior facilities and service. But also significant is the extent of information available on the establishment on the internet, as well as the increasing ability for guests to make a direct booking and payment over the internet.

2. Are any changes taking place in the macroenvironment that might have an impact, positive or negative, on the industry in which your company is based? If so, what are these changes, and how might they affect the industry?

Changes that have a positive impact on the hotel industry can be observed in the economic and technological realms of the macroenvironment. Economic factors might affect the industry through a continuing growth in global business and tourism travel markets; a prime determinant of demand. Growth in emerging markets such as India and China provide this industry with new regions open to penetration. The economic prosperity, growth in GDP, and the rise of disposable income in these countries have contributed to the success of the industry. A growth in tourism enables an increase in profitability, which entails an increase in shareholder value and diversification. The industry’s future outlook is predicted to experience a considerable level of growth as the hospitality market continues to improve in the US and around the world.

The hotel industry is also currently experiencing changes in the technological aspect of the macroenvironment. Through the use of technology, this industry has been able to improve their efficiency in communication and information technology to manage operations. Currently, Hotels are better able to meet market needs through an increasingly technological product segmentation. The utilization of more effective computerized reservation systems, property management systems, and global distribution systems, allows for a more dynamic industry. Furthermore, the internet continues to enable a disintermediation between the consumer and provider through social networking and the development of packaged tour bundles that include accommodation.

3. Identify whether your company has a competitive advantage or disadvantage in its primary industry. (The primary industry is the one in which it has the most sales.)

In its primary industry, Marriott International, Inc. has a number of strong competitive advantages which make it the top company in its line of business. At Marriott they believe in a continuing long term success through more than 80 years of experience, strong brands, customer preference, and an effective business model. Currently, the company’s portfolio consists of more than 3,400 franchised and managed properties across 18 brands in about 70 countries spanning across six continents. As of 2009, approximately 137,000 employees were part of generating sales of about $11 billion; a figure that is expected to grow consistently in the following years.

The company’s brand has developed exponentially due to the quality of products and services they provide to customers. It has adopted numerous innovative technical programs to satisfy customer’s requirements and provide support in any problems they may encounter. A centerpiece program is the Marriott’s Automated Reservation Systems for Hotel Accommodations (MARSH), which provides personalized attention to each individual customer. This program led the company to follow an e-business strategy which switched the Marriott from being property oriented to being customer oriented. By focusing on using technology to improve the customer experience, the Marriott is able to differentiate itself from competitors and have a strong competitive edge.

As for the business model, the Marriott has been following a proven strategy of franchising and managing hotels rather than having full ownership. In the franchised properties, the company foregoes direct control over employees and strives to build upon maintenance and internal operations. The minimization of capital investments and expenditures allows for cash flow and financial flexibility; a strong determinant of growth. The Marriott’s role is to simply ensure that properties are up to par with brand standards.

4. Evaluate your company against the four generic building blocks of competitive advantage: efficiency, quality, innovation, and responsiveness to customers.

Efficiency

The Marriott’s competitive advantage concerning the building block of efficiency is exhibited in the vast global presence and diversified sources of revenue the company holds. Even though the majority of the company’s earnings come from the U.S, around 43% is produced by its international operations. This is a great advantage as it allows the company to not depend on one single market to generate revenues. The earnings are obtained by operating in both emerging and already matured markets; the latter driving the value of growth while the former drives the volume. The company’s global presence creates a barrier against risk that may arise in each varying economy. Furthermore, aside from having an enormous global coverage, the company generates revenues by tapping into various customer segments. Ranging from the lower priced segment, with the Fairfield inn, to the luxury priced segment, with the Ritz-Carlton, the company can profit by satisfying a multitude of customer demands.

Quality

The quality standard of the Marriott is far from lenient; this is something the company prides itself in. Marriott’s brand is one of the most respected, not to mention influential, in the marketplace; with over 80 years of experience it has grown to be a principal hospitality leader. Hotel brands such as the Ritz-Carlton and Bulgari, which the Marriott operates, are set to cater all the luxury needs guests may require. On the other hand, the more moderately priced SpringHill Suites and Courtyard carry on amenities and services focused on total quality; never stepping away from providing affordability to the customer. The high level of quality is effectively maintained by strict franchise agreements; often having managers and owners follow strict regulations from the brand. The company continues to refine their business model, innovate their brands, and essentially master the art of taking care of customers.

Innovation

A strong focus of the Marriott’s business model is to consistently formulate ways of making operations more efficient; in this they have not failed. The company remains to be a leader in developing innovative ways to improve the customer experience and the process of conducting business. As previously mentioned, programs like MARSH provide a valuable level of customer service through a practical use of technology. Another innovation Marriott developed is a price auditing tool to handle costly renegotiation requests from its clients. The program, called the Property Guest Object Oriented System (PGOOS), automated the process of monitoring shifting corporate rates and auditing of MARSH. The implementation of PGOOS leads to customers receiving the lowest rates available that coincided with the current state of the market. Innovation can definitely be qualified as a competitive advantage and edge for this company.

Responsiveness to Customers

In order to properly respond to customers’ wants a company must constantly identify and cater to their changing needs. The Marriott has consistently taken steps to excel in this competitive advantage, either through customization or consistent delivery of quality service. In order to meet customer demands the Marriott has utilized multiple systems, such as MARSH, to provide an incomparable attention to its customers. It also depends heavily on customer feedback to constantly improve customer satisfaction and loyalty. The company is committed to providing a level of quality that will keep customers coming back; whether it is for business or for pleasure. The Marriott hotel brand is not only notorious but also respected in the hotel industry. In 2009, Fortune magazine ranked Marriott as number 37 in the World’s Most Admired Companies; a list that they have been a part of for ten consecutive years. Awards such as this one, and many others, clearly demonstrate the dominant brand value this company has and will continue to have for years to come; millions of customers can agree to this.