7 David S
Analyze the Hotel Industry in Porter Five Competitive Forces
Dr. David S. Y. Cheng, Faculty (Business) Upper Iowa University – Hong Kong Campus
ABSTRACT
This article is going to discuss the strengths and weaknesses of the Hotel Industry on a global basis and to study the viability of a hotel project, taking into account the five competitive forces of Michael
Porter’s Model. The main competitive forces and factors within those forces will determine the feasibility and potential profitability in a hotel project. The two crucial factors that enable hotels to differentiate themselves are good location for relative target market and quality of service.
INTRODUCTION
Industry can be broadly defined as a group of companies producing products and services that satisfy a need, function and use. It can be narrowly defined as a group of companies producing products and services which are close substitutes for each other. Business strategy can be defined as an integrated set of acts aimed at securing a sustainable competitive advantage over competitors. The Five Competitive
Forces of Industry will influence prices, costs and investment (Porter, 1980). The feasibility and potential profitability of a hotel can be determined by answering the following questions.
STRENGTHS AND WEAKNESSES OF THE HOTEL INDUSTRY
IN THE FIVE COMPETITIVE FORCES
Threat of New Entrants – Barrier to Entry
According to Michael Porter (1980), threat of new entrants are determined by barriers to entry which include economies of scale which include size and scope of operations required to achieve viable cost structure; product differentiation, switching costs and customer loyalty created by quality, reliability and brand image; capital requirements which involve size of cash and financial resources required to establish and run a business; cost disadvantages independent of scale as opposed to advantages held by existing competitors such as location, patents and experience; access to distribution channels
Dr. David S. Y. Cheng, Faculty (Business) Upper Iowa University – Hong Kong Campus
ABSTRACT
This article is going to discuss the strengths and weaknesses of the Hotel Industry on a global basis and to study the viability of a hotel project, taking into account the five competitive forces of Michael
Porter’s Model. The main competitive forces and factors within those forces will determine the feasibility and potential profitability in a hotel project. The two crucial factors that enable hotels to differentiate themselves are good location for relative target market and quality of service.
INTRODUCTION
Industry can be broadly defined as a group of companies producing products and services that satisfy a need, function and use. It can be narrowly defined as a group of companies producing products and services which are close substitutes for each other. Business strategy can be defined as an integrated set of acts aimed at securing a sustainable competitive advantage over competitors. The Five Competitive
Forces of Industry will influence prices, costs and investment (Porter, 1980). The feasibility and potential profitability of a hotel can be determined by answering the following questions.
STRENGTHS AND WEAKNESSES OF THE HOTEL INDUSTRY
IN THE FIVE COMPETITIVE FORCES
Threat of New Entrants – Barrier to Entry
According to Michael Porter (1980), threat of new entrants are determined by barriers to entry which include economies of scale which include size and scope of operations required to achieve viable cost structure; product differentiation, switching costs and customer loyalty created by quality, reliability and brand image; capital requirements which involve size of cash and financial resources required to establish and run a business; cost disadvantages independent of scale as opposed to advantages held by existing competitors such as location, patents and experience; access to distribution channels
References: Kotler, P., Armstrong, G., Brown, L. and Adam, S. (1998). Marketing fourth edition, Prentice Hall, Sydney. Kotler, P. and Armstrong, G. (2010). Principles of Marketing 13th Edition, Pearson Education Inc. Kotler, P. and Keller, K. L. (2006). Marketing Management 12th edition, Pearson, Prentice Hall. Porter, M. E. (1979). How Competitive Forces Shape Strategy, Harvard Business Review, Volume 57, Number 2. Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press. Porter, M. E. (1998). Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press, NY 10020. Porter, M. E. (2003). Strategy and the Internet, Harvard Business Review on Advances in Strategy, Harvard Business School Publishing Corporation.