Through the Lens
Abstract
Starwood Hotel and Resorts Worldwide, Inc is a perfect corporation to analyze using the Porter’s Five Forces strategy. Special focus is on the following; the company’s market, product differentiation, the uniqueness of the suppliers, and cost of change and how the competitors in the same market are performing. The analysis also unearths the competitive strategy used by the competitors and how it threatens Starwood Hotel. Starwood Hotels and Resorts Worldwide is in a vibrant market and due care should be taken while trying to analyze the firm. Due to this, we going to apply the Porter’s five-model strategy on the corporation using real market conditions and forces pertain the firm and forces of competition. Porter’s Five Competitive Forces has proved to be the most functional technique as it incorporates both opportunities and threats of an organization. Starwood hotel and resort enjoys a competitive advantage in the travel, recreation, and leisure industry. Its main strength is the product differentiation and its major threat is the stiff competition in the industry.
Introduction
The travel industry is growing, and in this era of rapid globalization, every corporate organization needs to have as much information as possible about their market of operation. Thus, there is a need to have a strategy that is accurate and precise to analyze the industry and competitors for both the existing players and those who want to join the market. Porter’s Five Competitive Forces has proved to be the most functional technique as it incorporates both opportunities and threats of an organization. Proven and time-tested Porter’s Five Forces Strategy provides detailed results from three major aspects; statistical analysis, dynamical analysis, and analysis of options (Porter, 1979). The paper uses Porter’s Five Forces Strategy to carefully examine and analyze the travel industry focusing on Starwood Hotels and Resorts Worldwide, Inc.
Starwood Hotels and Resorts Worldwide, Inc
Starwood Hotels and Resorts Worldwide owns and manages luxury and upscale hotels all over the world. It also operates interval ownership resorts and spas. The American hotel is one of the largest hotels companies in the world employing over one hundred and eighty people. In Sep 2016, the hotel underwent a major merger with Marriott International. Marriot International announced it interest on Starwood hotels and resorts on Nov 2015 quoting a hefty price of $ 13.6 billion. This made it to be one of the world’s largest hotel chain. Starwood has some products such as travel service, as a global service provider, it has partnered with 32 affiliated airlines which give guests an opportunity to redeem points. This is made possible through the SPG Flights program; the hotel quotes 21 million people to have enrolled in this program.
Analysis of Starwood Hotels and Resorts Worldwide using Porter’s Five Forces Model
Threat of New Entry
Globalization has touched on every aspect of our lives, and the hotel industry is not exceptional. So many services have been automated, and one can comfortably book, reserve and pay for a summer package trip at the comfort of their home. It is very easy to start up businesses such as travel agencies, hotels, resorts as well as individuals businesses in the US. All that is required is knowledge of business. Education wise, one need to have vast knowledge of geography, history, and foreign languages. This is a threat to Starwood Hotels and Resorts Worldwide, as a small failure on their side means that the customer can go to the next available option and arrange for the travel. However, Starwood enjoys loyalty from its customer because of the Starwood Preferred Guest (SPG) program. The program aims to retain its customers by allowing members to earn and redeem points for each stay (Year, 2013).
Buyers’ Power
Starwood group mainly targets luxury that is the wealthy, super wealthy and professionals who are traveling and would like to stay in the high-end and luxury hotel. This segment of customers is very powerful. Starwood cannot rely on business traveler’s customers alone; it has to attract even the holidaymakers due to its vastness. Even though it has achieved all this, customers can opt to go to a cheaper hotel for cheaper services. For example in 2013, Starwood suffered losses because of the recession, as many of their customers would not want to be seen “wasting money.” This causes the organization to change strategies, by lowering the price or offering attractive incentives and packages that affect cost and reduces its profits (Year, 2013). Thus, Starwood customers can easily dictate the prices.
Threat of Substitution
Starwood suffers from the threat of substitution as there are other hotels offering the same service and can be easily reached through the internet. Hotels such as Hilton and Hyatt International are the main companies offering similar services to Starwood Hotel. However, because of product differentiation and cost of switching Starwood Hotel can cushion itself from the threat. If you are a loyal Starwood Hotels’ customer and specifically in an SPG member, it will be somehow difficult for you to choose another company while you know you stand a chance to earn and redeem points in StarwoodHotel. This example reflects the cost of switching.
Supplier Power
In the travel industry, Starwood Hotel is well protected whether on air or land. The company has its fleet of taxis that pick and drop its customers. It has linked up with the taxi company UBER that has been incorporated in its SPG program. In regards to air travel, Starwood has an affiliation of over 32 airlines thus the supply is constant and the cost of switching is not high.
Competitive Rivalry
The travel industry is very competitive and worse when you combine hotel and travel services. Many hotels and resorts are maximizing on profits, and this means that most if not all will undertake all the activities that will suit their businesses and travel is one of the core activities.
Hyatt Hotels, which is also in the same travel, recreation, and leisure industry, poses as a competitor and therefore a threat to Starwood. Hyatt is classified as one of the leading luxury hotels and resort in the world. The hotel embarked on offering rewards to its members by introducing the resort programs that include a global loyalty program where members join the gold passport to enjoy benefits (Yong, 2004).
According to Yong (2004), Hilton Worldwide is one of the major competitors to Starwood Hotel. It offers almost the same services and therefore acts as a threat to Starwood because customers can easily shift. Situated in more than 100 countries in the world it easy to see why this is a threat and a big competitor too. Hilton has a customer loyalty program known as the Hilton Honors program that let members enjoy exclusive benefits like free nights and other rewards.
Conclusion
Porter’s five forces strategy shows how Starwood hotel and resort enjoys a competitive advantage in the travel, recreation, and leisure industry. Its main advantage is the product differentiation. The resort focuses on luxury services to attract the middle and the upper class. To maintain and retain its customer, the hotel introduced a loyalty program where frequent customers are awarded to make sure they come back again. All this has worked to their advantage, but they need to work with technology for ease of operation. Its main threat is stiff competition in the industry due to the existence of many companies providing similar products and services.
New Threat Competitive Rivalry
It is not expensive to start a travel agency. After merger, Starwood has two main
Starwood enjoys customer’s loyalty and differentiated services. competitors. Hyatt, Hilton.
has a large following (loyalty) .
Switching cost is expensive as
SPG member will lose.
Supplier
Starwood has a large number of suppliers. 32 airlines Customer/ buyer
They enjoy unique services of Uber Starwood has price sensitive
Customers.
Substitution
Cost of switching because earned points cannot be transferred
Differentiation of service especial targeting luxury
References
Porter,M. E. (1979).The contributions of industrial organization to strategic management. Academy of management review, 6(4), 609-620.
Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior performance. Simon and Schuster.
Yong Kim, B., & Oh, H. (2004). How do hotel firms obtain a competitive advantage?. International Journal of Contemporary Hospitality Management, 16(1), 65- 71.
