Marriott International Inc.

Andrew Branson, Benjamin Leung, Carlos Espinal,

Lawal Mogaji, Meshayla Campbell, and Stefanie Quintela

Texas A & M University – Commerce

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Company History

John Willard Marriott and Alice Sheets Marriott decided to start a little A&W root beer

stand in Washington D.C. made up of nine stools, and eventually grew that business into one of

the most well-known hospitality service companies, Marriott International Inc. Shortly after

opening their doors to the A&W root beer stand, J. Willard and Alice S. started expanding their

menus to include hot Mexican food and eventually changed the name to The Hot Shoppe

(Timeline.marriott.com, 2014). A year later they expanded and opened two more Hot Shoppes

with one being a drive-in restaurant. The Hot Shoppe became a popular place to eat and

eventually, in 1937 they saw another market to serve customers, Hoover Airport. They started

catering boxed lunches from the Hot Shoppe to passengers at the Hoover Airport, one of the first

“in fight” meals. By 1953 Hot Shoppe became a publicly traded company opening at

$10.25/share and within a couple of hours of trading, they sold out shares. In 1965 they opened

their first fast-food restaurant and called it Hot Shoppe Jr. Eventually in 1993, Marriott splits

into two company’s Host Marriott Corporation and Marriott International Inc. The headquarters

for Marriott International Inc. is located in Bethesda, Maryland just outside of Washington DC.

It wasn’t until January 18, 1957 that the Marriott’s went into the hotel business. On that

day they opened a 365-room hotel called Twin Bridges Marriott Motor Hotel. One of the great

things about this hotel was that it had a drive-in registration desk, so customers didn’t have to get

out of their cars to check in. J. Willard Marriott decided not to stop with a few restaurants and

one hotel. The Marriott Company eventually partnered with Sun Line cruise ships and got in the

cruise ship business and also open two Great America theme parks (Timeline.marriott.com,

2014). Eventually through the 1980’s Marriott open other chains including: the Courtyard brand,

timeshare business called Marriott Vacation Club International brand, and Fairfield Inn. They

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also ended up opening their 500th hotel which happened to be in Warsaw, Poland which ended up

being the first western-managed hotel in Eastern Europe. In the 1990’s Marriot continued

expanding business which included: buying 49% interest in the Ritz-Carlton Hotel Company,

acquiring Renaissance Hotel Group, opening TownePlace Suites, Fairfield Inn & Suites,

SpringHill Suites, Marriott Executive Residences, and eventually acquiring Execustay housing

company (Timeline.marriott.com, 2014).

Company Overview

Marriott International, Inc. (NASDAQ: MAR) is a publically held corporation with more

than 4,000 properties in 78 countries and territories around the world (News.Marriott.com,

2014). Marriott also operates and franchises under 18 brands, including: Marriott Hotels,

Bulgari, Courtyard, Fairfield Inn & Suites, Residence Inn, TownePlace Suites, and many more.

With all their membership and reward programs, they have more than 45 million members.

Marriott started out with A&W root beer stands and Hot Shoppes, and then in 1957 they

decided to try their hand in the hotel industry, and opened a 365 room hotel. Through the year’s

part of their business strategies for growth included entering into partnerships and acquisitions.

The partnerships included merging with companies like Sun Line cruise ship and The Ritz-

Carlton Hotel, while the acquisitions included: the Renaissance Group, Residence Inn, and

ExecuStay corporate housing company (Timeline.marriott.com, 2014). In 1983 they opened

the Courtyard brand which was designed to target the business traveler instead of those staying

for leisure. Marriott also tried to break out into another market by opening two Great American

theme parks in 1972 and entering the timeshare business in 1984 with Marriott Vacation Club

International brand (Timeline.marriott.com, 2014).

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At Marriott they are committed to encouraging and training their employees to reach their

full potential so they can have the skills they need to deliver exceptional customer service. They

are committed to supporting and protecting human rights and team with world organizations to

campaign against human trafficking (Marriott.com, 2014).

Marriott International, Inc. also fights to reduce their footprints by reducing energy and

water consumption by 20% by the year 2020, develop and build more green hotels, green their

multi-billion dollar supply chain, and educate associates how to conserve and preserve the

environment.

Social responsibility is also an important aspect and area for Marriott International, Inc.

and they are committed to providing food and shelter for those in poverty. In times of disasters

Marriott hotels are a place for shelter and food, while they also provide monetary contributions

to the American Red Cross and the International Federation of Red Cross and Red Crescent

Societies. They also encourage their members to help by donating reward points or cash to help

those in need (Marriott.com, 2014).

Industry Overview

In the past five years the hotel industry has grown an average of 4.5% from $136.4 billion

in 2009 to $162.6 billion 2013 (Hotels & Motels Industry Profile, 2014).

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2009 2010 2011 2012 2013120125130135140145150155160165

Industry Value

Year

$ Bi

llion

The value of the hotel industry comes from the revenue generated by hotels, motels, and

other lodging companies, through renting rooms and also through the food they sell (Hotels &

Motels Industry Profile, 2014). The largest segment of the hotel industry in the United States is

leisure and accounts for 73.1% of the total hotel market, while the other 26.9% of revenue came

from business travelers (Hotels & Motels Industry Profile, 2014).

LeisureBusiness

It is important for Marriott to continue marketing their product to those using hotels for

leisure. Marriott International, Inc. markets to either the business man or woman through their

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Courtyard and ExecuStay brand and those looking for a leisure time through their other brands

(Timeline.marriott.com, 2014).

Marriott International continues to grow their business by opening more hotels and

resorts worldwide through their many brand names. As of 2012 Marriott is among the top as far

as how many hotels and rooms they have available (Hospitalitynet.org, 2014).

11% 9%

17%

9%

11%15%

27%

International Market Share

InterContinental Hotels GroupHilton WorldwideWyndham HotelMarriott InternationalAccorChoice Hotels InternationalOther top 14 Hotels

The United States also accounts for 29.5% of all the hotels globally and American based

hotel companies have to fight hard internationally with many international hospitality companies.

In figure 3 we can see the industry value broken down throughout the world.

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United States

Asia-Pacific

Europe

Rest of World

162.6

151.7

141.1

95.7

0.295046271094175

0.275267646525132

0.256033387769915

0.173652694610778

Industry Value Globally% of Market $ Billion

The hotel industry is projected to grow 31.9% by 2018 to $214.6 billion (Hotels &

Motels Industry Profile, 2014).

2013

2014

2015

2016

2017

2018

162.6

171.7

181.8

192.1

203.1

214.6

0.046

0.056

0.059

0.057

0.057

0.057

Future Value Projection % Growth $ Billion

Based on future projections, hotels will need to raise their marketing techniques as to

reach as many tourists and business travelers as possible. There are billions of dollars spent in

the hotel industry as we can see from our graphs, and Marriott, having 4,000 hotels

internationally, and having a high customer satisfaction rate is set to earn even more in revenue

in the next five years, based off projections provided by Hotels & Motels Industry Profile.

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Environmental Scanning: Variable Identification

The group has done a review of the various industry and company documents and has

identified five environmental that have impacted the company in the past and may continue to

affect the company in the future. The five variables are Competition, Economic, Technology,

Demographics and Emerging Markets.

Competition

Marriott International, Inc. is a “worldwide operator, franchisor and licensor of hotels and

timeshare. It operates internationally under numerous brand names, with different price point and

service point. The chain has hotel and timeshare properties in 72 counties worldwide” (Marriott

International, n.d.). Marriott groups its brands into four segments: North American Full-Service

Segment, North American Limited-Service Segment, International Segment, and Luxury

Segment. The segments are differentiated by price point and market (International versus North

America).

The Marriott is one of the top five hotel chains in the world with “3916 proprieties

worldwide with 375,623 rooms” (Marriott International, n.d.). One of its main competitors is

Hilton Worldwide with 4,115 properties and 678,630 rooms. Hilton’s brand names include

Hilton Hotel, Double Tree Inn, Embassy Suites and Conrad. Another competitor is the

InterContinental Hotel Group with 4,732 properties and 693,000 rooms. InterContinental brands

include Intercontinental Hotels, Staybridge Suites, Candlewood Suites, Crowne Plaza and

Holiday Inn. Other competitors in the market include Kingdom Holdings Co., and Choice Hotels

International Inc.

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All competitor chains also offer numerous brand name hotels. Each of the brand names

has a different price and service point. Below is a sample list of hotels that compete directly with

Marriott in their market segment.

Hotel Brand Segments

Market SegmentMarriott

InternationalHilton Worldwide

InterContinental

Hotel Group

Luxury JW Marriott ConradIntercontinental

Hotels

Upscale Marriott Hotel Hilton Hotel Crown Plaza

Upper Moderate Courtyard Hotel Hilton Garden Inn Holiday Inn

Moderate Fairfield Inn & Suites Hampton Inn Holiday Inn Express

Economic

The economy is another environmental variable that can affect Marriott’s sales. There are

varieties of economic reports put out by government and non-government organizations (NGO)

that measure the economy’s performance. Three of the economic measures put out by the U.S.

government are Gross Domestic Product, Disposable Income, and Unemployment Rate. In

addition, the University of Michigan also put out a Consumer Sentiment Index to measure the

economy by polling consumers.

The U.S. Government defines Gross Domestic Product (GDP) as the market value of

final goods and services produced in the United States. During the U.S. Financial Crisis of 2007-

2008 and resulting Great Recession of 2009, the U.S. GDP declined to a low of -2.08% in 2009.

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In the same year (2009), Marriott’s net income fell to -$346 million. The chart below shows a

correlation of .93 between these two events. This indicated there is a statically significant

correlation between the GDP and Marriott’s net income.

Correlation Between Marriott Income and GDP (Recession)

Yea

r Marriott Income GDP % Change

2008 362 14,718.6

2009 -346 14,418.7 -2.08%

2010 458 14,964.4 3.65%

Correlation 0.937

Under normal economic conditions, Marriott’s net income did not correlate have a strong

correlation to the GDP. The correlation calculation is just .24.

Correlation Between Marriott Income and GDP

Year

Marriott Net

Income GDP % Change

2006 608 13,855.9

2007 696 14,477.6 4.29%

2008 362 14,718.6 1.64%

2009 -346 14,418.7 -2.08%

2010 458 14,964.4 3.65%

2011 198 15,517.9 3.57%

2012 571 16,163.2 3.99%

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2013 626 16,768.1 3.61%

Correlation 0.235

Another economic indicator of the economy is Disposable Income. The U.S. Government

defines disposable income as a person’s gross pay minus mandatory deductions. During the

Financial Crisis and Recession, disposable income declined along with Marriott’s net income. A

calculation showed there to be a .72 correlation between he events. This number is somewhat

significant but not to the degree of GDP’s correlation.

Correlation Between Marriott Net Income and Disposable Income

(Recession)

Yea

r Marriott Income

Disposable

Income

2008 362 10994.4

2009 -346 10942.5 -0.47%

2010 458 11237.9 2.63%

Correlation 0.716

Over an eight-year span, there has been no correlation between Marriott’s net income and

disposable income. The correlation between the two is .064. This is almost zero, which indicates

no correlation.

Correlation Between Marriott Net Income and Disposable Income

Yea Marriott Net Income Disposable % Change

11

r Income

200

6 608 10036.9

200

7 696 10507.0 4.47%

200

8 362 10994.4 4.43%

200

9 -346 10942.5 -0.47%

201

0 458 11237.9 2.63%

201

1 198 11801.4 4.77%

201

2 571 12384.0 4.70%

201

3 626 12505.1 0.97%

Correlation 0.064

A third economic indicator is unemployment. The U.S. Government considers people

who are not working but actively looking for a job as being unemployed. As seen by the numbers

below, the rate of unemployment rose during the last recession. During the eight years period,

there has been a negative correlation between unemployment and Marriott’s net sales. This is

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expected since increasing unemployment means declining number of travelers and therefore

fewer hotels stays. The correlation for the last eight years is -.58.

Correlation Between Marriott Net Income and Unemployment Rate

Yea

r Marriott Income

Unemployment

Rate % Change

200

6 608 4.61%

200

7 696 4.62% 0.22%

200

8 362 5.80% 20.34%

200

9 -346 9.28% 37.50%

201

0 458 9.63% 3.63%

201

1 198 8.93% -7.84%

201

2 571 8.08% -10.52%

201

3 626 7.35% -9.93%

Correlation -0.578

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During the Recession, the correlation number increased -.61. The correlation is again

negative. This is again possibly due to the unemployed not being able to afford to travel. This in

turn affects Marriott’s net income.

Correlation Between Marriott Net Income and Unemployment Rate

(Recession)

Ye

ar Marriott Income

Unemployment

Rate % Change

200

7 696 4.62% 4.29%

200

8 362 5.80% 20.34%

200

9 -346 9.28% 37.50%

201

0 458 9.63% 3.63%

Correlation -0.614

The final economic indicator is put out by the University of Michigan. It is a measure of

consumer sentiment. The University conducts a survey of consumer’s attitudes to the economy.

This survey has a somewhat significant correlation to Marriott’s net income with a score of

0.715.

Correlation Between Marriott Net Income and Consumer

Sentiment

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Yea

r Marriott Income

Consumer

Sentiment % Change

200

6 608 87.30%

200

7 696 85.60% -1.99%

200

8 362 63.80% -34.17%

200

9 -346 66.30% 3.77%

201

0 458 71.80% 7.66%

201

1 198 67.40% -6.53%

201

2 571 76.50% 11.90%

201

3 626 79.20% 3.41%

Correlation 0.715

The correlation however decreased when measured during the recession. This is counter

to the GDP and .suggest that when the consumer sentiment is down, more people chose to stay at

the Marriott. However the difference in score in minor.

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Correlation Between Marriott Net Income and Consumer

Sentiment

Yea

r Marriott Income Consumer Sentiment % Change

2007 696 85.60% -1.99%

2008 362 63.80% -34.17%

2009 -346 66.30% 3.77%

2010 458 71.80% 7.66%

Correlation 0.651

Technology

Technology is changing how companies do business. Companies’ that do not understand

the new relationship will fail. Examples of companies that fail to adapt include Borders and

CompUSA. These two companies were once the leader in their field. When they could not adapt

to the new competition from Amazon, both went out of business. The impact that technology

brings to the Hotel industry is change to travel booking market and the ability for customers to

compare pricing.

Technology has changed how travelers make reservations. The travel agent is no longer

necessary as user book trips online. Online hotel booking is now one of the most popular

methods to find a room. The choice of online website to find a room is massive. However, four

companies control 95% of the U.S. market. They are Expedia (with 40% of market share), Orbitz

(with 21% of market share), Travelocity (with 18% of market share) and Priceline (with 11% of

market share). The four companies are attempting to win market share by competing on price.

By doing so, the price being offered alone or as part of a package may actually be lower than the

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hotel website. This has forced Marriott to offer a “Best Rate Guarantee”. “If you find a lower

hotel rate, they will match the price and give you an extra 25% discount” (Marriott International,

n.d.). Hilton and other hotels also offer similar guarantees.

Customers are now easily comparing prices between hotels. 72% of people who book

hotels use the internet to book rooms. 43% of people consider price relevant when booking a

room. With pricing information so readily available, the key to winning customers is keeping

them satisfied. Customer satisfaction is the best way to move beyond the online price war. When

customers are satisfied, they will consider paying a higher price to continue to receiving that

satisfaction. This in turn will mean the customer will rely less on the four major travel websites

and go straight to the Marriott website.

Changing Demographics

The market for travel has expanded from Baby Boomers (born 1946 to 164) to

Generation X (born 1965 to 1976) to Generation Y (born 1977 to 1994). Each of the groups have

different taste in travel. Part of this was from the expansion of tourist travel in the 1980s and

1990s. This was when tourism expanded to non-Western countries such as Asia and Africa. The

result is travelers now want more diversity in their trips. The need for diversity is especially true

in Generation Y. They are looking for the next new hip trend. This in turn has led to travel

companies offering different activities and destinations... This means a trip to San Francisco is

no longer highlighted by a stay at the Hyatt Regency located along the Bay and riding the cable

cars. Instead Generation Y will stay at the funky boutique hotels along the borders of the

Tenderloin district, drive to Sonoma (not Napa) for wine tasting then party in South of Market

(SOMA) at night.

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The boutique hotel industry is a rising market. The Oxford dictionary defines Boutique

Hotels as “A small stylish hotel, typically one situated in a fashionable urban location.” There

are already some big chains such as Kimpton Hotels in the boutique hotel niche. Although small

by Marriott standards, it has 61 hotels in 27 cities in the U.S. At first Marriott did not recognize

the need for a boutique hotel. Arne Sorenson, CEO of Marriott was quoted as saying that he “felt

that boutique or “lifestyle” hotels weren’t a big enough business (Igginbotham, 2014)”. Marriott

soon recognized the growth market and has created its own brand called Moxy Hotels.

According to the Marriott Q4.2013 10k, the brand is a “design-led, lifestyle budget hotel develop

around the needs of Generation X and Y travelers.” The first Moxy is expected to open in Milan

in mid-2014. Marriott also partnered with Ian Schrager, a “Boutique Hotelier” to start the

EDITION (sic) Hotel. There are currently two EDITION hotels with 11 more being constructed

in the next three years, they will be located in “fashionable urban areas” such as New York, Abu

Dhabi, Shanghai, and Bangkok.

Emerging Markets

Operating in international and emerging markets country such as China has both risk and

rewards. The risk range from barriers that prevent repatriating earnings back to the U.S. to

expropriation of property by a foreign government. The risk is increasing as the world’s

countries begin to develop protectionist policies (Moyo, 2014). This can be seen in the latest

round of trade talks by the World Trade Organization. Called the Doha round, the negotiations

broke down in July 2008 and no significant progress has been made since then. The risk is of

course offset by advantages. One is the growth of emerging market such as Indonesia, Qatar and

China. Their growth can offset weak economic growth in the U.S and help stabilize Marriott’s

net income.

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Year 2013 2012 2011

Indonesia GDP 5.8% 6.3% 6.5%

China GDP 7.7% 7.7% 9.3%

Qatar GDP 5.6% 2.6% 14.8%

U.S.A. GDP 1.9% 2.8% 1.8%

Currently Marriott operates in 72 countries. Approximately 17 percent of its revenue

from 2013 is from overseas. There are 661 (or 20.30% of all Marriott) properties and 153,325 (or

29.35% of all Marriott) rooms located outside the U.S.

One of the main objectives every firm should try to achieve is to create a competitive

advantage. In fact, a significant amount of organizational resources are spent trying to stay ahead

of the competition. Marriott International Inc. has been ranked at 219, up from 230 in 2013 and

ranking as the top hotel company in the Hotels, Casinos and Resorts category in the coveted

Fortune 500 list. This is not an easy accomplishment in this sector. The hotel industry is highly

competitive, which impacts the ability to compete successfully with other hotel properties for

customers. It is highly fragmented and no one has more than 20 percent of the market share.

Competition in this industry is usually based on the quality of the rooms, meeting facilities and

services, restaurants, aesthetics, price, location and other factors. Although Marriott is located in

over 80 countries, it falls behind the competition with regards to presence across the globe.

Marriott’s top competitors include Starwood Hotels, Choice Hotels International, Hilton Hotels,

InterContinenal Hotels, and Orient-Express Hotels.

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In an effort to step in the right direction, Marriott International Inc. plans on opening

1,300 more hotels (about 6 properties per week) by 2017 globally. That would bring its total

number of properties to well over 5,000. The more visibility any service corporation has, the

more valuable their brand becomes. Brand recognition helps to attract first-time as well as repeat

business customers. In this industry, brand influences many of its customers to make their

booking decisions well in advance of interacting with the product. Most hotel customers do not

“test drive” a hotel before making a reservation. They do not lay in the beds, eat at the

restaurants, or visit the location before making a decision. A hotel’s brand image is instrumental

in being one of the only things under the hotel’s control that can influence a consumer’s

decision-making process.

A major factor in this industry is the increasing competition in the area of global branded

offerings. Marriott was one of the first to introduce the concept of foreign brand awareness when

it entered China in 1991; however, its competitors have begun doing so more pro-actively.

Starwood Hotels & Resorts planned a limited service luxury brand, named “Project XYZ” and

Hyatt Hotel Corporations purchase of AmeriSuites brand and subsequent re-branding to Hyatt

Place are steps in this direction. Globalization is an important driver in an industry that’s

dominated by international players. “There has been a big shift in global growth,” Marriott CEO

John Sorenson said. “Today, we are in a position where we’re opening as many hotels outside

the U.S. as in the U.S. And the bulk of the business of those hotels is about local business or

regional business. It’s not about long-haul American travelers anymore.” As a result, Marriott

has begun changing to accommodate cultural nuances. Their international locations no longer

cater to just American tourists; they now have cultural ambiances of that particular location for

the natives.

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Marriott is also included in this year’s FORTUNE “The Best Places to Work” list and the

magazine’s The World’s Most Admired List, which measures a company’s corporate reputation.

In an industry with so much competition, reputation is extremely important. The practice of

building and maintaining a good reputation requires a company to deliver and exceed the

promised quality of goods or services. Having a good reputation increases a firm's sales, attracts

more customers because of word-of-mouth activity, and cuts customer departures (Rogerson,

1983). It can also prevent a customer from moving to a competitor.

In the United States, the Hotels and Motels industry has grown by 4.6% in 2013 and

reached a value of $162.6 billion. By 2018, this industry is forecasted to have a value of $214.6

billion which is an increase of 31.9% since 2013. Carl Berquist, chief financial officer at

Marriott, expressed to investors that he expects revenue per room to rise between 4 and 6 percent

each year until 2017. Using these metrics, he predicted profits could rise from 19 to 23 percent

which could equate to as much as $1.1 billion in that same period. “Our investment facility is

straightforward: Our principal focus is growing our management and franchise business,”

Berquist said.

Marriott International Inc.’s net Income for the 2nd quarter of 2014 grew year on year by

7.26%, while most of its competitors have experienced a significant drop. Revenue growth year

on year was at 6.77% for Marriott while the competitors only saw an increase of 2.99%.

Revenue growth quarter on quarter was at 5.8% while competitors only saw a 1.95% rise. As

shown in the chart below, retrieved from Etrade.com, Marriott (MAR) has excelled above the

competition with regards to stock performance YTD. Year-to-date, because of such high

revenues, Marriott has already repurchased 9 million of its shares for $467 million, which is

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equal to about 4.6 percent of the float.

Overall, the hotel industry is doing quite well this year with regards to the market. In the

fourth quarter of 2013, results for this sector have been decent with regards to both beat ratios

(percentage of companies coming out with positive returns) and with growth. The earnings "beat

ratio" was 50% and the revenue "beat ratio" was at 53%. The total earnings for this industry

increased by 12.0% in the fourth quarter compared to the 12.1% increase in the third quarter. The

total revenue grew by 3.3% in the quarter versus the 3.2% increase we saw in the third quarter.

For 2015, the hospitality industries earnings are predicted to grow around 15.7%. For 2015, this

industry is expected to expand around 4.4% with 6.2% growth in full year 2014.

Marriott expects investment spending in 2014 will be approximately between $800

million and $1 billion. This includes about $150 million for maintenance capital spending and

about $193 million related to the purchasing of Protea Hospitality Holdings. Also included in

investment spending are other capital expenditures (including property acquisitions), new

mezzanine financing and mortgage notes, contract acquisition costs, equity and other

investments. Assuming all of the aforementioned investment spending, approximately $1.35 to

$1.6 billion could be returned to shareholders through the repurchasing of shares and

dividends. 

The change in landscape is mainly because technology “is the single greatest force

affecting change in the hospitality industry” (Connolly and Olsen, 2000, p. 73). There is no

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doubt that information technology is drastically changing the competitive landscape of this

industry and altering how hotels conduct business and reach their customers. Everything from

the way customer’s book rooms to how they check in and out has changed over the past decade.

The impact of the internet has been profound, especially in the hotel industry. It has provided a

gateway of information which factors into the decisions customers make as to what hotels they

consider and why. According to Porter (2001) the internet is a technology that can be used for a

good business strategy in any industry. Although the Internet alters industry structures and levels

the competitive playing field, often negatively impacting profitability, it can be used to promote

greater profitability if utilized properly. The five forces that impact competitiveness which are

outlined in Porter’s 1980 work are: barriers to entry, threat of substitutes, bargaining power of

buyers, bargaining power of sellers, and the rivalry among existing competitors. In 2001 Porter

considered these factors and how they were affected by internet technologies. The great irony of

the internet is that the benefits it creates are the very things that make it more difficult for

companies to “capture those benefits as profits.” Porter (2001) stated it was making information

easily accessible or reducing the annoying purchasing process.

The technological advances in recent decades have also had a significant impact on the

customer, producer and the customer–producer exchange processes in service transactions.

Industries go through transformations with the introduction of new technologies (Kostreva,

1990) especially in the case of the hotel industry. The continued advancements in technology

will be used in this industry to change it as more and more firms become technologically

oriented in their service production and delivery functions. “We have a world in which

technology is much more profoundly integrated into everyday life,” Sorenson said. “If you go

back even 10 years ago, you’ll find that technology was part of our economy, but today you see

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technology everywhere.” In an effort to provide customers with the latest technologies, Marriott

is introducing things such as mobile apps that allow guests to check in and out of their rooms.

Another app they’ve introduced helps meeting planners request more coffee and pastries without

leaving the conference room. They have also modernized their rooms and common areas by

including the availability of Wi-Fi service.

One of the other ways Marriott International Inc. will uphold a competitive advantage

through technology is by maintaining an Agile IT environment. The Agile methodology creates

an environment that is more flexible and adaptable to changing requirements than the traditional

waterfall approach. Marriott does this by using cutting edge solutions—including several IBM

mainframes, a multitude of applications built in house and an open standards-based service

architecture. Competitors try to imitate this strategy, according to Marriott’s vice president of

information resources, Misha Kravchenko.

One of the aforementioned applications built in house which is responsible for supporting

the reservations in their almost 5,000 properties in over 80 countries is a system called

MARSHA. “All of our reservations are routed through MARSHA so we can apply dynamic

pricing rules to sell every room we can, which in our industry is called last-room availability,”

Kravchenko says. “Others don’t track that, so they don’t have a real handle on how many rooms

they have to offer. Because we do, we can provide dynamic pricing, which allows us to charge

depending on a number of factors, such as how long someone will be staying, in which market

they’ll be staying, and when they’re staying. All of this is calculated immediately, at the time

when someone is shopping for a room, to create the correct pricing model for that individual.”

Marriott International Inc., according to brand experts, is boring. In a society where

everything seems be a popularity contest and where purchasing decisions are based on the fame

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of a brand, this can be a game changer. CEO John Sorenson states “We have to be as strong with

the X’s and Y’s as we are with the boomers, I don’t think any of the big brands in the hotel space

have really won them over.” Marriott expects an increase in globally minded millennial

consumers, also known as Generation Y or people born roughly between 1980 and 2000, to

account for a third of the business-room nights in the United States by 2020. That does not mean

the Gen X folks should be ignored. As shown in the chart below, based on the Gallup's 2014

Hospitality Industry Study, even though Gen X’s are outnumbered by Gen Y’s, they definitely

spend more money than the younger group, spending on average $538 at the hotel they stayed in

during the last year, versus an average of $351 spent by the Gen Y’s. The study also shows that

only about one in five Gen X’s reported that they were committed to a particular brand after their

last hotel stay (22%). This shows that they are still waiting to be won over by a particular hotel

brand.

Marriott competitors are aware of this and are hard at work trying to win over these

younger business travelers. In an effort to attract this demographic, Marriott has made

significant improvements to some of their key locations. For example, the Chicago Marriot

O’Hare made $40 million dollars’ worth of improvements, including an attractive bar which has

always been a weakness for them (analysts believe this is due to their Mormon roots). Also, the

Detroit Marriott at the Renaissance Center has begun a similar $30 million dollar overhaul. They

have also begun a new ad campaign labeled “Travel Brilliantly”, estimated to cost $9 million

25

over the next 3 years. These ads are TV and web based and includes the statement “This is not a

hotel. It’s an idea that travel should be brilliant. The promise of spaces as expansive as your

imagination.” Marriott is also offering a free smartphone app combining reservations with

games called Xplor. This app allows players to win loyalty club points by completing challenges

at virtual hotels.

The financial collapse of 2008 and the ensuing Depression had a major impact on

consumers spending habits, especially when it came to recreational travelling. There is now sign

that Americans are traveling a lot more and willing to spend more money when doing so. This is

great news for the hospitality industry who suffered greatly with low occupancy during the

economic downturn.

  After decades of looking to the US for growth, Marriott International Inc. has decided to

set its sight overseas for expansion. They are in the process of increasing their global presence

which currently makes up about 25% of their total revenue. As you can see in the chart below,

Marriott has been working stringently on global growth. They intend on opening over 200

luxury and lifestyle hotels over the next 3 years. This was a part of the $15 billion investment

made by its owners and franchisees. By the end

of 2016, 15 Ritz-Carlton branded hotels are

being planned for China, Morocco, Egypt,

Saudi Arabia, Mexico, Tunisia, Bali, Indonesia,

and Macao. Also, an EDITION-branded hotel is

planned for Miami Beach this year and this

brand will debut in New York City's landmark

26

Clock Tower building in 2015. There are also hotels scheduled to be unveiled at Abu Dhabi,

India, China, Bangkok and West Hollywood as well as in Times Square by 2017.

The JW-Marriott Hotels and Resorts brand plan on debuting in Italy in 2015. The brand

is also on course to open its Marriott Moxy brand this month in Milans Malpensa Airport. This

brand is focused on a pan-European expansion by the end of 2016 which includes locations like

Munich, Berlin, Frankfurt, Oslo, London, and Aberdeen. In the next 10 years, Marriott expects to

have around 150 hotels under this particular brand.

One of the primary forces that influence competition in any industry is the threat of new

entrants. In the hotel industry, product differentiation plays a great role by forcing competitors

to incur expenditures to retain existing customer’s loyalty. This means that the new entrants (or

existing competitors for that matter) must invest more on things like advertising strategies and

renovations in order to retain interest and to build their brands equity. This makes it difficult for

independent smaller hoteliers to enter the market and pose a real threat. Also, attractive deals in

terms of customer service are very important for hotels because it allows them to distinguish

themselves from their competitors.

The hotel industry is known for having high capital costs and a high percentage of fixed

costs to total costs. The high capital costs require that from the beginning, a hotel must operate

to achieve the most cost effective use of its resources. This includes the capital used for

construction, furnishings and equipment, preoperational expenses, advertising, market research,

and various other things. This makes it difficult for the largest companies to get established let

alone any potential new entrants. In hotels, cost advantages that are independent of scale will

also act as a barrier for new entry. Meaning, hotel chains such as Marriott International Inc. have

been in the industry for a very long time which gives them the cost advantages that are not easily

27

available to any new entrants. These advantages include the best and cheapest raw materials

used throughout the facilities, proprietorship of patents and trademarked technologies (i.e.

applications built in house). Even the benefits of learning and experience have an impact (Dess

et al., 2004), having established their infrastructure years earlier at lower costs, in strategic

locations, and at low borrowing costs.

In this industry, hotels are usually located in clusters. You can usually find one in

walking distance of another. Therefore, the threat of a substitute product or service in this

industry is unavoidable. The challenge for hotels is to establish a product that a customer would

desire over competitors. The internet provides more information making the market more prone

to substitution threats. This is why it is critical for a hotel chain to have an internet presence if

they want to stay competitive. Marriott is aware of this and has begun to create programs that

rely on the use of the internet to increase brand recognition. One of these programs uses social

media to reward their customers with up to 2,000 PlusPoints (these points are similar to frequent

flier miles) per month when they Tweet, re-Tweet, post on Instagram and use Foursquare for

check-ins while referencing Marriott.

Technology also empowers the buyers by giving them the information required when

making an informed decision on where to reserve a room. It is now very common for a customer

to book a reservation for a hotel room online. They can make a decision based on best price,

location, amenities, restaurants, etc. without having to contact any hotels or travel agents which

can influence their decision. There are even websites out there like Cheaphotels.com that will

negotiate deals or look for bargains on behalf of the customer. This will shift the bargaining

power to the buyer, as the Porter model predicts, and it will reduce the cost of switching so that

the loyalty a customer may have had for a particular brand is no longer a factor.

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Also, those customers who reserve rooms in large volumes (i.e. travel agents) and who

have low switching costs (ability to use a competitor) take advantage of a strong bargaining force

in this competitive industry. An example of this is when a wedding coordinator books 50 rooms

for an event, they have the power to negotiate for a group discount and shop around for the best

deal. On the same note, those customers who make reservations for only one night, very

infrequently, have little to no power.

Bargaining power of supplier in the hotel industry is minimal since it relies on a lot of

manpower to run their facilities and provide good services to their customers. That makes the

hotel’s trained personnel, property owners, developers, real estate companies, architects, and

marketing companies their main suppliers, some of who are responsible for daily operation.

The rivalry between competitors in this industry is aggressive. Although most of the

competition is between the large branded chains, there is a large number of independent hotels in

the market that have the ability to take business from them. The larger chains obviously have a

competitive advantage which forces the independent hotels to develop strategies that will attract

customers.

Environmental scanning can be used to assist management in formulating their strategic

plan. Having an in depth understanding of how trends impact your organization plays an intricate

role in helping firms gain control of their market. A successful organization such as Marriot is

reliant upon the ability of its leaders and employees to adapt the rapidly transforming external

environment.

Environmental Trends Impacting Marriott

Strategic management scholars typically view environmental scanning as a prerequisite

for formulating effective business strategies; Moreover effective scanning of the environment is

29

viewed as essential, to the successful positioning of competitive strategies with environmental

requirements and the attainment of outstanding business performance (Beal, 2000). There are

multitudes of emerging environmental trends affecting the hotel industry (Lewis, n.d.). It is up to

managers to make sensible decisions reflecting emerging strategic issues that could significantly

impact their businesses (Anderson & Nichols, 2007). Marriott’s vision focuses on combating

these trends by aspiring to lead global hospitality with its creation of global economic

opportunities and by being a positive force for the environment (Principles of Responsible

Business, n.d.).

Technological Trends

With technology growing like wild fire, many hotels are influenced by the impact they

have on their consumers. The thought of technology creates a vision for Marriott’s Operation

Committee as to how they will even design the room. The room must enable guests mobility in

which they are able to access their technological devices anywhere in the room. Mastering this

will ensure that guests are comfortable with any device they bring to the space (Watkins, 2013).

The modern traveler wants to have experiences built around their personal needs. More

and more hotel guests of today travel with countless amounts of personal devices and

entertainment content. A Smart Brief poll showed that 45% of hotel guests travel with at least

two devices and 40% travel with three or greater (Watkins, 2013). Marriot has addressed this

technological trend by upgrading their hotel room design, ensuring guests have the electronics

(adequate and easy to reach plugs as well as bandwidth capabilities) and ergonomic support

(seating and surfaces) that they need (Watkins, 2013).

The customer is the root of Marriott’s innovation movement (Principles of Responsible

Business, n.d.). Studying customer behavior and collecting data from qualitative and quantitative

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studies is Marriot’s approach to understanding new trends and technologies. This strategy has

been successful for Marriot in the past, in which they take great pride in being the first hotel to

issue remote controls in their hotel rooms (Overly, n.d.). From check-in to check-out and every

service in between, Marriott International is evaluating ways that technology can improve its

hotel business (Trejos, 2013). Those technologies include a wide array of mobile amenities to

simplify guests stay inside the hotel, as well as experimentation with social networking, text

messaging, and location-based services (Overly, n.d.).

With the continued requests of guests worldwide, Marriott released a mobile apple

accessible via both Apple iTunes and Google Play for apple and android users. Guests at

hundreds of Marriott hotels are now able to check-in with just a few taps of their mobile phones

by using the Marriot Mobile Check In App. Marriot Rewards Members are given the opportunity

to check in to their hotel rooms via text after 4pm the day before check in and a follow up text

will be sent when their room becomes available. A mobile check in desk is available for guests

once they arrive at the hotel so that they may pick up their pre-programmed key card, eliminating

the primitive necessary communication with employee personnel (Trejos, 2013).

Marriott seeks to transform their guests experience from average to heights of the unseen

in reality (PR, 2014). Focusing on the Next Generation traveler, Marriott partnered with the

Academy Award-winning creative studio Framestore, in creating a virtual teleporter. Released

early September 2014, the virtual travel experience is offered to you by a telephone booth-like

structure equipped with a headset, wireless headphone and 4-D sensory elements (Trejos, 2014).

The preview for this new technology was held at the lobby of a Marriott Hotel Guests reported

first seeing the hotel lobby and next they saw 360-degree images of Hawaii's Wai'anapanapa

Black Sand Beach in Maui, complete with the sounds of crashing waves and mist spraying on

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them (Trejos,2014). Their next trip transported them to London and lifted them slightly off the

ground enabling them to see the dizzying skyline from the viewpoint of the Tower 42 skyscraper

(Trejos, 2014). The Teleporter is touring eight select Marriott properties from September 2014 to

November 2014. Guests as well as the public will be offered the chance to teleport themselves at

Marriott Hotels in New York, Boston, Washington D.C., Atlanta, Dallas, San Diego, San Jose

and San Francisco (PR, 2014).

Global Trends

The iconic Marriott Hotels are in pursuit of self-transformation and reasserting its

position as an innovation leader with the usage of bold campaigns in stating their claims and

gaining the attention and engaging next generation travelers (Hospitality Net, 2013). Marriott’s

new “Travel Brilliantly” campaign is focused to engage Generation X and Generation Y

travelers, those born from the late 1960s to the early 1980s and from the early 1980s to the early

2000s, respectively (See how we're innovating travel, n.d). It is a brave approach in amplifying

the brand's dedication to leading the future of travel. The campaign includes commercials

appearing on mobile devices, on websites such as Hulu and during shows such as "Jimmy

Kimmel Live, (Trejos, 2013)."

The Website, www.travelbrilliantly.com is a platform that allows consumers to see the

new innovative features provided by Marriott as well as make new requests or suggest

revolutionary ideas to enhance the technology and features provided by Marriot (See how we're

innovating travel, n.d). The first phase of Marriott's new campaign in Asia will see a 30-second

video advertisement displayed online by popular news outlets in China, India and Australia, such

as Youku, PPTV, YouTube, Fairfax Media, BBC India and CNBC India from the end of August

(Hospitality Net, 2013). Phase two will see the Marriott Hotels brand partner with

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TripAdvisor/Daodao by promoting engagement and participation through the use of Key

Opinion Leaders and bloggers to curate editorial content on the brand's four key pillars to enable

people to Travel Brilliantly (Hospitality Net, 2013).” Marriott's new mobile app will eventually

allow guests to check out and make other service requests.

In Bethesda, Maryland on September 17, 2014- Marriott International, Inc.

announced that hotels across the company’s portfolio have collectively donated more than 1.5

million bars of soap to Clean the World®, a non-profit organization that recycles and distributes

hotel hygiene amenities to communities in need (Marriot News Center, 2014). With the

increasing concern of “Going Green” and Global Preservation, Marriott is Clean the World’s

largest hospitality partner. More than 60,000 of their rooms are participating in the recycling

program (Marriot News Center, 2014).

Political Trends

The political climate as well as government legislations affects the hospitality and hotel

business. As a hotel with brands and branches all over the globe, Marriott has do deal with

different types of political environments and legislations. Some of the challenges from these

political trends may be as a result of new legislations/laws and sometimes as a result of

government’s inability to enforce laid down restrictions or regulations. In cities like Barcelona,

New York and Paris, the number of residents renting out their apartments to tourists for short-

term stay has increased over the years. Despite the efforts government agencies to restrict this

market, the number of listings for rentals in New York and Paris has continued to increase

(Brass, 2014). The inability of the government agencies to properly enforce these restrictions’

becomes a challenge for hotels like the Marriott who will lose some of its customers to these

short-stay rental residences. Governmental action can also present a challenge for hotels. It is

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estimated that only about $5 of every $100 spent by a tourist from a developed country stays in

the developing country’s economy (Negative Economic Impacts of Tourism, 2013). This

negative economic impact of tourism is called leakage, and governments that want to reduce

leakage can increase hotel taxes or encourage local hotels.

Government legislations such as tax laws can also present challenges to hotels operating

within the environment. In Lagos, Nigeria, a state where Marriott operates a number of its

brands, The Hotel Occupancy and Restaurant Consumption Law 2009 which imposes a 5% tax

on consumption of goods and services in hotels, hotel facilities, event centers and restaurants

within the state, was passed into law . This law passed by the Nigerian Supreme Court in July

2013 - after about 4 years of litigation (The Supreme Court Judgment on Hotel Licensing and

Regulation, 2013). The impact of this judgment however was that since the law had been gazette

since 2009, hotels and other stakeholders, had to remit consumption tax whether charged or not

charged to the tax authority from as far back as 2009. This development will have a telling effect

on the bottom line of the hotels accounts especially for hotels that didn’t charge customers the

consumption tax in the period under review.

Economic Trends

Marriott hotel is affected by the Global economy as well as the individual economies of

countries in which it operates. Economic downturn in Europe, weak economic conditions in

Africa and other parts of the world as well as economic disruptions in the US due to government

actions affect the demand for the company’s services. The Marriott Annual Report (2013) cites

the negative effect of the U.S. federal spending cuts and limitations on its business. This is due to

US governmental travel being a significant part of the Marriott’s business. Employment levels

and income also affect demand for hotel business. Walls and Freitag (2012), stated that upper

34

priced hotels, such as Marriott, Hilton etc are more reliant on corporate bookings and are

therefore more closely linked to movement in corporate incomes and profits than lower priced

hotel brands which are more reliant in populations with high levels of employment and income.

More stable economies that bring about better income for corporate bodies, in-turn translates to

higher demand and more business for Marriott.

Social Trends

There are several demographic and cultural aspects of the external environment that

affect customer needs. Age is one of the major demographic factors and a hotel such as the

Marriott has to be able to accommodate the needs of customers of all age groups. Customers in

their 20s and mid 30s have an obsession for technology, design. Hotels have to be remodeled to

have Wi-Fi, outlets where iPads, cellphones, laptops etc. can be plugged, stylish and modern bars

and furnishing (Morrissey, 2012). Hotels also have to an online at most times, because unlike the

older generation that go to the hotel manager when they have a problem at the hotel, the younger

generation would rather go to twitter and other social media sites to vent their complaints

(Morrissey, 2012). The challenge for the Marriott in this situation would be to balance the

provision of hotel facilities such that it would appeal to customers of all ages.

Another social trend is sexual orientation, the Marriott has to transmit a message of

sexual equality, and it has done this with its social media campaign called #LoveTravels.

Marriott is a sponsor of Lesbian, Gay, Transgender and Bisexual Pride Week events in

Washington, D.C., New York City and San Francisco in 2014 (Rhodan, 2014). According to

Whoever You Are, Wherever You Go - #LoveTravels, (2014) on the company’s website, the

#LoveTravels, is a multicultural campaign that conveys the company’s commitment to make

everyone feel comfortable being who they are, everywhere they travel.

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Industry Analysis

The hotel industry has evolved since its first modern appearances as the City Hotel in

1794 in New York City, the Tremont House in 1829 in Boston and the Buffalo Statler in 1908

(IRS, 2014). Today’s hotel industry is mature, competitive and global earning $583,589.1

million in total revenues 2010 with an expected compound annual growth rate of 7.8% 2010-

2015 (Global Hotels & Motels, 2011). The industry is broken into 2 marketing segments,

leisure and business with the leisure segment representing the largest share at 76.9% in 2010

(Global Hotels & Motels, 2011). In order to develop a competitive strategy, managers should

consider and evaluate the five competitive forces in the industry i.e., potential entrants, buyer

power, supplier power, substitutes and rivalry among existing firms (Porter, 1980). According to

Michael Porter, profit potential in a given industry directly relates to the level of strength of these

forces (1980).

Potential Entrants

In any industry new entrants can shake up even the most stable. One example that comes

to mind is Southwest Airlines entry into the Airline Industry in 1978 after significant industry

deregulation. In order to determine the level of threat of potential entrants, one must analyze the

barriers to entry as well as the expected retaliation from other firms in the industry. Barriers of

entry into the hotel industry include large capital outlays required to start a new business, brand

equity, access to geographically favorable locations, the need to diversify portfolios and

globalization (Global Hotels & Motels, 2011; Tavitiyaman, Qu, & Zang, 2011).

Entry into the hotel industry is possible but only at an astronomical cost. A potential

entrant would need to acquire buildings and supplies in a location with significant customer

demand (Jones, 2013 & Lee et.al, 2012). According to Forbes, the initial cost to build a small

36

hotel that could compete with Grade A hotels runs $5,600,000 with an additional $60,000 to

stock a 62 room hotel (Jones, 2013). Additional costs are required to pay employees, suppliers,

utilities, and marketers thus only investors with large amounts of capital could enter the industry.

Currently Marriot International, Starwood Hotels, Wyndham Worldwide, Accor SA, Best

Western International and Intercontinental Hotel Groups (IHG) lead the hotel industry and

populate many prime locations by virtue of their size and global reach (AHLA, 2014; Global

Hotels & Motels, 2011; US Hotels & Motels, 2010). All of these hotels use their brand names to

create differentiation and build allegiance with customers and developers (Tavitiyaman, et. al.,

2011). In order to cut large fixed costs typical to the industry, these leading hotels have

diversified their portfolios through franchising and hotel management (Global Hotels & Motels,

2011). This business model has improved revenue streams while minimizing liabilities further

strengthening their competitive advantage in the industry (Global Hotels & Motels, 2011; US

Hotels & Motels, 2010).

Finally, the last barrier to entry includes the growing industry trend of globalization and

decline of domestic lodging (Oxford Economics, 2013). In a recent study conducted for the

travel industry, Oxford Economics found that since the global recession in 2008-2009,

international lodging has surpassed domestic lodging growing at 20% compared to 5.8%

domestically (2013). In the same report, Oxford Economics forecasted that international

lodging’s continually annual growth at 5.1% and domestic lodging’s growth at 3.4% annually

(2013).

37

2002 2006 2010 20140

1

2

3

4

5

6

DomesticInternational

Although globalization has in fact improved the economic performance of the leading hotels in

the industry, it is costly and requires strategic management and integration at all levels increasing

the industry leaders’ competitive advantage over new entrants (Alexande & Korine, 2008).

Based on all of the above, the risk of new entrants is moderate.

Buyer Power

Buyer power can drive prices down in any industry and spur competition. According to

Porter, buyer power is high if the purchases involve big volume, product quality is of little

importance, product standards are undifferentiated, switching cost are low and buyers have full

information regarding products/services available (1980). In the hotel industry buyer power has

the potential to be high due to low volume purchases, relatively undifferentiated product

standards, low switching cost and buyers increased knowledge of room prices and availability

via the internet (Lee et. al. 2014; Global Hotel & Motel, 2011; Marriott SWOT, 2012). This was

the case during the economic downturn of 2008 – 2009. Tourism slowed and hotels were left

unable to fill vacancies. Online travel agents like Expedia emerged as a leading distribution

channel for the then desperate hotel industry; soon, many hotels began to discount themselves

38

Billions

into bankruptcy (lee et. al, 2014). Marriott refused to discount itself into oblivion. Instead, they

strengthened their own online reservation system adding a ‘best rate guaranteed’ and focused on

their loyalty card program and customer service to provide differentiation (lee et. al, 2014;

Marriott SWOT, 2012). Soon, Hilton, Wyndham and Starwood followed suit with similar

strategies to reduce customer buyer power.

In order to stay in tune with potential buyer power, the leading hotels have had to

improve quality and services to create differentiation and improve customer loyalty. A recent

study published in the Journal of Business found that Hilton, Marriott and Four Seasons had the

most positive online presence in 2012, measured by customers’ positive online conversation,

across social networks, forums and blogs (2013). One interesting finding in the study was the

degree of importance customers placed on shower water pressure as opposed to the level of

comfort mattresses provided (Journal of Business, 2013). This would indicate that hotels should

focus on water pressure to improve value and decrease buyer power.

Based on all of the above buyer power is moderate.

Supplier Power

Supplier power when high can lower profit margins in any industry. The variables that

determine the level of supplier power are similar to those used to measure buyer power (Porter,

1980). Suppliers in the hotel industry include, property owners and developers, real estate

companies, interior design and furnishing companies, marketing companies and information and

computer technology (ICT) companies (US Hotels & Motels, 2010). Fortunately, no supplier

dominates the hotel industry leaving this competitive force low (Tavityaman, Qu, & Zhang,

2011).

Threat of Substitute:

39

Like supplier power, the threat of substitutes in the hotel industry is fairly insignificant

(Kim & O, 2008; Tavitiyaman, Qu & Zhang, 2011). The threat of substitutes would be high in

an industry with low switching costs, cheap alternatives and beneficial alternatives (US Hotel &

Motels, 2010). In the hotel industry the substitutes have been historically identified as staying

with friends or family, renting or owning a recreational vehicle for travel and camping (Global

Hotels & Motels, 2011; US Hotels & Motels, 2010). Many researchers believe that these

alternatives to lodging are created out of necessity based on the purchasing power of the

customer indicating that this threat would fade away as purchasing power improves. This

analysis and historical view may be why new internet companies like Airbnb have caught the

hotel industry by surprise. Airbnb is a platform technology business that connects people with

extra rooms or empty apartments to travelers in need of lodging. Airbnb, founded in 2008,

received a $2.7 billion valuation and booked 10 million rooms globally in 2013 (Carr, 2014;

Choudary, 2014). This valuation is closely approaching Choice Hotels International Inc.’s

$3.07 billion market value but falls short of Marriott’s $20.4 billion, Hilton’s $24.1 billion,

IHG’s $9.1 billion, Wyndham’s $10.1 billion and Sheraton’s $15.7 billion market values (Yahoo

Finance, 2014).

Based on all of the above, the threat of substitutes is moderate.

Degree of Rivalry

Rivalry is the amount of head to head competition within an industry. According to

Porter (1980), the degree of rivalry within an industry is strong if there are a large number of

competitors who are equally balanced, the industry is growing slowly, switching cost and

differentiation is lacking and exit costs are high. The hotel industry meets all of the

characteristics Porter identified indicating a strong degree of rivalry.

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The seven leading hotels are mammoths in the global hotel industry with current market

values ranging from $8.3 billion (Accor) to $24.1 billion (Hilton) (Yahoo Finance, 2014). Are

they competitive? Just this month the industry in New York launched a $3 million campaign

against the newest industry threat Airbnb (Langfield, 2014). In 2007, Hilton was sued in federal

court by Starwood Hotels and Resorts (Sheraton) for allegedly stealing sensitive documents

related to Starwood’s W franchise (Cohan, 2014).

The hotel industry struggled during the economic depression and as the global economy has been

slow to grow post-recession so has the hotel industry. The majority of growth is happening in

China, India, Africa and the Middle East where most of the industry leaders who are equally

balanced are all currently investing. Additionally, the industry has low switching cost and lacks

in differentiation which adds to the degree of rivalry. Finally, the hotel industry as a whole is

very asset heavy where the assets are very specific and difficult to liquidate. This forces firms in

the industry to stay and compete despite slow growth and low revenues. Based on all of the

above the degree of rivalry is strong.

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AHLA, (2014). Lodging industry profile. Retrieved from http://www.ahla.com/content.aspx?id=36332

Anderson, M., & Nichols, M. (2007). Information gathering and changes in threat and opportunity perceptions. Journal of Management Studies, 44(3), 367-387.

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Andrés-Martínez, M. E., Gómez-Borj, M. A., & Mondéjar-Jiménez, J. A. (2014). A model to evaluate the effects of price fairness perception in online hotel booking. Electron Commer Res, 14, 171-187.

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