Executive Summary
Accor Hotel Group is a multinational company that operates mostly in Europe and America. It also has a market presence in other parts of the world, including Latin, America, Australia, and the Middle East. After an evaluation of its growth strategy, this paper demonstrates that its growth has been buoyed by a strategy of mergers and acquisitions.
This paper also demonstrates that the hotel employs a segmentation- a strategy that caters to four distinct consumer market segments: upscale, midscale, economy, and budget. The company’s asset management strategy is also explored in this study and evidence is provided to show how it manages its properties under two asset classes of long-term (strategic) and short-term (non-strategic) importance. Lastly, this report demonstrates that Accor’s business is in the third stage of Ansoff’s matrix – product development. Comprehensively, it provides a holistic analysis of the firm’s strategic operations.
Introduction
This paper is a case study analysis of the Accor Hotel Group, which is a multinational company with operations in different parts of the world, including Latin, America, Australia, and the Middle East. An analysis is done to investigate its global expansion, segmentation, and asset management strategies. The last part of the report also evaluates the company’s operations, relative to the stages of the Ansoff matrix.
Growth and Global Expansion Strategy
Accor’s growth model is characterized by the adoption of a mergers and acquisition strategy. It has helped the French conglomerate to improve its presence in emerging markets, such as the Middle East and Asia. This strategy has also seen the company invest up to 44% of its €2.5 billion expansion budget in recent acquisitions (IBS Research Centre 2009).
Historically, it defined the hotel’s marketing strategy because, in the 1990s, the firm acquired up to six establishments in the United States, thereby increasing its asset portfolio by 550 properties (IBS Research Centre 2009). The 1999 acquisition of Red Roof Inns also further expanded its asset portfolio by 639 new hotels, while its revenue generation in the United States increased from 17% to 22% because of the same strategy (IBS Research Centre 2009). Broadly, the company’s acquisition strategy has helped it to expand its operations into Australia, Asia-century, Zenith, and Germany in 2000, 2002, 2004, and 2007, respectively (IBS Research Centre 2009).
Segmentation Strategy
According to Ivanov (2014) and Weinstein (2013), a market segmentation strategy refers to a company’s ability to divide customers into specific groups based on their needs and interests. Having an effective segmentation strategy in the hospitality industry is important because it is almost impossible to create or develop products that appeal to all cadres of a market (Pechlaner & Smeral 2014; Wearne & Morrison 2013; Winston & Cahill 2013).
Accor’s multi-brand strategy is guided by the belief that having multiple and powerful brands in the same market plays a complementary role in the promotion of the organization’s products and services because it allows customers to easily identify the same. As highlighted by the IBS Research Centre (2009), Accor is one of the few hotels among its peers to address all types of customers. The firm’s segmentation strategy is divided into four key parts: upscale, midscale, economy, and budget (IBS Research Centre 2009).
For a long time, Accor’s focus has been on the growth and development of the economy class, which contributes up to 56% of the hotel’s revenue (IBS Research Centre 2009). Since the French hotel operates multiple brands, its midscale market is served by unique brands, including the Novotel hotel chain, Mercure, and Suite Hotel. Sofitel is another brand operated by the global conglomerate, but it is aimed at serving the high-end market (IBS Research Centre 2009). The low-end segment of the industry is served by brands, such as Formula 1, Motel 6, and Etap Budget. The upper-scale market segment is similarly targeted by brands, such as Sofitel Hotel (IBS Research Centre 2009). The table below summarises the multi-brand strategy adopted by the firm.
Table 1. Accor’s segmentation strategy (Adapted from the IBS Research Centre 2009).
Accor’s branding strategy is characterized by the increased adoption of digital marketing and an expansion of its luxury products (CB Insights 2018; STL 2017). Generally, the company’s branding efforts are aimed at making its products more attractive to customers and aligning its key establishments to reflect an assertive approach to innovation.
Several hotels associated with the company have undergone the same transformation, as is the case with the rebranding of the 178-room, 4-star hotel, “Hindley-Parkroyal Hotel” to “Novotel Adelaide on Hindley” in the year 2000 (IBS Research Centre 2009). This branding strategy is aimed at making Accor hotels more attractive to their customers. It is also aimed at integrating innovation in its overall business strategy (IBS Research Centre 2009).
Asset Management Strategy
According to Lewis and McKone (2015), asset management refers to the cost-effective maintenance of assets. Hotels that have effective asset management strategies can keep track of their resources and time, which is important in boosting their competitive advantages (Wagen & Goonetilleke 2015). Accor’s asset management strategy is hinged on identifying hotels that need to be managed under the company’s long-term holding structure or non-strategic model. Assets that fall in the latter category could be sold off at any time. From 2000-2004, the company sold 261 hotels under this type of agreement for €1.645 billion (IBS Research Centre 2009).
Some brands in its midscale market segment that have suffered the same fate include Novotel, Mercure, and Ibis Hotel properties, which were sold in 2005 (IBS Research Centre 2009). These sales happened in France and Belgium. In the upper-scale segment, Sofitel was sold in Europe under the same type of agreement (IBS Research Centre 2009). Here, it is important to point out that the Sofitel brand was leased in Europe using a lease agreement with the buyback option. In America, it was sold as part of a 25-year management contract with another party (IBS Research Centre 2009).
In line with its strategy to sell some of its non-core assets, reports show that by 2008, the company planned to sell about 535 hotels for €3.225 billion (IBS Research Centre 2009). The preferred holding structure for affected markets follows an “asset right” strategy where 11% of the hotel’s assets are owned or leased, while 89% of them are franchised or managed (IBS Research Centre 2009). This asset management strategy shows that the company prefers to remain with its core assets and lease or franchise its non-core businesses. In instances where the latter goal is unachievable, the assets are sold.
Accor’s Fit in the Ansoff Matrix
The Ansoff matrix outlines four key stages of company growth: market penetration, market development, product development, and diversification (Mukherjee 2016; Lawley & Schure 2017). In the market penetration phase, a company strives to grow by expanding its existing product offerings in the existing market.
The second stage of market development happens when organizations want to expand their market outreach to foreign markets. It is often accomplished when companies expand their market offerings across different market segments, when they venture into new areas or regions of the market, or when they intend to expand into new locations (Kim & Mauborgne 2015).
The third stage of the Ansoff matrix is the product development stage, which is defined by the creation of new products and services (Lawley & Schure 2017). The strategy is ordinarily targeted by businesses that want to increase their outreach in existing markets (the purpose is to achieve growth).
Accor’s business model is in the product development stage. This is particularly true for its Latin America and Asian markets, which are primarily the company’s emerging markets. In line with this strategy, the company intends to invest up to $500 million in the next five years in product development (IBS Research Centre 2009).
Although the firm is in the product development phase, there is contention among some researchers about this stage of development because of the belief that the introduction of new products could mean that the company has ventured into a new market (Bachmeier 2013; Tajvidi & Karami 2016). However, this is not the case for the French conglomerate because the company’s product development strategy is confined to the hospitality industry. Therefore, there is no evidence showing that the company’s product development stage surpasses the confines of the sector.
Summary
This paper demonstrates that a merger and acquisition strategy supports Accor’s growth. The hotel also employs a segmentation-marketing model that caters to four distinct consumer segments: upscale, midscale, economy, and budget, while its asset management strategy is classified under two asset classes of long-term (strategic) and short-term (non-strategic) importance. Lastly, this report demonstrates that Accor’s business is in the third stage of Ansoff’s matrix – product development. Comprehensively, it provides a holistic analysis of the firm’s strategic operations.
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