Introduction
Beverly Wilshire Hotel sits on Wilshire Avenue in the eastern side of Beverly Ranges in California. Built by Walter G. McCarty, the hotel’s construction was finished in 1928. The E-shaped Hotel was referred then as Wilshire Apartment Hotel. Its design reflects the Renaissance architecture of the Italians. The hotel underwent an overhaul where new features such as ballroom and swimming pool were added. The hotel has been undergoing change of ownerships.
It boasts of having hosted key icons, including politicians and popular musicians over its historic years of operation. It has served as filming site for movies like Pretty Woman and Entourage TV series cast from 2004 until 2011. The success of the organization has not come without competition, emergence of new opportunities, and weaknesses. The management has had to deal proactively with new markets’ internal and external challenges to ensure the hotel continues to offer quality and high-standard services to all its clients to enhance business stability in the changing business environment.
Beverly Wilshire Hotel operates in the service industry. Services are different from products since they are intangible. Hence, managing an organization that deals with services is different from managing a product-making company. The current paper presents a strategic project on a service organization with a particular focus on the hotel industry. It uses Beverly Wilshire Hotel as the case in point. The goal of the paper is to present an internal and external analysis of businesses situations that the hotel faces. This goal is realized by conducting PESTLE analysis, opportunities and threats, Porter’s five-force analysis, and scenario analysis. This analysis sets the stage for the development of strategies for creating and managing relationships with the hotel’s customers together with developing or improving strategies for communicating the service to the hotel’s clientele, including the creation of a service brand and image.
Porter’s Five-force Analysis for Beverly Wilshire Hotel
Business industry interacts with different forces, which help in inducing appropriate strategies for continuous success in the short and in long term. From Michael Porter’s perspective, the five forces shown in figure 1 are important in shaping the business environment of any organization, irrespective of whether it trades in products or services. The analysis of these forces in the context of Beverly Wilshire Hotel helps in describing its business environment while providing a mechanism for analyzing the forces that determine the organization’s competition.
In the global perspective, the viability of any hotel-based strategic project depends on the ability to respond proactively to the forces that shape the industry’s competition. Although there may be an array of factors that determine the competitive advantage of the hotel industry in the international arena, service quality and geographical location relative to the target market are two important factors that organizations must consider when establishing a business in the industry. The hotel industry produces commodities and services that function as close substitutes. Therefore, a strategic project should aim at developing appropriate mechanisms for ensuring that Beverly Wilshire Hotel secures a sustainable competitive advantage for long-term success. To this extent, the five forces that shape an industry’s competition will have an impact on Beverly Wilshire Hotel’s operations costs and the prices of its products. They will also influence its decision for investments.
Forces that shape the competition of an industry
Porter’s five forces influence the ability of Beverly Wilshire Hotel to serve its customers. Porter (2008) describes these factors as comprising the micro-environmental elements that determine a firm’s performance in any industry. Alterations of any of these forces compel an organization to re-evaluate its marketplace in response to any fluctuations of the available market information. This way, the organization acquires the capacity to deploy its core competences consistent with its business model to ensure that it generates profitability well above the industry average. As shown in figure 1, Porter’s five forces entail three horizontal forces and two vertical forces that influence competition. Substitutes, new entrants, and the established rivals comprise the horizontal competition forces. Consumers and suppliers’ bargaining authority forms the vertical forces of competition.
Substitutes
In the hotel industry, every hotel has its neighboring competitors. For example, Beverly Hills Hotel competes with Beverly Wilshire Hotel in California. A competing hotel offers products at close range prices, but with different characteristics of services and amenities. For Beverly Wilshire Hotel, the biggest and most frequent challenge entails ensuring that guests select it as their preferred hotel as opposed to those that offer substitutes. Incorporation of technologies such as the internet in the hotel industry not only makes Beverly Wilshire Hotel more efficient but also increases the size of its market potential.
The internet is a critical marketing tool that enables organizations to have real global reach in marketing efforts that are aimed at increasing its competitive advantage by drawing more clientele. However, technologies also increase threats of substitutes since all organizations can easily advertise to multicultural global communities both at ease and at low costs. Therefore, customers acquire a platform for making close comparisons of different products and services on offer in the global hotel industry.
Indeed, Southgate and Westoby (2010) assert that through technologies such as the internet, the hotel industry develops the capability for developing appropriate value chains that support event management across it. It also helps in “structuring and the sharing of customer-focused value chain data to enhance the performance of value chains and of electronic commerce” (Southgate & Westoby, 2010, p.350). Technology shapes the hotel industry competition by increasing substitute product information availability. This situation raises the threats for substitutes in case of Beverly Wilshire Hotel.
Customer Rivalry
Buyers’ purchasing power is high in organizations that operate in the hotel industry, including Beverly Wilshire Hotel. A major contributor to the increased bargaining power may be attributed to technological changes and the rising number of hotels that offer services, which similar in standards to those that are offered by Beverly Wilshire Hotel, as they all seek to impress their customers to encourage loyalty.
Business people and tourists are now technologically well-informed hotel industry’s clients. Canina and Carvell (2005) observe that people have high accessibility to computers. Hence, by clicking a button, they can look for information on hotels that offer the best services at the most favorable prices. They now deploy lesser services of travel consultants and travel agents who operate as intermediaries in the hotel industry. Porter’s model notes that for any industry to perform optimally, it has to eliminate all intermediaries (Porter, 2008). This prediction manifests itself well in the hotel industry with the adoption of internet technology when looking for places to stay.
Apart from hosting prominent people, Beverly Wilshire Hotel is a major destination for tourists. However, through the increased use of web 2.0 applications such as cheaphotels.com, people increase their bargaining power for Beverly Wilshire Hotel’s industry of operation. Through the networks, they can bargain for stay prices. This situation increases their ability to switch from one hotel to another, depending on the price and service packages that meet their utility needs. Consequently, customer loyalty is overtaken by events unless where Beverly Wilshire Hotel seizes an opportunity to impress a first timer through value differentiation.
Rivalry among Competitors
Although clients in the hotel industry have a high bargaining power, competitors participate in fierce competition in the effort to attract a large number of clientele. In the industry, competition occurs through value addition for the services provided accompanied by creating intense awareness of the available differentiated services and products through advertising via both new and traditional media. People look for hotels that offer the best prices without sacrificing on their stay experience. Therefore, the tendency of many competitors in the hotel industry involves exploring cost differentiation strategies while eliminating the notion that low prices signify lower quality stay-experience.
Intense competition among the existing competitors of Beverly Wilshire Hotel may be explained by the increased geographical reach of means through which people can access information about the available places of stay within a given geographical area. For example, people who seek to visit LA’s landmarks can choose to stay in a hotel that is much closer to their landmark of interest if such a hotel provides similar services and products or even better experiences that are accompanied by the best price packages that match those offered by Beverly Wilshire Hotel. Fixed and variable expenses of running business for Beverly Wilshire Hotel may be too high within its area of operation, thus making it impossible to reduce its prices beyond certain thresholds for it to remain in business. This situation leads to losing clients to organizations that are located in areas where they can comfortably explore low-cost strategies as a mechanism for gaining competitive advantage. Consequently, rivalry among different competitors remains incredibly high.
New Entrants
Establishing an organization to meet the standards and reputation of Beverly Wilshire Hotel requires the commitment of high capital and time to build confidence in the quality of services. Therefore, threats of new entrants are low in case of Beverly Wilshire Hotel. However, marketing costs may reduce barriers to new entrants through the utilization of new media in marketing a new hotel. For example, through new media, it is possible to reach a large number of people globally with minimal expenditure of organizational financial resources (Abhamid & McGrath, 2005).
Social media is a low-cost promotional strategy. Customers share promotional information with minimal efforts from an organization. The organization only initiates the marketing strategy by sending promotional materials to first recipients. Where the campaign becomes viral, an organization losses control of what is said about its brand (Southgate & Westoby, 2010). Challenges only emerge where the viral messages are against the brand profiles of an organization.
On the global platforms, important barriers to new entrants in the hotel industry include differentiation and expertise. Hotels that differentiate themselves in terms of amenities on offer, service differences, and geographical locations or any other service attribute stand better opportunities for attracting new and the existing clientele. Hence, since Beverly Wilshire Hotel differentiates itself in terms of its strategic location in LA and the quality of services offered, it is more likely to remain competitive and free from fierce force of threat of new entrants into its industry of operation. Similarly, the level of expertise may constitute an immense source of increased clientele flow into a hotel. To this extent, expertise of more than 83 years has ensured that Beverly Wilshire Hotel retains high barriers to new entrants that threaten to attract its loyal customers.
Supplier Rivalry
Suppliers have a capacity to shape the degree of competition in an industry. Although their presence may present less challenges in the hotel industry, rivalry among suppliers may influence it through labor supply. For example, in a nation with high age population, there may be less people to take up service job opening within the hotel industry. An organization that operates in the industry with an objective of providing the best experience to its clients cannot shun from employing young, vibrant, and energetic service staff members. Limited supply of such people leads to high wage and salary demands. Beverly Wilshire Hotel offers competitive pay that is consistent with the US labor laws on minimum wages and salaries. Considering that it also has good work environment, it remains immune to threats of labor supply rivalry.
PESTLE Analysis and Ethical Issues that influence the Hospitality Industry
Economics, political-legal, socio-cultural, demographic and technological factors influence the hotel/hospitality industry. Other ethical issues must be considered for the industry to deliver value to the owners of different organizations that operate in it. Political-legal, economic, socio-cultural, demographic, and technological factors are components of PESTLE analysis approach for the operational environment of an organization (Gerry, Kevan, & Whittington, 2005).
PESTLE Analysis
Political-Legal Factors
Beverly Wilshire Hotel operates in an environment that has political elements that shape the conduct of business entities. In fact, all organizations that operate in domestic, national, and international markets are subjected to different political-legal environments, which shape the manner in which they execute their business activities. At the domestic and national level, an organization faces fewer challenges since it can establish policies that homogeneously comply with the established legal guidelines for doing business. In the international arena, different nations may have different policies, rules, and regulations for the hospitality industry. Therefore, an organization cannot guarantee uniformity in its policies due to the different compliance requirements.
The legal environment influences the operations of the hospitality industry in the domestic, national, and international platforms via taxing policies since organizations must file their returns each fiscal year. The management must also comply with environmental regulations, tariffs, and employment laws that are established within different nations. They also need to comply with trade restriction policies. Due to cross-border differences in legal policies, different organizations may report different income streams, yet the level of capital commitment is the same.
This situation influences business strategic plans for pursuing competitive advantage. For example, in nations where an organization’s net profit is heavily taxed, price deferential occurs when compared to nations that have less taxation. This situation may present an organization as discriminating its clients in terms of price. Additionally, nations with political hostilities and instabilities may increase the cost of doing business, thus resulting to high prices since business continuity is only possible in case an organization breaks even.
Economic Factors
Economic factor predict the performance of a given nation. The factors produce resonance to the financial performance of organizations that operate in the hospitality industry. For example, increasing inflation in an economy influences the hotel sector in terms of price increment for services and products sold to people who stay in the facilities. Hence, the purchasing power of people who seek accommodation and other services offered by the hospitality industry is also affected to the extent of destabilizing the demand-supply equilibrium, which affects the buyers and suppliers’ bargaining authority.
The hospitality industry is supported by various industries to effectively run and offer optimal services. Therefore, economic factors that influence the supportive industries also affect the cost of the hospitality industry. For instance, in the national and international domains, fluctuation in fuel prices destabilizes the prices of services and products offered in the hospitality industry. The case puts barriers to the profit margin that a hotel can reinvest in its growth and/or CSR. Other economic factors that have a significant implication to the hospitality industry at domestic, national, and international levels encompass FDI, the rate of economic growth, the rate of interest, and the rate of foreign exchange.
Socio-Cultural Factors
Socio-cultural differences act as an immense success factor for the hospitality industry. In the industry, there is a need to comply with food safety standards. In the international arena, different regulations ensure socio-cultural compliance of organizations. For example, in the recent past, the UK introduced legislation on minimum wages. It also established another ruling that required firms to recycle their wastes as a measure of being environmentally green. These two legal legislations have influenced the hospitality industry’s profitability levels since extra costs are encountered in waste treatment and recycling.
An important socio-cultural factor that influences the hospitality industry at domestic, national, and international levels is the seasonality of the demand. For example, in the western cultures, people mostly travel over holidays and during leaves from their routine work. Hence, at domestic, national, and international levels, the hospitality industry is characterized by fluctuations in demand for services and products.
In some situations, the demand may be in such a way that a hospitality facility cannot sufficiently and optimally handle clients without compromising quality during peak seasons. In case of Beverly Wilshire Hotel, this challenge makes it turn away booking once it has been booked to capacity. This situation introduces the challenge of putting off first timers who may develop loyalty to competing organizations, yet there is no assurance that the current people who occupy the hotel will return the next season as those who have been forced to get help from the competing organizations.
Demographic Factors
Depending on the demographic patterns, the hospitality industry may experience different changes at the domestic, national, and international level. Canina and Carvell (2005) assert that Europe and the US have been experiencing a reduced rate of population growth at levels whereby people who are leaving employment are more compared to those who join it. In this context, the high aging population leaves an empty space in the employment sector. This gap produces a negative effect on an industry that demands young vibrant populations such as the hospitality industry. Indeed, this effect is not confined to domestic and national levels. It also influences the international business. For example, where an organization has operations in nations with lower populations of young people, it may have to import expensive labor from nations that have a high population of highly skilled unemployed young people.
Technological Factors
Technology constitutes one of the factors that have caused a revolution in the hospitality industry. At the domestic, national, and international levels, technological systems such as the integrated management systems enable institutions of all calibers to attract guests of various types. This turn-up ensures high revenue generation and/or improved efficiency of the hospitality sector organizations. Improved capabilities of information management systems such as the enterprise resource planning (ERP) guarantee good tracking of customer booking and delivery of tailored services depending on guests’ unique tastes and preferences.
Technology enables customers to have virtual experience in hotels by accessing the facilities in an online environment. This strategy ensures a close comparison of services and products on offer. The ramification here is the increased competition for clients even before the actual physical-stay-experience. Indeed, due to technology, the era of intermediaries such as travel agents and advisors is almost gone. Therefore, hospitality organizations are only left with the option of increasing their appeal to potential clients in an online environment as the only way to increase their competitive advantage.
Ethical Issues
Marketing is inevitable in an industry that experiences high competition in domestic, national, and international markets such as the hospitality industry. Therefore, apart from work ethics, for instance, good etiquette when handling clients, marketing hospitality products and services attracts a huge ethical concern. Marketing brings a large number of people to work together in a teamwork environment. The work teams are guided by codes of action that define what needs to be done during the marketing and what should not be done. Marketers have the role of placing products and services with success in a market. However, it is a violation of marketing code of ethics to deceive while attempting to make a sale or win clients to make booking in a hospitality organization.
All marketing efforts must ensure that the target audience gains the greatest good from the products offered for sale. Kerr (2007) asserts that ethics in marketing refers to “principles and standards that define the acceptable conduct in the market place” (p.128). Hence, ethics in marketing involves all practices, which have the capacity to result in the greatest happiness among all people. Some of the marketing practices that are considered unethical in the hospitality industry entail attempts, which are openly meant to deceive and/or take advantage of a given situation for individualistic or group gains.
Opportunities and Threats of the Hotel/Hospitality Industry
People always travel. Thus, the hospitality industry cannot be substituted. While in a hotel, people will never avoid eating all together. The hospitality industry is also an open sector that provides opportunities even to those with limited educational attainment. Apart from being a global industry, it has international markets with high demand. Labor intensiveness makes it hard to outsource. The hospitality industry is also highly flexible.
Opportunities include the existing external chances, which while utilized well make an organization improve its performance (Hill & Westbrook, 1997). Structural changes that result in high intake of women in the hospitality industry provide an opportunity. They imply less time for cooking at home. It also provides an opportunity for acquiring the much-needed labor supply in the industry. Increased emphasis on quality offers an opportunity for widening products and service differentiation. Globalization provides the opportunity for pursuing an internationalization strategy as an organization seeks to meet eating and accommodation needs for borderless tourists and business communities.
Threats are the external chances that impair the performance of an organization (Hill &Westbrook, 1997). Inadequate highly qualified personnel may compromise the quality of services offered in hospitality industry, particularly in this hotel. Political instabilities and unrest together with terrorism pose a major threat to the prosperity of the industry. Nations that have a high aging population witness the threat of difficulties in labor recruitment. Climate change may influence people’s decision on long-distance travels.
Scenario Analysis: Comparing Beverly Wilshire Hotel and Beverly Hills Hotel
From the context of scenario analysis, Beverly Wilshire Hotel and Beverly Hills Hotel host prominent people who include politicians, musicians, and high-caliber business personalities. Looking into the future, especially after considering that the two hotels have long historical reputation for quality service and modifications of its facilities to suit the needs of specific clients, they will continue focusing on targeting people who earn the highest incomes in the US. For example, a typical room costs about $1,045 per night in case of Beverly Hills Hotel (Callahan, 2014). For presidential bungalows, the cost may rise to $15,380 per night (Callahan, 2014). Comparably, Beverly Wilshire Hotel has rooms that cost up to $7500 per night (Valhouli, 2015). The table below offer more details for comparison.
Reference List
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