How to build a competitive strategy
17 FEBRUARY 2016 8:25 AM
With an economic soft landing predicted for 2017 many hospitality businesses will need to have a foundation built on sound strategy for continued success.
Developing a business strategy is admirable, but executing it is the key.
Based on this, I thought I would try to simplify the essence of strategy for today’s hospitality leaders. One simple strategy is to differentiate our operations via intangible assets. As an example, customer relationship management or new and innovative products and services can provide differentiation from our competitors.
One strategy that has been employed frequently is the “balanced scorecard.” Simply put, this system allows a company to measure budgets and financial measurement devices as well as non-tangible assets such as customer relationships and brand awareness. According to the book “The Strategy-Focused Organization” by Robert S. Kaplan and David P. Norton, “an exclusive reliance on financial measures in a management system causes businesses to do the wrong things.”
According to Kaplan and Norton, there are four basic strategic themes:
- Build the franchise: In the case of hoteliers, this applies to the individual franchisee as well as the brand managers. Optimize that brand name!
- Increase customer value: Today’s savvy customers might pay to stay in a luxury hotel, but they will require value for that dollar.
- Achieve operational excellence: Satisfactory service is not good enough with today’s fickle consumer; great service is now required. Provide “unanticipated” or “wow” service.
- Be a good corporate citizen: I have found that this comes back in the way of increased revenues, better employees and hence more repeat business.
The authors also describe five steps necessary to create a strategy-focused corporation:
- translate the strategy to operational terms;
- align the organization to the strategy;
- make strategy everyone’s job;
- make strategy a continual process; and
- mobilize change through executive leadership.
These are not difficult concepts; however, they require that the leader explain the strategy to all employees. In my experience, today’s hoteliers lack organizational strategy that can lead to severe problems down the road.
According to Philip Kotler’s book “Marketing Management,” not all brand differences are meaningful or worthwhile. Kotler points to the Westin Singapore’s ad that it is “the world’s tallest hotel.” Is this relevant to most guests? After the 9/11 attacks, height could actually have been a disadvantage. How does one determine what positioning strategy to use? Kotler reviews seven areas (I included examples from hospitality for each area):
- Attribute positioning
- Size, number of years in business, etc
- Benefit positioning
- Fantasy experience at various theme parks
- Use positioning
- An airport markets a 15-minute massage for a traveler on the go
- User positioning
- Six Flags as a theme park for “thrill-seekers”
- Competitor positioning
- “We’re better than a regular hotel because we have all-suites and a free breakfast.”
- Product category positioning
- Use of the words “resort hotel” can create an image of a full-service environment.
- Quality or price positioning
- Best-value claim
In the case of any company in our industry, it is paramount to create a grid of qualities comparing our businesses with the competition. For hotels, I like to rank location, brand, restaurant, lounge, meeting space, amenity package, ambience, cleanliness, design, website, use of social media, etc. I like to apply certain “weighting” of the results such as a higher weight or importance for location and brand than for the cocktail lounge or restaurant. When the differences in attributes are apparent, then one may select certain differences to promote via communications strategy. Naturally, these attributes must be evaluated as the product goes through its natural life cycle.
Each product type has a different “ramp-up” period. A select-service hotel will hit full stride faster than a full-service hotel in similar circumstances. Different circumstances, such as a recession or a weak current market due to oversupply, will have impact as will the appearance of too many products under the same brand or marketing umbrella. Each stage in the product life cycle—introduction, growth, maturity and decline—has a different strategy requirement, according to Kotler.
The following grid explains his strategy for product, price, distribution, advertising and sales promotion.
What are the dynamics of hospitality industry competition? Looking at the airlines, it is obvious that meal quality does not appear to be on the “radar screen” (pardon the pun) of corporate decisions; a decent meal used to be included and now inferior food products are offered for an additional fee.
However, the hotel industry has gone through a major change whereby food quality has increased greatly and a good bar scene can markedly affect a guest’s decision to book. The “millennial mindset” demands quality. Not only is taste important but presentation has to be top-notch. Social media is centered on photos, and what is the subject matter of the majority of these photos? Food.
Other strategies that we can employ are to team up with rideshares, golf courses, spas, tennis clubs, etc. If there is a guest need that you cannot fulfill on property, develop a strategic partnership to make it happen.
Operational enhancement initiatives and cost containment strategies are critical. These efforts might include short-term measures such as staff layoffs or schedule reductions. Long-term solutions such as revenue management, inventory control, purchasing systems and improved service standards are always helpful in profit improvement initiatives.
What’s the bottom line on strategy? If executed well, strategy can provide for strong market share in the hotel industry. It’s required in today’s competitive environment, and with an economic soft landing predicted for 2017 many hospitality businesses will need to have a foundation built on sound strategy for continued success. All of us can improve by executing a well-thought-out plan.
Robert A. Rauch is CEO of the hotel management and consulting firm RAR Hospitality. Rauch is an internationally acclaimed hotelier with more than 40 years of industry experience. RAR Hospitality has four independent hotels in its portfolio with an additional property under development.
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