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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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3.1.1 Demographical Forces

The population of the world is changing and especially in America. By 2050 the projections are that 20 percent of the people will be over the age of 65. Moreover 42 percent of the population will be part of the labor force and an overwhelming majority will be ‘Millennials' BRON. The Millennials are the demographic age group between Generation X and Generation Z, they are born between 1980 and 2000 (Anon 2016). The demographic changes have a big influence in the hospitality and especially in the travel demands of the guests. The hotel industry has to adapt to the changing preferences and cultural trends of the guests.

According to the latest research from FutureCast; Millennials are 20 percent of all tourists from all over the world. Furthermore their annual tourism revenue has increased with 30 percent since 2007. A few years ago the hospitality industry described this generation as collage students who were not interested in luxury travel, however this has changed in the past 10 years. Cathy Ross, CEO of Exclusive Resorts claims that millennial travellers are looking for luxury accommodations with great amenities. They are also 23 percent more interested in going abroad compared to older generations (Fromm 2016).

Opportunity: The expenditures of the Millennials are increasing this is a

Opportunity: The Millennials become more interested in Luxury travel and hotels such as Marriott and Starwood

3.1.2 Economical forces

3.1.2.1 The success rate of industrial mergers

Before diving deeper into our specific case, it is important to gain a broader insight of the actual meaning of a merger. What is a merger? And why would Starwood and Marriott want to merge? “A merger (…) is the combination of two or more separate institutions into a single new organisational entity, in which control rests with a single governing body and a single chief executive body, and whereby all assets, liabilities, and responsibilities of the former institutions are transferred to the single new institution.” (Council on Higher Education, Pretoria, 2004). According to the World Tourism Organization (2002), mergers between companies are becoming a more popular method to achieve a stronger foothold within the hospitality industry and will continue to do so for many years to come.

Arne Sorenson, CEO of Marriott Inc. about the reason behind the company's potential merger with Starwood Inc. on CNBC's show Mad Money: “It is a tremendous deal, from which we can obviously get cross-synergies. We think we can get revenue-synergies, we think we can deliver margin improvement for our hotel owners and franchises and we will end up with a more global company, with more money to spend on consumer facing technology, which will help us compete with new entrants in our industry (…)”. (Sorenson, 2015)

But is Arne Sorenson too optimistic? When looking at the strategic altitude pyramid, a company's mission should take the company's shareholders into account. Yet according to a study conducted by KPMG, shareholder value decreased due to mergers 50% of the time (World Tourism Organization, 2002). A study published in the Journal of Industry, Competition and Trade, concludes that only 25% of mergers benefits consumer welfare (guests) and half of the industry mergers reduce the value of the firm (Kluwer Academic Publishers, 2002).

Threat: The merger between Marriott and Starwood could prove to be unsuccessful and have a possible negative effect on the stakeholders of both companies.

3.1.2.2 GDP

The GDP, Gross Domestic Product, gives an indication of the condition of a countries economy and gives an assumption of the standard of living. (Investopedia, 2016) An higher world wide GDP reflects in a growing customer purchasing power and more potential sales for companies. A healthy and growing economy is the ideal situation for a business or merge to become successful.

The GDP is an economic key indicator which is an important factor within the hospitality business as it can give predictions of the economical future.

The graph below states a global economic growth in gross domestic product. The global economic growth grew about 3.09% in 2015. The statistic shows the growth in global GDP from 2010 to 2015 (Statista, 2016). As shown in Appendix 10.4 the graph is the forecast, until 2020, of the GDP worldwide, which will increase even more.

Opportunity:  A worldwide growth of the GDP can be seen as an opportunity since is shows the economical health of the world. It reflects in a growing buyer power, which goes in line with more sales and demand for businesses. It an also give predictions of the economical future for new businesses or merges.

3.1.3 Social Cultural forces

3.1.3.1 Terrorism, World Heritage

Countries with religious and ethnic pressures aligned with poor governance and low economies create terrorism. Even though there are several actions held in order to prevent and respond to terrorism, the danger is still high in Europe (Sas, 2015). In addition, terrorism is an inexplicable and persuasive fact and its impact on the hospitality industry is compound and multifaceted (Arrow, 2015). Furthermore the increase in terrorism had a major impact for the Chinese tourists as they are avoiding Europe for their destination (Mailonline 2016).

World Heritage indicates different kinds of heritage locations that have undergone assessment and have been accepted by UNESCO (EDB, 2014). The Canals of Amsterdam are a symbol of a countless culture and historical significance, which play an important role in tourism (Holland, 2015) (UNESCO, 2015).

In some countries, such as Holland and Germany, the service of sexual activities in exchange of different rewards is a legal activity. This is due to the fact that it is performed as a business and sex workers are completing the government requirements and several health controls (EDB, 2014).

Opportunity: Being part of UNESCO attracts cultural visitors and increases tourism.

Threat: The high level of terrorism has a huge impact on tourism as people incline to prevent crowded places.

Opportunity: Special attractions that cannot be found in other cities will increase the hospitality industry, as it can be one of the unique selling points of the region. (Maybe rephrase this)

3.1.3.2 Tourism in China increases

After the Chinese tourism boom in the 1990's, over 12 million Chinese tourist travelled internationally. This number is estimated to pass the 100 million by 2020 and will result in China being one of the most important players on the tourism and hospitality market (Elsevier, 1997 in China's domestic tourism: impetus, development and trends); (WTO, 2003 in Becken, 2003). With the implementation of more efficient visa-regulations it has become easier for Chinese to travel to Europe and the US (Lever, 2015). The speed of growth and the already large existing number of Chinese tourists makes this one of the most interesting markets to focus on for companies. According to an article published in the China Business Review in 2012, 95% of Chinese travellers claim to be “poorly served” by hospitality companies worldwide. The current competing market offers only limited innovation and differentiation (Luk, 2012). A clear opportunity for companies to consider.

A study conducted by the Boston Consulting Group (BSC) dove deeper into the needs and wants expressed by Chinese travellers. Chinese consumers often give preference to luxury brands that offer trusted information and services. Chinese tourists are appreciative of valued services such as executive lounges, priority lanes and upgrades, resulting in a “sense of exclusivity”. Especially now the Chinese middle-class has gone through a surge (TUI AG & Z_punkt GmbH, 2012). Furthermore, due to mass-market and affluent Chinese consumers, it is important for companies to offer different types of travel experience, products and services (BSC in Luk, 2012).

Opportunity: By merging two large and trusted hospitality companies, one can create a brand that can cater to demand, offer differentiation and innovation and possibly create the most successful customer loyalty programme with Chinese guests. Arne Sorenson, CEO of Marriott international, has mentioned that one of the main reasons behind the merger is to cater these exact opportunities (CNBC, 2015).

3.1.4 Technological forces

3.1.4.1 OTA's

Hotels are currently being pushed around by OTAs and are therefore using creative and unique marketing campaigns to decrease the level of reliance on these revenue gobblers (Hotelmarketing, 2016). For example, Marriott has launched an entire campaign, which is called “It Pays to Book Direct” that carefully managed TV spots, social posts and advertisements (Hospitalitytechnology, 2016). Moreover, hotels are making waves with a new technology that features a price chock popup on a hotel booking engine that guarantees the best rate by booking direct from the hotel, almost eliminating the need to price shop across the web (ibid). According to AAA, about 42 million people are expected to travel this year. Many of those travel plans will be made through OTA's (CNBC, 2016). Online sales value of hotels and OTA's are predicted to increase by at least six percent in 2016. From 2008 until 2015, the amount of the Internet operators who have performed travel reservations online increased from around 40.6 million to 59.8 million (Statista, 2016).

3.1.4.2 Mobile phone users

Hotel smartphone apps have become an industry regular, but hospitality industry front-runners are using the global smartphone in another manner: They're providing the hotel guests the ability to control their rooms with their smartphones (Hospitalitytechnology, 2015). Smart controls allow setting room temperatures and lighting and even selecting the choices for their mini bar. Such tech-driven, personalized hotel stays will become vital for the tourism industry as America's 80 million millennials become the generation spending the most on travel. (Nielsen, 2015) The statistic shows the total number of mobile phone users worldwide from 2013 to 2019. For the year 2017, the amount of mobile phone users is predicted to reach 4.77 billion (Statista, 2016).

3.1.4.3 Beacons

Beacons are a two-way communication with nearby Bluetooth-enables smartphones, which went mainstream two years ago (Hospitalitytechnology, 2016). Moreover retailers, airports, museums, hotels or restaurants have employed beacons successfully, which increased their profits (Cio, 2016). With the help of beacons, guests can received promotional messages for discounted spa services, bars promotions or restaurant deals (Skillcrush, 2014). In addition, for big hotel chains, as guests arrived at a hotel, the beacons acknowledged information from their phones, which further on allowed the concierge to welcome the guests by name. Also beacons placed near a hotel room doorway notified the housekeeping staff whenever a guest was in the room or not (Webopedia, 2016).

Weaknesses: OTA's charge a commission between 10%-30% for hotels as geography pays an important role in the structure of the commission.

Weaknesses: The increase of OTA's of at least 6% in 2016

Strengths: The increase of direct booking via the hotel's website due to different promoting platforms and forming a loyal customer________

Strengths: Having one management system, which holds different outlets where all individuals can be simultaneously connected in order to create a better customers relationship management.

3.1.5 Natural forces

Nowadays Hotel chains want to be as sustainable as possible. 2016 is a pivotal year in sustainable development (radar,sustainability.com, 2016). Within the Hotel business the environmental awareness is increasing, hotel businesses have pressure of improving their environmental performance (cmr.ucpress.edu, 2016). The population group millennials are identified as outright environmentals and are seen as the most sustainable generation to date (pkgbranding.com, 2016).The economy, the food production chain and the entire consumption process are all tested for sustainability (trendone.com, 2016). Sustainability is very focussed on waste disposal and even in the technology sector ecologically sound procedures as well as Management of natural resources and minimization of emissions have priority within the industries (trendone.com, 2016). The population is asking for better protection of natural resources in order to assure sustainability and international provisions. The western population is aware of the fact that the environmental protection is taken very seriously. A contribution for this environmental performance would be ethically correct consumption of the population (trendone.com, 2016). This growing awareness contributes to the sustainability of companies (trendone.com, 2016).

 

Opportunity: Growing awareness of sustainability and waste production of the population will influence positively within the hotel businesses and will save a lot of money.  

Waste

Reducing of materials and energy intensity in the production of goods and services is internationally accepted by all worldwide international organizations and national governments (flagship/attachments/UNEP_waste, 2016). Furthermore, reducing waste concerning plastic, glass, metals and textiles is a priority nowadays due to the fact waste is a huge ecological problem and has a negative effect regarding the nature and the environment. Waste to energy conversion is growing very fast (flagship/attachments/UNEP_waste, 2016). Different routes now available regarding technology, For example, biomethanation for organic waste, direct incineration with energy recovery, pyrolysis ((flagship/attachments/UNEP_waste, 2016).

Threat: producing new technology regarding waste is costly and will cost a lot of time.

3.1.6 Political forces

3.1.6.1 BREXIT

At 23 June 2016, a referendum was held whether Britain should leave the EU or not. 30 million people participated in this referendum with the result of 52 percent of the participating Britain voted for leaving the EU. The combination of the words Britain and Exit resulted in the word BREXIT (Wheeler & Ahmed 2016). The Brexit has both positive and negative influences on the travel industry. According to The Assosciation of British Holidaymakers; 70 percent of all hospitality workers in London are migrant workers. When the UK is no longer part of the EU the hospitality industry has to pay more to get people to do these jobs. This will influence the prices of the industry as well. Furthermore the decrease in value of the Pound will have a positive influence on the tourists who travel to the UK. However it will be more expensive for residents of the UK to travel outside their country, this could have a negative influence on the tourism numbers of the rest of the world (Ting 2016).

Opportunity: travellers from outside the UK are more likely to travel to the UK because of the low value of the Pound

Threat: UK residents will be less likely to travel abroad since their money is worth less

Threat: Hospitality companies have to pay more for migrant workers to work in the UK

3.1.6.2 Chinese merger control

Though not an obvious trend, it is essential to take into account that the merger between Marriott Inc. and Starwood Inc. has not been closed. While Marriott and Starwood have received unconditional premerger clearance from all associated parties, both companies still await the approval of China's Ministry of Commerce (MoC) (Marriott Inc, 2016). According to a Reuters article published by Fortune.com, the country's MoC has a tough reputation on merger closing. That same article states that the MoC often delays their approval or blocks deals to acquire assets of the companies involved. These statements are confirmed by Skift.com, a travel news website (Reuters, 2016); (Ting, 2016). Specialists told Skift.com the following: “There have been a lot of instances of the Chinese using their anti-monopoly law in merger cases to extract assets, intellectual property, and intellectual information technology,” (Horton on Skift.com, 2016).

Threat: The merger block of the MoC of China could cause the merger deal between Marriott Inc. and Starwood Inc. might possibly fail.

Threat: The merger delay by Chinese regulators could result in the Chinese government attaining assets of Starwood, a loss for stake -and shareholders of Marriott Inc.

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