According to Porter (2001) the internet is an enabling technology that can be used within the context of a good business strategy in any industry. Although the Internet alters industry structures and levels the competitive ground often dampening profitability in the industry, it can be used to encourage and promote greater profitability if properly implemented. 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 and sellers, and the rivalry among existing competitors.
In 2001 Porter considered these factors in light of the internet technologies. The influence of the internet has been profound especially in the hotel industry. According to Porter each factor has a different relevance or impact on different businesses so they are presented below in order of impact for hotels. Porter indicates that the great paradox of the internet is that the benefits it creates such as making information easily available, reducing purchasing hassles, and marketing which allow customers to find what is of interest are the very things that make it more difficult for companies to “capture those benefits as profits. (2001). The most important determinant of a marketplace’s profit potential is the intrinsic power of buyers and sellers. Threat of Substitute Goods In the hotel industry there is usually another hotel just around the corner. They appear in all price ranges, with varying levels of service and amenities. The constant challenge will always be to get the guest to choose your hotel over the competitor. The internet makes the overall market more efficient while expanding the size of the potential market and creating new substitution threats.
Given the potency of this threat a superb internet presence is vital. Another ongoing threat is that another hotel chain may erode your customer base with a newly formulated internet approach or marketing campaign. This is supported by the following quote from Luck and Lancaster (2003): “The development of value chain process analysis, supported by collaborative event management over the Internet, the structuring and the sharing of customer focused value chain data, powerfully enhance the performance of value chains and of electronic commerce. ” Bargaining Power of Buyers
Business persons choosing a hotel for business travel are savvy consumers and they are comfortable with computer technology. It has become very simple for them to go online and book a hotel. They no longer need travel agents, corporate travel consultants or middle men of any kind to determine where they will stay. Porter’s model predicts this elimination of intermediaries. Tourists are more and more capable of using the internet in the same way but in another fulfillment of Porter’s model, they are more often bonding together in a novel way. They are finding internet businesses like cheaphotels. om which will negotiate or discover bargains for them. Both of these processes shift the bargaining power to the end user as the Porter model predicts and these same freedoms reduce the cost of switching so that loyalty is a thing of the past unless a particular hotel uses its one time opportunity when a customer stays at the hotel to deeply impress the customer with a unique and valuable differentiator. Rivalry among existing competitors The rivalry among competitors in the hotel industry is fierce. When potential customers can learn about a hotel on line, the internet reduces the differences among competitors.
People tend to seek the best price for the best experience and the tendency is to reduce price to be competitive. The internet covers wide geographical areas so the market is widened increasing the number of competitors. For example, someone who wants to spend the day in the historic town of Niagara-on-the-:Lake can easily choose a hotel in a near by town if the amenities or the price are better. Variable and fixed costs can be different in areas that are more expensive to live and work making it more difficult for a hotel in Niagara on the Lake to reduce their prices to the level of one in nearby St.
Catharines. Barriers to Entry The initial investment in the hotel industry creates quite a barrier to entry but certain barriers to entering the hotel market are reduced by the internet. A presence on the internet reduces upstart marketing costs somewhat, and gives the new competitor access to potential suppliers and resources. Even a bed and breakfast can use the websites of large chains to understand the key marketing concepts and the lures for customers. Switching costs are usually nil for a consumer. (McNurlin, 2006)
A vital barrier would be differentiation. A hotel that can differential itself by location, by service, amenities or some other quality has the potential to attract and keep its clients. Another barrier to entry would be expertise. Unfortunately, in a mobile society employees frequently leave one hotel chain to work in another and they take that expertise in terms of training or of experience with them. It is in the areas of expertise and of differentiation that a hotel can make the greatest impact on its client and thereby on its bottom line.
In fact many established companies have synergies between their established business and online technology. Bargaining power of suppliers While this is not a substantial threat in the hotel industry it can have impact especially in the area of labor. With an aging population, there are fewer people to fill service industry jobs and hotels which can attract excellent staff have a greater chance of providing excellent and exceptional experiences to their clientele. As part of their internet strategy all hotel chains should have a section on recruitment for employment.
The other supplies that are needed by hotels are also easier to attain through internet channels whether originated by the supplier or by the hotel chain. With their products in greater demand by greater numbers of hoteliers suppliers gain some measure of power by competition for their offerings. Recommendations All of the hotels listed above can benefit from internet applications that produce greater value in the value chain. The firm’s infastructure can benefit from financial and ERP systems. Communicating with investors can also be done by internet.
Human resources can be managed by the internet as part of the overall strategy as well providing internet based self service personnel and benefits, web based training, internet based sharing of information and knowledge and electronic time and expense reporting. Value can be increased by standardizing technology across multiple locations, forming knowledge directories, and allowing real time access to online booking information. Finally, every hotel could benefit by online inventory control and forecasting systems with suppliers. These improvements can all lead to greater profitability (Porter, 2001)
Each type of hotel needs to identify its unique strengths and target market and align its internet strategy to support that identity Will the chain choose to be low cost, or to command a premium price? Distinguishing oneself from the competition becomes vital. This can be enhanced by superior technology, through superior inputs, through better training of staff or through better management. Differentiation adds value but the internet makes it hard to maintain those distinctive strategic positions because it eases change to best practices and it improves operational effectiveness.
Never the less such distinctions make the business more profitable. By its basic nature the hotel industry is fragmented. The internet makes it easier for travelers from far and wide to learn about the hotel or to order a room but the customer must still come to the hotel for the service. This makes it more likely that the profitability will be there for when sale is easy to transact and complete the profit margin usually decreases. Porter points out similar examples with Real Estate and with furniture sales. Dealing directly is great for hotels.
Other than travel agencies who arranged hotel stays the hotel business has always been a face to face business and this normally sustains the economic value of the transaction. For all of these chains the internet complements rather than cannibalizes established ways of doing business. It becomes one more link in the value chain. Every chain listed below should use its website to attract employees and to communicate a philosophy of management. In the employment section the designers must remember that they are communicating not only to potential employees but also communicating the service standards that the guests can expect.