Abstract/ Executive Summary
This report is an analysis the external and internal environment of Best Western. Data and models will be present to support the analysis. In the final part, recommendations and strategic options will be provided.
This report will give an analysis of Best Western International Inn. Firstly, an overview background of the industry and company will be given. In the second place is the market structure and main competitors of the company; thirdly, to identify the external environment with SWOT and PEST analysis; in the fourth place is to provide the internal analysis with capability structure and porter’s generic models; The last following up section is to focus on the future strategy of Best Western International Inn through Ansoff’s Matrix and porter’s five forces.
2.1. Sector Analysis
According to Keynote (2015), the Hotel market in the UK has a 6.5% value growth. The mainly strengthened performance is in London, with greater prices and revenue per room than the rest of the UK. The UK market was assumed to have a domestic growth in popularity both the resident and overseas. Additionally, business travel also significantly benefited to the whole market during the period of 2010 to 2014 with 16.5% growth while the travel expenditure is 27%.
However, negative issues were seemed to affect the hotel market such as camping grounds, recreational vehicle parks and trailer parks. The VAT rate is continuing remain the same while other countries such as France, Spain and Italy have a reduced rate.
In terms of the economy recovery, a greater level of consumptions, increasing number of business travel and rising number of oversea visits are expected to strengthen the market. The average expenditure of tourists are increased from 512 to 599 between 2008 to 2012 as figure 1 shows below. Key Note is predicting that the growth of the UK hotels and accommodation market will make a growth of 5.1% to 5.5% between 2015 and 2019
Economy problems are consistently affecting the hotel industry. In terms of the global economic turmoil, Singapore suffered a decline from foreign visitors while Spanish also has a negative effect result from the recession of economy in 2012.
The numbers of hotel rose with a 0.7% of the period 2009 to 2013 and reach totally 419.0 thousand hotels in 2013. The forecasting numbers are 449.2 thousand hotels in 2018, representing a 1.4% increase from 2013 to 2018. The 2014 World Cup in Brazil and the following hosting of Olympics in 2016 will give a large increasing of the hotel industry, and contribute to the whole industry.
(Figure1. Inbound Travel to the UK by Volume and Value (million, £m and £), 2008-2012)
(Source: Keynote 2015)
2.2 Company Overview
Best Western is a hotel chain business for providing reservation and hotels operation. It has more than 4100 hotels in over 100 countries including Americas, Africa, Russia, Asia, Europe, Australia and the Middle East with 314331 guest rooms. The company has three brands including Best western, Best Western Plus and Best Western Premier. Besides, the company containing programs for specific guest such as Best western Rewards, Best Western Speed Rewards, Best Western Ride Rewards, Best Western Travel Card and Best Western Premier. The currently director of Best Western Inc is David Kong from 2004 till now. (BestWestern 2015)
2.3 Types of organization
Best Western is association of independently owned incorporated as a membership organization with headquarter in the US (passport 2015). The purpose is to increase profits through joint marketing and sales and cross selling (mbascool 2014). Comparing to other hotels, Best Western is focusing on producing local food and drink. As a result, it is a private sector that is not owned and operated by the government, and it has a range of partnership as an incorporate company. (Privacysense 2014)
3. External Environment Analysis
3.1 Market Structure
Best Western is a company makes decision based on its service or products and market without the intervention from government; information about the company is widely spread out to all customers, for instance, customers are able to check the price and facilities in the hotel, however, it gives the opportunity to pick up the choice of comparing different similar hotels; It is capable to decide the price without controlling by the industry though the overall price could be a reference or guideline. It refers a sloping demand curve; therefore, competitions required hotels to attract customers so does Best Western, it is necessary to do promotion by mostly advertising; Last but not least, there are a number of different similar hotels or accommodations that Best Western need to be competing with all the time as a monopolistic competitive firm. (Economicsonline 2015)
Awards and Recognition
Over the years, Best Western and its products were awarded various awards and recognitions. In May 2014, the company’s 1,606 hotels worldwide received TripAdvisor Certificate of Excellence. In March 2014, it was honored with the 360-Degree Platinum award for its Best Western Rewards program from Loyalty360. Moreover, in February 2014, the company received the third Consecutive Compuware Best of the Web Award. Furthermore, in February 2014, it received Best of the Web Gold Award for the fastest and most reliable website in the hotel industry. Such awards and recognitions enhance the brand image of the company and increases customers’ confidence. (Passport 2015)
Strong Portfolio of Properties
The company’s property portfolio provides a competitive edge for gaining a better brand recognition. Best Western operates more than 4,000 hotels by offering over 400,000 guest rooms. It operates hotels under three brands: Best Western, Best Western Plus and Best Western Premier, which are three-star and four-star rated brands. Its 90% hotels in Europe have three or four-star ratings. In addition, its over 1,000 properties in the US and Canada have been rated a three-diamond rating by American Automobile Association and Canadian Automobile Association. Its hotels are strategically spread across 100 countries and territories. The company serves a diverse customer base including various national, state and regional associations, travel organizations and a group of individual consumers. All of its hotels meet the high standard requirements of AAA and CAA with two diamond and three diamond rating. Broad business portfolio allows it to garner higher market share and increase its revenues. (Passport 2015)
Wide Geographic Presence
The company’s wide geographic operations helps in mitigating various risks associated with dependence on select region. Renowned for its leadership in the hospitality services, Best Western operates over 4,000 hotels that host 400,000 consumers every day. Currently, the company operates in 100 countries and territories. It conducts business operations across North America, South America, Europe, Asia, Africa, the Middle East and the South Pacific. Furthermore, the company planned to invest in developing countries in the future. As of October 2014, the company had total 2,807 midscale hotels worldwide, of which 1,271 were in North America. It had a total of 1,045 midscale hotels worldwide including 816 in North America, and 146 upscale hotels worldwide, of which 25 were in North America. Best Western provides global operational, marketing, sales and promotional supports, and online and mobile booking solutions to its customers. It operates consolidated reservations centers in Phoenix, Arizona and Milan, Italy. In addition, it maintains sales offices in the US, Canada, China, Dubai, Hong Kong, the UK, South Korea and Singapore, among others. Such a wide geographic presence enables the company to serve a wide customer base and provides a competitive edge over its peers. (Passport 2015)
The lawsuits filed against the company may affect its bottom line performance. In February 2015, the family of an elderly couple filed a suit against the company for carbon monoxide poisoning while staying at Best Western in Boone. The family alleged that the death was due to negligence. Earlier, in June 2012, Ameranth, Inc., filed a class action lawsuit against the company for sale of licensing infringing systems, products, and services in the US without authority/license from Ameranth. In March 2009, Best Western was involved in a lawsuit regarding alleged campaign of harassment and intimidation targeting its own stakeholders. Lawsuits may result in penalties and fines, and may affect the company’s reputation in the industry, which may have a negative impact on its business. (Passport 2015)
Usage of Latest Technology
The company’s Best Western Mobile service enables the customers to access all of the features of BestWestern.com from any web-enabled mobile device. Its site features various services including room reservation, changing or canceling existing reservations, easy phone reservations, planning trip through Trip Planner and checking for hotel amenities. Best Western generates over US$1.9 million revenue through online bookings every day since 2005. Therefore, new mobile and online applications offer a fast, easy, free and direct access for customers to the company’s hotels, which may lead to additional source of revenues in future. (Passport 2015)
Strategic Expansion of Hotels
Strategic expansions may continue to enhance the business and operations of the company. For instance, in August 2014, Best Western expanded its portfolio in Shah Alam, Malaysia. Through this expansion, it focuses on expanding its portfolio of hotels in economic hub in Malaysia. In addition, in May 2014, the company opened two new hotels in Tokyo and Yokohama, Japan. With this, Best Western has 17 hotels spread across 12 cities in Japan. Furthermore, in July 2014, the company opened 4-star Best Western Plus Kalbarri Edge Resort in Western Australia. Such expansion of the company’s business operations may help it gain further market share and increase overall revenues. (Passport 2015)
Positive Outlook for the Global Travel and Tourism Sector
Best Western is likely to benefit from the global travel and tourism sector’s positive growth potential. According to the World Travel & Tourism Council (WT&TC), the sector’s direct contribution to the world’s GDP was expected to increase by 4.3% in 2014 and by 4.2% per annum over 2014–2024 to reach US$3.4 trillion in 2024, in comparison with US$2.2 trillion in 2013. The sector’s total contribution to the world economy is forecast to increase from US$6.9 trillion in 2013 to US$10.9 trillion in 2024. Visitor exports are expected to increase by 4.8% in 2014 and 4.2% per annum from US$1.3 trillion in 2013 to US$2.1 trillion in 2024. A rise in investments to US$1.3 trillion in 2024 is likely to support activity within the sector. This is expected to present growth opportunities for the company. (Passport 2015)
Strong business partnerships help improve the company’s capabilities and market presence. Best Western has collaborated with several companies to support its development. For instance, in October 2014, the company entered into a partnership with TripAdvisor on instant booking to make the process of booking user-friendly for TripAdvisor users. Moreover, in March 2014, the company entered into a multi-year partnership with Milb.Com, the official website of Minor League Baseball, to offer an online-only discounted rate to fans of 157 teams in 15 minor leagues. Through this partnership, it focuses on attracting sports fans to organize its brand and revive sports marketing effort. These partnerships may help the company better support its customers. (Passport 2015)
Tough Economic Conditions
Being a hotel chain, the company may face severe challenges that impact its operating margins. Global hospitality industry faced several challenges in recent times such as the global recession coupled with continuing inflation, oil price volatility and rising payroll costs, which impacted the hotel industry severely. Revenue and operational margin of hotel operators dropped significantly due to reduced volumes and occupancy rates in the hotels. International Monetary Fund (IMF), in its January 2015 report, revised its projected global growth from 3.8% to 3.5% in 2015–16, reflecting a decline of 0.3%. Difficult economic situations may intensify pressure on hotel industry operators such as Best Western. (Passport 2015)
Foreign Exchange Risk
Best Western operates in various countries and therefore it is exposed to fluctuations in foreign exchange rates against its reporting currency. The company operates in over 100 countries and reports financials in the US dollar for accounting purposes. Therefore, its revenue is exposed to volatility of the US dollar against other functional currencies such as the British pound, Euro and Australian dollar among others. For instance, Best Western offers a prepaid Travel Card, used by guests to pay for both accommodations and related incidentals, such as room service and phone charges. The card is accepted at all its hotels worldwide, available for purchase in US dollars, Canadian dollars, Euros, and other currencies. As a result, it may be required to translate those results from the functional currency into the US dollars at market based average exchange rates during the period reported. The company’s business and results of operations may be adversely affected, if it experiences fluctuations in foreign currency exchange rates. (Passport 2015)
3.3 PEST Analysis
“Digital Economy Act 2010” is aim to decrease the illegal file share on internet. However, it arouses a drastic criticism that for hotels, offering WIFI service is a necessity. If the guests break this law, it is credit to the hotel itself and ultimately responsible for the consequence. This lead to the conflict that between offering convenient internet service and the existent of potential illegal using from customers. (Benson 2010)
New Immigration policies cause the limitation of skilled employer. The setting of upper limit of immigration outside the European results in the ignorance of skill shortages in the UK hospitality industry. (Essentiallycatering.co.uk, 2010)
Acts of terrorism or threat and Health and Safety at work Act 1974 are to consider for the security of easy target such as hotel, as the increasing level of military and government facilities after 9/11. Moreover, the terrorist attack of Taj Hotel sounded the alarm of the possibility of terrorist incident of hotels. (researchmethodology 2015)
There is a competitive market in the UK’s hotel industry. Large competitors such as Marriott International, Starwood’s, Hilton Hotels, Choice Hotels, Wyndham Worldwide Corp, and InterContinental Hotels Group Plc are doing better than Best Western with higher ranking place.
The tourism spending is higher after the recession in the British Economy. The pound rate is rising and the numbers of oversea visitors are increasing. The figures from the official British government website in the first 9 months shows the faster grew rate comparing to 2013 with a total amount of over 1857 billion in the UK. The increasing numbers of visitors are benefit on the hotel industry. (governmentUK 2015)
Shows visitors number reach to 32.9 million with 5.8% increasing rate from 2012. According to UK Civil Aviation Authority (CAA), the total passenger numbers reach to 228.4 million with a growth by 3.5 % from 2009. (Figure2) This reflect that the opportunity to boost the hotel industry by growing number of visitors.
(Figure 2 Overseas visitors to the UK, by purpose of visit (thousands)) (BDO 2014)
According to visitBritain (2010) , older people are active and still desire of travelling, this is the potential to the growth of hotel industry. However, the increasing needs of disability facilities are growing as well so it would become an extra expenditure.
The rapid growth from Eastern Europe is slowing and a trend of immigration showing the increasing of returning home resident. As Eastern European is an essential source of labor supply of the hotel and tourism industry, it would affect the operation of hotels.
Increasing download of “apps” to smart mobile phones enable the convenient of tracking systems, booking systems and other services. It is not only a young product but to all age groups visitors. Consumers are willing to use these hand-held devices function to communicate, planning, making purchases, taking photographs and website used.
WIFI service is a necessity of travelers. A huge demand of wireless access is not only boost the use of email and web surfing, but also the communication with customers to gather loyalty. It is a necessary amenity which is also a determining factor for guests to decide whether to stay or not. (hotel executive 2015)
Better reviews are able to generate better revenue and affect the volume of bookings. A study by Cornell’s Center for hospitality research found that the financial performances for hotels are directly result from customer satisfaction. The study also found that a one point increasing of hotels review index leads to a 0.89% increase in price, 0.54% increasing of occupancy and a 1.42% increasing of RevPAR. Review tools such as Trip Advisor and face book giving the travel experience to share with every step of a traveler’s journey. Therefore, social media is a powerful tool and an opportunity to increase volume of visitors booking and improve loyalty brand. (PWC 2015)
3.4 Strategy Groups
To indicate an overall review globally, Best Western is in a weak place in Europe which ranked 8th in 2012 with 1.4% value share especially in the Western Europe. (mintel 2015)
Best Western is in the 5th place of France, 2nd place of Germany, 1st place of Italy, 6th of the Turkey, below 10th of Spain and the 4th in the UK. It is average in the middle place; however, compare to the 60% share in North American, Best Western was impacted negatively with a weak performance recorded in the Western Europe Market.
As there are three brands of Best Western International, each brand is targeting in different scale of market see table 1 shows below. Competitors are from different stage of price platform from midscale, upper midscale and upper upscale. The main competitors are listing below with its value, financial, market segment and globalizations.
Name Value Share in the world in 2013 Category focus Financial
(2013) Globalization Number of properties Sector Competitive advantages
Marriott International Inc 5.4% -steps up in Africa
-making strategic investments of new brands
-launch of a Marriott Global Content Studio (MCS) Revenue increased by 8%, reached $12,784 million 72 countries 3,916 Upper upscale -the recovery of the US market helped Marriott outperform
-Strong RevPAR of luxury properties
-Strong investment and outplace performance in Latin America and Asia Pacific
Starwood Hotels & Resorts Worldwide Inc 3.2% -focus on luxury in China
-technology(The rise of keyless room, Apple Watch, Google Glass) Revenue falling by 3%, reached 6.1$billion nearly 100 countries 1,175 Upper upscale – has more properties outside the US than other competitors in the high-end emerging market
– diversified, balanced and evolving in order to meet the demands of a changing world
Choice Hotels International Inc 1.8% / Revenue growth by 4.5 %, reached $724,307 total 35 countries 6,300 midscale
InterContinental Hotels Group Plc 4.4% -evolution of brands in the America, development in China and Russia
– Takeover potential
-strongly promote through mobile apps and web
-cutting cost fromenvironmental and energy sustainability Revenue grew by 4%, reached $1.9 billion 62 countries 4,697 midscale – offer the opportunity to build a brand presence
Whitbread( Premier Inn) 0.3% – target major UK city centers with the new brand‘hub by Premier Inn
– mobile phone app development Revenue growth by 13%, reached £2.3 billion Mainly in the UK 690 Upper midscale -focus on both hospitality and consumer foodservice(costa)
4. Internal Environment Analysis
4.1 Porter’s Generic
. Porter used the terms ‘cost leadership’ and ‘differentiation’, wherein the latter is the way in which companies can earn a price premium.Companies can achieve competitive advantages essentially by differentiating their products and services from those of competitors and through low costs. Firms can target their products by a broad target, thereby covering most of the marketplace, or they can focus on a narrow target in the market (Lynch, 2003) (table 2). According to Porter, there are three generic strategies that a company can undertake to attain competitive advantage: cost leadership, differentiation, and focus.
Porter initially presented focus as one of the three generic strategies, but later identified focus as a moderator of the two strategies. This strategy provides the company the possibility to charge a premium price for superior quality (differentiation focus) or by offering a low price product to a small and specialized group of buyers (cost focus). (researchsolution 2015)
(Table 2 porters generic) (researchsolution 2015)
In Best western International Inn, it tends to be a focus strategic. Since it has three brands which represent three different stages in the industry, it is difficult to judge it is a more cost leadership or a differentiation leadership. In 2013, Best western Inn provided superior customer care to the brand from its competition and make a personal connection with guests through its which called “Stay with People Who Care”. As Best Western’s strong point and differentiation is the spirit of its hoteliers and unique diversity of Best Western hotels, this brand is showing the hotelier’s ability and commitment to provide a personalized and caring guest experience to the to over 40,000 guests. Dorothy Dowling, who is the senior vice president of sales and marketing, stated that the Stay With people who care program is significantly about reminding people of the whole brand. The personal connection with their guests and local communities builds the trust and loyalty in Best Western and set it apart from the competition. (bestwestern 2015)
4.2 Financial Health
2012 2011 2010
Ratio 3.6 1.9 1.2
Share Capital 1000 1000 1000
Since Best Western is not allowed to make the full financial statement public. There are limited data could be found through the abbreviation statement. With the developing of brands of Best Western International Inn and the recovery in the UK, the current ratio is showing as obviously increasing especially between 2011 and2012 and reaches over 2. Depending on the industry, companies with good liquidity will usually have a current ratio of more than two. This shows that Best Western now has the resources on hand to meet its obligations and is less likely to borrow money or enter bankruptcy.
5. Strategy Option
5.1 Ansoff’s Matrix
Best Western international company will have to apply the matrix as part of its strategic planning process that will provide a framework and assist the company executives, managers and the marketer set strategies that will direct future growth capacity (Richardson & Evans, 2007). Product market strategies of the company have to be undertaken as a “joint statement of the product line and the correspondence of having the best mission for the products and service that are designed to achieve. Within the company, there will be the need to identify the four future growth alternatives:
5.2 Market Penetration
In this category, the company will have to make trials of achieving growth by the use if the existing products offer in the operational markets. This means that, Best Western International Inc will have to target ways that will enlarge the market share within the current market situation. As well, the company will have to enlarge the market shares in the current market operations (Richardson & Evans, 2007). For the company to achieve this there will be the need to ensure that they will sell more products and services to all he well established customers or even find or target other new customers in the operational markets. In this case, the company will have to find the best way of increasing the level of sales for its present products and services in the existing markets buy taking steps such as aggressive promotion and distribution strategies.
5.3 Market Development
In this stage of market development strategy, Best Western International will have to set trials of expanding to the new established markets such as in other foreign countries. The company will have to enter the new markets by the use of the existing offers of products and services. In this case, there are indications that the company will have to market it existing product offers in the new market. Hence, the products and the services of the hotel will remain the same but will have to be marketed to the new clients. Some of the best strategies that the hotel may apply in this stage are the use of exporting the products or taking marketing further to the new established regions (Richardson & Evans, 2007).
In this case, the hotel will have to market completely the new products to all new customers. The hotel may apply related or the unrelated diversification process. This is a risky strategy for the hotel since it involves requirement of both the product and market development.
Investing in extended-stay room will benefit Best Western to attract new customers. It will reinforce the hotel options and provide higher value for business and leisure customers through this new strategy.
It has a strong market in the US. As a result, rising price is a feasible way to gain revenue from the heart of growth.
5.5 Porter Five Forces
This is analysis incorporates level of competition within the industry with application of business strategy development.
• Supplier powers- in this case, the hotel will be expected to assess the suppliers of raw materials who drive the price up. Power of supplier is fostered by the number of suppliers of every key input and uniqueness if product and services, strength and the level of control or cost of sourcing from one to the other (Hoang, 2014).
• Buyer power- in this case, the company will have to incorporate the aspect of buyers having capacity to drive prices down, as well as the aspect maybe driven by the number of buyers and the significance of having every individual buyer in the hotel.
• Competition rivalry- in this case, there is the need to account for competitors and the capability of the rivals. In case of many competitors who offer real product and service, the hotel will have little power to operate (Hoang, 2014).
• Threat of substitutes- this is an issue that is influenced by the capability of customer in finding distinct way of offering the product and services.
• Threat of new entry- as well, the power of the hotel is affected the ability of people to enter the existing market (Hotel Britain, 2014).
Despite taking the above focus for the future operation, the company has chances of taking consideration of other options (Passport, Jan). Some of the option that the company may account for is the time and cost of entering the new markets, loyalty of customers, cost advantages, any barrier to entry and the number of competitors in the existing market.
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