To run a successful hotel operation it is imperative to understand the customer’s requirement, produce the level of service needed to fill this requirement and identify competition and industry trends. This function is complicated and requires a detailed strategy and a comprehensive plan to increase sales and profit margins. Defined as the process of providing goods, services, ideas, and experiences that are needed and desired for consumers (Catorea 2007) the notion of marketing in the hotel industry involves a radical shift in paradigm as compared to conventional marketing. Since the Hotel industry is service oriented in nature. The product sold is not a tangible one. In addition the industry is a rapidly evolving one with a high number of entrants and intense competition. Hotels employ marketing tools and strategies to enhance and distinguish services offered to travellers in order to attain competitive advantage. This is particularly so in the three star hotel segment where the budget is low and competition is fierce. Marketing tools and processes can be employed by any business, no matter how small, and is not even necessarily dependent upon increasing the budget. Therefore this practice is accessible for the companies, such as hotels for instance, with different income levels (Cateora 2007)
The aim of this study is to analyze the current situation and trends in the three-star hotel market in Moscow and the manner in which hospitality organizations adopt marketing strategies to the local specifics of the Moscow hospitality market.
Russia’s socialist past has paved the way to a concerted effort to develop the nation’s economy. One of the major contributing factors to the country’s growing economy is it burgeoning tourist industry. According to estimates in 2007 around 40 million tourists per year currently visit Russia. This number encompasses both domestic and foreign visitors. Moscow alone attracts. 2.9 million Per year. This number is expected to surge to 5 million in the next decade. By the end of 2020 analysts expect Russia to be counted among the 10 top tourist destinations in the world responsible for attracting more than 3 percent of the global tourism market (Aginsky 2008)
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This phenomenal growth in Russian tourism can be attributed to the country’s rich cultural heritage as well as an abundance of natural beauty. The two most common tourist destinations in Russia are Moscow and Saint Petersburg. These current and former capital cities of Russia attract a lot of tourists for their historical significance and rich cultural heritage. The boom in the tourist industry has attracted many investors and business companies in setting up hospitality concerns in Russia. Investors from Europe and North America looking to venture in East European markets have been attracted by the potential that Russia offers in terms of business growth and profitability
Russia’s hotel industry has witnessed significant increase in foreign investment. This increased investment has highlighted the country’s growing importance as an international business destination. Furthermore, the growth in the hotel industry has acted to dissipate the effects of a slowdown in the Russian oil and gas industry. Today Foreign direct investment by international Hotel’s in Russia has resulted in the presence of, key high quality hotel chains in Russia These include such prominent hotel groups as Intercontinental Hotel (IHG), Hyatt, Hilton, Radisson, , Rezidor and Sheraton. According to the current status quo most of the Hotel’s in Russia cater to the high end users particularly in Moscow where the demand for five star accommodations is high particularly from business travellers. (Aginsky 2008) However there is a void in the presence of three star accommodations catering to the middle-market segment. The lack of such hotels in the industry means that the accommodation needs of travellers with a limited budget is not being catered to and this in turn has impacted on the overall growth of tourism in the country. Local investors have begun to show interest in developing three star hotels in the country in an effort to respond to the huge demand for such establishments. Read also which property classification would include tools
The systems of hotel classifications
There are different types of classification systems used to rate the facilities services and amenities offered by hotels around the world In establishing a standard to grade a hotel the quality and availability of certain essential elements are considered. These include the quality of Food entertainment, room variations and the availability of amenities, spas and fitness centres to name a few. These ratings and classification are used by consumers to identify and choose the level and quality of service they wish to avail. With each progression in the classification the level quality and amenity increases but so does the price associated with the provision of these services.
The most common and well known system of classification is the 'star' rating. This system uses a progression f stars to rate the service and amenities offered by different Hotels. The progression proceeds upwards and rates hotels in terms of the amenities and facilities offered. The lower rated hotels might offer excellent service standards but may not be able to offer amenities of the level of the higher rated restaurants. An alternative to the star classification system is the letter grading system. This category uses an alphabetical rating system from ‘A’ to 'F' to signify amenities and facilities offered by different hotels. Another alternative system is the use of a diamond to denote extraordinary facilities and amenities. For accommodations such as motels or hostels a grading criteria of 'satisfactory' or 'unsatisfactory' is often used.(Vine 81)
When seeking to understand hotel categorization particular care must be taken to differentiate between hotel types and hotel standards. Standards are accorded based on the provision of certain amenities and facilities. Hotel types are classified usually in terms of services and price and not solely on the basis of amenities and facilities.
Different countries follow different rating standards. Some countries in Europe follow a single public standard. These include Belgium, Denmark, Italy, Netherlands, Portugal, and Spain among others which have drafted common laws defining the hotel rating. Alternatively Germany and Australia use a standard drafted by hotel industry association. This system uses star categorization to denote the level of amenities provided and also grades what each category provides The classifications are as follows Tourist (*), Standard (**), Comfort (***), First Class (****) and Luxus (*****) . Luxus denotes the maximum standard and Tourist denotes the minimum standard.(vine 81) This Level of classification was used to define the European Hotel stars rating system which has now become the norm in both Western and Eastern Europe
In France, it is the public tourist board which decides on the standard to use. In 2009 France along with other countries in Europe switched to European Hotel stars rating system which is based on a star rating system The various classification system in this Category rate each level as Tourist (*), Tourist Superior (*S) Standard (**), Standard (**S), Comfort (***), Comfort Superior(***S) First Class (****), First Class Superior First Class (****) S Luxury (*****) and Luxury Superior (*****) S Russia currently follows this standard of Hotel classification.
Characteristics of the service sector in Russia
Currently hotel Accommodation in Russia can be characterized into two distinct categories. These include Western-style and Soviet-style hotels. Let us examine each one in detail
The Hotel Industry in Moscow is comprised of 175 Hotels. Out of these only 30 properties offer a level of service on par with standards found in most Western cities. These 30 hotels follow different classifications ranging from five stars to four stars and three stars. Western style hotels are located in the city centre and majority function in the 4 or 5 star categories. Most of these properties were constricted in the early to mid 1990s and offer convenient access to popular tourist destinations such as the Kremlin. Most of these properties have higher demand than the Soviet style properties in the cities and despite reaching saturation levels still maintain a high occupancy level. The Hotels which have the highest demand are small budget properties adopting a Western style level of service. Three star hotels currently form only 10 percent of the local market. (Aginsky 2008) The occupancy rates in these hotels remain high on account of the their affordability for tourists and travellers alike, Though rates have increased in recent years the price charged still lies far below the rates charged by 5 star hotels. The three star segments still remains a relatively cheaper option and have no difficulty reaching close to full occupancy. (Aginsky 2008)
Mid-range Soviet-style Hotels
the other prominent group of Hotels in the city were build in the Soviet era and can be categorized as three- or four-star hotels. They were building according to Soviet standards and follow a level of service which is far inferior in quality than Western standards. Most of these hotels are not structured as hotel chains and function under independent management. They are located in the central administrative District in the City and are within easy access to most common tourist destinations. Despite the poor quality of service these hotels maintain high occupancy rates because they provide a cheaper accommodation alternative than the Fiver star category. The properties remain heavily deteriorated and poorly equipped with outdated furniture utilities and appliances. The quality of service too remains poor in comparison to Western standards
Current Trends in the Russian Hotel Industry
The hotel industry in Russia though growing at a rapid pace is still modest in comparison to the one in other Western countries. It is also not homogenous in nature and has a greater number of hotels catering to the high end market as compared to the medium to low range customers. The industry is now saturated with five star hotels and has severely limited accommodation alternatives for tourists and business people, with lower price but higher quality expectations
Demand for medium to low priced accommodation is extremely high and has outpaced the current supply for it. The Russian hospitality industry is unable to accommodate a large percentage of travellers in Russia. To meet present requirements for medium to low priced accommodation the city of Moscow alone needs to double its hotel capacity Also many old Russian hotels have been closed or demolished adding to the depletion of economic accommodation in the country
Current trends in the Russian Hotel industry dictate that the economy class hotel niche offers tremendous potential for profit and is expected to witness a phenomenal boom in the next several years. A lot of foreign and domestic organizations have begun to enter the hotel industry to fill the void in the provision of economy class hotel accommodation. This is a growing trend in most major cities of Russia including Moscow and Saint Petersburg.
Current trends further suggest that the Russian hotel market will undergo a decentralization process. This would involve three star hotels moving from central locations such as Moscow to resort areas in the Krasnodar region, the Golden Ring of Russia and regional capitals, such as Nizhny Novgorod, Samara, Yekaterinburg, Novosibirsk and Kaliningrad. (Aginsky 2008)
It is expected that in the future around 15 to 20 three-star hotels comprising 70-100 rooms will be build in each of the above popular tourist destinations. On an average construction of each hotel will cost between 5-20 million dollars. (Aginsky 2008) The move to regional resorts will be spearheaded by Russian-managed non-branded hotels. As opposed to Foreign players who tend to limit their activities to the Fiver Star sector these local players aim to cater to the accommodation needs of the emerging Russian middle class who would like to avail Western service standards when vacationing on a regional resort
Estimates of the three-star hotel market in Moscow
To date, the Russian market does not have enough hotels to cater to both Russian and International business travellers and an increasing number of tourists. Budget Hotel accommodation is needed to serve as a cheaper price alternative to long term expensive hotel stays According to estimates around 250,000 foreign businessmen are in need of long term temporary accommodation in Moscow.
The Moscow hotel market currently consists of 175 hotels able to accommodate about 72,000 guests. However many of these available rooms are fashioned according to the old Soviet Style and don’t follow the Western conventional style. 11. There are plans underway to construct up to 200,000 increased accommodations by 2010. Around 40 percent of the new hotels will follow the three star categorization(Aginsky 2008)
St. Petersburg offers tremendous opportunities for hotel development the city is Russia’s cultural capital and attracts a lot of tourists. St Petersburg has 180 hotels which are all over saturated. The demand for additional accommodation is double the number of existing accommodation. To accommodate all the tourists that visit the city 30,000 beds would have to be used in addition to the 30,000 beds existing already (Aginsky 2008) The City has nine internationally reputed hotel chains all of which cater to the high end market and operate in an extremely saturated sector. As with the Moscow Market the market n Saint Petersburg too has an extremely high demand for low priced rooms with Western service standards. In fact the development of ssmall hotels with approximately 20 rooms is the fastest growing real estate demographic in recent years. This is evidenced by the speed with which these hotels are burgeoning. In 2003, twenty new small three star hotels were developed in the city of St Petersburg. By 2006 this figure had mushroomed into 70, (Aginsky 2008)
Another region which has witnessed significant investment activity is Krasnodar Located at a strategic vantage point with both geographical and economic benefits the city attracts both tourists and foreign investment aimed at catering to the needs of these tourists it has become home to a number of resorts offering winter sport facilities to tourists. Primarily due to its geographical and economic position, the region has attracted significant investment from a number of foreign and large Russian companies. The decision to hold the 2014 Winter Olympic Games in the region has attracted further investment in the local hotel industry with 25,000 new hotel rooms expected to be build (Aginsky 2008)
Foreign investment in three star hotels is focused in major cities like Moscow and St Petersburg. In fact local investment in developing three star hotel chains in regional cites overshadows any foreign investment made in this area. If this trend continues foreign entrants into the market will find themselves facing stringent competition from local competitors who got their early.
Marketing approaches used by tourism and hotel industries
The marketing approach used by the tourism and Hotel industries differs from conventional approaches as it focuses on selling a service rather than a product. In conventional marketing the focus is on selling the benefits of using a tangible product to the customer. In marketing services the emphasis is on selling superior service and an enhanced customer experience.
In the tourism and hospitality industry it is vital to be knowledgeable about customer trends needs and spending patterns when deciding on a strategy on how to market the service. Most Hotels use the concept of relationship marketing to retain existing clients. This concept it is based on the proposition that it is less expensive to retain existing clients than to obtain new ones. It differs from conventional marketing approaches which focus on attracting new customers. In relationship marketing the focus shifts to not only attracting new customers but also devising ways in which to retain these customers in the long run. This concept propagates that it is short sighted to assume that the emphasis acquiring new customers will keep the company headed towards a successful direction. For long run growth and success an equal amount of resources should be devoted to retaining the customer base that already exists. It is based on the belief that in the long run it is cheaper to retain old customers than to keep loosing these customers to competitors and continuing to spend resources in constantly sourcing new customers.
In a hotel scenario this particular situation might present itself thus. A hotel succeeds in attracting clients by offering promotional and discount packages. Once the client affirms commitment to the hotel focuses on attracting new clients and neglects the quality of he service provided to the existing client. As a result the existing client is left unsatisfied with their customer experience and decides to switch to another hotel. If this continues to happen the hotel stands to loose existing customers at a faster rate than its able to attract new customer and all the resources geared into marketing campaigns attract new customers are actually rendered ineffective. A relationship marketing approach actually works in a situation where the customer
· Is a frequent repeat customer and visits the hotel regularly
· Controls the choice and selection of the service provider
· Can easily be attracted by competitors and switch to alternative services
To prevent this from happening hotels have begun to adapt policies focusing on marketing their services not only to new customers but also to frequent existing customers. One particular segment which benefits from these retention marketing strategies is business travellers. To cater to the needs of these repeat customers the hotel might use an effective mix of its price, promotional, placement and product strategies. It might alter the quality of the product offered to repeat customers after a certain number of repeat visits. For example on a customer’s fifth visit the hotel might upgrade them to a bigger and more luxurious suite at n extra expense. Alternatively , he hotel can use it pricing strategy to offer discounts to existing customers. It can also reward existing customers by offering cash rewards or discounted if they refer their friends and family to become customers of the hotel. The hotel can use promotional schemes to attract frequent existing customers y rewarding them with a free airline ticket or an expensive smart phone after a certain number of repeat visits. Alternatively the hotel can form a birthday club and distribute vouchers to dine free at one of the hotel’s restaurants on their birthday. These discounts can be carried out at alternative placement channels including the hotel’s websites. Repeat customers can be allocated a special website key which will entitle them to additional promotion schemes if they book online and save the hotel additional administrative costs.
The internet in recent years can be used to explore and research consumer trends and decision making criteria governing the hotels they choose. The growth and success of research marketing has been supported by the devilment of software designed to measure the level of customer engagement and satisfaction with hotel services This software can be used to keep track of customer spending patterns as well as likes and dislikes. The data generated from this software program can then e used to take marketing decisions geared both at retaining existing customers and attracting new clients
Marketing Strategy of Three Star Hotels in Russia
A marketing strategy designed for a three star hotel in Russia will focus on exploiting a mix of its product, placement, price and promotional resources to enhance customer experience and give them the desired value for their money. Let us examine the 4 essential components in a marketing strategy focusing on the hotel industry. Also known as the marketing these components can be defined as follows
Product: To give its patrons a higher level of customer experience the hotel has to adapt its products to meet the expectation and needs of its clients. The hotel should adopt a policy of asking for feedbacks from consumers and then tailoring its products to meet client recommendations. Through a series of customer satisfaction surveys the hotel can ascertain what most of their customers are looking for when checking into a three star Hotel. Based on this knowledge of customer preferences the Hotel can adapt its product to suit local and international customer tastes and preferences and thus achieve product differentiation which serves as a competitive advantage in the long run.
Placement: Placement strategies should also keep in mind how the location of the property impacts its target consumers. If the hotels target market is tourists and pleasure seekers looking to relax on a beach, the hotel’s location in the city’s business district will not attract its target segment. Attracting the right target market often propels opening up more that one hotel property in separate location in the city. Customer preferences are taken into account before deciding on opening various outlets in the hotel and also when deciding which facilities to provide and why. In recent years the advent of the internet has opened up a whole new placement channel for the hotel industry. Customers now use the internet to research prospective hotels, book reservations and even pay for them online. In such a scenario a three star hotel chain must ensure that it has the internet channel available for customers to locate it online and place reservations in advance
Price: Since the hotel is structured as a medium to low priced accommodation provider its rates should lay neither on the upper spectrum nor the lower spectrum of the market in its effort in focusing on the needs of its customers the hotel should offer a series of discounts and price rebate to encourage and reward regular customers. Corporate customers should be given price incentives and discounts as well. Price should be used as a component to reward repeat customers and contribute in improving their overall customer experience.
Promotion: The Hotel’s promotional campaigns should be carried out keeping cultural sensitivities and diversity in context as it is meant to appeal to a global tourist population. (Barnes 2008) The Hotel should offer sales and promotional campaigns linked with airlines and travel agents to increase awareness of their product and also to attract first time customers. (Vetter 2008)
This unique manipulation of the product, price, promotion and placement mix is a fundamental marketing strategy that is often used by hotels to establish strong consumer focus this strategy in the long run also helps establish Brand identity which become one of the biggest competitive advantages in a hotel chain.
When developing a marketing strategy it is essential to examine both the internal and external factors influencing the industry and the organization. The internal strength and weaknesses of the organization and the opportunities and threats that it faces can be discussed using an analytical tool known as the SWOT analysis.
Using the SWOT analytical Approach
One of key strengths of a three star hotel is the cost differentiation that its product offers. The cost of the product in relation to other products is comparatively lower because of the inherent way in which the product is designed and structured. This differentiation can be used to attain and sustain competitive advantage. Strength is the brand equity that the product offers.
One of the major weaknesses of a three star hotel is that by its inherent nature the product is a fixed cost perishable This implies that the company has to bear a similar cost of room occupancy whether 10 rooms are occupied or 50 Thus there is always the impetus to fill the rooms in the hotel even if it means reducing prices to increase travellers.
One of the threats that three star hotels in Russia face is the possibility of cut throat competition.
The industry is extremely price competitive and houses a large number of competitors .It is probable that a new three star hotel in Russia will find itself in the midst of price war with larger competitors with deeper funds like International Five star Chains like Marriott for example Also due to budget constraints a three star hotel might not be able to invest as heavily on promotional and marketing activities as its competitors.
One Opportunity that three star hotels benefits from is the high potential for future profits. In times of recession when most travellers are looking for cost efficient accommodation alternatives the three star hotels presents a high opportunity for growth in both the domestic and international sectors.
Adopting Porters Five Models in building Strategy
Building on the external environment analysis it is also important to analyse the factors influencing the industry in which the Company operates using a Porters Five Forces Model. This model is presented as follows:
1 The threat of substitute products or services: Common substitute for three star hotels are serviced accommodation apartments and motels. In Russia both these alternatives offer cheaper options for tourist accommodation.
2. The threat of the entry of new competitors: As this is a growing market with high potential of profits there are a huge threat of entry by new competitors and an absence of laws to limit this entry.
3 .The intensity of competitive rivalry: Since there are many hotels existing in the market one of the major ways that competitors retain an edge over one another is through price differentiation. There is a huge price rivalry in the industry with companies competing against each other by offering lower room rates
4. The bargaining power of customers
Since this his industry has a larger number of suppliers the buyer has more bargaining power and can easily move from one hotel to another if it offers lower rates
5. The bargaining power of suppliers: since there are more competitors and the market is price sensitive the bargaining power of the bargaining power of the supplier is lower.
In order to develop a cohesive marketing strategy it is essential to analyse the industry in which the hotel operates in and how factors influencing this industry influence the hotel’s operations.
When formulating a marketing strategy it is imperative to analyse the Competitive environment of three star hotels in Russia. Currently the competitive scenario of three star hotels in Russia can be divided into the following categories
Five star Global luxury hotel chains cater to the high end of the market and charge fees which is higher than the market average. They also provide a more customer oriented approach than their smaller competitors. In this category the costs of the services are high but the focus on the customer needs is also high. Competition focuses less on price and more on product differentiation and offering the customer a superior hospitality experience
Three Star Hotels offer customers rooms at medium rates but also compensate for the reduction in cost by offering an equal reduction in the level of customer service. They provide an adequate option for those customers who are cost conscious and require short hotel stays. These are a viable choice for most business travellers in the mid management levels and also short term pleasure travellers with medium sized budgets
Serviced Hotel Apartments offer serviced accommodation but unlike a hotel these comprise an actual apartment and not a room. Cheaper than hotel rooms these apartments offer travellers the flexibility of a longer stay and are an ideal option for long term travellers with medium budgets.
Mid range Soviet Style Hotels are the lowest cost providers for both long term and short term travellers. Often these hotels are characterized by poor service and low quality accommodation options. They offer the solution for travellers who place the chief priority on price rather than quality of service. Since they function on the principle of cost differentiation rather than product differentiation these hotels are often embroiled in competitive pricing battles with other hotels. A competitive analysis in terms of cost to customer and emphasis to customer can be conducted through the use of a strategic group chart (Exhibit A)
Evaluating internal Processes using a Value Chain Analysis
All business operations in a three star hotel chain are structured as a Value chain. A Value Chain Analysis is often necessary to see how a company can add value to its internal processes. Since a three star hotel is a service oriented company its value chain analysis is a little different as compared to a company manufacturing a product.
· Inbound Logistic: This involves procuring the right components and raw material to produce a superior service such as linen, cutlery, lighting equipment etc
· Operation: This process includes hiring employees, conducting research activities, identifying potential domestic and international markets etc charges.
· Outbound Logistic: This involves the various ways in which the product can reach customers including the use of internet based hotel booking sites and other new innovative channels.
· Marketing and Sales: This process includes all the various promotional and marketing activities involved to increase sales and create a greater awareness of the hotel chain
· Services: This involves activities which enhance the value of the product. This may include free promotional activities such as free stays for spouses or the chance to win an additional free stay with the existing package
Another strategy known as the resource audit examines the internal resources of the Hotel and whether they are being effectively utilized in conjunction with the overall strategic objective. (David 1995) The resource analysis will help the company manipulate all the resources at its disposal in order to achieve competitive advantage
The resource audit breaks down the resources of a company into:
Physical Resources: This includes the hotel’s buildings, furniture, linen, décor and other physical equipment
Human Resources: this examines whether the Hotel’s staff are properly trained to provide patrons with a superior customer experience and if they need to undergo any further training in conjunction with Company’s overall strategic goals
Financial Resources: Is the Capital available at the Company’s disposal being adequately used in conjunction with the Company’s strategic policy or is additional capital required.
Intangibles: These resources include immeasurable resources that the Company has at its disposal i.e. good will, brand image and corporate image.
Another strategic variable that can be manipulated to help implement marketing strategy effectively are the variable costs incurred by the hotel. Variable costs can be described as an expense that fluctuates in proportion to a company’s level of activity. In comparison to the fixed costs which are a constant expense incurred by a business and include costs such as property maintenance cost salary etc variable costs are expenses that increase as business activity grows. (Below & Acomb, 1990)
Advertising and promotional activities comprise a variable cost and impact the business by increasing the total cost incurred. High variable costs are passed on to the customers in the form of higher rates. If the Hotel has to achieve its overall strategic objective of imparting a superior customer experience it should ensure that a hike in rates does not mar the experience. In the hotel business which is labour intensive and a large percentage of the costs are fixed effective management requires keeping low variable costs to ensure that costs do not exceed revenue. The Hotel can save on promotional costs by advertising all its properties under one platform instead of advertising them separately. This is especially relevant when the three star hotels is part of a chain of properties. The saved cost can be invested in implementing customer recommendations thus enhancing their over all experience with the hotel
Industry Analysis & Implications (PEST)
The hotel industry in Russia is going through significant growth at this time. There are other several factors in the Organizations external environment which have impacted the current growth scenario. These include
Political Pressures: Russia in recent years has adopted a policy of boosting tourism in the economy In 2007 the Russian government announced plans of creating specific economic zones (SEZs) for tourism and recreational purposes at a cost of US$12biullion. This plan was in conjunction with the overall Government objective of increasing the number of tourists in the future (Aginsky 2008)
Economic: Faced with a slowdown in the oil and gas industry the Russian economy has benefited from the boom in the tourist industry. This unprecedented growth in tourism has resulted in increased economic activity and the creation of more job opportunities.
Social: The growth in tourism has opened Russian society to outside influences and introduced more diversity in the country. As a result the country will benefit from different cultural influences and grow into a more divers and tolerant society.
Technological – The development of the internet has facilitated the travel process and made it easier for tourists to book holiday packages make online reservations and also pay online. This has helped to increase tourist business as it is now easier to make travel arrangements and plan vacations. Also technological innovations have paved the way for medical tourism in Russia. People all over the world travel to Russia to avail the medical benefits accorded through modern technological innovation
When formulating a Marketing strategy it is essential to define the type of consumer that the three stars Hotel is trying to attract through its marketing endeavour. The Hotel’s target market comprises of four kinds of main customers. These can be classified into
Cultural Tourists. These tourists visit to Russia to see and experience the Countries rich historical and cultural past. These types of tourists typically stay in hotels near popular cultural sites as well as historical monuments. They prefer to stay in the city and are more interested in assimilating cultural experiences. Cultural tourists are likely to stay for short periods of time and occupy most of their time experiencing cultural such as music, art, architecture etc.
Nature Tourists. These tourists come to Russia to enjoy the scenic beauty and the natural outdoor experience that the country offers. These kinds of tourists would be interested in three star resorts located in the country side with lots of facilities for out door activities. Nature tourists often visit Russia for its great skiing opportunities in the winter and beautiful open beaches in the summer.
This category of tourists comes to Russia to avail the vast medical services that the country offers at cheaper rates than its Western Counterparts. Since these tourists come for treatment they prefer staying for a longer time at medium to low priced hotels. With the increase in medical tourism in recent years these type of travellers have increased the demand for economy temporary accommodation in Russia
This category represents executives or businessmen who come to Russia to visit clients and arrange deals. In the past this category preferred staying at high end five star establishments but with recession and corporate restructuring they now prefer to occupy economy hotel rooms.
In determining Strategy it is also important to look at the various stake holders who stand to benefit or loose the most as a result of the implementation of the strategy. In the present scenario economy hotels in Russia have four prominent stakeholders. These are the Management of the Company, the employees, the shareholders and the customers of the company.
The stakeholders often hold different opinions regarding strategy implementation. The Management of the Company and the shareholders of three star hotels will be more concerned about increasing profits and establishing competitive advantage. They would favour any marketing strategy which focuses on these two factors.
The customers of the hotel would be concerned about the impact of the new strategy on the quality of services offered by the hotel. If the strategy is focused on enhancing the consumer experience and delivering superior service at an economic price it would have a beneficial effect on the customer. The impact of such a strategy would be to attract new customers and retain existing ones
Employees both new and existing will probably favour the implementation of a new strategy if it results in improving the profitability of the hotel. A marketing strategy aimed at building bran equity would probably benefit the employees as they can reap both the financial and reputation benefits of working for a well known branded hotel chain
Marketing Implications during the Global recession
The onset of the recession has reduced the disposable income of travellers. As a result people are now travelling less and when they do travel require a hotel stay where they get the maximum value for their hard earned dollar. As a consequence of this trend the Hotel Industry has now become a buyers market increasingly prone to being influenced by the demands of the buyer.
With a reduction in travellers a few competitors are now entering the industry and the threat of rivalry from new entrants has considerably reduced. Given the weak state of the economy five star chains are not willing to fund further expansion projects both locally and in global markets impacted by the recession.
The most common accommodation substitutes for hotels are serviced hotel apartments .With a fall in the number of long term pleasure travellers the demand for this accommodation has significantly reduced and so has their threat of substitutability.
With an increase buyer bargaining tendencies the sellers in the market have lost the leverage they once enjoyed to manipulate prices and increase profit margins. Thus all market players have to respond to buyers demands in order to sustain themselves in the present market conditions
Thus the chief force which is currently driving the competition in the hotel industry is the increased bargaining power of the customers since this industry has a larger number of suppliers the buyer has more bargaining power and can easily move from one supplier to another. (Hamel and Prahalad 1994)
Let us look at the three star hotel’s competitive environment this is especially true in those competitive segments which are priced at the lower end and rely on cost differentiation to survive. In a Buyers market these small players will probably drive themselves into the ground by trying to lower fares to attract more customers. In a buyers market what usually works is a customer focused approach and more value for the price the buyer pays for it. The Hotel can continue to sustain its competitive advantage and stay ahead if it continues to offer a greater consumer experience to its patron’s .In a buyers market it is product differentiation rather than cost differentiation which ultimately leads to sustaining competitive advantage in a tough business environment. Read also which property classification would include tools
When seen in the context of the prevailing market conditions where the buyer is in a strong position to influence his accommodation choices the competitors which have the most to gain are the 3 star hotel segments. 5 star hotels offering high priced services without making the customer their priority will probably face a loosing proposition as customers choose cheaper alternatives .The 3 star hotel segments also benefits during the recession ass cost conscious customers choose to use the services of these hotels in comparison to their costlier five star alternatives. Though these hotels offer a generic service and do not have a differentiated product they will benefit in the long run because of the general tendency to save money during a recession.
There will be an element of a price war between various hotels in this product segment as hotels seek to attract more customers by reducing prices. With a fall in the demand for long term travel in response to global unemployment and shrinking disposable income hotel apartments will see a drop in sales as global tourist traffic reduces. This segment too is generic and will not see a pick up in sales due to product differentiation The Soviet style Hotel Industry will see a considerable decline in sales as customers opt to avail lower prices and better customer service offered by 3 star hotels. Since these are smaller establishments a decrease in sales and the resulting price war to attract more customers could result in imminent bankruptcy for some Soviet Style hotel owners.
As can be construed on the above analysis the development of more three star hotels in the Russian Hotel market is essential if the tourist industry is to grow and flourish in the country. However constructing physical properties and equipping them in conformation with European three star standards doesn’t ensure successful acquisition of this goal. In order to achieve the desired popularity and results these new three star hospitality organizations must draft marketing policies to both attract new customers and retain existing ones.
Before drafting a comprehensive and effective marketing strategy it is essential to take into account various factors that will influence these strategies. This includes identification of target markets, identification of competitors, an analysis of the forces governing the industry etc. Once the external analysis is complete the hotel must take into account the resources and a value chain it has at is disposal to adequately conduct these marketing strategies. The hotel’s marketing strategy will involve the manipulation of the four basic elements of the marketing mix: price, promotion, placement and product. However the onset of the recession has meant that these strategies will have to change to accommodate tighter budgets and less frequent travel.
In Russia the effects of the recession has helped to compound the demand for three star hotels as the existing five star hotels have become too expensive to afford for the standard traveller. The potential for investing in the development of three star hotels in Russia is tremendous. The potential for profits exceeds by far the costs incurred in transferring practices thus making it extremely feasible to set up foreign operations of Hotel Chains in Russia. Other potential benefits of this investment would include helping transfer technology and skills to local workers, providing management expertise to Russians and contributing to the growth of local entrepreneurship. (Kobrin, 1997, 7-10)
The Russian hotel industry provide a huge potential for profitability for the development o three star Hotels It has a huge demand for these hotels and don’t have complex procedures to transfer practices from the home country. All these factors help increase both the countries desirability and feasibility as a host country for foreign hotel chains to set up operations in
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