Strategic analysis of Four Seasons Hotel Essay
Strategic analysis of Four Seasons Hotel
By taking the Four Seasons Hotels as an instance, through applying Michael Porter’s Five Forces Model, the author analyzed the marketing environment and strategies. After that, some ideas for perfecting the marketing strategies were proposed. There are four integral parts for this article. The first part is introduction of the Four Seasons Hotels and the second part describes its marketing environment. After the content of the suggestions in the third part, some notions of strategic management were put forward in the last part according the analysis before. At last, people will understand that it is important for a perfect strategic management to pay great attention to the coordination of management, finance, technology, marketing, brand and culture.
1. BACKGROUND OF FOUR SEASONS HOTEL
The Four Seasons hotel started in 1960 which now has developed into a world famous top luxury hotel management company. Now the company operates about 70 hotels and resorts worldwide – its ownership is vested in different owners (Scoviak, 2000). Since the establishment of the Four Seasons Hotel in 1978, the Chairman of the Board and Chief Executive Isadore Sharp, has been responsible for the operation of the hotel. Its headquarters are still in Toronto, has managed the 50 hotels in 22 countries around the world (Chesters and Hipwell, 2009). And Bill Gates and Saudi Prince are the major shareholders of Four Seasons Hotel. Four Seasons Hotel also has a residential scheme which called Residence Club, to allow customers to purchase its vacation house, and the price of Four Seasons Hotel is very high.
Due to the noble quality and outstanding service, luxury hotel facilities and exquisite Jacuzzi delicacies, the company is committed to excellence，also for too long been dominated by its leading position in the international first-class hotels. The Four Seasons’ economic strength, marketing skills, unbeatable customer awareness of services and operating acumen, also bring huge returns for owners and investors. The company also continues to seek partnerships with the world’s best hotel management company, in order to improve the efficiency of hotel management and at the same time the owners to maximize profits.
People-oriented is one of the highest word frequency in the hotel services research, but how to understand the “people-oriented”, and fell to the service with reality is not that simple. Four Seasons Hotel opened before the soft opening is not the face of social, but the face of staff. They will find the problem during a month, which is to ensure that the opening with the 100% quality (Gale, 2008). So starting from this principle, the service of this hotel is nearly perfect. And an important manifestation of Four Seasons Hotel’s “people-oriented” is the high degree of protection of the privacy of the guests and equal respect for each and every guest. This, in some country, both the concept of problem and the difficulty of the operation, but the Four Seasons Hotel is to abide by the enduring respect for human rights.
The personalized quality of service of the Four Seasons Hotel is bigger and the ultimate, it will cost a lot and even some hotels difficult to afford. For example, all the lights of the room change to Philips Lighting during Philips CEO staying. So this kind of detail service gives the customer a feeling of quality life.
2. STRATEGIC ANALYSIS
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of ﬁrms in their external environments. (Nag, Hambrick and Chen, 2007). Under this concept, the author will mainly use Porter’s five forces to discuss strategic analysis of Four Seasons Hotel in this chapter.
THE DEGREE OF RIVALRY
Under the influence of economical globalizatio, the world famous hotel group intensified the expansion and development speed. According to Porter (1980), one can maximize performance by fighting to be the lowest cost producer in the business field or by differentiating its line of products or services from those of other businesses; both of these two approaches can be accompanied by a focus of organizational efforts on a given segment of the market (Zhong, 2011). Four Seasons Hotel is so typical example which applies to an appropriate and long-term profitable strategy which pushes it to be one of the best world hotels. So why and how can Four Seasons Hotel develop so well in the international hotel business?
Firstly，Four Seasons Hotel does not own most of its properties, it operates them on behalf of real estate owners and developers. The contracts between Four Seasons and property owners typically permit the company to participate in the design of the property and run it with nearly total control over every aspect of the operation. And secondly, Four Seasons generally earns 3 percent of the gross income and approximately 5 percent of profits from the properties it operates, and the property owners are required to additionally contribute money for chain-wide sales, marketing and reservations systems. Thirdly, Four Seasons hotels have larger staffs than competing chains, therefore they create a separate reserve accounts to cover upkeep costs. While profit margins are relatively low, the reputation of the brand and the value of the hotel for sale as well as loan collateral generates developer interest (David Segal, 2009).
THE THREAT OF ENTRY
Different hotels are coming to emergence everyday in an amazing pace. However, the threat of the potential entrants for Four Seasons Hotel is limited to a small scale. As to Four Seasons Hotel, one of the biggest luxury hotels across the world aiming at the upper class, the potential entrants should overcome the two main barrier. The first one is the great economic power and the second the political support, however, these two rare precious resources has been in the grip of Four Seasons Hotel and its counterpart in existence.
The natural barriers and the ones set by Four Seasons Hotel itself such as economies scale, product differentiation, capital requirements of entry, cost disadvantages independent of size, government policies, access to supply or distribution channels, experience and expected retaliation almost stem any access and promising future of those who attempt to entry. So the author could draw a conclusion that it seems very hard for anyone to entry, and the threat coming from the potential entrants in this business is very low which can be ignored temporarily.
However, the potential entrants are not that much, but the capability of competitors is very strong. There are two kinds of competitors to against Four Seasons Hotel in the world. One of them is rapid expansion of the low-end hotel which should be taken focus at present. Although they enjoy divergent target market but the low-end market is growing much faster than the high-end market. And those cheap chain hotels’ arise is secondary newcomers’ pressure and threat to some extent. The other competitors are those hotels which also have high quantity of service and environment, such as Intercontinental Hotel Group, Cendant Corp and Marriott International.
Here the author will take Intercontinental Hotel Group as an example, this Group has over 4,400 owned, leased, managed and franchised hotels and 660,000 guest rooms across nearly 100 countries and territories (Hidayathullah, 2009). With a competitor like intercontinental hotel group, much pressure is given invisibly to Four Seasons Hotel. The high-end market has hundreds of good brands for them to choose. And most of the competitors are all enjoying a good reputation and can provide a comfortable and satisfying service to the customers, which means the competition of these high-end hotels is very fierce and it definitely strengthens the difficulty of getting a good profit.
To some extent, substitutes mean the danger of being replaced and washed out. For most firms the main issue concerns the possibility that the substitutes may encroach on its activities. As to Four Seasons Hotel, the similar service provided by its counterpart with the similar price and quality may be able to maximize its own power to scramble the market share because customers might be caught their eyes for the novelty. There is no denying that substitute products can harm the industry by placing ceiling on prices. However, the lasting influential factor must be quality, unless the industry can upgrade the quality of the product or differentiate it somehow. So, if Four Seasons Hotel wants to reach the laurel, it should care its service quality and the differentiation from its counterparts.
THE SUPPLIER POWER
Because Four Seasons Hotel always keeps applying itself to building a high-end and comfortable hotel corporation, few suppliers are chosen so that the prices of the imported facilities are relatively high, and the location of this company determines the high cost including the construction, the facilities and the labor cost. So the customers don’t have much power and the right to speak about the higher price and perfect service, and also generally speaking, the more powerful the buyers, the greater their ability to depress industry profitability, so such big company which has a clear aim could not give this right to the customer.
But in Four Seasons Hotel, magnates, aristocrats and those people who pay much more attention to the quality of life compose its main customers. The common ground they share could be summarized as the fact they might prefer the quality to the price, which means that they could purchase the service even it is costly if it wroth being bought. So, what Four Seasons Hotel cares most should be how to devote itself to promote its own service quality with less concerning the price.
According to Porter theory, suppliers which could also be supposed as the party wielding its power to affect the organization profits (Harrison, Alan and Hock, Remko I, 2011). Several distinct factors leading to supplier power could be found including the following circumstances: first, if the supplier group is dominated by few companies and is more concentrated than the industry it sells to, it could be called oligarchy; second, there are no substitute products for sale to the industry; third, the industry is not an import customer of the supplier group; at last, the supplier’s product is an important input to the buyer’s business (Porter, 2008). As the worldwide well-known hotel service provider, Four Seasons Hotel could not tolerate any possibility that impedes its profits. Thus it has been trying to forge with the suppliers who provide staff which Four Seasons Hotel could not manufacture on its own, which could be called collaboration with the result of reciprocity.
THE BUYER POWER
Being a traditional and vigorous segment, hotel industry has made remarked progress in recent years. As the hotel industry developed, although the customer bargain ability is becoming higher, the transformation cost becomes lower. Why? Because there are many similar hotels, thus customer could have other choices, such as Hilton Hotels and so on. In addition, public transportation system is more and more developed, the time cost and the fund cost of the customers to transform is not high. Next, because the enterprise reduces the cost, it often can limit the expense of staff travelers, so they have to bargain for strengthening the buyer power.
The key word of the author could perceive from the above is competitive advantage because what the author talks about are strategic management and how to employ the tool of strategic management to hold the position of its own competitive advantage, thus attaining the profits (Clark-Hill and Glaister, 2006). There is three main strategies affecting competitive advantage and they are price-based strategy, lock-in one and differentiation one. According to the theory of strategy clock, the strategy could be determined by the integrated comparison of price and its perceived product profit（Han, 2011）
How to choose a suitably right strategy for Four Seasons Hotel? It depends on the exterior environment and interior status and it is always appropriate to adjust measures to local conditions. There are three strategies to choose.
One is price-based strategy. Because for most high-end hotels the cost is relatively high and the supply sometimes has to be over-qualified and expensive, there is little space for the hotel to cut the cost here(Great, R, 2008). But, because of the brand-image has been popular among the customers in a short time, so the rooms are always nearly 80% booked and here promise a stage to use the price-based strategy. Lowering the price has got more business for Four Seasons Hotel.
The second is differentiation strategy which can be seen everywhere in Four Seasons’ management and services. In the experience of this hotel, the plan attracted an increasing number of returned customers and was very successful. This plan was a breakthrough in 1996 and made the hotel more world-famous. And that is just a part of the differentiation strategy and so many others are still going on right now.
The last one is Dock-in strategy. The hotel chain developed new set of benefits aimed at its elite numbers, those 2% of travelers that drive 30% of Four Seasons’ profits. Here the SPG will be mentioned again. The new benefits make SPG the richest elite program in the industry. The more SPG members stay, the more choices are available. And those amounts of guests will be a loyal member of this hotel and bring in more benefits. Four Seasons Hotel is trying everything to show its appreciation for its most loyal and enduring travelers and this is indeed a efficient dock-in strategy.
Besides, it is also important to pay attention to the culture strategy of the hotel to realize the sustainable development, and it is necessary to concern the humanities to let the customers and staffs feel the humanities breath of the hotel (Hofstede 1994).
In this essay, the author mainly use the Porter’s five forces to give a full vision of the strategic analysis, such as potential entrants, the capability of competitors, suppliers, customers, substitutes, by taking the Four Seasons Hotel as an example. It is important for a strategic management to pay great attention to the coordination of management, finance, technology, marketing, and culture. And adapt themselves to changing circumstances, changing the strategic management anytime if necessary.
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