ADVANCED MARKETING

TOPIC 3: MARKETING CONSIDERATIONS AND PLANS

Porter’s theory of competitive advantage looks at three ways a company may choose to compete:
differentiation, focus and overall cost leadership. Explain the theory and use examples from the
hotel or restaurant industries to illustrate these three competitive strategies.

Introduction

Porter’s generic strategy with cost leadership, differentiation and focus strategies is commonly
referred across academic studies and business management practices. The strategy addresses to
the concern of how to direct the business to survive and grow and achieve sustainable
development (Bordean, Borza & Glaser-Segura, 2011; Hermann, 2005). Hospitality industry
with the large proportion of hotel businesses is facing the increasingly fierce competition by
which it is much more crucial for hotels to make suitable choices of which strategy to retain in
order to achieve competitive advantages in the market at global scale (Bordean, Borza, Nistor &
Mitra, 2010; Brotherton, 1999).

The paper aims to examine strategic directions of hotels drawn on the Porter’s generic strategies.
The paper focuses on the adoption of cost leadership, differentiation and focus strategies on the
current operations of hotels at both theoretical background and practical view through real
examples. Concluding marks end the paper.

Marketing considerations

General view of Porter’s generic strategies

Generic strategies from Porter’s viewpoint suggest about the means for businesses to maximize
performance by either lowering operating cost to offer cheap price or differentiating offerings to
stand out from competitors or concentrating on some certain segments with the focus of internal
efforts for providing the best offerings (Porter, 1980). Recent arguments declare on the
combination of cost leadership and differentiation strategy as the way to leverage strengths; thus
generating a strong synergy of outstanding offerings at cheaper prices in the rivalry (Parnell,
2006).
If cost is the concern of companies, buyers consider about price in their purchase decisions.
Thus, the achievement of competitive advantage is perceived by customers, not by companies
(Bordean, et al., 2011). Favoring the concept of Porter, Bowman and Faulkner (1997) have
emphasized on three ways that customers perceive the offerings to be competitive in the market
– (1) value of money with higher quality than competitors (no price-sensitiveness); (2) similar
quality/ product but lower price than competitors; and (3) higher quality but cheaper in price.
This perception connects the perceived quality and price in buying decision.

Regarding key notes of each strategy, companies with cost leadership could create the image of
price-based competitor by optimizing operating costs through (1) accurately forecasting demands
and utilizing at best its capacity; (2) exploiting economies of scales; (3) using advancements in
technologies; (4) considering the outsourcing; and (5) using learning effects. Firms following
differentiation could consider a broader market, e.g. international hotel chains such as Hilton ,
Marriott, etc. using different brand names to attack different corners of the market, but uniquely,
providing premium quality of guest experiences. And organizations using focus strategy must
conduct carefully the market research to comprehend its segments’ needs and requirements on
which level of quality (Porter, 1985). The focus could be on the specific group of customers,
certain regions or destination, particular requirements, etc. (Evans, et al., 2006).

Porter’s generic strategies in hotel industry

The idea of adopting Porter’s generic strategies has been studied through many researches
(Evans, Campbell & Stonehouse, 2006). A vast adoption of hotels is found in cost leadership
strategy when hotels just offer the basics of accommodation services, for example Motel 6,
Fairfield Inns, etc. The use of cost-differentiation synergy is also considered but the level of
application is limited. Mostly, it is relied on the ability of hotels in balancing and controlling its
operating costs with some features of differentiation to be competitive in the market (Bordean, et
al., 2011).

Porter’s theory of competitive advantage helps organizations maximize their performance by the
right selection of how to utilize and develop their resources (Porter, 1980; 1985). Cost leadership
is pursued by many hotels or restaurants in keeping their operating costs at minimum. It is to
attract wide segments of guests (Harrison & Enz, 2005). This strategy is directly affected hotels’
performance in the inverse ratio of cost and performance (Abdul & Basri, 2012). For example,
Tune Hotel – first launching in 2007 and now operating in Malaysia, Indonesia, UK, London,
etc. is being successful with its low-cost model. Its famous motto in customers’ mind is the
offering of 5-star hotel at 1-star price based on the no-frill model of operations. The business
model is similar as low-cost carriers such as Southwest Airlines, Air Asia, etc. by charging
everything except the bed and the restroom (Moorman, 2011). Being located in strategic
locations with low-priced offerings, the hotel aims to provide the convenience for mass of
customers whose demands are with the barest bed for almost nothing except a good sleep at
night. In order to serve for this strategy, Tune Hotel offers the limited services with standard
room amenities only and without complementary foods and drinks.

Differentiation strategy persuades customers by unique features that being more outstanding than
competitors, i.e. values offered are created through uniqueness and that, customers are willing to
pay for that uniqueness (Bauer & Colgan, 2001; Hlavacka, et al., 2001; Porter, 1980). The
underpinning of this strategy is in the value creation beyond production cost which is related to
the concept of value for money being spent by customers (Prahalad & Hamel, 1990). Indeed,
differentiation is an expensive strategy with heavy investments on unique features and making
those features inimitable. However, it is highly profitably by the premium price being charged
(Thompson, et al. 2012). This strategy could be achieved through intangible features such as
serving culture of the hotel; rather than by tangible ones since tangible features are easily
imitated (Sturman, Corgel & Verma, 2011). It is noted that one of the considering items for
choice of hotels is the reputation of that hotel. This fact suggests another ways of being
differentiated: rather than using differentiated features in products and services, brand
differentiation is more successful since customers could act as patron with repeated purchases
without any specific reasons (O’Neill & Mattila, 2004). For example, Marriott International
Hotel Chain is following this strategy by creating luxurious guest experiences for travelers. The
hotel serves for wide segments of guests with a wide range of price from moderate to premium
based on its reputation, quality standard and innovation. Its Ritz-Carlton is the premium brand
with exceptional uniqueness from dining options, amenities, and guest services. Or Autograph
Collection – an upscale brand is outstanding by its unique feature as either a resort, an urban
edge hotel, a historic hotel or a boutique.

If cost leadership finds strategic direction from internal operation aspect, differentiation seeks for
uniqueness in the market, focus strategy uses segments to build up suitable directions for growth.
Instead of covering the whole market, focus strategy selects the most suitable ones against
internal forces to serve better the needs of customers in those segments over competitors (Bauer
& Colgan, 2001; Davidson, 2001; Porter, 1980). The formulation of focus strategy is from the
approach of customers as its market size rather than the management and marketing techniques;
by which this strategy could be propped by either low cost or differentiation (Bordean, et al.,
2010). However, it is hard for hotels to make profits if relying on low cost concept, i.e. using
least profit to gain profit from a small size of market. It means the combination of focus and low
cost strategy could not produce the tradeoff between low profit margin and quantities of guests.
According, mostly, when using focus strategy, hotels often use with differentiation to create
advantage (Harrison & Enz, 2005). For example, hotels offer the spa and medical resorting
service to serve for a specific segment of people taking care about healthcare travelling. Shangri-
la’s Rasa Sayang Resort & Spa has partnered with Penang Adventis Hospital to promote the
Wellness Escape Programme in Penang at Batu Ferringi Beach. Or Peninsular Hotel partnered
with BNH Hospital to offer the Multifaceted Wellness Program for travelers with packages of
Rest, Relax and Rejuvenate and Weight Management. It is to adapt a behavioral demand of a
specific group of customers; and they are willing to pay a premium price for this kind of
travelling (Yuan, 2015). A more common example on the use of focus strategy is the case of
Four Seasons– the leading operator of luxury hotel and resort uses focus strategy to serve for the
Rich including affluent businessmen, leisure visitors with finest services at high level of
personalization. Its focus strategy is built from the differentiation model with its strong brand
name and reputation as the etching image of the noble class.

Conclusion

The Porter’s generic strategy is useful across industries. With nearly four decades from its first
introduction in 1980, this framework is widely adopted not only in theoretical researches but
practical business management. Cost leadership is explored to be the common strategy used by
hotels as their abilities of internal balance and leverage operating costs. this strategy seeks for
high quantity of guests to make profits, thus it is for mass of population. Meanwhile
differentiation strategy is more expensive and often used by hotel chains to gain profits by
uniqueness-based premium price rather than by numbers of guests. Thus, this strategy is quite
selected in terms of target customers. The last strategy is focus which mentions the scope and
segments of markets to serve. If the use of focus strategy combined with cost leadership, it is
hard for hotels to gain profits from low margin and limited market size. Therefore, normally,
focus strategy is in line with differentiation to attract a certain group of guests.

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