In this post we analyse the Porter’s five forces in the Consultancy hotel sector. Hotels, both large and small, are increasingly turning to the online medium to attract new customers. During 2016 social networks were the main protagonists in the marketing strategies of the main hotel chains. Social networks turned out to have a strong impact on the occupation and sales level.
Specialization within the consultancy sector has become an almost necessary asset to be able to offer an adequate, and specially, competitive service. As technology is increasingly present in the services sector, it is important to offer services oriented and based on the application of technology and digital promotion.
Porter’s Five Forces in the Consultancy hotel sector
Potential Entrants. Threat of new entrants
The consultancy hotel sector results attractive to new firms. First, because more and more everything is being digitalized. It means that any service provided by any company will be produced and managed through digital tools. In general terms, any kind of consultancy will turn into a total digital consultancy in a near future. So probably, the idea will be attractive to new entrants.
In the same way, the initial capital required is not really big compared with other kind of services which need machinery or large infrastructures, so this increase the probably of new entrants on the market.
Also, the network effect is quite positive due to the high concentration of the sector, and that many hotels belong to hotel chains or restoration groups. The customer loyalty is not a strong point because of the low switching costs, but the number of customers is high which means that the market share is large.
In conclusion, entry barriers are not high, new entrants are a threat, but this does not mean that the business is not profitable. For this It must be analyzed the total Porter’s forces.
Substitutes. Threat of substitutes
The hotel management environment is very competitive and faces a constant state of development due to the necessity of outstanding among big hotel chains.
With that being said, the decision making process for SMEs becomes difficult and complex in what relates to finding a good marketing model that fits their necessities.
In what refers to substitutive products, the clearest example would be the traditional publicity like radio/tv or other communication agencies. Nevertheless, those alternatives tend to be more expensive and less customized.
As previously mentioned, this is a very competitive sector and given the growing tendency of digitalization of the market it becomes crucial for SMEs in the hospitality sector to count with an advisor that understands their necessities providing a service that fits their budget.
In the case of traditional publicity, such as TV adverts, the higher costs combined with the presence of bigger competitors does not seem to be the best approach for our target.
In what refers to communication agencies, the y may not cover all the services that a consultancy can offer.
Buyers. Bargaining power of buyers
In the hospitality consultancy sector, both the firms and the buyers exert a certain amount of power on each other.
On the one hand, as the world is becoming more and more digitalized, it is fundamental for newborn hotels and hostels to invest on digital advertising. In order to be able to compete with bigger hotels and famous chains, small and medium enterprises may feel the need to turn to a consultancy agency. In fact, an agency could help them promote their enterprise digitally in a far more advanced way than they would do by themselves, and grant them more visibility by reaching the right potential clients.
On the other hand, it goes without saying that this is quite a competitive market. This means that buyers have a lot of power when it comes to choosing a firm rather than another, as there are many companies who offer undifferentiated services at almost the same price. Due to low switching costs, companies must constantly update the quality and quantity of their services if they want to gain a bigger share of the market and attract as many customers as possible.
Suppliers. Bargaining power of suppliers
In any industry, the bargaining power of suppliers can be powerful or weak depending on a number of factors governing the supplier customer relationship. If suppliers are concentrated compared to buyers i.e. few suppliers and many buyers supplier bargaining power is high. Conversely, if buyer switching costs are high, the bargaining power of suppliers is high. If suppliers can easily forward integrate or begin to produce the buyer’s product themselves then supplier power is also high. Supplier power is high if the buyer is not price sensitive and uneducated regarding the product. If the supplier’s product is highly differentiated, supplier bargaining power is high. The bargaining power of suppliers is high if the buyer does not represent a large portion of the supplier’s sales. If substitute products are unavailable in the marketplace, supplier power is high.
And of course, if the opposite is true for any of these factors, supplier power is low. For example, low supplier concentration, low switching costs, no threat of forward integration, more buyer price sensitivity, well-educated buyers, buyers that purchase large volumes of standardized products, and the availability of substitute products.
Industry Competitors. Rivalry among existing firms
When trying to enter a new market it’s mandatory to carry out an extensive, in-depth analysis in order to have a better understanding on key players’ operations and how they are driving the industry.
As a starting point let’s review the main areas hospitality consultancy firms cover and what services they offer. While the scope of work varies between companies, most common fields of expertise involve one or several of the following:
– Backoffice Services
– Digital Services
– Marketing & Sales
– Business Development
– General Strategy & Management
– Event Management
– Operations Management
– Food & Beverage
– IT Solutions
– Human Resources
– Leisure & Amenities
– Health & Safety
Typical company in the sector is a small to medium sized enterprise striving to offer bespoken, highly specialized innovative services. While main firms aim to provide comprehensive solutions covering every aspect, there are a lot of modest, locally based consulting companies trying to carve out their place, focusing on a specific activity i.e digital marketing.