Methodology of Report
The following report was derived from the primary use of secondary sources, in addition to telephone contact with hotel representatives. Secondary sources included research from the Internet, industry books, company marketing communications, trade and general business newspapers and magazines, among others. Through all the sources, relevant data and information was extracted into the report’s appendices. After individual analysis and group discussion, the following report was devised. The mandate of this report is to provide a macro examination of the luxury hotel industry and specifically the future outlook of Four Seasons Hotel and Resorts, Inc.
Company History and Background
The vision for Four Seasons Hotel and Resorts (FSH) began back in the 1960’s when current chairman and CEO, Isadore Sharp, envisioned a luxury lodging chain that was able to set itself apart by focusing on personalized and quality services. This has proven to be a fruitful strategy as FSH’s success has placed it as one of the world’s largest luxury hotel chains and has earned a 5-year return on equity of approximately 19-20% (Refer to Appendix 16).
Today FSH has expanded from being a single hotel operating in one country to having 55 properties in 25 countries. FSH is mostly involved with management operations in hotels and resorts, however, it has recently ventured into non-hotel endeavours. The firm is currently involved in 3 lines of businesses, ranging from hotels to resorts to residential condominiums all around the world (Refer to Appendix 9).
Rosewood Hotels and Resorts is a business that has 12 establishments worldwide. Until 2004, the company has run an individual branding strategy; but recent events, such as the adoption of a new President and CEO, have the company considering a corporate branding strategy. Rosewood seems to have hit a roadblock with their current strategy; they are concerned that their guests do not fully ...
The origin of FSH was rooted in ownership operations, whereby the corporation owned both the real estate and the building. In addition, the firm would manage the hotel or resort’s daily operating activities. In more recent times, FSH has realized that management operations is actually a more lucrative business model that also minimizes risk levels. Through this separate form of business, revenue is only generated from the management operations that FSH would provide.
Thus, the firm does not own the building or the real estate, but is solely responsible for the operating activities. Since fiscal 1998, revenue from management operations has actually exceeded revenues from its ownership operations (Refer to Appendix 19).
Part of the firm’s current growth strategy includes international expansion, with more than 20 new properties currently under construction. Therefore, as FSH expands, the firm is seeking management operation alliances rather than ownership ones.
Furthermore, FSH is clearly an industry leader, as it has accumulated the most AAA Five Diamond Awards in the last 20 consecutive years and was ranked by the Zagat survey as the “Top Hotel Chain in the US” and the “Top Hotel Chain Internationally” . FSH was also a leader in pioneering many “firsts” within the hospitality industry (Refer to Appendix 13).
These accolades, along with many others, have benefited FSH in creating a strong brand name and subsequent competitive advantage.
Due to changes in the environmental, social and economic climate around the globe, such as flooding, terrorism and a weakening economy, the existing business model and strategy at FSH is incapable of responding and proactively adapting to such external conditions. As a result, the company is experiencing a drop in its share price (Refer to Appendix 14) as well as reductions in its earnings from quarter-to-quarter (Refer to Appendix 19).
Department of Marketing, Florida State University, Rovetta Business Building, Tallahassee, Florida 32306, USA Department of Business and Accounting, Furman University, 3300 Poinsett Highway, Greenville, South Carolina 29613, USA Management Science Department, Moore School of Business, University of South Carolina, 1705 College Street, Columbia, South Carolina 29208, USA fsu. edu •kirk. edu sc. edu ...
Thus, the limitation of its current strategy prohibits the company from operating at a level that is profitable enough to satisfy its shareholders during this volatile period. During such unstable times, FSH needs to compete more aggressively than ever before in order to return to undisputed industry dominance.
INDUSTRY AND COMPETITIVE ANALYSIS
With annual sales approaching $65 billion (Refer to Appendix 1 for the remainder of this section), on an average day the hotel industry accommodates over 2.6 million guests in 3 million available rooms (and growing) in over 44,000 properties around the world . Growing at an annual rate of approximately 2-3%, the industry is divided into four tiers, consisting of budget/economy, mid-scale, first-class and luxury. Though there are countless hotels around the globe, the major players in the industry are the 10-12 parent companies that operate a chain of hotels, often with brands that are spread across the four tiers. In addition to international players, each tier also contains an abundance of smaller hotels that competes in its respective tier .
Within the luxury tier, many of the players do not actually own the hotels themselves, but instead manage the operation of the business, similar to that of FSH. In the luxury segment, competition for acquiring new management agreements becomes very high as hotel owners make their choices based on the quality and value of a company’s management service and most importantly, its brand name. Moreover, guests who choose to stay in luxury hotels are commonly not very price sensitive, and thus it is essential that a hotel distinguish itself amongst its competition by providing value added services as well as maintaining an untarnished, reputable brand name and image.
To remain profitable, hotels must operate with around 65-70% capacity . Due to seasonality, political and economic events, some hotels are finding it difficult to maintain profitable occupancy levels and have started to provide services along multiple levels within the industry’s value chain, from Internet reservations to providing meals on flights through alliances with airlines. Thus, the changing value chain and the use of new technology requires that hotels be aware of these dynamic trends.
“Oxford Dictionary defines hospitality as “receiving and hosting customers, visitors and strangers with cordiality and good reputation.” Receptors hospitality services perceive this service sector accompanied by food and friendly service good drink and familiar atmosphere. On the other hand, those who provide these services sometimes have the impression that, despite their ...
Five Force Model of Competition
The rivalry among competitors is high because guests have many choices of hotels to select from (Refer to Appendix 2 throughout this section).
within this luxury hotel segment are relatively equal in size and capability, making it difficult for any one firm to significantly rise above the competition. The competing hotels must struggle for the same guests within the luxury segment. Switching costs are minimal, thus, loyalty is low unless a competitor differentiates itself, and thereby increases their odds of attracting return guests. Rivalry also exists on a different level, namely, competition amongst management operation firms for preferred real estate. Due to September 11th, the potential market for luxury hotels has shrunk, and this has consequently increased the competition for the smaller number of guests.
Since substantial capital is required to construct a hotel or to start a partnership with the owners and agree to renovate the hotel as in the case with FSH management, there exists high entry and exit barriers for potential new entrants. In order to compete successfully within this tier, a reputable brand name is imperative, which also represents a significant barrier to entry for potential new entrants. Competition centres on existing, established brands, since it may be difficult for new entrants to lure loyal guests that have become accustomed to the value and services of certain brand name hotels. Nevertheless, the hotel that is able to consistently provide new value-added services may be able to do just that – attract new guests that have previously been loyal to a specific hotel brand. New competition is also derived from middle tier hotels in times of financial turmoil.
Since a luxury hotel’s primary business is that of offering a home away from home, there is an absence of noteworthy substitutes. An immaterial alternate would consist of bed-and-breakfasts. However, hotels also compete for business conventions, in which case, substitutes such as other stand-alone convention facilities exist. For the business traveler that expects nothing short of the finest package, there are no substitutes to luxury hotels. For the distinguished leisure traveler, there exist no other true substitutes that would offer the exceptional services of luxury hotels and resorts.
Charles and Keith is a multinational company that is fashion industry dealing with brand from Singapore. It offers both men’s and women’s fashion collections. Their products include ties, shoes, belts, wallets, sunglasses among others. The company is owned by Charles Wong and his brother Keith Wong. It was founded in 1996 in a place called Amara Shopping Centre in Singapore. The purpose of this ...
Buyers have a high level of power because there is a lot of choice within this industry, and because luxury hotels will go to great lengths to ensure that all their guests’ needs are completely fulfilled. Property owners of hotel acreage are also buyers of management operation services. This group possesses power because they can select a certain brand over another; however, the level of power is still relatively less than guests because it is of mutual interest to have a well-known brand manage their property.
Suppliers are plentiful, thus, luxury hotels have their pick in which firm they want to employ. Since the hotel would be a large and steady customer, it is in the best interest of the supplier to completely satisfy their needs. However, hotels would likely prefer to maintain relations with high-value, trust-worthy suppliers since quality is paramount and no disruption in service is preferred.
The hospitality industry is a profitable industry to operate in, especially for established players such as FSH who have built strong brand awareness based on its exceptional service. However, due to economic downturns, existing players have to compete more aggressively than ever in order to attract and retain customers.
Key Driving Forces
As a result of intense competition, there must be continuous differentiation within this industry as each firm engages in aggressive campaigns to gain market share. The industry driving forces within this segment include (Refer to Appendix 3) increasing globalization, marketing effectiveness to increase customer loyalty, product and service differentiation/innovation, and changing societal attitudes. The current situation encompasses international hoteliers all vying for the same, shrinking market. Consequently to adequately compete, firms must incorporate a global strategy that increases customer loyalty through product/service differentiation while still maintaining a keen focus on how the industry will change due to the volatile external climate (such as the effects of terrorist attacks).
The key competitors in the luxury hotel industry consist of Fairmont Hotels and Resorts, Ritz-Carlton Hotels and Starwood Hotels and Resorts (Refer to Appendix 4, Appendix 5 and Appendix 6 throughout this section).
INTRODUCTION How can 130 acres of resort "nestle" anywhere, especially in the heart of a thriving metropolis known as "The Valley of the Sun" Yet, through the combination of landscaping and architecture, this slice of desert heaven does seem to discreetly nestle against Camelback Mountain, its sandstone terraces barely discernible. Even in the heart of Arizona's Sonoran desert, the well manicured ...
Amongst these competitors, Fairmont is considered to be FSH’s strongest rival and greatest threat. Despite a reduction in demand, Fairmont has been able to maintain steady profit growth while competitors encounter declining revenues. In addition, based on an evaluation of relative competitive positions, Fairmont is ranked the highest by outperforming all competitors in each key success factor category (Refer to Appendix 6).
Fairmont possesses a strong brand reputation and actively participates in community and corporate events, thereby increasing exposure (e.g. a sponsor of a well-known trade show, CMITS).
As well, the hotelier offers a value-added loyalty program through alliances with American Express, Aeroplan and American Airlines to name a few. To secure its current dominant position, Fairmont will most likely continue to expand its partnerships and place greater emphasis on building and improving customer relationships.
Another competitor is Ritz-Carlton. Although Ritz-Carlton is a well-known luxury hotel and is rated by many as offering the best services, it has struggled in the face of poor economic conditions and potent competition. Its recent cut in room rates is an indicator that the hotel is not faring well, and needs to decrease its price in order to attract occupancy. However, this strategy may be detrimental to its upscale image, and it may be difficult to increase its room rates in the future. In order to remain competitive, Ritz-Carlton may choose to concentrate on other areas of its business, such as residences, spas and golf clubs, to generate alternative viable revenue streams.
Another key competitor, Starwood Hotels and Resorts, has been aggressively attempting to defend its luxury status and high room rates to no avail, as weakened demand in the travel industry and strong competition has caused Starwood to take a big hit on its revenue figure. To recover from this huge revenue loss, Starwood may decide to reduce its room rates and cut operating costs.
Due to the impact from world events and economic downturn, mid-value hotels like Holiday Inn and Quality Inn have become part of the competition arena. This is mainly because consumers may opt for lower priced accommodations rather than indulging in luxuries. Thus, mid-value hotels are in essence drawing guests from the luxury sector. If these hotels are capable of providing good service and quality for the money spent, they will have a better chance of retaining those customers who occasionally stay at luxury hotels, thereby increasing their customer base. Furthermore, these hotels will most likely focus on offering price deals to attract guests.
Excellence in customer service is the objective of all organisations wishing to be successful. However, there is often a gap between customer expectations and management perceptions of customer expectations. Organisations often fail to get close to their customers and correctly read their expectations. Customers expect certain things when they walk into a business, and those with the highest level ...
Key Success Factors
Brand Recognition and Reputation is critical because guests choose the hotel based on its reputation and/or the experience they previously had with the hotel. This positive experience can (and should) take place at any point on the Moments of Truth map (Refer to Appendix 10).
Customers return to hotels where they received memorable treatment and superior value. To the high-class guest, the luxury experience is not a one-time trial, but a lifestyle choice. A hotel’s worldwide reputation allows customers to know what to expect, and count on the same excellent service every time they stay at the same hotel chain regardless of location. A culture cannot be built overnight, which is why hotels that have been long established enjoy the advantage of having built a strong brand.
Customer Relationships/Loyalty, if successfully constructed and maintained, allows an hotelier to differentiate itself. Since the general assumption is that it costs 6-10 times more to attract a new customer than to retain one, hotels must be proactive in building customer relationships, for example through the use of a database. A database is fundamental in forming relationships because it enables a firm to recall guest preferences such as choice of room, preferred foods, preferred wake-up call, etc. This contributes to making guests feel special, which undoubtedly makes a difference in his or her experience. A loyalty program could even extend to other value chain partners, thereby, allowing for further tracking of guest preferences.
Location is of prime consideration for guests, as they select a destination, not necessarily a hotel. Therefore, having presence in existing and evolving business areas and travel destinations is mandatory. If a competitor is situated on a busy downtown corner and FSH is nowhere in sight, guests will be compelled to stay with the competitor, even if he or she prefers the FSH brand.
Excellent quality and customer service is fundamental in the luxury hotel segment because guests expect to be treated like gold, especially since they are not price sensitive. Only through the highest quality of products and services, will guests feel as though the hotel is their ‘home away from home’. In addition to the more common services, such as dry-cleaning and wake-up calls, hotels must provide “just for me services” that cater to each of their guests, such as tear-free shampoo and cookies at night for guests with children. All these contribute to increasing the probability that a first-time guest will turn into lifetime customers.
Opportunities and Threats
The company possesses many opportunities and faces many threats as shown in Appendix 11. There are several geographical locations that provide viable expansion potential to FSH. Growth could also be achieved from offering additional value-added services at their locations, especially if the concept is not found in any other hotel. Overall, the opportunities that FSH faces could provide the firm with an advantage only if it is able to successfully leverage its competencies in any new ventures.
However, the fallout of the terrorist attacks in New York City and Indonesia coupled with Middle East tensions have all contributed to a dramatic decrease in tourism and business travel. In addition to the general economic conditions and the global political instability, there exist other threats to FSH. These include changes in travel patterns and natural disasters, among others. People are more inclined to travel regionally as safety becomes a dominant issue when contemplating whether or not to travel to other countries that may possess volatile political issues. As well, the flooding in Prague and Jakarta reveal that FSH is threatened by natural disasters, which is a factor beyond the company’s control.
COMPANY RESOURCES AND COMPETITIVE CAPABILITIES
Strengths and Weaknesses
The Four Seasons brand is synonymous with superior customer experience and its strategy focuses on constantly fulfilling this expectation (Refer to Appendix 11 for the remainder of this section).
Employees are empowered and committed to a high, consistent level of service. In order to do this, FSH has focused on creating an environment conducive to providing excellent service for each guest. The talented team of employees is a core competency that FSH possesses and manages extremely well.
Testament to this is the rigorous selection procedures in its New York City hotel where 400 employees were hired from a pool of 30,000 applicants and 3,000 personal interviews. FSH is also committed to treating employees well, through ongoing training, recognition systems, and a predisposition towards internal promotions. As a result of this, FSH has a much lower employee turnover rate than any of its competitors.
The firm’s weaknesses come from areas such as lack of consistency in value-added services, lack of a loyalty program, and the fact that a portion of its workforce is unionized. Each FSH hotel does not provide the same value-added amenities, thus guests who expect a certain service at all locations will be disappointed to find that FSH does not provide such consistency. Without a loyalty program, FSH loses out on building strengthened relationships with its guests. The recent strikes by the unionized workforce of the Hilton, Sheraton, and Delta in Toronto reveal the significance of maintaining conducive relationships with employees. As with any weakness however, this provides an opportunity for FSH to increase efficiencies in this respect.
Value Chain Analysis
The FSH value chain identifies the activities that are involved in both managing, or owning and managing the hotel or resort (Refer to Appendix 12).
The business process begins with a Site Selection category; whether FSH decides to construct its own building or whether it selects an existing or soon-to-be-developed structure. The Hotel Operations category is one of the most significant areas where the firm must differentiate itself. Clearly, it is essential that FSH maintain a top-quality attitude in its operations because nothing short of perfection is the level that clients demand. Finally, the other significant area includes the Sales and Marketing category. FSH promotes itself through advertising in publications, the e-mailing of a quarterly newsletter to journalists that hopefully will result in the creation of articles in trade publications, as well as riding its own brand.
The unfortunate attacks of September 11th have dealt a worldwide shock to the travel and tourism industry. Prior to fiscal year 2001, FSH had been experiencing continuous growth in revenues while the profit margin was increasing as well (Refer to Appendix 19 for the rest of this section).
The last fiscal year, 2001, has clearly not been as fruitful as the previous years. Costs have increased by 4% while revenues fell 13%. It is still unclear how long it will take to get out of this trough. Fortunately FSH possesses a healthy cash position partially due to the hybrid debt/equity offering undertaken in 1999. In this year the current ratios rocketed to 5.02 from a point of 1.61 in 1998. The funds acquired from this offering have yet to be fully utilized, as the current ratio remains at 4.7 in 2001 while the industry average is 0.78. This is an indication that FSH is not making the best use of its capital or it is retaining large cash positions to fund its international expansion plans.
Management and ownership operations are the two revenue streams for FSH. It was realized early on that management operations is the more profitable income stream, which is clearly true from examination of the income statement. In fiscal year 2001 FSH experienced a loss of over $10 million from ownership operations as opposed to a $95 million gain from its management operations. With such a large discrepancy between these figures the following question must be asked: Why has FSH not moved entirely into management operations? The answer is unclear; however, the firm has clearly recognized the greater possibility in management operations, as they currently own only three hotels.
Present Strategy and Performance Analysis
The best way to determine whether the current strategy of FSH is working or not is by determining if the company is achieving its stated financial and strategic objectives, and if the company is an above-average industry performer. Although FSH has steadily increased revenues for the past 5 years, revenues declined in fiscal 2001. Further, sales growth for the past five years is below the industry average (Refer to Appendix 15), signalling that the company has not been increasing its market share.
On the other hand, the firm’s profit margins have been consistent from year-to-year and have been 10% higher than the industry average. As well, the managers have used the firm’s assets very productively, well exceeding the industry averages (Refer to Appendix 17).
Very importantly, FSH is respected worldwide by consumers and was ranked as one of the best corporate citizens by the Corporate Knights in 2002 (Refer to Appendix 18).
FSH has done a fairly good job on delivering the key success factors in the luxury hotel industry. The company has succeeded in effectively equating their brand with superior quality service. Furthermore, ten or more of its hotels consistently make lists of the top 100 hotels in the world (e.g. Mobil Five-Star Awards) .
In respect to customer relationships, FSH delivers great customer service, but lacks in the loyalty factor. FSH does not have any loyalty programs to retain customers. Since FSH has created a brand that is respected by customers, the company is able to set up in the best locations. In fact, many countries/cities seek out FSH and encourage the company to establish a hotel there because their presence provides immediate prestige.
Regarding location, FSH is clearly embarking on a growth strategy. This is revealed in the increase in the number of locations that the firm will be opening in the coming years. The expected increases in rooms are 11.5% (1,663), 9.6% (1,536), 8.2% (1,444) from 2002 to 2004, respectively. However, the actual locales have made FSH vulnerable to more risks, which is revealed in the Bali terrorist’s activities. Furthermore, FSH has had limited location exposure in healthier economic nations. With only two opened hotels within Canada, despite the fact that Canada’s economic growth is leading the G8 nations, Four Seasons is not able to capitalize on this nation’s economic robustness.
The critical issues that FSH face revolves around the aforementioned driving forces of increasing globalization, marketing effectiveness to increase guest loyalty, product and service differentiation/innovation, and changing societal attitudes. FSH clients are not encouraged to be loyal to the hotel, while the current expansion plan may be too aggressive as it poses business risk to the firm. Finally, FSH could improve its brand exposure. All these issues need to be addressed in the recommended strategy and implementation.
FSH is facing a current stagnant strategy that is incapable of responding to a volatile external environment and the previously mentioned critical issues. The following alternatives have been devised with these issues in mind. A brief description of the proposed alternatives is provided. Following this, the alternatives will be evaluated based on eight decision criteria. Throughout the Strategy Formulation section, please refer to Appendix 20 and Appendix 21.
Alternative #1: Fine-Tuning Its Existing Strategy in Key Areas
FSH’s current strategy actually needs to be tweaked in order to become more sustainable and allow the firm to proactively adapt to the changing environment. Among the areas that would be fine-tuned include increased emphasis on building guest relationships, selective growth expansion, and finally, a keen focus on marketing initiatives.
The existence of Fairmont’s loyalty program is a testament to the value provided through this program. The reason is because Fairmont is the sole competitor that generated favourable financials in fiscal 2001, which is partially attributable to customer retention through its loyalty program. A database that collects guests preferences will undoubtedly enhance the relationships that it could provide because clients enjoy the sense of community that is established when he or she is a part of a loyalty club. Also, international expansion would involve a much more selective process and not take FSH into highly risky areas. The impact of the flooding in Prague and Jakarta, the terrorist attacks in Bali, the tensions in the Middle East would then be minimized.
However, it is important to note that of prime concern for FSH would still be that it be present in locations that are in areas where guests expect from a global hotelier. Also, if a competitor is present in a certain location, it is crucial that FSH be there as well in order to not miss out on any potential sales. The difference would be that growth also be from profitable economic areas and in more politically stable areas. Finally, to increase brand awareness, FSH would focus on marketing initiatives. Currently, sales and marketing initiatives are limited to restricted advertising in select publications and mainly, through riding the brand. A dedicated marketing strategy would allow FSH to solidify its brand exposure, thereby, increasing its brand equity.
Alternative #2: A New Line of Business – Buy-out of the Middle-market
Through the purchase of a lower-tiered hotel chain, FSH could smooth out the risk associated during times of economic downturn, which it possesses as a sole luxury hotel player. The hotel industry is cyclical in nature and is currently experiencing a downturn in the economy. Since 90% of FSH revenues are derived from management contracts, it would be beneficial for the organization to diversify its penetration in the hotel market. Specifically, diversifying into another segment of the hotel industry may be viable. Tourists have generally become more price-conscious. By purchasing other middle-market hotel chains, FSH will be able to serve a larger portion of the market, thus increasing revenues. Further, FSH will be able to transfer its pre-existing knowledge of hotel operations and thus create synergies between both lines of business.
However, this would diverge from the strategy that FSH has developed for the past forty years: Focusing on the upper segment of the market. By acquiring middle segment chains, FSH may begin to share overhead costs across the brands. This short-term thinking would immediately decrease costs, but would inevitably have more serious consequences in the long term. Sharing costs between brands would likely undermine the higher Four Seasons brand. With the brand name eroded, FSH would no longer be able to secure lucrative management contracts, or keep existing ones for that matter. This could be detrimental to the success of the company.
Alternative #3: Decreasing Room and Service Rates
A short-term fix that may increase the bottom line would be to decrease prices for rooms and services. This is a tactic used currently by the Ritz in response to the changing environment and consequently has aided them during the last year of instability in the luxury hotel market.
The problem associated with this tactic, similar to the last alternative, is the erosion of brand equity in the eyes of the public and guests. A decrease in price will be associated with a decrease in quality and services. Consequently, when the economy swings back towards prosperity, as it eventually will, there will be problems in justifying price increases. FSH might jeopardize its long-term strategic goals for a short-term band-aid financial solution. The best way to carry out this alternative is to provide substantial reasons in the eyes of the guest as to why prices are decreasing and to ensure that the decrease in price does not equate to a perceived decrease in quality.
Decision Criteria and Recommendation
The first alternative of Fine-Tuning FSH’s existing strategy ranked high in “Fit with Current Strategy”. As their credo reveals, “do unto others as you would have them unto you”, FSH believes in treating guests fairly, thus, building guest relationships will be a natural extension from this value. Also, expanding to new locations fits in with its long-term objective of growth and the desire to become the number one luxury hotel chain in the world. The second alternative of acquiring an existing mid-class hotel ranks low in this category, since FSH’s strategy revolves around being a high-class, distinguished hotel chain, and acquiring a lower-class hotel may dilute this prestigious image. Lowering FSH’s room and service rates does not fit well with its current strategy at all because the firm prides itself on being a premium luxury hotelier.
All alternatives ranked relatively equal on the “Ease of Implementation” criterion, since fine-tuning its existing strategy (through building guest relationships, finding new, suitable locations to expand, and marketing) do not require dramatic shifts from the way the firm operates. Clearly, the first alternative is just an extension of its current strategy. Branching into the middle-tier market would only require the buy-out of an existing chain. Decreasing prices requires basically minimal efforts. Thus, all alternatives ranked fairly highly on ease of implementation.
Decreasing prices ranked highest on the “Cost of Implementation” criterion because it would require minimal amounts of funds. The alternative to Fine-Tune its Existing Strategy derived a relatively low ranking because installing a detailed database and the technology for a scanable membership card in each hotel is costly. Similarly, alternative two ranked low because buying out a hotel chain can be very expensive, especially if FSH desires a hotel chain that is located on prime pieces of real estate.
Only the first alternative ranked highly in terms of “Satisfying Long-Term Goals of Growth, Market Share”. The reason is because alternative one assumes that the improvement of the key areas will garner more guests and thus, grow the firm. Alternative two does provide growth, however, it is within a segment that the firm currently does not want to be in, as FSH’s focus is in the luxury hotel market. Finally, the third alternative is a short-term way to improve the financials, however, it does not provide long-term value.
The most influential category was that of “Customer Satisfaction.” It is assumed that guests would be extremely satisfied with new initiatives that FSH would put in place in order to build stronger guest relationships. Also, new and existing guests would be satisfied with the expansion to new and stable locations since they will have the option of staying at a hotel they value. Guests would not be too pleased with FSH acquiring a middle-class hotel chain, as that would likely lower the perception of a high-class image within its existing hotels. Similar logic follows with the “Image and Reputation” criterion.
Profitability is believed to improve with all three alternatives, particularly in the short-term for alternative three. If there was not some sort of positive eventual effect on the bottom line, then none of these alternatives would be preferred. However, the third alternative is only a short-term band-aid solution, as price-cutting is never a viable long-term strategy. Finally, timeliness is fairly evident. Building guest relationships and expanding to new locations may be a timely process, however, it is one worth investing into since long-term gains are very beneficial. The most time-efficient alternative is clearly a reduction in prices.
Overall, alternative one ranked significantly higher than the others. This recommended strategy addresses the problem that the firm is currently facing as well as the critical issues. This alternative will aid FSH in resolving its problem of not possessing a strategy that could adapt to the changing times. Building relationships with existing guests will enhance guest retention, which would considerably benefit the firm as it costs 6-10 times more to attract a new guest than to maintain an existing guest.
Expanding to new select locations will aid in acquiring new guests that travel to those destinations. Additionally, this strategic component will assist in retaining existing guests that are satisfied with FSH, but perhaps did not have the choice previously since Four Seasons may not have been present in all those locations. Finally, a focus on marketing plans will clearly enhance its brand equity, which will support a positive effect on guest attraction and retainment. Thus, the first alternative encourages an increase in the loyalty of guests even through poor economic times, and in introducing new guests to the Four Seasons experience.
Before management carries out the implementation plan, they first have to communicate the vision and strategy to the entire corporation, so that employees understand the objective and will contribute to it more positively. Since the recommendation is only to fine-tune existing strategies, the structure, required resources, culture, systems and so on, are already in place. To execute the strategy, work units need to be delegated, a financial budget will be allocated and an implementation timeline needs to be created (Refer to Appendix 27).
For the remainder of this section, please refer to Appendix 22 to Appendix 27.
Fine-Tuning Existing Strategy in Key Areas – Building Guest Relationships
The first key area that FSH must improve on is building its guest relationships. Therefore it is important to have mechanisms in place to ensure that guests remain loyal to FSH and choose the company as his or her accommodation provider, whether it is for business or pleasure. One way to achieve this is through a worldwide loyalty program with software systems that could track guests’ preferences, and have the information on a database made available to all Four Seasons hotels and resorts. This initiative increases the value of the services for FSH’s guests. By taking Isadore Sharp’s vision of personalized customer relations and taking it a step further, the aim here is to understand guests’ preferences and ensure that they can expect to receive the same high level of service each and every time they visit a FSH location. To facilitate this, the hotel will introduce a frequent guest card, the ‘Seasons Pass’, which will serve two functions:
1.Track guest activities within Four Seasons Hotels and Resorts so that their preferences for services and amenities can be recorded;
2.Allow guests to collect points every time they stay at Four Seasons and use them towards service companies affiliated with Four Seasons, creating loyalty as a result.
It will also aid individual FSH locations to better understand which facilities within the hotel or resort are the most sought after and will be able to segment the information based on the region of the world or type of consumer (leisure or business).
Through partnering with external companies such as high-end car rental companies, airlines, and travel agencies, FSH will be able to offer guests a solution to every decision they may encounter during their stay. This will add more value to the Moments of Truth (Refer to Appendix 10) and allow FSH to proactively manage and satisfy guests’ needs at many more levels. By decreasing hassles involved with checking-in or ordering certain newspapers, while at the same time offering benefits like providing guests with mail/e-mail updates of certain innovations that might interest them (based on where they spent the most time during their last stay), Four Seasons will develop an ongoing relationship with the guest. Thus the Seasons Pass and the networked database will ultimately be the bridge to building and maintaining positive guest relationships.
A second component of building guest relationships is to ensure that available services be consistent at all of its locations, as currently this is not the case. For example, Toronto’s Four Seasons Spa only offers massages, whereas other locations offer a whole range of spa services. Consequently, every Four Seasons location needs to provide identical services to ensure consistency as well as maintaining the goal of ensuring that guests should expect the same service at each and every hotel and resort. In addition, Four Seasons will provide innovative value-added services to its hotels, such as oxygen spas to appeal to guests. For instance, separate rooms for different oxygen therapies will be established for all FSH hotels and resorts. Subsequently, guests could enjoy aromatherapy oxygen, take a dip in an oxygen bath, or just relax in an oxygen room while enjoying a soothing full-body massage (Refer to Appendix 22).
Fine-Tuning Existing Strategy in Key Areas – Selective Growth Expansion
Since it is in management’s interest to double the size of Four Seasons in the upcoming 7 to 10 years, they should continue to pursue their current growth strategy to meet their objectives of better servicing the travel needs of their existing guests, and attracting new international business travelers. However, given the current economic conditions, it is believed that a greater analysis of locations to expand is needed. Rather than taking the risk that the economy will continue to nose-dive and FSH will suffer from dramatic decreases in occupancy rates, the optimal choice for expansion is through a selective growth strategy whereby management is more meticulous in its expansion decisions. It should be determined where critical masses and competition are, and target these specific areas.
FSH should determine where to locate by adhering to the following decision criteria:
1.Select locations where competitors are situated – FSH needs to place hotels where competitors are located in order to remain competitive. However, before doing so, management must first assess how the competitor is faring in the area; if the competitor is performing poorly, determine whether the external environment is the cause, and if so, it may be better to not locate there.
2.Verify the location’s state of economy – Since two thirds of FSH’s revenues is derived from business travelers, it is critically important to place hotels in areas with good economical conditions that will accommodate those likely to venture to these areas for business purposes. Furthermore, leisure travelers are typically attracted to vacation spots in developed and “stable” countries thus, it is necessary to accommodate them as well.
3.Determine whether the location is a popular vacation site – Having FSH at every popular holiday destination will meet guests’ expectations that FSH maintains a truly global presence since there is always a FSH hotel or resort at popular locales.
4.Choose locations with large and potentially affluent populations (dense city centres) – Since the notion, “If you build it, they will come,” is not always true, it would perhaps be more sensible if FSH locate in areas with greater population, which in a sense, represents large, well-known cities with solid infrastructures. In correlation with the above two criteria, guests are more inclined to come to such destinations. Also, managing operations where the population has a rising standard of living that could support a high-end hotelier is also a consideration.
FSH should select appropriate locations based on the decision criteria to ensure maximized success, and as a result, profitability of its investment.
The company currently has 22 hotels and resorts under development, with a heavy concentration in the Middle East, Europe and the United States. Through an analysis of the highest REVPAR (revenue per average number of rooms) per region, the selective expansion should focus on building resorts in Europe and the Caribbean (Refer to Appendix 19).
However, Canada is not part of the expansion plan except for a residential condominium being built in Whistler. FSH needs to expand in Canada as it only has two hotels presently in Toronto and Vancouver.
This lack of presence in its home country has led competitors to gain from the Canadian hospitality market, which has been growing (revenue per available room rose 5.4% in Canada compared with a decline of 1% in the United States ).
Fairmont, Four Seasons’ main competitor, has garnered half its sales from its Canadian hotels – FSH must take action to expand in Canada near its competitor to sustain its competitive position. Along with Canada, the firm needs to research other locations that correspond to the decision criteria above in order to build a stronger portfolio of its hotels.
Besides the development of new hotels, FSH should increase the locations of its residential condominiums, as currently the two condominiums that they manage (in San Francisco and Whistler) have been very successful and were tenanted within limited time (Refer to Appendix 23).
Fine-Tuning Existing Strategy in Key Areas – Marketing Initiatives
Currently FSH spends 40% of its marketing budget on print ads, which should be continued in the future. Future print ads will be based on three different themes, marketing the hotel brand, introducing the new services, and introducing the new locations of expansion (Refer to Appendix 24 and Appendix 25).
Ads towards the hotel brand will constitute 15% of the budget and will convey an international focus. They will mostly be found in trade magazines such as Travel and Leisure or Lodging News and focus on the generic benefit of FSH. Ads towards new services will demonstrate how the company has differentiated themselves through its Loyalty Program, Oxygen Spa and other new amenities alongside its current offerings.
They will represent 10% of the budget and target middle-upper class females who are looking for vacation destinations. Magazines that will contain this ad include Vogue, In Style, and Equestrian. Lastly ads promoting new locations will take on a local and international focus. Targeting businesses and business travelers, the ads will represent the remaining 15% of the budget and be seen in Report on Business, Time, and Macleans.
Sponsoring events is another feasible manner to increase brand awareness and promote itself at the same time. Through the addition of a golf course at select resorts, FSH will be able to gain recognition and at the same time access potential new guests. An example of a charity partnership is with the Heart and Strokes Celebrity Golf Tournament – “Heart Strokes” (Refer to Appendix 26).
Also, FSH should seek a greater presence at trade shows (such as the Incentive Traveling Trade Show, CMITS, held every year) or perhaps even sponsor them to generate more brand awareness.
By building guest relationships, selectively expanding its locations and generating greater awareness through marketing, Four Seasons will be able to preserve an enviable, dominant position.
STRATEGY EVALUATION AND CONTINGENCY
Once the components of the strategy have been implemented, they will be evaluated to inform management about the success (or failure) and for continuous improvement.
Fine-Tuning Existing Strategy in Key Areas – Building Guest Relationships
As indicated above, building customer relationships is not a one-step process; it requires many different processes that each need to be monitored individually. Once again, revenue will act as a primary indicator to signal the effectiveness of the programs put into place. However, some of the initiatives should be maintained regardless of immediate revenue effects such as the detailed database system (because returns will be achieved in a longer time horizon).
Furthermore, guest feedbacks and surveys will reveal a satisfied perspective or lack thereof. Considering the client’s comments will undoubtedly allow the firm to be on the cusp of consumer tastes and desires. Monitoring other facets of the alternative such as the joint venture with airlines, car rental services, and other travel services would be relatively straightforward. Increased revenue earned through these combined ventures could be compared to historical performance.
In the situation where the value-added services are not generating improved relations, the information obtained from the guest feedbacks should be evaluated to reveal where the hotel is lacking and consequently, FSH should implement any reasonable suggestions as a contingency. Furthermore, the firm should highlight instances where it did take into consideration a client’s comments to reveal to other guests that management is listening to their opinions. Additionally, a wider variety of joint ventures with various companies could be attained in order to satisfy the full array of needs from FSH’s guests.
This would provide more opportunities for FSH to link their hotel to other services and therefore attracting more guests that also use these other services. In terms of aborting the project there would have to be a time frame implemented after which date, if revenues do not exceed the costs of these program, it would be terminated. Nevertheless, building customer relationships is never a lost cause, as it is believed that these attempts will eventually not go unrecognized.
Fine-Tuning Existing Strategy in Key Areas – Selective Growth Expansion
Revenues are also a good indicator of its selection growth expansion. However, this measure can be affected by external factors in which FSH has no control. Thus, revenues should be compared to industry averages since external events will likely play a role in all the luxury hotel players. A simple evaluation for hotel expansion would be to compare its revenues to other luxury hotels in its vicinity. Another indicator to determine if the new locations are performing well would be to examine the REVPAR as compared to other FSH locations, in addition to other luxury hotels in the area. This will encompass the amount of value-added services being consumed at each location. These measures will provide a good indication of whether or not the new locations are performing up to expectations.
It is important to have a contingency plan to combat any potential problems. Since hotel expansion is a long-term commitment (most contracts with hotel owners are for decades), it cannot be aborted easily. Some measures to combat possible problems would include increased marketing, in addition to investigating other hotels in the vicinity to find what they may be doing differently to suit the specific environment. Alternative options that are relatively straightforward are to decrease the amount of expansion if it is evident that the market is suffering. Although it may be difficult to get out of current obligations, there is no need to get locked into further contracts.
Fine-Tuning Existing Strategy in Key Areas – Marketing Initiatives
Finally, the success of FSH’s marketing initiatives will likely not be evaluated in isolation. The success of the marketing program is actually embedded in the success of the other two key areas of the strategy – building guest relationships and selective growth expansion. Therefore, the marketing plans will be successful if the evaluations for the other areas are met and deemed profitable.
As mentioned, the mandate of this report was to provide an overview of the luxury hospitality industry and specifically, one of the leading industry players, Four Seasons Hotels and Resorts, Inc. It was determined that despite a strong history, FSH’s current strategy was not conducive to a changing external environment. Therefore, it was imperative that the firm update its business model to adapt to these adjustments. After an external and internal environment analysis, it is recommended that the firm embark on fine-tuning its existing strategy. This proposal includes building stronger guest relationships, embarking on selective expansion efforts, and finally a keen focus on marketing initiatives. All of these areas, if successfully implemented, would move the firm back into solid market dominance, even in the most volatile external settings.