Porter's Five Forces In The Hotel Industry

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2.0 Environmental Analysis In order to better evaluate the business environment in which this business is involved, a Porter’s Five Forces analysis is conducted. This analysis would be able to give a clear view of the competitiveness and profitability of the hotel industry. 2.1 Threats of New Entrants- Barriers to Entry For an industry, the threat of new entrants is mostly determined by barriers to entry. The barriers of entry could be made of financial and non-financial factors as well as the competition already present in the industry. The hotel industry in characterised as an industry with high capital costs which would include the costs of construction, furnishing and equipment, pre-operational expenses and finance.The two most important…show more content…
A higher bargaining power on the buyers side could impact the industry in various ways. They may influence the prices of the products or services, lower the industry’s margin, give cause to the players to increase costs and may even also lose their buyers as various alternatives may be available. In the case of the hotel industry,the main buyers would be the guests and potential future customers. They are the driving forces that decides the make or break of a hotel. Individuals or small groups may have smaller bargaining power as their at a diseconomies of scale. They are not able to negotiate price reductions or be subjected to special rates and packages. However, the group that may hold a high bargaining power would be those that come in group tours or conduct bulk purchases of hotel rooms for purposes of conferences and conventions alike. An alliance between hotels and airlines may also see the airline side(buyer side) exercise some bargaining power. This could be in form of the airlines offering their customers a travel package which includes accommodation and air tickets. The loyalty formed between these two parties would allow the airlines to negotiate room rates . An example of this would be with the Air Asia airline. When the passengers purchased tickets online, Air Asia often includes special offers of accommodations at the destination chosen and with the loyalty programme conducted by Air Asia, hotels that are associated with such offers would be more confident as it ensures a steady stream of potential customers. As for the bulk purchases or tour groups, their side would certainly be booking a handful of rooms making them eligible to negotiate prices and obtain lower hotel tariffs. This may seem disadvantage to the hotel side as their are lowering prices and rates. However, if we analyse closely, this might as well be a

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