Porters 5 Forces

Topics: Barriers to entry, Hotel, Brand Pages: 9 (1569 words) Published: April 13, 2013
Porters Five Forces Analysis for Hotel Industry:
BARGAINING POWER Of SUPPLIERS The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. The two key suppliers to the Hotel industry are: Labour Real estate

Over all the suppliers in this market are defined as property owners, developers and real estate companies, interior design and furnishings companies, architects, management and training service providers, marketing companies, industry consultants and ICT manufacturers. [1]

1. Number of Suppliers

Moderate (3)

- Significant number of real estate companies for a given locality - Few reliable ICT providers to manage property - Small no. of quality training providers and skilled employees - Substitutes for property (real estate agents), designers, employees etc are available - Hotels have higher bargaining power and can easily switch between suppliers - Suppliers are highly unlikely to forward integrate into the hotel business - Hotels could backward

2. Availability of substitutes High (4)

3. Switching cost

High (4)

4. Suppliers's threat of forward integration 5. Industry's threat of

High (5) High (4)

backward integration

integrate to own their own real estate company - They could have their own training wing - Property development and real estate companies add to the quality - So does skilled labour and quality training - Most suppliers are much smaller companies compared to hotel companies - Hence hotel companies have a much higher bargaining power - Supplier contribution to cost is low - The few powerful players in the hotel industry are indispensable to their suppliers

6. Contribution to quality

High (4)

7. Contribution to cost

Moderate (3)

8. Industry's importance to High (4) supplier

Overall, the number of suppliers for the Hotel industry is quite large and each supplier is very small in size compared to the leading players in the industry. These few powerful players are indispensible to the suppliers. Substitutability of the suppliers is also quite feasible and inexpensive. Switching between real estate agents is not going to affect a particular Hotel company significantly. However in terms of quality, training centers for employees and ICT manufacturers who provide IT systems that for property management are relatively more difficult to replace. Therefore in terms of substitute suppliers industry attractiveness is moderately high. Unlike the supplier¶s threat of forward integration, Industry¶s threat of backward integration is pretty high since large hotel chains like ITC or IHCL would have no qualms expanding into the real estate business or developing employee training facilities in-house. Similarly the industry¶s contribution to both cost and quality is relatively high.

Overall bargaining power of suppliers is low and industry¶s attractiveness in terms of supplier bargaining power is high (4). BARGAINING POWER OF BUYERS The bargaining power of buyers determines how much customers can impose pressure on margins and volumes. The end-users of the high-end hotel industry are: - Leisure traveler - Business traveler - Customers who require space for conferences or other events - Buyers are numerous and small in size. - Losing one customer in not going to make a difference. - Their bargaining power is low. - Multiple substitutes for a given hotel or brand is available - Alternate means of accomodation such as camping, RV etc is not popular in India - Informal accomadation with friends and family is a viable alternative - Corporate guest houses for the business traveller - Switching costs are negligible - Buyers are price sensitive except in the premium segment - Customers are will not construct a hotel or buy a place of residence for each

1. Number of Buyers

High (5)

2. Availability of substitutes:

Medium (3)

3. Switching cost:

Low (2)

4. Buyer's threat of backward integration:

High (5)...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Porters five Forces and Ryanair Essay
  • porters 5 forces Essay
  • Porters 5 Forces Essay
  • Porters 5 Forces Essay
  • 5 Forces of Michael Porter Research Paper
  • Essay about Five Forces Model
  • Porter’s Five Forces in Pepsi Essay
  • Porter's Five Forces Essay

Become a StudyMode Member

Sign Up - It's Free