The Ritz-Carlton Hotel Company operates within the upscale & luxury hotel industry. While it could be argued that Ritz-Carlton operates in the more broad and inclusive lodging industry, they offer a highly differentiated product and service and therefore find themselves operating in an exclusive industry alongside very few direct competitors, such as Four Seasons Hotels, HongKong and Shanghai Hotels, and Starwood Hotels & Resorts. Therefore when analyzing this industry I will not be including cheap hotels, motels, lodges, or inns, unless to offer potential substitutes to luxury hotels. In order to assess the attractiveness of the upscale & luxury hotel industry, an analysis of the general environment surrounding the industry must be conducted. The external environment consists of six interconnected elements: technological change, demographic trends, the economic climate, specific international events, cultural trends, and legal and political conditions.
The economic climate is certainly the most important environmental factor to assess when dealing with a luxury products and services industry. (Exhibit 1) Luxury goods are said to have high income elasticity of demand. That is to say that as people become wealthier, they will buy more and more of the luxury good. However, this works the opposite way as well. As people’s income decrease in times of economic recession, they will demand less and less luxury goods and settle less costly alternatives. With regard to the upscale & luxury hotel industry, during an economic downturn, such as the one we are experiencing today, demand for luxury accommodations declines considerably as people search for cheaper substitutes that can fulfill their basic needs. As noted in Exhibit 1, not only does demand for luxury goods decline during times of economic hardship, but so does travel. Many luxury hotel companies have locations all over the world, and these locations depend heavily on tourism. When people make less money, they vacation less, and if they do vacation, they are looking for cheap lodging to offset the high cost of travel. While there are many people who travel for business on the company’s dollar, the company is facing economic hardships as well and will find cheap alternatives for hotels. It is imperative for Ritz-Carlton, a company within the upscale & luxury hotel industry, to pay close attention to the economic climate and do all they can to predict future trends in demand for their services so as to not over produce and avoid major financial losses.
For a firm operating in the upscale & luxury hotel industry, it is very important that they be aware of the cultural trends within their environment. Being able to meet and exceed every want and need of their customers is what sets them apart from a typical hotel or motel. When a company expands internationally, their general environment broadens tremendously and they are exposed to many new cultures. (Exhibit 1) If a luxury hotel is to be successful in a new international market, they must be able to assess and understand then culture in which they are now operating. What works in the United States, might not work in Europe or Asia. New strategies must be developed to serve new customers and to ensure that they remain locally responsive. As James McBride, general manager of the new Ritz-Carlton in Washington, D.C., said “There is a great credence given to the importance of taking local information and then adapting to it.”(8) Countries differ in their standards for excellence, and Ritz-Carlton must “become one” with these differing standards in every country and region in which they operate.
Several other factors in the general environment surrounding a firm have an impact on the way in which a company operates. Changes in technology, for example, have had a considerable impact on the hotel industry. Thanks to the advances of the world-wide-web, the reservation process has been simplified down to a few...
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