Porter’s Five Forces analytical framework developed by Michael Porter (1979) represents five individual forces that shape an overall extent of competition in the industry. These forces are illustrated in figure below:
Porter’s Five Forces
The threat of new entrants into the global hotel industry is moderate. There are a number of factors that make it difficult for new entrants to enter the hotel industry. These include high capital requirements, the importance of brand recognition, lack of access to distribution channels and the importance of economies of scale.
The hotel industry is highly capital-intensive. New entrants need to have a significant amount of capital to invest in building or acquiring hotels. According to data from hospitality consulting firm HVS, ground up construction of a full-service hotel typically costs USD 323,500 per room in the US. The similar pattern is echoed in many other markets as well. Accordingly, capital requirements are a significant entry barrier for new players into the hotel industry.
Established hotel brands such as Marriott, Hilton, IHG Hotels & Resorts, Hyatt and Wyndham Hotels & Resorts have a significant advantage over new entrants. These companies have been developing and promoting their brands for decades and accordingly, have a strong reputation and customer loyalty. Moreover, effective branding enables established market players to command premium prices, further solidifying their position. New entrants, on the other hand, will have no visible brand, making it difficult for them to successes in the market.
Distribution channels for hotels include direct channels, such as their own websites and reservation call centres, and indirect channels, such as online travel agencies (OTAs), global distribution systems (GDSs), and tour operators. Established hotel brands such as Marriott have well-established distribution channels. This makes it difficult for new entrants to reach potential customers making access to effective distribution channels an entry barrier for potential competitors.
The bargaining power of buyers in the hotel industry is moderate to high. In other words, buyers have a significant amount of influence over the prices and terms of service that they receive from hotels. The main factors affecting buyer bargaining power in this industry include numbers of buyers, low switching costs for buyers, price transparency and the role of online travel agencies.
Online travel agencies
Online travel agencies (OTAs) play a significant role in buyer bargaining power in the hotel industry. OTAs provide a platform for buyers to compare prices from different hotels and book rooms at competitive rates. This gives buyers more information and leverage when negotiating with hotels. Furthermore, OTAs negotiate with hotels on behalf of their customers in order to secure lower prices and other favourable terms. OTAs are able to do this due to the volume of business they generate for hotels. OTAs also have the ability to switch to other hotels if they are not satisfied with the terms they are offered.
There are also large companies that offer online travel services as part of their business model, such as Expedia.com, Priceline.com, Booking.com, Travelocity.com, and Orbitz.com and search engines such as Google, Bing, Yahoo, and Baidu. Services of these companies also increase buyer bargaining power.
Switching costs for buyers
Costs for buyers to switch to competition in hotel industry are low. Specifically, there are some costs associated with switching to a different hotel, but these costs are not insurmountable. The most significant switching cost for buyers in the hotel industry is the time and effort involved in researching different hotels, comparing prices, and booking a new reservation. This can be especially time-consuming for buyers who are planning a complex trip or who have specific needs, such as booking a hotel near a specific event venue.
Moreover, buyers may be hesitant to switch to a new hotel because they are unsure of the quality of the hotel or the services it offers. This risk can be mitigated by reading reviews of the hotel online or by asking friends or family members for recommendations. Low switching costs increase buyer bargaining power in hotel industry.
Large buyers, such as tour operators and corporate travel departments, have significant bargaining power due to the volume of business they generate. Accordingly, large buyers tend to leverage to negotiate lower prices and other favourable terms. For example, a large tour operator may negotiate a lower price per room in exchange for booking a certain number of rooms each year. Alternatively, a corporate travel department may negotiate free breakfast and Wi-Fi for their employees in exchange for booking a certain number of rooms per month. The high bargaining power of large buyers in the hotel industry can have a significant impact on hotels’ profits.
Marriott International Inc. Report contains a full analysis of Marriott Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Marriott. Moreover, the report contains analyses of Marriott leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Marriott marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review