The Development Strategies Of Budget Hotels In China Marketing Essay

The Development Strategies Of Budget Hotels In China Marketing Essay With rapid economic growth in China, the Chinas tourism industry has entered a huge stage of development. Such as mass tourism, individual travel, business travel has increased. Related data show that in 2020 there will be the number of tourists from the world to could reach 300 billion people. The market share is highest. According to the huge data, here is a huge market demand for budget hotel industry. At present Chinas tourism industry already entered the large-scale travel stage. The travellers are willing to accept clean, cheap, basic-service hotels. In order to meet Chinas tourism and business needs, the new trend is development of the international level of budget hotels. Here are some typical Chinas budget hotel chain such as Home Inns, Jin Jiang Inns, and 7 days Inns. They are use chain business model adapt to the China tourism industrys needs, the development will bring new opportunities for the hotel industry. The advantages of the budget hotel are the operational model i s small, the low-cost investment required, and easily developing chain business-make the hotels have a brand, customers, quality management based on low-cost investment. But the industry will face challenges by many local and foreign hotel competitors appear in the industry. And the budget hotel industry is in the preliminary stage, the concept of budget hotel is unclear, no standard industry rules, carefully dividing a market, and the marketing strategy also need to be development. The budget hotel industry has to develop marketing strategy to seek the road of sustainable development. In this paper, marketing strategy of budget hotel in China is the object of this study. I will evaluate the current situation of budget hotels industry in china, and analyze the problems in the budget hotel development. I will describe the marketing strategy of the Home Inns case study, using their successful marketing strategy to identify appropriate development strategies for budget hotels industry in China. I will focus on the marketing strategy theory from my BBA programme to analyze the actual problems and the successful industry cases such as Home Inns that will provide a great guiding to Chinas budget hotel industry have a new development strategy. Orientation The overview of China budget hotel industry In China the budget hotels is still a new concept. In Europe and the United States, the budget hotels are quite mature industry. It is compared with the full-service hotels form. But there is no form definition for budget hotel. We can accord the characteristics of the budget hotel to define the budget hotels is as follows: limited facilities and services; aimed at the travelers and business travelers market; standardized operation; the price is low usually below in 300 RMB in China (Table 1); branded network of hotels; located on major road networks or in secondary urban locations such as retail parks. They are generally good quality, service standards, the comfortable environment and value for money bedrooms designed and marketed in such a way as to appeal to the travelling public and is a cost-effective modern hotel business (Jones, 2002). Table 1- The Published Room Price of Home Inns Budget Hotels Room Bed Price Standard 1F Double: 15m2  ¥227 Standard King size 1F King size: 15m2  ¥227 Standard ¼Ã‹â€ 2F-4F ¼Ã¢â‚¬ ° Double: 15m2  ¥265 Business ¼Ã‹â€ 2F-4F ¼Ã¢â‚¬ ° King size:15m2  ¥265 (Source: Home Inn website) According to the Chinese budget hotel industry report 2011-2012, I saw the Chinas budget hotel industry has a rapid increase in market share. In 2011, the Market size grew 45 percent year-on-year to RMB26 billion and the number of budget hotels grew by almost 42.85 percent to 7,314. The industry is still in the big but not strong stage. For the market share, the total revenue of hotels in China has a concentration ratio just 37 percent in 2011. In future completion progression, the fast market expansion mainly through franchise chains, mergers and acquisitions. (China budget hotel industry report, 2011-2012. 2012) Analyzing the current business portfolio of the China budget hotels may use the Boston Consulting Group Approach (BCG) to measure market share and growth of their business. Here is a high-share business units in low-growth market is called Cash Cow. They need to develop strategies for growth. The hotels need growth if they are to compete more effectively, more satisfy their customers, and attract more professional staffs. The purpose of strategic planning is to find ways in which the budget hotel industry can best use its strengths to take advantage of attractive opportunities in the environment of the China budget hotel industry. (Armstrong Kotler, 2007) SWOT Analysis A SWOT analysis is a useful tool to evaluate the businesss overall strengths (S), weaknesses (W), opportunities (O), and threats (T) (Table 2). It analyzes businesss markets and marketing environments and base objective to find attractive opportunities and identify environmental threats. The strengths and weaknesses are in the internal environment, and opportunities and threats are in the external environment. I will use this tool to analyze the current situation of the budget hotel industry strengths and weaknesses in the internal environment to determine which opportunities it is best. The goal is to match the industrys strengths to attractive opportunities, overcoming the weakness and minimizing the threats (Armstrong Kotler, 2007). The SWOT analysis can be very good response current situation of the industry. Strengths Internal capabilities that may help a company reach its objectives Weaknesses Internal limitations that may interfere with a companys ability to achieve its objectives Opportunities External factors that the company may be able to exploit to its advantage Threats Current and emerging external factors that may challenge the companys performanceTable 2-SWOT Analysis Internal External Positive Negative (Source: Text book Marketing: An Introduction, Figure 2.7) The strengths of China budget hotel business: Low cost investment: the cost of budget hotel is lower than other star hotels, the development is easy. Price advantage: the budget hotel can proved a lower price for good quality, service standards, the comfortable environment, and the bedrooms designed. Customer advantage: the low price of the budget hotels can better attract customers improving occupancy rates. Management advantages: budget hotel use chain business operation, it is easy to set up management model and adapt to market competition. Information advantages: easily set up their own network, customer service systems, and reservation system. Using modern technology can obtain more stable customer source. (Zhao Guo, 2006) The weaknesses of China budget hotel business: Huge numbers of budget hotels had flocked together in China. No standard competition model in the industry. Lack of clear market positioning Lack of standard management system Some budget hotels cheap equipment cannot meet the customers needs. (Meadin, 2010) The opportunities of China budget hotel business: There is a huge Market demand for growth in China. According the world tourism organization predict the worlds largest tourism country will be China in 2020. Now, the demand of the budget hotels increases along with the increase number of Chinese tourists and foreign tourists. (Meadin Website, 2010) Change of consumption idea and behavior. With the improvement of the living standard of Chinese people, the consumption idea and behavior began to improve. So there is a huge space for development. (Zhao Guo, 2006) The threats of China budget hotel business: There is so much competition for the China budget hotel industry. Foreign budget hotel into the Chinese market. And the brand of Chinese budget hotel continues to expand. There are a lot of potential competitors and substitute hotels. Crisis of confidence. Some budget hotel cannot meet the needs of customers such as cheap facilities, low service quality, and bad hotel operations. This made a negative impact for the budget hotel industry. Lack of professional human resource management. The rapid growth of budget hotel in China to make the lack of management model and professional staffs. (Zhao Guo, 2006) The features of China budget hotels The limitation of product: the core of the budget hotels is accommodation. They remove some unnecessary service to cut the cost. Quality of services and products: the budget hotels emphasize the comfortable of guest room facilities, clean and convenient environment, and service standards. Reasonable price of the budget hotels: the main target markets are tourists, students, business man etc. The price is usually below 300 RMB. (Table 1) Chain business operation: a lot of budget hotel use chain business model such as JinJiang Inns, Home Inns etc. This way can enhance brand value, expand business range. This is important difference between other star hotels. (Zhang, 2008) The problems of China budget hotel industry Lack of service standards The biggest problem of the budget hotel is no-standard service, poor facilities of some budget hotels, and difficult to meet the needs of the customers. Most of the budget hotels management does not reach the position, low service level, and the environment is not enough comfortable. Some budget hotel also operate old low-star hotel model. They are not professional for the budget hotels core of service. The definition of the budget hotel is safe, clean, providing basic life needs. The budget only is less investment and less supporting facilities. It is not to decrease the basic management of service quality. Budget hotels investment is less, but also need to have a standard rules and basic service quality and professional level. (Gao, 2009) Lack of brand awareness In China budget hotel industry, the brand awareness is not strong. Many of the budget hotels are individual operation that not build a scale business and brand effect. The development of individual operation by the price competition is negative for the development of the industry. The customers acknowledge of brand and choice of service brand gradually growth that has also become a kind of consumption habits. Now the most main competition is brand competition, if the hotels have not a brand image they will lose competitiveness power. Actively implement the brand strategy has become an important issue for the budget hotel management. At present, the most of the Chinas budget hotels did not build a scale business and also not use chain operation, except JinJiang Inns and Home Inns have brand and collectivization characteristic. There are few budget hotel create their own brand awareness. (Gao, 2009) Lack of professional human resource Lack of professional talents is a development bottleneck with the company size is continually expanding. The lack of professional talents can easily lead nonstandard service operation skills and poorly service quality. The team building and developing personnel sources from which to recruit potential employees is so important for the company development. The budget hotels need the employees who can handle a wider variety of responsibilities that training and developing managers is so important (Noe, Hollenbeck, Gerhar, Wright, 2009). The professional talent competition is so importance for budget hotel industry. In practice, the budget hotels are faced with the lack of professional talents. The human resources required of the budget hotels are one person who can on more jobs and more abilities manager but there is lack of human resource in the market. Therefore, the Chinas budget hotel industry will face the strong challenge from foreign brand and capital. Attracting talents and crea ting high quality management team is so important improvement for the China budget hotel industry. There only have the strong human resource development the budget hotel achieve the goals by service standard and operation standardization. (Gao, 2009) Difficult to build scale management The budget hotel industry is an emerging industry. Many owners dont have a lot of management experience. At the same time, the budget hotel both in size and in financial resources is limited. The development of the budget hotel industry is mainly at an individual operation situation, so the weak profits for owners and for customers is difficult to meet their requirements. The budget hotel industry need to change the management model is necessary. (Gao, 2009) No clear market segmentation In China many budget hotels do not have clear target market and or market segmentation that causes the market overlap or product design is not obvious difference so lack of different subdivided market demand for products and services. In China there have been no analyses on budget hotel clear division of products to meet different customers with customer demand for the industry. In foreign the budget hotel can be divided into three categories: full service hotel, budget hotel, and cheap hotel. The three levels of the price and the facilities is bigger difference. At present the product design of the Chinas budget hotel is single. There is no obvious difference of product and individuality characteristic. The different customers have different demand that reflected in product demand. There has a strong required for product differentiation. (Qiang, 2008) Research Methodology In this paper, I will use case study method. This project uses the Home Inns budget hotel in China. It is successful marketing strategy experience for the budget hotel market. And analyze the issues and current situation of the Chinas budget hotel industry. After analysis, I find some greatest marketing strategy for the industry help other hotels to find their own suitable development road. They have appropriate marketing strategies to compete with other competitors, and establish their own brand image. The main research contents: Introduction the research background and objectives, the structure of this project, and the significance of the research in this paper; Analysis of the current situation and business environment of the budget hotel industry, include the definition and characteristic of the budget hotel, and defining the problems of the budget hotel industry; Analysis of the marketing strategy of Home Inns, include the introduction of Home Inns and its successful marketing strategies. Reporting the findings, include develop the greatest marketing strategy for the budget hotel industry based on analysis of the Home Inns marketing strategy and the theory of marketing strategy. Data collection: I plan to gather information from the Primary data and secondary data. The secondary data has been collected include magazine, newspaper articles, books and internet articles or journals, and a thesis on a marketing strategy topic. The main data is based on the secondary data source. On the other hand, the primary data also been used include internal report and document from their owned Website of the companies. I also will collect some literature and theory based on my BBA courses include marketing management, strategy management, small business management, human resource management, and service operations management what factors help the budget hotel industry find the appropriate road to face the challenges and develop their own marketing strategies. Review of Literature Introduction of Home Inns In China, Home Inn was founded in 2002 that is the first budget hotel company for the 21st century. The vision of the company is wherever you go, you are always at home with professional and courteous service, comfortable rooms, convenient locations, and low prices that make attractive for leisure travelers and individual business who demand clean, comfortable and convenient environment of the budget hotel. Home Inn continues to rapidly expand its nationwide network of hotels. In November 2011, Home Inn launched a new hotel brand- Yitel for the middle-class and high-class market. They also completed the acquisition of an all ownership interest of Motel 168 hotel chain and have retained the Motel 168 brand in October 2011. In 2012, home Inns operated across 243 cities in China with a total of 1,682 hotels (Appendix-2). Their goal is to continue expanding to ensure whatever how large grows they will always keep the consistent quality and superior service that guide each hotel in the ho me Inns group (Overview of Home Inn, 2013). Home Inn is a largest budge hotel company in China with a 23.7% market share in 2012. (Appendix-3) The history of the Home Inn is Ji Qi one of Ctrip founders who founded a good business chance. Because Ji Qi noticed a lot of traveler complaints the price is so expensive of the hotels in the Ctrip Website. After some analysis and reaches he found in China the full-service star hotels is not economy and the cheap hotel is poorly quality. This opportunity let Ji Qi created a chain brand idea for the hospitality industry in China. So the Home Inns hotel brand is developed. (Ma Chen, 2008) Analysis of marketing strategy in Home Inns The brand of Home Inn hotel is rapid growth in a short period that has become a first budget hotel chain. Its successful management strategy will be used for other budget hotels in China. To subdivide the market segmentation The company must to divide the market segmentation to decide its clear market positioning strategy. The company designs the strategy to build the right relationships with the right customers. First the company need to identify a set of possible competitive advantages which to build a position, second step is company chooses the right competitive advantages, and last one step is the company selects an greatest positioning strategy. Then the company must to effectively communicate and deliver the chosen position to the market. Market positioning includes deciding how to best serve target customers and setting the competitive advantage for the company. Company positioning should be summarized in positioning statements that state the target segment, positioning concept, and specific points of difference. (Armstrong Kotler, 2007) The segment market will be the direction for Chinas budget hotel business in the future, said Ye Bingxi the senior public relations manager at Home Inns and hotel management Inc. (Wang, 2012) The market position of Home Inns is the middle and high-end business hotel for individual business and leisure travellers who need a comfortable and clean hotel room at right price, Home Inns is a good choice that allows you feel the warmth of your home. The market is more carefully segmented to target customers. The Home Inns provide basic living facilities, clean room, and the equipment is simple and reasonable for individual business and leisure travellers will get the comfortable, clean and safe hotel environment at the right price is around 200 RMB. The clear positioning is an important competitive advantage. The marketing positioning of Home Inns to highlight their own characteristic, such as the room design is very unique. The most direct impression of the Home Inns is warm, simple, and convenient. They deliver the unique products and service for customers best impression. (Su, Shen Zhong, 2009) To emphasize quality consistency The high quality also can mean high levels of quality consistency. Today many companies have turned customer-driven quality into a potent strategic power. Customer-centered companies define quality in terms of creating customer value and satisfaction. They want to create customer satisfaction and value that is necessary of consistently meeting customers needs (Armstrong Kotler, 2007). A good quality control is a system used by a manager to ensure that the finished services meet the needs of customers. Effective quality control is needed to set standards for the service quality range, measure actual performance, and compare that performance with established standards (Byrd Megginson, 2009). Attracting talents and building a high quality management team is so important for perform the established standards of the service quality and ensure the quality consistency. There is only the strong human resource development lead the budget hotel to achieve the goals by maintaining the service standard and operation standardization. For a chain business, the service quality control is so important. If you dont have a good standard of the hotel will not be able to assure the quality of the company brand. The Home Inns practice has great directed function. Standardized service is a huge challenge for budget hotel chains. Only the standardized service can help consistently service quality. The Home Inns have established an effective management system. There are external and internal factor. External factors include industry, product, service and marketing. Inside factor include human resources, management system and core competitiveness. The home inn have wrote standards and procedures have established their own service standards. The different departments and teams within our management work together to maintain strong internal control and strengthen focus on risk management. (Tang, 2007) To build strong brand In China mostly budget hotels are single business form, no scale formation without the brand. For a budget hotel the brand is powerful assets that must be carefully developed and managed. The strong brand provides a company with many competitive advantages can create big benefits. A powerful brand enjoys a high level of consumer brand awareness and loyalty. The brand exists in the minds of customers. The real value of a strong brand is its power to capture consumer preference and loyalty that expanding the market share. (Armstrong Kotler, 2007) The Home Inns created their own brand that direct represents the characteristic and culture of the business in the market. The well-known brand is based on the quality of the products and services that maximum to meet the needs of the consumers. Home Inns create their own brand mainly following several ways as: Fist, Home Inns on the brand name is fully considered the characteristic of the budget hotels. On the one hand, home reflects the warmth, comfortable, home feeling meet the customer psychological needs. On the other hand also reflects its convenient and expeditious such as quick reservation system, good traffic conditions customer can easily and quickly find Home Inns. Secondly, through the reasonable and rapid expanding, home Inns hotel chain in order to build the good image. Third, Home Inns more focus on the satisfaction of the brand. The Quality control always is in the expanded scale process. Survey of customer satisfaction is used to timely analyze the customers comments and opinions, and then plan the best solution strategy at the first time. Finally, in the information and technology society, Home Inns paid more attention to the promotion such as advertising and public relationship. Include print, radio, television, magazines etc. The building advertising is an important part in the Home Inns marketing and is also a modern communication to achieved good effect. The Home Inns hotel builds up a good corporate image in the industry. (Su, Shen Zhong, 2009) To perform the chain operation strategy The budget hotel industry has to use the chain operation value for the biggest value. Because the low price of the budget hotels they should be collectivization and chain operation way for obtain more market share and development space. The chain operation strategy has many advantages over independents. Home Inns is a leading economy hotel chain in Chain. Home Inn Company has clear market position, standardized service processes, daily operations management and supervision system can make a best chain forms. They also provide the strong financial support, and then the ideal chain brand is effectively created. Home Inns use regular chain and franchise chain to expand the market size and the numbers of the home inns hotel. There are nine service support for franchise business, such as brand support, sales support, engineering and maintenance, and chartered service, maintenance profit, standard manuals, training, hotel management and network technical support content to ensure the standard of service and replication, as well as the brand is effectively expand (Tang, 2007). By the end of 2010, Home Inns Company has a total of 674 hotels covering 121 cities in China. Under Home Inns chain mode, its total room number is 7,8231 (Appendix 4). Its average per hotel guest room number is 116. In 2010, annual average every hotel room revenue is RMB 144. Under the back ground of collectivization and standardized chain replication model, Home Inns budget brings a large scale chain like brand effect. (Baidu, 2013) Research Finding Home Inns success experiences maximum meet customers needs and the basic requirement such as convenient, comfortable, clean environment and through the brand strategy and chain strategy to realize the company development. Now here is some the development issues of the budget hotel industry in China such as no clear market segmentation and poor brand marketing. But with the rapid development of Chinese economy and the tourism industry, the demand of budget hotels become more and more strong in the market. There are some success marketing strategies for the industry from Home Inns. Differentiation strategy Differentiation strategy provides the budget hotel products and services that offer benefits different from other competitors. The aim is to achieve competitive advantage by offering better products or services at the same price. The success of a differentiation strategy is likely to be dependent on two key factors: identifying and understanding the strategic customer that focuses consideration on who the strategy is targeting; and identifying key competitors (Johnson, Scholes Whittington, 2008). In China most budget hotel is not clear on the market segmentation. The target market is single, no clear subdivision. Here the Homs Inns is good example for the industry they accord different age will be divided into the senior passenger market and youth passenger market segment, and also be divided according the occupation. So the budget hotel industry should accord the gender, income and other factors to design different budget hotel products and service to meet the needs of the consumers for obtaining the customers loyalty. At the same time, the features of the budget hotel are also important for the differentiation strategy. The budget hotels implement specialization strategy the characteristic factors to meet diversification of the consumer demand and required. They need to focus on the maintaining the general service characteristics such as economic, comfortable and convenient and at same time creating the significant personality characteristics such as new concept and new acc ommodation experience to attract consumers is the service extends to the spiritual aspects. For chain operation, each budget hotel has different regional resources and market conditions advantages that through the diversification reengineering will be make the best choice for the budget hotel chain management. (Huang, 2012) Actively promote Chain operation The chain operation is the main trend in the budget hotel industry. Home Inn is a biggest chain operation business in China. It is good to ensure the most important customers resources through the chain model. The business travelers will choose familiar brand when they need a hotel service in another city. So the key of the chain operation management is to open enough hotel stores in more and more city that keep the travelers can find themselves familiar brand in different cities. Fist, individual economic only have small profits, the budget hotel is difficult to obtain rapid development by single unit profit. The scale economy is consequentially development trend. Second, the hotel is in a specific space environment to the customer provide accommodation facilities and service industry. The hotel hardware facilities is fixed in the specific space so the single budget hotel sales has a larger space limitations, will seriously affect to attract customers. Now the consumers activity area presents a wide range feature. Single budget hotel only through chain operation to speed expand their business scale and through the scale business reduce transaction costs and management cost, and integration of internal resources, expand the brand influence, the market competition advantage can be achieved. The chain operation management is the necessary way for the budget hotel industry development in China. (zhao, 2007) Brand strategy Brand is the intangible assets of the budget hotel it can produce huge economic benefits. Brand strategy is very effective marketing strategy. Brand is the culture and the unique advantages of different budget hotels. Brand is like the life of the budget hotel chain operation management, because the brand can let customer best understand and feel the different characteristic with other budget hotels that enhance consumers loyalty and identity. The well-know brand also is so important for the chain operation management that is effective competitive advantage. (zhao, 2007) The budget hotels need to manage brands as assets calls for longer-term strategy, maintain and protect their brands image, associations, quality, and to prevent short-term actions. First, the brands positioning must be continuously communicated to consumers that create brand awareness and to build preference and loyalty. The customers loyalty depends on the longer-term brand experience about the budget hotels consistent quality services and products. The budget hotel quality brand mainly through the image features, the price, the accommodation, the service staffs, and the hardware facilities to the customers produce the first impression. So the budget hotel build their brand depend on the long-term quality management and effective marketing strategy. The budget hotel needs to pay more attention to improve their own quality, and to train its staffs for professional manager market that to help employees understand and be enthusiastic about the brand promise. (Armstrong Kotler, 2007) Service strategy Service strategy is so important for the service industry-budget hotel industry. The service is to satisfy the needs of their customers through the place, staffs, price, equipment, and communications that they can see. For example, the budget hotel room is tangible services to customers enjoy the intangible service such as clean, warmth, comfortable. The budget hotel need to improve the service quality to meet the customers demand let them really feel the value. Successful budget hotels focus their attention on both their customers and their employees. First they need to ensure the internal