Market Characteristics of Four Seasons Hotels and Resorts - Case Study Example

Market Characteristics of Four Seasons Hotels and Resorts Table of Contents Market Characteristics of Four Seasons Hotels and Resorts 1 Table of Contents 1 Abstract 2 Introduction 3 Government intervention 4 Market characteristics 5 Bibliography 13 Abstract What does the luxury hotel industry mean? How has its growth been? What are the trends as depicted by the recent reports on luxury hotel industry? What has been the place of Four Seasons Hotels and Resorts in the luxury hotel segment? What are the values that have driven the company, and what can be future trends in the segment. What is market segmentation and marketing mix and what do they achieve? What is the global size of the international tourism market, what is its volume? Plus what is the government’s intervention in the tourism industry as a whole. This paper discusses all this and more. Introduction On account of scarcity of data, it is not easy to measure the global size of this industry. However, four years ago, UN World Tourism Organization (UNWTO) data was used to ascertain the enormity of this industry in the "international Hotel Industry" report (2009), Mintel. The report estimated total number of hotel rooms at around 20.1 million, where the growth in years preceding 2008 was around 2.2 percent. Of all these rooms, Europe comprised of 36 percent, Americas 35 percent, Asia Pacific 24 percent, Middle East 2 percent, and Africa 2 percent. This UNWTO figure referred to rooms as those in inns, small hotels, and other small establishments, apart from well-established hotels that are either popular in the domestic or international market. As a result of this, a figure of 20.1 million was considered to be somewhat overestimated. When the statistics was narrowed down to bigger and better hotels only, this figure was put at 11 million rooms which, by the industry norms, was no less a feat that the industry has accomplished. International tourist arrivals were estimated at 980 million and that was despite Tsunami in Japan and political disturbances in North Africa and Middle East. The growth in international tourist arrivals in the year of Tsunami was 4 percent. Keeping this rate of growth in view, these arrivals were estimated to cross 1 billion mark by the end of 2012. Growth in Europe was 2 percent above the global rate of growth, followed by developed economies at 5 percent and developing economies at 3.8 percent. Total tourist arrivals in 2011 was 503 million in Europe, Asia and the Pacific 216 million, Americas 156 million, North America 100 million, Africa 50 million, and Middle East 55 million - all in the year 2011. If the current trend is anything to go by, forecast for 2030 has been put at 1.8 billion international tourist arrivals (Hotelanalyst.co.uk, nd). Catering to this huge rush of arrivals are different types of properties. The types of hotels, however, that stand apart from the rest and are unique in more ways than one, are the ones where luxury is at the beck and call and amenities beyond ones imagination. Examples of such hotels include InterContinental Hotels, Ritz-Carlton, Conrad Hotels, Dorchester Collection, Starwood-Westin Hotels, JW Marriot Hotels, Hyatt, Marriot and Four Seasons Hotels and Resorts. Government intervention According to traditional political theory government is concerned with maintaining internal communication, defense, law and order, economic redistribution and transport infrastructure -- tourism is affected by all of these. Government's intervention in tourism sector, including hotels, pertains to formulating tourism-related policies and passing laws, and setting up regulatory bodies to monitor tourism. Whatever the form of government, unitary or federal, directly or indirectly it affects tourism. The law enforcement and judiciary are indirectly intervene with tourism by enacting laws and regulations pertaining to what affects tourism -- like environment, and law and order. Since tourism helps improve balance of payments, government tends to intervene in tourism from time to time. Government intervenes in tourism through coordination, planning, and legislation and regulation. Furthermore it acts as a stimulator, interest protector and even entrepreneur. Government's intervention in tourism has increased specifically after the World War II because it forms an important component of foreign policy and international diplomacy. Government also intervenes in tourism through non-tariff measures, duty-free allowances, travel allowances, airport taxes regulations and credit card use rules. Through GATT and IMF governments sign multilateral negotiations and bilateral tourism trade agreements. Although different countries have varying legalities on tourism, most of the areas covered under different laws are international conventions, regulatory materials, codes, national best practices, online material, publications and models law. Market characteristics Size The hotel industry has got a lift because of a rebound in global travel. By April 2012, there was an increase of 5.4 percent in international tourist arrivals. In Southeastern Asia and North Africa, the increase has been of double-digit gains. Following a contraction a year before this, the recovery is being seen as nascent in Asia Pacific and Middle East. Despite certain negative occurrences in 2011, the revenue growth shot up to 8 percent in global resorts, hotels and cruises industry. This trend is expected to been smooth through this decade on account of higher travel and spending capacity of tourists in the markets which are emerging. A buoyant growth in revenue per available room (RevPAR) was seen in Europe during London's 2012 Summer Olympics. During this decade the hotel industry is expected to advance to roughly USD 10 trillion, which amounts to an average of 4 percent annually. Of every 10 jobs, one is expected to be provided by the hotel industry (Cain and Gomes, 2012). Four Seasons Hotels and Resorts is privately-owned and was founded in 1961 by Isadore Sharp. As on date it has the deepest market penetration in North America and the company is continually exploring newer markets which, according to Kathleen Taylor, its President and Chief Executive Officer have not been tapped so far (Leadersmag.com, 2011). For example in Asia, it has just one hotel located in India and recently opened one more hotel Hangzhou in China, taking the total count of its hotels there to fourteen. Focusing on culture of each location which the company selects for its operations, it has presence in 35 countries; the number of hotels totaling 83 in all. Four Seasons Hotels and Resorts are located in almost all continents; maximum, as mentioned above, in North America. Some of the widely-travelled locations include Atlanta, Chicago, Dallas, Hawaii, Vancouver, Santa Fe, Philadelphia, New York, Toronto, Costa Rica, Buenos Aires, Geneva, Istanbul at Sultanahmet, Dublin, Beirut, Doha, Damascus, Mauritius, Seychelles, Riyadh, Beijing, Bali at Jimbaran Bay, Macau, Hong Kong, Malaysia, Maldives, Shanghai, Singapore, Tokyo, and Sydney. The company envisions to operate finest of hotels, residential properties and resorts using designs that are superior and ethnically deep rooted in the region in which they are located. This is one reason that no two properties of the company are similar to each other except for the flawless hospitality service that all of them provide. Over the years Four Seasons Hotels and Resorts has gained tremendous foothold in the hospitality sector because of its exceptional approach to business, which is technology-driven, modern, and savvy and not just based on old traditional service model. Its defining moment was in 1970 when its first hotel came up in London, England. This is because this hotel was a tone-setter for the signature that the company is now known for ten years of relentless hard work saw the company entering under its own brand name into the US market; time by which it already had 10 properties in Canada. In 1970s the company focused on luxury. In 1980s it expanded further in the US market. In 1990s it started its growth around the world. And from 2000 to 2012, which was its fifth decade, during which it grew in both size and recognition, it got established as a global luxury brand (Fourseasons.com, 2012). In its endeavor to expand, on October 05, 2012 it was a homecoming for the company when its opened a flagship property in Toronto in Canada, where it was born 5 decades ago. This 259-room hotel was hailed as a milestone for the company because the hotel got to be tagged as a showcase for the forthcoming generations in terms of experiences that it promises. When the hotel was opened, Katie Taylor, remarked: "It gives us all a sense of pride to display the very best of Four Seasons, right here in our hometown." This was followed by Four Seasons foray into the Sub-Saharan African market with the opening of its Four Seasons Safari Lodge Serengeti, Tanzania. Located in a destination that is no less exciting, Tanzania's Serengeti National Park, the property is supposed to transform the very concept of hospitality across the world. The Park is 5,700 square miles UNESCO World Heritage Site, which is home to rare species of wildlife and alluring landscapes. Further expansion is slated for Ngorongoro Conservation Area and Zanzibar Island (http://press.fourseasons.com, 2012) Volume In January this year hospitality and hotels experts at Jones Lang LaSalle predicted that by the end of 2013 transaction volume of hotels will reach $32 billion globally. This volume will be propelled by hotel owners, the banks and private equity investors. To drive this volume further, the analysis reveals that resource-rich cities like Munich, Istanbul, San Francisco, Sydney, Boston and Singapore will be expected to display increase in average room rates and surge in demand. Source: http://www.hotelmanagement-network.com/news/newsglobal-hotel-deal-volume-to-reach-32bn-in-2013-report According to a report made public in February this year an 8 percent surge in corporate hotel reservations was witnessed, which is 2.1 percent more than 2011. For example in North America there was an increase of 5.4 percent in corporate bookings and 2.4 percent in average rate in North America. The increase in volume was 11.2 percent outside North America; Asia fueled most of this growth (Businesstravelnews.com, 2013). With regard to Four Seasons Hotels and Resorts what makes it great to be at, to work, and to know more is volume; sheer size of its business. Not only that, what makes it great is also the fact that after, say one year, employees can opt for a transfer to another location: Maldives, Bora Bora, Budapest, and Macau, as mentioned by one of hotel's promotional dossiers. In other words, adds the dossier, "There are 85 possibilities in 35 countries”. Headquartered in Toronto, Ontario, the 2010 revenue for Four Seasons was 3,200 million. As per 2012 records the hotel has total number of employees in the US as 12,439, and employees outside US were 20,773. The company created 613 new jobs and the percent of job growth for one year was 6 percent. Percentage of voluntary turnover was 6 percent, applicants 50,002 and job openings as on February 2012 were 2,500. Average annual for the most common job of assistant F&B manager was $49,488 and for most common hourly job of guest room attendant was $33,036 (Money.cnn.com, 2012). Ever since Four Seasons redesigned its website, its traffic has increased substantially to 30 million visits per year, which is 10 percent more than what it was in 2010. Online bookings rose by equal percentage and as on date nearly 12 percent of all its bookings come through its website. This, coupled with its integration with several social media, has given the discerning customer a leverage to know more about its hotels prior to making bookings. Values "Do not do to others what you would not to be done to yourself" - that is the principle on which Four Seasons value system is based. The concept of good service has been pivotal to its growth. The company premise is simple in the sense that if the customer is satisfied, employee satisfaction gets inextricably linked to it. In other words the focus has to be as much on employees as on customers. This is why Four Seasons has always said that its strength lies in its employees and their overall attitude, which should run uniformly between employees and managers. Some decades ago, as the company was on a path to growth, a Golden Rule was set to establish company credo. It stressed the importance of treating others as one would like to be treated himself. This rule runs so deeply among employees, managers, business partners, investors and even guests that it has developed into a value which is de facto linked to the company ethos and functioning. This is one reason why even ordinary people make Four Seasons destinations into world-class facilities. Apart from this the company's values are based in the simple thought of being responsible citizens. The company has, over the years, undertaken outreach programs of immense impact. These programs are designed to benefit the communities in which the company does business. Currently the company works in three important priority areas. These are Building Communities, Advancing Cancer Research, and Supporting Sustainability. These priority-areas are at the focus of each hotel that the company operates. Funds worth millions of dollars are raised annually by the company's dedicated teams for several community development programs. The Terry Fox Run, which is now a popular one-day fundraiser, was initiated by Four Seasons in collaboration with Canadian Cancer Society. The Run has been such a success that till date it has managed to raise around $500 million worth of funds for cancer research. Its Building Communities program helps local youth in countries in which Four Seasons operates through different mentoring, volunteering, and training programs. The "Green Teams" in every hotel help communities in improvement of recycling, water usage, and energy consumption activities. These teams also teaches people importance of sustainable practices, conservation of natural resources, rebuilding coral reefs, and reducing environmental impacts of certain damaging practices. In 2011 the company started one of the most difficult sustainable initiatives of planting 10 million trees around the world. This program was kick-started with Earth Week 2011. What is more astounding is that the program started with all 35, 000 employees in 35 countries making their contribution. This initiative is seen as having long-term implication in terms of not only conserving and preserving the planet, but also in terms of educating the masses and making them aware of the importance of any such initiative. That is not all; the company has been embarking on anything from protecting Nevis sea turtles and caring for Thailand's elephants and, of course, their owners who are seen begging on Bangkok streets. As part of their turtle-saving initiative, these sea creatures were tagged for the first time in 2007, through a program known as Eastern Caribbean Hawksbill Tracking and Conservation Project. This is when the scientific community came to know that sea turtles spend their life's 90 percent of time underwater. They surface only for 10 percent of their life span. In Costa Rica, Four Seasons has taken up the unusual task of providing textbooks to peninsula Papagayo student community. Not only have Four Seasons employees donating generously for this Libros Para Todos (Books for All) program but also guests too have been Good Samaritans. The Regent Singapore staff, which is a Four Seasons property, took up the task of Alexandra Canal revitalization, and Vancouver Olympics would not have won the Greenest Games ever title has Four Seasons not donated its emission credits. This was made possible by Four Seasons resort Whistler by transforming its carbon footprint by switching to a heating system that was energy efficient (Livingvalues.fourseasons.com, 2012). There was 50 percent reduction in its greenhouse gas emissions and 18 percent reduction in its energy consumption, which transforms to 573 tonnes greenhouse gas savings per annum. Key players Luxury travel and stay continues to grow and Four Seasons has its own share of competing key players in different continents. For a company like Four Seasons, the competition can be deemed as stiff not only from super luxury brands and operators (like Four Seasons is), but also from middle market luxury hotels and designer lifestyle luxury facilities. There cannot be an accurate demarcation between these three as it often ends into a subjective and blurred definition when one level is compared with another. Venice's Hotel Ciprani and London's Savoy and Claridge can be deemed as the stiffest players against Four Seasons in the super luxury category. Others include InterContinental (64 throughout Europe), Softel (86), Sheraton (67), Le Medidien (43), Kempinski Hotels & Resorts (29), JW Marriot (2), Luxury Collection (37), Starhotels (17), Ritz Carlton (9), and Oreint-Express Hotels (11) among a dozen more (PriceWaterHouseCoopers Research, 2007). In all the competition can be gauzed by the statistics that ther are around 481 luxury hotels providing 96,313 rooms in Europe. Four Seasons is just 3-3.5 percent of the total stake held by key players in this continent. This is not to count the new luxury brands that were introduction between 2006 and 2007 like Waldorf=Astoria Collection (Hilton Hotels), Nikki Beach Hotels (Nikki Beach Hotels & Resorts Worldwide), Pullman (Accor), Blue (Taj Hotels & Resorts), Le Crillon (Starwood Capital), Baccarat (Starwood Capital), Royal Tulip (Golden Tulip Hospitality), “1” (Starwood Capital), Andaz (Hyatt), and SLS Hotels (SBE Entertainment Group). Key consumers Rate for one Luxury Suite in Four Seasons Atlanta, for example, costs USD 1,400 per night. For a Presidential Suite on the same 19th floor of the hotel can cost anywhere from USD 4,500 - 10,000 per night. Only neo-rich and most elite class of people can afford to pay that rate. Apparently customers who fall in the top 1 percent of the wealthy in the US i.e., who have USD 5 and 10 million in liquid assets or USD 5000,000 as discretionary income per annum can qualify as customers for such an exorbitant stay. This is the capitalist class who display characteristics and behaviors that are uncommon, who expect top services and who would not mind shelving any amount to satisfy their special wants and unique desires. Segmentation approaches In order to select proper business market, segmentation plays an important role. To achieve successful customer relationship management market segmentation plays a critical role (Berson, Smith and Thearling, 2000). Tsai and Chui (2004) has added that it is the segmentation and not mass market marketing, as otherwise thought, which helps satisfy and differentiate the need of discerning hotel customers. For unique hotel product as Four Seasons market segmentation is of extreme value. Lovelock (2004) has stated that market segmentation helps unique hotel product to customize the service that it intends to render to a niche clientele. (Bodie, Kene and Marcus, 2008) have remarked that global hotel industry can be considered as a cyclical industry, which exposes it to sensitivities imposed by the fluctuation of economy. That is the reason why this industry has fixed costs which are higher than normal (Kimes, 2002). In order to make sure business sustainability and profitability are safeguarded, market segmentation is essential. Salman (2010) has remarked that a positive relationship exists between hotel occupancy performance and market segmentation. It was Smith (1956) who first floated the idea of segmentation. Many decades later Pride and Farrell (1983) supported this and added customer having similar needs and same characteristics should be divided through segmentation. Once the segmentation is achieved, it is further aided by the conceptual framework of 'marketing mix' by McCarthy (1964). Popularly known as 4Ps (Product, Price, Promotion, Place), it is a means to give practical shape to the marketing mix once the segmentation is done (Bennett, 1997). This framework helps companies and managers to develop programs according to customer needs. These programs can be both short-term tactical and long-term strategies (Palmer, 2004). Marketing thought, practice and research have greatly been dominated by the paradigm of marketing mix (Gronroos, 1964). There is tremendous competition in the hotel industry. Not all hotels can cater to every type of a customer. This is why segmentation in the hotels is essential. When a hotel has a specific segment to target, the focus is clear and goals reachable. Market segments determine market segmenting strategies. Normally segmentation is done according to these: budget, moderate, upscale and luxury. The last one is lucrative but certainly difficult because of the high level of satisfaction involved. Room and other rates are premium. Upscale segment is more attainable, moderate segment competes both on quality and price, and budget segment customers have only price on mind. In a global economy as currently prevailing identifying segments for marketing function has attained vital importance (Hutt & Speh, 2010) Future trends The future of luxury hotels lies in offering diversity. The preferences of travelers have gone a dramatic change ever since the concept of good life/ good living has evolved. Future trends, thus, will be determined by more privacy at luxury destinations, discreet style in stays, open-range excursions, off-the-beaten track destinations, and destinations that are interspersed with cultural and environmental awareness. Conclusion The paper has looked at the market characteristics of Four Seasons Hotels and Resorts. 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