Porters Five Forces Analysis Marketing Essay

Porters Five Forces Analysis Marketing EssayIntroductionThe main suggest of applying the louver forces analysis is to identify the key factors in the industrial environment that influence the organizations capabilities to position itself in order to merit competitive advantage. It is a manakin for industry analysis and business strategy development formed by Michael Porter.An industry is a group of firms that market products which are obstruct substitutes for each some other (e.g. the car industry, the hotel industry).Some industries are more profitable than others, the answer lies in understanding the dynamics of competitive structure in an industry. Porters Five Forces Model is one of the close to influential analytical models for assessing the nature of competition in an industry.Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five competitive forces are the threat of new competitors entry, the thre at of substitutes, the talk terms power of buyers, the bargaining power of suppliers, and the degree of rivalry between existing competitors.Porters five forces diagram.http//www.b2b worldwide.com/ china/images/stories/sections/porters_five_forces.gifSource www.valueestablishmanagement.netIntroduction to hotel industryA hotel is an institution that come throughs a short-term paid residence. In the past, hotels were just a small room with a bed, cupboard, and a table, but now it has totally changed to something else. Nowadays hotels are luxurious residences that include different types of facilities. Most of the hotels now include spas, swimming pools, fitness centers, conferences rooms and international restaurants. Even the rooms are now bigger and include m whatever comfort facilities.Malaysian Association of Hotels (MAH)was established in 1974. It is now being formally recognized as a National Hotel Association. Now it sets the regulations and minimum acceptable levels for bein g a legal verified hotel in Malaysia. It has 2,184 registered members and 17 more hotels in the next 3 years.Table Hotels and rooms supply 2010/2011Bargaining power of suppliersThe 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 labors and tangible estateOver 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.Category military rank 1-10RemarksNumber of suppliers6 (medium) Considerable no. of topical anaesthetic and Chinese contractors Small number of quality training providers and skilled employees.Availability of substitute6(medium) Substitutes for property (real estate agents), designers, and employees are available.Switching cost category2 (low)-substitute for hotel are few..Suppliers threat of forward integration2 (low) Suppliers are racyly unlikely to forward integrate into the hotel businessIndustrys treat backward integration5 (high)-hotels could backward integrate to own real estate company. They could stimulate their own training wing.Contribution to quality5 (high)-Property development and real estate companies ply to the quality so does skilled labor and quality trainingContribution to cost2 (low)-Most suppliers are frequently smaller companies compared to hotel companies.-Hence hotel companies have a much higher(prenominal) bargaining power. suppliers contribution to cost is lowOverall, the number of suppliers for the Hotel industry is quite large and each supplier is very small in surface compared to the leading players in the industry. These few powerful players are indispensable to the suppliers. Substitutability of the suppliers is also quite feasible and inexpensive. Switching between real estate agents is non goingto affect a particular Hotel company significantly. However in terms of quality, training centers for employees and ICT manufacturers who provide IT systems thatfor property management are relatively more demanding to replace. Therefore in terms of substitute suppliers industry attractiveness is moderately high.Unlike the supplier is threat offorward integration, Industry is threat of backwardintegration is pretty high since large hotel chains like ITC or IHCLwould have no qualms expanding into the real estatebusiness or developing employee training facilities in-house. Similarlythe industry is contribution to both cost and quality isrelatively high. Overall bargaining power of suppliers is low and industry is attractiveness in terms of supplier bargaining power is high (4). bargain POWER OF BUYERSThe 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 travelerBusiness travelerCustomers who accept space for conferences or other eventsCategoryRating 1-10Remarks-Number of Buyers7(high)-Buyers are numerous and small in size.- Losing one customer cannot going to base a difference. Their bargaining power is low-Availability of substitutes(medium)-Multiple substitutes for a given hotel or brand is available-Informal accommodation for friends and family is available alternative-Corporate guest houses for the business traveler-Switching cost2(low)-Switching cost arenegligible Buyers are price sensitiveexcept in the-Buyers threat of backward integration5(high) Customers are will notconstruct a hotel or buy a place of residence for each place they visit.-Contribution to quality2(low) Additional facilities suchas spas, gyms and so forth are usedmy hotels to improve thequality of customers stay-contribution to cost5(high) Brand image is veryimportant in this industry and leads to extra cost, Additional amenities,training of staff, locationrent (like close to airport)etc.-Buy ers profitability2(low) Low buyers profitability- In the mid-segment, there are numerous buyers, of very small profitability In the premium segment, buyers are very affluent, and they have greater bargaining power comparedto the mid-segmentIndustrys threat of forward integration.4(medium)-low chances or forward integrationThis industry has many customers who are relatively very small in size. Loss of a iodine customer has little impact on a hotel company and this drives down the buyers bargaining power. Similarly buyers threat of backward integration is almost impossible and so the industry is under threat of forward integration. However the industry does have several substitutes such as camping and volunteer(a) vehicles for tourists, corporate guesthouses for business travelers and other informal means of accommodation with friends and family. Switching cost for all these options is very low, except for the RV. Apart from the provision of accommodation, hotels also provide additi onal facilities and services such as restaurants, gyms, spas, conference halls, ball rooms, lounges etc. Therefore their contribution to quality as well as cost for the buyer is very high.Barriers of entryCategoryRating 1-10RemarksEconomies of scale5(high)High economies of scale- Very important to operatea chain of hotels in multiplelocations, especially for the premium segment. This reduces thedependence on tourismtrends at any given locationProduct differentiation4(medium)Highly differentiated- Brand names and valuesare very important in attracting and retaining customers-brand identity4(medium)Brand is very important.- exchange cost2(low)-low switching cost-capital requirement4(medium)-capital intensifier.-staff, dcor, infrastructure e.t.c is very expensive.-Access to technology3(moderate)-ICT is very important for property management.-Access to raw material4(medium)-Labor, land and other essentials are scant(p) to obtain.-government protection3(moderate)-The tourism industry receives government.-exit barriers2(low)-High exit barriers.Specialized assets for the industry.Brand names are very important in the hotel industry. Companies use their strong brand names to attract new customers and retain old ones. Besides, economies of scale are also a huge factor in this industry. Profitability of hotel chains is drastically higher than individual operations. A new entrant cannot fence with established players in terms of quality, price and even services. If they cannot establish significant economies of scale.Being a capital intensive industry with a large amount of it tied down in fixed costs, makes entry more difficult. Similarly high exit barriers due to specializedassets make the industry less attractive.The hospitality industry is strongly influenced by travel and tourism trends. Government protection for the tourism industry is very high and this in turn rubs off on the hotel industry making it thereby making the industry attractive in general.Competitiv e power of rivalry playersThis aspect describes the mass of competition between existing players (companies) in an industry. High competitive pressure results or leads to pressure on price margins and on profitability for every single company in the industry. The following table shows the analysis of the rivalry between hotels.factorsRatings (5)Remarks.No. of competitions4 (high)Small number of large operatorsIndustry growth3 (medium)Annual growth rate of 15%Fixed cost1 (low)Highly capital intensivedifferentiations4 (high)Strong brand name commands a very high price premium.Switching cost2 (moderate)Low cost switching to similar brandsOpenness to terms of sale4 (high)Price, taxes etc. are knownExcess capacity2 (moderate)Only 70% rooms occupiedStrategic stakes2 (moderate)Although large hotel companies have alter they still have a majority stake in the hotel industry.Summary Porter Five ForcesFactorCurrentFutureRating(5)Key RationaleRatingKey Rationale panic of New Entrants4reasona ble5sensibleCompetitive Rivalry4reasonable5sensibleThreat of Substitute Products3average4reasonableSupplier congeneric Buying Power5sensible4reasonableBuyer Relative Buying Power4 reasonable4reasonableConclusionPorter five forces analysis was used effectively to determine the hotel industries in Malaysia based on treat of new entrants, competitive rivalry, and treat of substitute products, suppliers-relative buying power, and buyer-relative buying power. Hotel is a very flourishing industry in Malaysia with not so many substitutes so the treat of substitute products is very low. Rivalry between hotels is not very high because rivalry is based on classification (5-star hotels compete against other 5-star hotels). Finally in the future relative buying powers will decrease because there will be many new entrants.