Hotel industry analysis
When the intensity of competitive rivalry is high, profits suffer. Rivalry is enhanced when industry growth is low, because growth-minded companies must steal customers from other firms to meet growth objectives. Also, if customers can easily switch among providers, or if there is lack of differentiation among providers, firms must compete on price to attract customers. The airline industry, for instance, faces all three of these problems, and thus it is not surprising that only niche airlines such as Southwest and JetBlue enjoy consistent profits. Despite the overall Buyer power.
. In addition, many hospitality firms try to neutralize buyers' power by creating loyalty programs that reward customers for repeat purchases. Those programs reduce the likelihood that customers will switch to a competitor. Firms can also reduce buyers' power by differentiating their services from competitors' offerings.
The bargaining power of suppliers is high when the supplying industry is more concentrated (has fewer sources) than are the buyers, when few close substitutes exist for the item offered, or when there is high product differentiation among suppliers. Fortunately for full-service hotels, many key supplies, such as soft goods and food and beverages, are provided by industries that have intense competitor rivalry. This keeps the prices of those supplies low. When a hotel, in turn, provides food and beverages to conventions, the conventioneers are a captive set of buyers and thus have virtually no bargaining power. This provides an opportunity to generate substantial margins.
The threat of new entrants refers to the prospect that new players will enter an industry. New entrants generally lead to an erosion of industry profits. For example, the housing boom in the 1990s fueled golf-course development in much of the United States as builders extracted premium prices for homes situated along golf...