Hiltons Strategy: Navigating The Focus In Generic Approach

Market Share and Scope

Question:

Discuss about the Strategic Management Of Hilton Worldwide.

Strategy management defines the major targets and initiatives which are formulated and implemented by a corporation’s top-level  management on behalf of shareholders. These initiatives and goals are based on assessment and consideration of the internal and external environments in which the company operates. This report will analyse the  strategic management of “Hilton Worldwide” by analysing various internal, external, industrial, corporate, and business factors. Further, the report will include SWOT, PEST, and 5 Forces analysis of the company and discuss its business and corporate level strategy to evaluate its strategic direction.

Hilton Hotels & Resorts is an international full-service hotel and resort chain; Conrad Hilton founded it in 1919. The company operates in the hospitality industry, and it is one of the largest hotel chains in the world with more than 570 hotels. The services of Hilton hotels target both businesses and leisure travelers because they are situated near airports, major cities and famous holiday destinations throughout the world. As per Hilton annual report, it has revenue of US$11.6 billion in 2016 (Hilton, 2016).

Market Share

In domestic markets, i.e., United States, the company has a market share of 9 percent, and in international markets, it has 5 percent market share. In the Middle East, it has 3 percent market share, whereas in Europe and Asia Pacific region it has 1 percent market share (Cederholm, 2014).

Scope

The company operates in 14 industries including hotel and restaurant, hospitality sector, pub, school meals, gambling, nightclubs, catering for parties, travel services, food contract, conferences and many others (Hilton, 2016). Hilton provides various amenities and services to its guests in order to improve their experience such as bed & breakfast, pick up facility, instant bookings, advance purchases, free Wi-Fi, late checkouts, breakfast buffet, discounted rates for military families, family fun packages, membership savings and many others.

Target Markets

Geographic Segmentation — mainly, the company focuses on domestic preferences and location.

Demographic Segmentation — the target demographic of the corporation include middle or senior aged individual professionals who belong to an upper social class and earn a high level of income and who pursue luxury lifestyle.

Psychographic Segmentation — it includes ambitious peoples who prefer to express their accomplishments and high status by staying in a 5-star hotel and paying for premium rooms and services.

Benefits Segmentations — the company primarily benefit its guest by providing them high status in society, sense of achievement and luxury facilities.  

Target Markets and Segmentation

Mission

The corporation’s mission is to become the most hospitable organisation in the world by providing warm experience to guests, significant opportunities to employees, maximising shareholders value and positively influencing the society.

Vision

The company’s vision is to fill the world with the goodness of hospitality by providing each guest an exceptional experience every time in each hotel.

The Porter’s five forces is a framework for analysing five different forces that influence the competition in the industry; Michael Porter developed it. Hilton Worldwide operates in the hospitality industry; both consolidation and fragmentation co-exist in the hospitality industry because both of them pose opportunities and threat for the businesses (EHL, 2017). For example, in the United States, the industry has already consolidated and benefited from it, whereas, in European countries, hotels remain to be fragmented. As per the research of Rael (2016), profitability potential in the hospitality industry is high as long as companies are able to increase occupancies. The hotel corporations can provide a high level of services to boost occupancies which resulted in enhancing profitability ratio; Hilton hotels are already in premium services markets which is beneficial for its profitability.

Rivalry among existing firms

The competition between premium hotel industries is aggressive; the competitors of Hilton include Radisson Blu, Marriott, Sheraton, Westin, Accor SA, Hyatt Hotels and many others. Hilton worldwide spend heavily on service infrastructure, therefore, it is enjoying a growth of 106.67 percent while other competitors are growing at 61.98 percent (Borttarelli Research, 2016).

Bargaining power of suppliers

Hilton Worldwide has more than 4000 suppliers globally, and their bargaining power is low; Hilton order in paramount value, therefore, supplier did not switch or increases cost (Hilton, 2016). Hilton also implemented a Supplier Diversity Program to promote and develop socially diverse suppliers; this program provides them addition competitive ground in between diverse suppliers.

Threat of substitute products or services

In the hotel industry, the risk of substitute services is not significant. The substitute of hotel services includes peoples living in friends or family homes or renting apartments for small periods. Modern technology has improved the process of hotel booking by providing online services, therefore, the threat of substitute is low.

Bargaining power of Buyers

The negotiating power of buyers is high in hotel industry because it is easier for guests to access information of multiple hotels and selects the most suitable hotel based on their preference. The guests are price sensitive, and they use online data to compare price of different hotels, and the cost of switching is considerably low.

Mission and Vision

Threat of New Entrants

The initial investment in the hotel industry is considerably high which create a barrier for new entrants, but many of barriers have been removed due to the popularity of internet-based services and effective communication channels. A key barrier is differentiation; the firms which have effectively differential its value and services based on location, amenities, and services is a potential risk for new entrants. Hilton hotels have a strong brand presence, and it is popular among high-income individuals, therefore, the threat of new entry is low (Porter, 2008).

Hilton hotels have been profitable in previous five years; the company is constantly expanding its business in new areas along with a number of employees.

The number of Hilton hotels has grown from 3861 to 4856 in from 2012 to 2016; the company is expanding its business in BRICs markets, i.e., Brazil, Russia, India, and China.

The revenue of Hilton hotels has increased substantially in previous five years; the initiatives of company such as Hilton honours program, free Wi-Fi, discount rates for military family, breakfast in bed, online booking and other premium services are attracting a large number of guests to the company. In 2013, Hilton launched a new dining concept called Herb N’ Kitchen throughout its branched worldwide. In 2016, Hilton marked its presence in 100 countries by opening Hilton N’Djamena in Chad (Hilton, 2017).

PEST analysis is a strategic analytical tool that analyses the effect of political, economic, social and technological factors on business and evaluates its long-term growth prospects.

Political Factors

Hilton welcomes tourists and business travelers in its hotels and threats such as terrorism and significant political change adversely affect its business. Terrorists act in London on 7^th July 2015 and few areas in Northern Ireland has reduces the number of travelers. The decision of UK to exit EU (Brixit) has also influenced the business of Hilton hotels (Ozturen, Sumaneeva, Gashenenkov and Meredova, 2017).

Economic Factors

The domestic and international macroeconomic factors and events affect the business of Hilton hotels, for example, in 2012, Olympics were scheduled in UK and hotels were fully occupied for the entire period, but otherwise, it is difficult for premium hotels to attract guests during the financial crisis (Wu and Liang, 2009).

Social Factors

A variety of social factors influences the business of Hilton hotels such as growing population, customers’ preferences, family preferences, demographic variables and social media popularity. For example, people preference is shifting towards traveling due to popularity of traveling websites, blogs, and social media pages. New customers are emerging in countries such as India and China; the family preferences of people increase or decrease the number of consumers staying in the hotels (Sigala, Christou and Gretzel, 2012).

Porter's 5 Forces Analysis

Technological Factors

The rapid growth in technological infrastructure has a significant influence over Hilton hotels; the companies operating in the hospitality industry have to effective use energy sources and provide their service through online platforms (Buhalis and Law, 2008). Further, the simplicity in online hotel bookings has increased the number of guest for Hilton hotels.

The core competencies of Hilton hotels include customers facilities, strong brand image, dedicated and skilled staff, gambling license, customer support, positive culture, and talent acquisition because it is difficult for competitors to duplicate such practices since it requires a high level of investment and expertise. Further, the company provides its services in more than 80 countries and situated near most of the popular destinations which make them the obvious choice for wealthy travellers. The online rating of Hilton on hotel booking websites and customers reviews prove that the company delivers their promise, and they are one of the best when it comes to premium services. Yu (2017) conducted research for Forbes that provided that Hilton and Marriot hotels are two of the highest earning hotel corporations, and they have beaten all their competition.

The value chain analysis assesses information regarding business activities of the Hilton hotels that provide them a competitive advantage and creates value. Hilton hotels have successfully implemented an efficient value chain that adds value to its operations and sustain its future growth. The business activities are divided into two sections: primary and support.

The support activities of Hilton hotels are divided into four sections:

• Firm Infrastructure: Hilton is an international hotel chain, and they are known for excellent hotel infrastructure and premium services. The company focuses on critical factors such as quality, cleanliness, atmosphere, facilities, and maintenance across all its branches. Especially, Hilton hotel focuses on cleaning rooms and common area and providing comfort to its guests in a professional manner. These facilities improve guests’ experience and add value to Hilton’s value chain.
• Human Resource Management: To deliver high-quality services, Hilton provide training to its management and ground level staff to teach them how to provide services guests professionally. The HR department focuses on hiring right attitude employees who possess required skills and knowledge regarding hospitality industry. Hilton has insisted two programs for its employees, on the job and off the job training; each employee learn necessary in these two training programs. The company also focus on motivating its workers by providing monetary or non-monetary rewards based on their performance. Furthermore, company provides shares to its employees at discounted rates; employees who are working for more than two years can sell these shares in the stock By selecting qualified employees, Hilton adds value to its operations and sustains future growth.
• Technology Development: Hilton provides online services to improve customer satisfaction and provide faster customer support facilities. The technology department has developed online website and mobile applications that enable customers to check hotel prices and book them through the application easily. The Hilton honours application provides special discounts to guests that visit Hilton more than one times; it encourages customers to choose Hilton for every vacation or office meeting.
• Procurement: The primary objective of Hilton is to provide a premium level of services to its customers, therefore, management seeks supplier that can provide high-quality products to the company and also fulfill its requirements. The suppliers of Hilton are required to be friendly and must not conduct any unethical activities that can affect company or guests, therefore, management carefully select suppliers.

Primary Activities

• Inbound logistics: The inbound logistics and supply chain management allow smooth operation in Hilton hotels by directly trade with suppliers and negotiate their prices. The distributors also manage activities relating to delivery and warehousing that reducing organisational risks (Hilton, 2016).
• Operations: Hilton hotels operations are divided into three segments:
• Ownership division: It includes 146 hotels that consist of 59,463 rooms that are owned and rented by Hilton.
• Franchise segment: It consists of 4,419 hotels that have 691,887 rooms that are licensed and managed by Hilton Worldwide. The company franchised 3,875 hotels that consist of 533,039 rooms to third parties.
• Timeshare section: It consists of 45 properties comprising 7,152 units; this division engaged in selling and marketing activities.
• Outbound Logistics: It refers to actions relating to delivery of finished products and services; Hilton provide high-quality services to its guest as advertise by the company and delivery good with secure transportation that provide them a competitive
• Marketing and Sales: This section includes marketing and sales department that focuses on promotion and communication of its services to target customers. The Hilton honour program has become marketing success for the company which encourages customers to choose Hilton every time they travel.
• Service: This stage includes various facilities provided by Hilton to its customers, such as customers support, complaints, training, sale service and others. The complaints lodged by the customers handle at the highest priority by the company.

Opportunities and Threat on the Horizon

Currently, Hilton Worldwide is taking full advantage of modern technology to enhance its guests’ experience, for example, customers can browse, select, pay, and cancel their order through Hilton’s mobile application. Recently the threat of Airbnb has grown in hotel industry due to its low prices. The hotel industry is using legal route to defeat this threat, many hotels, including Hilton, are filling lawsuits against the company since many of its offers are against the local housing regulations (Coldwell, 2014).

Competitive advantage

• The company pays close attention to details which improve its customer experience and provide them a competitive
• Hilton hotels are available in travel destinations throughout the world, and they are equipped with internet, self-service, premium services and others.
• Providing high-speed internet and easy online services allow the company to gain competitive advantage.

Marketing Strategy

Hilton hotels focus on connecting at an emotional level with its customers and provide them premium traveling experience. The company started a campaign called ‘Travel takes you places’ which resulted in boosting its sales. The corporation also uses many other advertising campaigns such as ‘Tomorrow’s a big day’ and ‘Hilton Honours’ to attract customers.

SWOT Analysis

Hilton hotels have adopted a Value-adding corporate-level strategy that focuses on increasing number of customers by adding value to company’s operations. The company is using its competitive advantages to diversify its business; it is already listed under full-service brand, focused service brand, timeshare brand and luxury hotel brand (Cederholm, 2014). The corporation is opening new restaurants to provide premium dining experiences to its guests. Hilton Worldwide is focusing on opening new hotels in emerging markets to increases its market share in international markets (Livemint, 2017). The use of the latest technology and guest’s specific facilities allow Hilton to maintain its position of competitive advantage over time. The company is equipped with the professional legal team and effective management staff that formulate strategic policies to ensure the company is prepared for future risks. For example, Airbnb has been a significant threat for hotel industry which has gained 10 percent of the market; therefore, Hilton along with other premium hotel chains is filing legal suits against the company because it violates various local housing laws. The team of professionals adds value to Hilton hotels and enable them to face future threats.

According to Christopher J. Nassetta, CEO of Hilton Hotels, the company’s strategies are focused on facing future leadership challenges and expanding its market share in the hospitality industry (Office, 2012). The strategies of the corporation have been focused on transforming and achieving its organisational objectives. As per Nassetta, future strategies are directing towards accomplishing corporate goals and expanding Hilton’s global market share in the hospitality industry (Office, 2012). Nassetta stated that the company is simplifying its value statements because customers find it difficult to understand its values; the corporation is creating intense alignment around its value, mission, vision and key strategic priorities that can be achieved by establishing right corporate culture. The direction of Hilton corporate strategies is towards becoming world’s number one premium service hotel and providing the best possible services to its guests in order to improve their traveling experience.

The core competencies of Hilton Worldwide, such as skilled staff, premium services, availability near popular destinations and effective value chain, allow it to expand its business globally. The future strategy of Hilton should include following:

• Expansion in BRIC market
• Mid-level budget offers
• Digitalisation of operations

The BRIC markets provide significant opportunities to Hilton Worldwide because they are emerging market in which Hilton can capture a large number of market share. The governments of BRIC markets also initiate various programs to promote international companies to expand their business in the country because it increases employment, economy and national income. Hilton can collect tax incentives and other grants to expand their business and increase their market share easily. Hilton should start offering mid-level budget rooms to expand its customer base. People’s perspective has changed, and they prefer quality services at an affordable price; in BRIC markets most of the customers are belonged to medium income group, and mid-level budget offers will increase the number of Hilton’s guests. The threat of Airbnb has also grown for Hilton because they provide affordable prices; therefore, mid-level budget rooms will assist Hilton in competing with Airbnb. Using technology in operations improves their reliability and usability, similarly, Hilton can improve its service by using the latest technology. The company should improve its mobile application by adding new features for refining the guest’s experience. The future strategy of Hilton should include these points as it will assist them expanding their market share and sustain future growth.

PEST Analysis

Conclusion

From the above observations, it can be concluded that Hilton Worldwide is an international hotel chain that provides high-quality services to its guests in order to improve their traveling experience. The company’s primary strengths are its strong brand image, market expertise, digitalisation of processes and strong value chain. Various external factors affect the business of Hilton such as political policies, legal issues, environmental factors and others. The weaknesses of Hilton hotels include changing customers’ perspective, overdependence on US market, high level of debts and increasing competition. To face these challenges, the company is focusing on creating strategic planning with the help of industry professionals to maintain its competitive advantage. Strategies of the company are directing towards simplifying its values and accomplishing organisational objectives by building policies based on its strengths. 

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