Industry Update
Opinion Article21 July 2015

The 4CI’s (Contemporary Issues) in the Hospitality Industry

By Nicolas Frangos, Forward Thinking Hospitality Executive

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In the recent years, investors and hoteliers have been increasingly made aware of how the environment and social life impacts hotel operations and developments. Factors that have contributed to this awareness include the desires of hotel owners and operators to reduce costs of operations, change required for sustainable development, increased regulations that pay attention to development and operations and the way attitudes of investors are changing towards the environment. Sustainability is still a difficult task to measure in the hospitality industry. Business environment faces many challenges because of its dynamic nature.

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Continued growth of hotels has been seen in many countries and international levels. Variety of business models are being implemented by operators in different hotels. Important developments range from technological, environment concerns, health and customer support systems.

The Hospitality industry has faced many challenges and issues in the recent past. Some of these issues include shortage of labor and skills, global emerging markets, technology and social media, unavailability of capital, evolving customer expectations among others. However the most common ones are technology and social media, increased demand and low customer satisfaction, increased costs of operations and high level and intensity of competition.

The analysis that follows is mainly on these four major issues:

The first major issue is the increase in fixed costs with reducing and varying revenue streams. The hospitality industry has to deal with a lot of fixed costs such as the salaries, payment of bills and sustaining different facilities.

Managers in the hotel industry need to come up with strategies to reduce the fixed costs without compromising on the quality of service they offer. This situation creates a general lack of funds for the industry to expand. The hotel players then will tend to increase the accommodation charges so as to keep up with the high operation costs. The customers on the other hand aim at getting affordable accommodation charges and this creates a deadlock between the industry and the customers. Large, multi-unit chains dealing with multiple brands are able to withstand to a large extent the rise in operational costs and the challenge is mainly felt by small hotel operators.

The hotel industry also experiences fluctuations in business due to seasons. The main challenge therefore becomes how to improve and maintain high business during the off-season period so as to maintain profits. Thus governments also need to facilitate the industry by providing security for visitors, so as to attract tourists and thus boost the hotel industry due to increased accommodation.

The internet also plays a significant role. The fact that customers are aware of luxuries offered in different places make customers demand more from the hotels and the managers must always come up with ways to keep up with these standards. The customers have high expectations for fast and quality service anywhere, anytime and in the way they want it. Customers also expect hotel rooms where they can use their electronic gadgets and even connect to the internet.

The current type of guests will not keep up with average service and instead they demand excellent service. A survey indicated that if guests are delighted by the service they receive, they tend to come back and spend more, while most of the guests will leave and never come back due to just a single experience. Therefore, most hotels have installed wireless networks and introduced the use of swipe cards to enable access to their rooms thus ensuring their security. These luxuries come with increased costs which the managers and owners have to keep up with.

The players in the hospitality industry are striving to make it as convenient as possible for their potential customers to access them. The use of websites which need to be up to date has been the current trend in the industry. Surveys conducted showed increment in the percentage of reservations made through the internet every year. This implies that operators and owners must ensure the creation and maintenance of these facilities, which increase the overall cost of operation.

With the increase in the use of social media platforms, the players in the hospitality industry must be on their toes to avoid incidences that will bring negative publicity. As part of growth most of the hotel chains have ventured globally, and this puts the hospitality industry at the center of globalization. Since the globe is constantly changing, the hospitality industries must come up with ways to address these changes. The players should ensure that the industry meets the global requirements even as they expand.

The use of social media has enabled people to interact and share their experiences and this has significant impact on the hospitality industry. Customers are able to write reviews which can be read by many people.

According to Tripadvisor, 93% of the people find reviews important when determining which Hotel they want to stay at. 53% of the people surveyed would not book a Hotel without having a guest opinion about it. Hence, user generated content, as reviews or feedback, grew to a major decision factor for customers. So, positive feedback from satisfied guests sharing their experiences with a Hotel is very precious. Negative reviews – in contrast – should be diminished and used to improve the quality of the Hotel. For this reason, it is becoming more and more important for operators to build up a professional Hotel Reputation Management that keeps tracking the property's reputation all over the web. The very success of a Hotel is dependent on it. Only if you have a clue about what people think when they hear the Hotel's name, you can counteract the impact of negative reviews or highlight positive feedback. Consequently, Hotel Reputation Management should not be reduced to single, loose measures. It should rather be an essential part of the marketing mix.

The most common method in the industry is the employment of a manager to monitor the social media and blogs and to respond to them if appropriate. This creates an additional cost for the industry thus creating the need for operators to come up with ways to meet these costs. The main challenge then becomes determining how and when to respond without creating a feeling of defending the organization against the customer. This calls for training, implying further operational costs.

Increased level of competition and poaching of guests, brought by use of customer disloyalty programs is another issue that affects the hospitality industry especially the hotel sector. Building a loyal base of guest is very important in the hotel sector and therefore almost all hotel chains have at least one loyalty program. These loyalty programs are aimed at marketing the hotels. The problem that is associated with the loyalty program is the high cost that is associated with them. This generally increases the overall operating expenditure for the hotels.

Different conducted surveys indicated that customers accepted a brand if it supported a cause they cared about, and, may switch to brands that support a cause. The challenge is in trying to incorporate a cause that a great number of customers will associate with. Customer loyalty is based on customer satisfaction during a previous interaction leading to a positive attitude resulting to preference for the brand. This implies that operators and hotel owners must ensure that guests receive the right treatment from when they enter the hotel to when they bid adieu, the guests preference will shift to other hotels with better handling of guests.

In conclusion, this article has identified contemporary issues that affect owners and operators in hospitality industries across the world, analyzed and evaluated their nature, effects and implication. While costs and revenue controls are critical factors, media reporting on hotels and hospitality aspect are also important, since, with globalization and internet-based hospitality businesses, what guests and strangers write about have gained major import in recent years. Customer demand and lower levels of demand has also been identified as a contemporary issue. Customer Satisfaction is one of the most critical aspects in hospitality business and needs to be improved and exalted at all times.

Today, hotel customers are more discerning, circumspect and aware and could distinguish the wheat from the chaff in no time. A high level of competition is a contemporary issue that cannot be looked down upon. Competition dynamics that need to be looked at include pricing behavior, branding and franchising.

Hospitality industry continues to be by economic, social, industrial development and technological forces .It is important that hotels always put their best foot forward and use their innate and acquired strengths to overcome weaknesses and resolve threats. Human Capital investments need to be wisely used and fully optimized for short, medium and long term advantages and rewards. The proof of the pudding is not only in the hands of the chef but in its sizzle and the aroma it spreads.

To address the above contemporary issues identified, hospitality owners and operators need to explore and use alternative strategies of financing international expansion. There is need to promote customer satisfaction campaigns, strategies so as to remain competitive in the global market, use social media platforms well and manage their costs.

If you find this article useful please share it, thanks,

Nicolas Frangos.

Nicolas Frangos

Nicolas Frangos is a multi-skilled Hospitality Executive with distinctive knowledge of Luxury Hotel Operations, Development and Asset Management, directing international hotel groups, mixed-use business, multi-unit properties and outstanding luxurious hotels, introducing strategies to drive growth within intensively competitive markets, delivering significant return on equity and invested capitals (ROIC).

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