Abstract
This article explores and seeks to understand disruption in the hospitality industry in South Florida through a detailed evaluation of the Marriott International, Inc. hotel company. Using interviews, research, and brainstorming, the authors develop four specific disruption ideas for Marriott and an action plan for their implementation. The concept behind these disruptions is to create new revenue streams to maximize the use of existing resources without major investments.
Keywords: hospitality industry, disruption, revenue streams
Introduction
In this article, we explore and seek to understanding disruption in the hospitality industry in South Florida through a detailed evaluation of the Marriott International, Inc. hotel company. We tackle this project with two distinct approaches.
Methodology
Approach 1: Fact Finding. First, we visited several Marriott hotels operating under different brands in Miami-Dade County, Florida. We then conducted personal interviews with various industry leaders who gave us great insight into the hotel industry (see Interview References).
Approach 2: Research. This approach included reviewing news articles, Marriott's Annual Report and 10K, and several other data sources that we reference throughout the article. We used the information to analyze trends and facts of the industry. We then used Tableau to produce several charts and visualizations that help to illustrate our findings.
Brainstorming. Finally, we had several brainstorming sessions and came up with four specific disruption ideas for Marriott and an action plan for their implementation. The concept behind these is to create new revenue streams to maximize the use of existing resources without major investments. In our report, we dive into the history of Marriott and analyze the scope within the industry.
Marriott: A Brief History
Marriott is a company not unfamiliar with disruption and innovation. In fact, the Marriott website shows that J. W. Marriott, together with his wife Alice, and his partner Frank Kimball, opened Hot Shoppes as A&W Root Beer stands in 1927. In 1953, Hot Shoppes became a publicly traded company and in 1957 opened its first motor hotel in Virginia. Through its history, J. W. Marriott and family have successfully navigated disruption such as the Cuban Missile Crisis, the Oil Embargo in the 1970s, and the Cold War. Marriott continued to innovate in the 1980s by offering the first automated reservations system in the hospitality industry and in the 1990s by offering the first website in the industry. Most innovative, and pioneering, was the strategic decision to separate the real estate from the hospitality management business throughout the 1980s, culminating with a restructuring in 1993, the year in which the company divided into Marriott International and Host Marriott Corporation. The former became the operating company with long-term contracts, and the latter owned the real estate. Host Marriott Corporation became the largest hospitality Real Estate Investment Trust.
Since the late 1990s, Marriott International has continued to expand through organic growth and acquisitions of complementary hotel companies such as The Ritz-Carlton Hotel Company, Renaissance Hotel Group, ExecuStay Apartments, and Gaylord Hotels Brand. Most notably, Marriott International acquired Starwood Hotels & Resorts in 2016, creating the world's largest hotel company (Marriott International, 2019). In early 2019, Marriott International combined loyalty programs from previous acquisitions to launch a unified customer loyalty platform called BonVoy, a strategic move to secure customer loyalty and attract customers to its website (Slotnick, 2019).
Industry Analysis
Marriott International is an incumbent in the hospitality industry. The global hotel industry retail value is worth $570 billion USD (Statista, 2019), with the U.S. hotel industry taking about a third of the revenue, valued at $208 billion USD (see Exhibit A). The hotel industry measures itself with three main Key Performance Indicators (KPIs): Revenue per Available Room (RevPAR), Average Daily Room Rate (ADR), and Occupancy. Marriott outperforms the U.S. hotel industry in all three KPIs (see Exhibit B). When analyzing the market in Greater Miami-Dade County, we found that 86% of visitors come with the purpose of Leisure/Vacation while only 7% come for business (Greater Miami Convention and Visitors Bureau, 2017). When performing a deeper analysis of Marriott's target segmentation, we determined that Marriott has a target market of 11.29 million people (see Exhibit C).
The main competitors within the hotel industry are Marriott, Hilton Worldwide, Wyndham Hotel Group, Host Hotel & Resorts, Hyatt Hotels, Oriental Land, Accor, and InterContinental Hotels Group (see Exhibit D). These major players compete against one another in an oligopoly market. Marriott, the main player, generated $22.3 billion in revenue in 2017. This is 145% more than its closest competitor, Hilton (see Exhibit D). Marriott has innovated continuously with its 30 distinct brands and unique hotel offerings to target different segments of the market by delivering on its value proposition of quality service and by staying alert to disruptive forces in the global economy and within the hospitality industry.
How Competition Affects Market Structure
We identified two main dimensions of competition within the hotel industry: reputation and offerings. In the first dimension, hotel companies around the world compete on reputation. Marriott has built its brands on the values of service excellence and reputation. Consumers thus have developed loyalty to these brands, and they choose them based on previous experience and recommendations and the knowledge that they will receive consistently the level of service they expect, as opposed to peer-to-peer rental platforms. The second dimension of competition, based on offerings, refers to the industry's effort to appeal to a wide range of customers at all price levels. Thus, the hotel industry also competes on location, amenities, and other offerings to attract consumers based on the market tier in which they compete. Therefore, over time, the industry has created a structure of six tiers based on average daily rate. These tiers are the following: Economy, Midscale, Upper Midscale, Upscale, Upper Upscale, and Luxury. Marriott's brands compete only in the Upper Midscale tier and above (Exhibit F).
Marriott's Dimensions of Competition
As the world's leader in the hotel industry, Marriott invests into three main components: innovation, personalization of service, and human resources. Marriott's achieved its reputation of high-level customer service by placing the customer at the center of its decisions and operations. Over time, the company has launched initiatives that create value for consumers by answering to their specific needs without offering a one-size fits all approach. For example, Marriott's BonVoy, its new loyalty program, offers unique experiences such as Backstage tickets to the 2016 Emmys or a two night stay at the original Hangover Movie Suite at Caesars Palace, in Las Vegas. Its focus and dedication to training and development at all levels of the organization has allowed the company to thrive. When it comes to quality standards, Marriott ensures the level of service is consistent with the brand expectations across the board. Unlike peer-to-peer rentals, by having strong standard operating procedures in place, Marriott guarantees it can monitor and replicate excellent service.
Business Model: Marriott's Strategy to deliver on its Value Proposition
After pioneering the asset-light model in the hospitality industry, Marriott became an operator, franchisor, and licensor of hotel, residential, and timeshare properties, operating under an umbrella encompassing more than 30 brands and targeting different segments and geographies. "At year-end 2017, we had 1,959 company-operated properties (554,642 rooms), which included properties under long term management or lease agreements with property owners, properties that we own, and home and condominium communities for which we manage the related owners' associations" (Marriott International 10K, 2019, n.p.). The asset-light model has allowed the company to operate with limited fixed costs and has freed up capital to invest in variable costs, which often translate into meaningful innovations and a better delivery on its value proposition.
Corporate Social Responsibility
Marriott's success does not focus solely on the corporate financial performance but also on its social performance. According to Marriott International's Corporate Social Responsibility website, its core mission is SERVE 360: doing good in every direction. This means it has a compass that focuses on four different angles: Nurture, Sustain, Empower, and Welcome. Nurture focuses on the vitality of children, community engagement, disaster relief, and natural capital investment. Sustain is geared toward reducing environmental impacts, building and operating sustainable hotels, and local sourcing. With Empower, Marriott creates opportunity among people. It partners with nonprofits to help create jobs for youth and people of diverse backgrounds, women, people with disabilities, veterans, and refugees. For the fourth angle, Welcome, Marriott collaborates with nonprofits that implement training, awareness, and advocacy for the respect of human rights. Marriott allows its guests to donate their reward points to the different nonprofits with which it is in partnership. Some partners include UNICEF, Clean the World, Youth Career Initiative, and Immigration Equality.
SWOT Analysis and Vulnerability to Disruption
Marriott has a worldwide presence with properties in 130 countries and the largest inventory in the hotel industry, with 1.3 million rooms (Tully, 2017). One of its biggest strengths is their adherence to operational norms to ensure consistency and transparency in operations. The company has a robust workforce of over 177,000 employees who receive excellent training in the art of customer service at the different levels of its brand offerings (Tully, 2017).
The company's heavy dependence on Online Travel Agencies (OTA's) such as Expedia, Booking.com, and Priceline.com to drive reservations, represents a significant weakness (Tully, 2017). Marriott has opportunities to drive traffic directly to its own sales channels (via its website, reservations systems, and app), circumventing the OTAs and maximizing RevPAR.
The outlook of an economic downturn is a threat to the entire tourism industry. As consumer spending declines, companies may have to let go of those properties that are lagging in revenue. Another danger to operations is terrorist attacks, inclement weather such as hurricanes, and diseases. In fact, in an interview we conducted with Brandi Sanchez, she stated, "Health threats such as the Zika virus affected travel to South Florida in 2017" (n.p.). Fluctuations in the global economy and currencies also affect global and inbound travel to the U.S. and, in turn, influence the demand for hotel rooms.
Hospitality Industry Disruption
The hospitality industry has a history of disruption. Over the years, the need to adapt to the changing demands of the consumers has disrupted the industry. An example of this was the Marriott Automated Reservation System for Hotel Accommodations (MARSHA), which Marriott launched in 1986, improving efficiency in operations. In today's fast-paced innovation and disrupting environment, technology and communications are changing the way people plan and book travel. We identified three major sources of disruption in the industry: peer-to-peer rentals, online travel agents, and loyalty programs.
Peer-to-Peer Rentals. Airbnb is the best-known disruptor in this category. Airbnb has become the platform of choice for those using peer-to-peer solutions, even when competitors may have the same or more inventory on their websites. In South Florida, 9 out of 10 visitors booked through Airbnb when booking a peer-to-peer rental in 2017 (Greater Miami Convention and Visitors Bureau, 2017). It is important to point out that these peer-to-peer platforms have not taken a significant portion of the overall industry revenue, but they have disrupted the way people make bookings. They also have disrupted the overall industry by creating more supply in the market, especially in high-demand concentrated areas. They have forced hotels to keep their prices low during high-demand dates such as New Year's Eve; as more properties come on the market, supplies goes up and individual demand for hotel rooms goes down. The hotel companies had to respond with improved booking solutions and offering revamped loyalty programs. In this reaction, the large hotel chains have shown their ability to respond quickly to disruption in the industry.
Online Travel Agents (OTAs) have been the real disruptors in the hospitality industry in the last 20 years (Tully, 2017). The ability to book a complete trip (including hotels, flights, and car rentals) in one place has proven very successful. In 2015, the bookings OTAs completed were growing at 33%, while the bookings through the main hotels' websites were growing at just 5%, a gap of 28%. The industry showed its muscle, and the gap narrowed to 7% by 2018. Hotels did this by attracting customers back to their websites (Tully, 2017). The hotels invested in loyalty programs and improved their booking platforms. Marriott's acquisition of Starwood in 2015 was, in part, due to the need to increase its negotiating power against the OTAs (Tully, 2017).
The OTAs and the peer-to-peer platforms have been industry disruptors. However, a larger possible threat to the hotel industry is the online giants such as Amazon, Google, and maybe even Apple (Tully, 2017). These companies can use their monopolistic power to ensure visibility to any enterprise they want to promote. Similarly, they could ensure Marriott receives a low SEO ranking for a consumers looking to book a hotel, representing the real threat to hotel companies, possibly forcing them out of business (Tully, 2017). Marriott, as other large hotel chains, quickly deployed strategies to deal with these disruptions:
The BonVoy Customer Loyalty Program consists of more than 120 million members and creates seamless communication, booking, and sales as well as an application to enhance the user experience. This is a great example of how Marriott creates disruption within its own industry. The company believes the seamless use of its application for bookings will attract customers to its own booking system, rather than that of OTAs. The strategic acquisitions of brands, such as Starwood, have given Marriott stronger negotiating power, in particular with the OTAs. This is reflected in the recent agreement with Expedia that lowers commissions for Marriott to 12%, significantly below the industry average of 15% to 18%. The aforementioned disruption strategies have manifested by the increase in the Key Performance Indicators company wide. In 2018, Marriott saw Revenue Per Available Room, Occupancy, and Average Daily Rate increase companywide. This is even more impressive considering the continued addition of lodging unit supply.
Disruptive Recommendations
During our brainstorming sessions, we generated four ideas that Marriott could implement as tools to innovate, create further disruption, and increase revenue. Marriott's occupancy rate is in the 70% to 80% range (Marriott International, 2019), meaning a significant portion of resources sit idle, creating opportunities for new revenue streams.
Our first suggestion, which we call Siesta, offers rooms by day for business travelers who need a break between business meetings, or flight layovers, or both. Guests would be able to reserve a room between 10 a.m. and 4 p.m. in any of the participating Siesta locations. They can make reservations directly via the BonVoy app, earning or using BonVoy points. Our second idea, which we call Agenda, aims at the business market, and allows remote employees and business travelers to see availability for conference rooms and meeting spaces in real time. Users are able to book a space online, or using the BonVoy app, without the tedious process of filling out a Request for Proposal (RFP) form and interacting with a sales agent. The third recommendation, which we call BeachHouse, we designed with families in mind. Amenities include access to oceanfront rooms plus all property amenities such as the pool, beach, gym, and recreational areas. Rooms are available between 10 a.m. and 6 p.m. and often are available as last minute deals, attracting locals and staycationers who like to indulge every now and then. Last, we suggest Marriott adopt LuxePool, an idea that enables locals and tourists to access the highly coveted pool area and private beach at any of the participating hotels. LuxePool guests pay a fraction of the traditional nightly rate for a LuxePool pass, thus targeting individuals who would not pay to stay at the hotel but still place a high value on visiting and spending the day on the premises.
Since the traditional industry indicators would not be able to track the success of these initiatives, we developed a set of performance indicators that track revenue by daypart. We also developed a tentative action plan that includes developing quick prototypes during a pilot phase (see Exhibit E).
Conclusion
As the incumbent in the hospitality industry, Marriott has a culture of innovation and disruption. Historically, Marriott has been at the forefront of the changes in the industry. New ways of communication and new technologies are changing the way people book hotel rooms, and new platforms are creating new supply of lodging alternatives. Marriott, similar to other large hotel chains, has responded quickly to this disruption by disrupting itself, acquiring strategic brands, launching new and enhanced loyalty programs and booking systems, and using its size and power for strategic negotiations. In this transformation, Marriott has stayed loyal to its DNA, keeping the focus on CSP, its employees, and its customers.
Based on our analysis and findings, we proposed four actions for Marriott to implement that will improve the utilization of idle assets and generate new sources of revenue at a low marginal cost. Each of these proposed actions target different segments of Marriott's customer base and build on the existing company values, systems, assets, and brand.
About the Authors
Jose Darsin, Joshua Rosner, Cristina Urdaneta, and Mariana Yepes are graduate students at Babson College.
Discussion Questions
1. What is the relationship between disruption ideas and an action plan for implementation?
2. What other strengths, weaknesses, opportunities, and threats apply to this company?
3. What are other possible sources of disruption in this industry?
To Cite this Article
Darsin, J., Rosner, J., Urdaneta, C., & Yepes, M. (2019, Spring). Marriott international: Exploring and understanding disruption in the hospitality industry in South Florida. Journal of Multidisciplinary Research, 11(1), 99-117.
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Abstract
This article explores and seeks to understand disruption in the hospitality industry in South Florida through a detailed evaluation of the Marriott International, Inc. hotel company. Using interviews, research, and brainstorming, the authors develop four specific disruption ideas for Marriott and an action plan for their implementation. The concept behind these disruptions is to create new revenue streams to maximize the use of existing resources without major investments.
You have requested "on-the-fly" machine translation of selected content from our databases. This functionality is provided solely for your convenience and is in no way intended to replace human translation. Show full disclaimer
Neither ProQuest nor its licensors make any representations or warranties with respect to the translations. The translations are automatically generated "AS IS" and "AS AVAILABLE" and are not retained in our systems. PROQUEST AND ITS LICENSORS SPECIFICALLY DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES FOR AVAILABILITY, ACCURACY, TIMELINESS, COMPLETENESS, NON-INFRINGMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Your use of the translations is subject to all use restrictions contained in your Electronic Products License Agreement and by using the translation functionality you agree to forgo any and all claims against ProQuest or its licensors for your use of the translation functionality and any output derived there from. Hide full disclaimer
Details
1 Babson College