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Hospitality Business Development analyses and evaluates the different aspects of business growth routes and development processes in the international hospitality industry. It considers the essential features of the strategic business context, in which any hospitality organisation operates, and:
This title also has a companion website for lecturers with PowerPoint slides to aid teaching and learning.
Hospitality Business Development equips students and aspiring hospitality managers with the necessary knowledge, expertise and skills in business development. This book is a must-read for any one studying or working in the hospitality industry.
Part 1: Product Development / Environment 1. Why Product Development? 2. Hospitality Products Part 2: Hospitality Consumer and Product Relationship 3. Hospitality Product and Customer Part 3: Product Planning and Management 4. Product Planning and Funding 5. Product Success and Failure Part 4: Product Development Routes and Process 6. Competitive Advantage Through Product 7. Product Development and Growth 8. New Product Development / Innovation 9. Renovation as a Product Development Tool Part 5: Concluding Remarks Chapter 10. Conclusions and Further Thoughts
Defining Business Development
Why Hospitality Business Development?
The Scope of Hospitality Business Development
Having completed this chapter, readers should be able to:
* Understand the concept of business development within the context of the hospitality industry.
* Explore the growing importance of hospitality business development with particular emphasis on the motives behind it.
* Investigate the scope of hospitality business development.
There is no doubt that business development represents the most important single activity of any hospitality organisation in terms of satisfying its target markets. At any one time almost every hospitality business has recently been developed, is under development or needs to be developed. That is because business development is the prime reason for the organisation's survival in the market. Consequently, business development can be regarded as the criteria upon which rest the effective and efficient performance of any hospitality organisation.
In theory, hospitality business development might be seen as a quite obvious, clear and straightforward process. Certainly the process depends on identifying smart goals and objectives, allocating the required resources for its implementation and then getting it done. In reality, nevertheless, business development is not always an easy task for hospitality organisations, because it involves several interacting controllable and uncontrollable factors such as the organisation, its stakeholders and the dynamic changing nature of its micro and macro environments. Until recently, little detailed consideration has been given to appraising the nature of the hospitality business and the significance of its development. As a result, the main goal of this chapter is to look at the concept, significance and scope of hospitality business development.
DEFINING BUSINESS DEVELOPMENT
It is important for the purposes of this book to discuss the term business development to clarify the concept prior to an examination of its scope. However, a review of the literature fails to provide a consistent definition of the concept and its strategies. That is why we can say that despite the wealth of literature, hospitality business development is still an area that needs further research and clarification.
In this book, business development is defined as the process by which a company can improve its performance through: (a) modifying or enhancing the features and attributes of its current products or services, (b) developing new products or services, (c) entering new markets and (d) partnerships or strategic alliances. In other words, hospitality business development refers to the process by which an organisation uses internal, external or joint resources in order to launch, improve, modify or extend its offerings in an existing or in a new market. Despite being a very broad definition, it is essential from a management point of view because it looks at development from different angles that fully reflect the content and context of hospitality business development.
WHY HOSPITALITY BUSINESS DEVELOPMENT?
The success of any hospitality business depends mainly on its development plans. Business development includes a wide range of activities that create new or changed offerings, markets, organisations and processes. It enhances sales, improves customer satisfaction, augments quality, diminishes costs and achieves numerous benefits for organisations. In order for hospitality organisations to be successful, business development needs to be incorporated into the company's business goals and targets. Accordingly, business development should be a strategic part of hospitality organisation's annual business plan. When a hospitality organisation decides to develop its business, it is usually affected by various motives. These motives can be classified as reactive/proactive or internal/external. The following discussion will explain the impact of these motives on hospitality firms in terms of their business development decisions.
A hospitality business ultimately needs to make some kind of return on investment in the form of profitability. In attempting to achieve profitability decisions about the products cost, production and marketing have to be considered. For instance, if the hospitality business decides to pursue a no-frills strategy of offering a basic product with a minimum level of service so as to minimise its costs and maximise its yield, it has potential to increase its profitability. This strategy is characteristic of the budget hotel sector as explained in the budget hotels example below.
* To improve market share
Market share is based on the percentage of sales that a product has within a given market or market segment relative to its competitors. The measures of market share are derived from sales revenue or volume of products sold in the market. In the hospitality industry it is not uncommon for organisations to gain market share through the acquisition of other hospitality businesses. This enables the organisations to grow quickly and enter into market areas where they currently may have minimal or no presence.
* Business growth goals
The objective of the hospitality organisation may be to grow its business rapidly so as to position its business as market leaders. This may initially be at the expense of immediate profitability and return on investment but it will enable the hospitality business to develop brand leadership and gain cost advantages over time. Many of the popular fast food outlets have based their business development decisions on rapid business growth in pursuit of these goals.
* Managerial urge
Business development can be determined by the instinctive desires of the managers in the hospitality organisation. Decision-making is not always a rational and predetermined process and in many respects can be intuitive and spontaneous in nature. Opportunities may arise in the marketplace that hospitality managers perceive need a reactive response. If these are capitalised upon then the hospitality business can gain an advantage relative to its competitors.
* Unique product or niche
There may be opportunities in the market to develop a product that is currently not being sold by competitors or that which meets the needs and wants of a specialist market segment. Themed hotels that focus on a particular theme are an example of a hospitality product that fulfils the needs of a specialist market segment.
* New Market Opportunities
New market opportunities may arise as a consequence of trends that may occur in the marketplace. The growth of the Gastropub concept, which is based upon the sale of upmarket food within a public house environment, has emerged as a consequence of changing consumer tastes towards more upmarket dining in an informal environment.
* Economies of scale
Economies of scale are when the hospitality organisation purchases products from its suppliers, such as food and drink, in bulk. This enables a lower cost base to be achieved for the hospitality business. The business may then decide to pass these cost savings on to the customer in the form of a reduced price.
* Customer attraction, satisfaction and retention
To ensure that the hospitality business is able to attract, satisfy and retain its customers it has to ensure that it is satisfying their needs and wants. As substitute and complementary products enter the marketplace, it may be necessary for the business to make adaptations to its product offering so as to generate perceived added value for the customer. The same occurs when lifestyle trends emerge that can put the hospitality product at risk. The emergence of healthier lifestyles and eating habits meant that many of the major fast food outlets developed products that met the needs of these changing consumer tastes.
* Legal factors
Legal factors in the form of new health and safety measures can mean that hospitality businesses have to develop products that meet strict legislative standards of hygiene and production. The introduction of macro-legislative factors such as the smoking ban across all enclosed public places across many countries in Europe meant that hospitality businesses had to develop their products so as to meet the requirements of the legislation.
In a fiercely competitive marketplace, the hospitality business will be under constant pressure to innovate its product offerings so as to gain a competitive advantage. As new competitors enter the market with similar products the hospitality business will need to be ahead of the game in ensuring its products are perceived by consumers as being better or offering something that is different.
* Small and saturated existing market
The hospitality business may be operating in a sector that is too small in size, and therefore fails to make a sufficient return on investment, or has become overwhelmed with competitors selling a similar product to your own. This can then make it very difficult to compete, with only the brand leader able to sustain itself in the marketplace. The hospitality business may therefore decide to either withdraw the product from the market or make perceived modifications so as to generate further sales.
* Brand and image improvement
Over time, the products that a hospitality business offers can become stale in the minds of consumers, thus leading to a downturn in overall sales volume. The hospitality business may need to improve or reimage its product brand so as to reinvigorate further sales.
* Partnership or alliances
If the hospitality business wishes to enter into a new product or geographical area, it may not have the resources to be able to do this alone. Therefore, the business may decide to enter into an alliance or joint venture with another firm that has the resources and capabilities and will enable the business to generate synergies from the partnership.
* Globalisation or internationalisation
The hospitality business may decide to enter into other geographical market areas in pursuit of a globalisation strategy. However, there are a number of factors that the business has to consider when embarking on this strategy, not least the fact that the product may not be received as favourably in a different country or market area due to cultural differences. The hospitality business may therefore have to make adaptations to the product so as to meet the needs and wants of the local market.
A number of hospitality products can be seasonal in nature and are dependent on factors that influence supply and demand. For example, the sales of ice cream are often greatest during the warmest months of the year and then decline, as the weather gets colder. Those food items that are in season at a particular time of the year will influence the product menus of hospitality businesses. However, it should be noted that due to globalisation of the food production industry it is now possible to get almost any food product whatever the season may be.
THE SCOPE OF HOSPITALITY BUSINESS DEVELOPMENT
In this book we define product development as a product that can be new to the company, market or customer. That is because these different types of new or developed products are essential to the success of any hospitality organisation and also are not easy task as mentioned before.
Possibly the most common way to explore the scope of business development in an organisation is Booz et al.'s (1982) types of new products. They actually present six categories of new products (Cooper, 1993). These are new to the world products (new products that create an entirely new market); new product lines (new products that allow a company to enter into an established market for the first time); additions to existing product lines (new products that supplement a company's established product lines); improvements to existing products (new products that provide increased performance or greater perceived value and replace existing products); repositioning products (existing products that are targeted to new markets or market segments); and reducing costs (new products that provide similar performance at lower cost). All of these provide a variety of ways to examine what new products actually mean to the company or to the market. Each category of new product has a strategic implication in terms of associated risk to the organisation and the significance new products play in the overall marketing plan of an organisation. There is a higher failure rate for truly innovative new products or for those in the 'new to the world' category, than for those products being continuously improved (Cooper, 1993). Although the above types of business development have been called 'new' products in the literature, it is obvious that the degree of newness varies between them. However, it is clear that all of these categories, except the first one, are common in the hospitality industry.
Another way to look at product development strategies in an organisation is product/market growth options. Management should review if there are any further opportunities for its growth by considering its product and market dimensions. Regarding these dimensions, Ansoff (1988) has proposed the product/market matrix which is known as the Ansoff matrix. This matrix represents a framework for reviewing how to improve the performance of the existing offer or to develop new product and market opportunities through four options:
1. Market Penetration Strategy: Increasing the market share of the existing product in the existing market.
2. Market Development Strategy: Finding new markets for the existing products.
3. Product Development Strategy: Developing new products for the existing markets.
4. Diversification Strategy: Developing new products for the new markets.
In the hospitality industry, this matrix is accepted by marketing writers such as Kotler et al. (2003), Morrison (2001) and Bowie and Buttle (2004). Palmer (2001) states that most growth that occurs practically is a combination of both product development and market development. For example, for a leisure hotel looking to attract new business customers, it may not be enough to simply promote existing facilities. In order to meet business people's needs, it might have to offer refurbished facilities to make them more acceptable to business customers and offer new services. However, this matrix ignores the overlapping and inter-relationship between some of its strategies. For example, a new product may be developed both to keep existing markets and attract new ones.
Based on the above discussion, the scope of business development involves a wide range of routes (as shown in Figure 1.1). These routes can enable hospitality organisations to compete effectively within its market or new markets through an existing, improved or new product based upon internal and/or external resources and competences. This section will briefly explore each of these different development routes or methods available to hospitality organisations to enhance the performance of their businesses or products.
The hospitality business can develop a completely new product or service that is currently not being offered by any other competitor. New product development should be based upon a process of market research and design and development. This will enable the hospitality business to be sure that there is a market for the product to be sold in sufficient quantity so as to gain a return on investment.
It will be necessary for hospitality businesses to continually innovate if they are to maintain an advantage over competitors. A culture of creativity needs to be imbued within the organisation so as to encourage the innovation of new products or services. Hospitality organisations sometimes operate a system of idea generation where employees will be given a reward for coming up with a new idea. This could be anything from a completely new product offering to a new method of service delivery. What this develops is an enterprising culture where employees feel that their thoughts are valued, as well as see them get operationalised in practice.
Excerpted from Hospitality Business Development by Ahmed Hassanien Crispin Dale Alan Clarke Copyright © 2010 by Ahmed Hassanien, Crispin Dale and Alan Clarke. Excerpted by permission of Butterworth-Heinemann. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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