7. InterContinental Hotels Group PLC: Holiday Inn Division. The Corporate Group

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1 7. InterContinental Hotels Group PLC: Holiday Inn Division The Corporate Group InterContinental Hotels Group is a British-based, leading global hospitality company with more than 3500 hotels and guest rooms in 100 countries. Every year more than 120 million people choose to stay at one of the company s lodging brands. The company s vision is to become the world s leading hospitality brand owner. As of 2004, InterContinental s worldwide revenues totalled C$5.1 billion, producing an operating income of C$764.8 million. The overall company strategy to grow the business is to exploit significant potential in the upscale segment of the market worldwide and build large-scale, strong mid-market positions in major world markets. The company considers the needs and conditions of local markets (e.g., Canada) when devising business and marketing strategies. InterContinental operates in all segments of the hotel industry. The market is segmented on the basis of price and quality. The quality criteria include the nature and extent of services and amenities offered by hotels in each segment. Within the InterContinental Group are the following brands: InterContinental Hotels and Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn, Holiday Inn Select, Holiday Inn SunSpree, Holiday Inn Express, Holiday Inn Garden Court, Holiday Inn Family Suites Resort, Staybridge Suites, and Candlewood Suites. While the list of brands is extensive, InterContinental does not operate all brands in all countries. InterContinental has a very strong loyalty program called Priority Club Rewards that extends to all brands; with more than 24 million members it is the largest hotel loyalty program in the industry. Due to its large network, the Hotels group has access to considerable funds to promote and support its brands for the benefit of all hotels and franchise owners. These funds, known as system funds, represent a stable source of funds to support marketing activities, frequency programs, relationship marketing, and system infrastructure. The Global Hotel Market The hotel industry is extremely competitive and is dominated by numerous, very large international hotel groups. As of 2004, InterContinental became the international leader in terms of the number of rooms available even though it operates far fewer properties than some of the other large groups. Refer to Figure 1 for a listing of the Top 10 hotel groups based on room availability. 1

2 Figure 1 Hotel Group Rankings: Rooms Available Rank Group Country Hotels Rooms % Change (Rooms) 1 InterContinental GB Cendant USA Marriott USA Accor FRA Choice USA Hilton Corp. USA Best Western USA Starwood USA Carlson USA Hilton Int. GB Source: MKG Consulting Database 03/04 In terms of brand (e.g., brands within corporate groups) Best Western is the international leader, with Holiday Inn ranking second. Best Western operates smaller hotels and there are many more of them. Other brand leaders include Comfort Inns & Suites, Marriott Hotels, and Days Inns of America. Refer to Figure 2 for a list of the leading hotel brands internationally. Figure 2 Tope 10 Hotel Brands: International Hotel Market Rank Brand Group Hotels Rooms % Change (Rooms) 1 Best Western Best Western Holiday Inn InterContinental Comfort Inns & Suites Choice Marriott Marriott Int Days Inn Cendant

3 6 Sheraton Hotels Starwood Hampton Inn Hilton Corp Super 8 Motels Cendant Holiday Inn Express InterContinental Ramada Cendant Source: MKG Consulting Database 03/04 The chart indicates InterContinental is expanding rooms for Holiday Inn Express while reducing the numbers of rooms at Holiday Inn. InterContinental is reacting to the changing needs of travellers. Travellers are requesting value for their money and many are opting to stay at hotels offering good value in the economy segment. Canadian Operations: InterContinental Hotels The Canadian market is divided into three segments: luxury, mid-range, and economy. InterContinental operates in all segments. In Canada s luxury segment there are several InterContinental Hotels and Crowne Plaza Hotels located in key urban markets. These brands offer consistently high standards, a premium list of amenities and services, a full complement of business services, excellent dining choices, quality fitness facilities, and comprehensive meeting capabilities. InterContinental s mid-range brand is Holiday Inn. Holiday Inn is a full-service hotel typically situated in convenient locations in and around cities. Holiday Inn offers comfortable guest rooms, restaurants and room service, a restaurant and lounge, swimming pool and fitness centre, meeting rooms, and 24-hour business services. Holiday Inn Select is also a mid-range hotel but it caters specifically to the business traveller. Throughout Canada and North America they are located near business centres and airports. Select offers business-class rooms, 24-hour business services, and comprehensive meeting services. Holiday Inn Express is InterContinental s entry in the economy segment of the market. Express appeals directly to value-oriented travellers who generally do not require an extensive list of services. Express offers comfortable, well-equipped rooms and a free breakfast bar featuring fresh fruit, cereals, and pastries. This segment of the market is growing so InterContinental plans to expand its presence here. The Canadian Market The Canadian hotel industry generates $11.0 billion in revenue (2004). Over the past few years industry revenue growth has been flat. See Figure 3 for details. 3

4 Figure 3 Accommodation Revenue by Year (in billions of dollars) $11.0 $11.0 $11.1 $10.8 $10.6 Source: Hotel Association of Canada, 2005 Occupancy rates dropped in 2003 to 59 percent. The industry suffered during the aftermath of the 9/11 disaster. People were simply reluctant to travel. Prior to 2003 occupancy rates were in the 63 percent range. A recovery occurred in 2004 with occupancy rates increasing to 62 percent. Refer to Figure 4 for a summary of occupancy rates and market revenues generated over the past five years. Figure 4 Occupancy Rates and Market Revenues: Canadian Hotel Market Year Occupancy Avg. Daily Rate Revenue ($ billion) % $ % $ % $ % $ % $ Source: Hotel Association of Canada, 2005 As is the case in so many markets, the mid-range segment is being squeezed by growth in the luxury segment and economy segment. Certain factors contribute to this trend: business travellers are cutting back on expenses; they are holding more meetings online or by other means. The economic situation has reduced the tendency to travel (e.g., people have less disposable income and travel is a discretionary expense). Finally, the expectations of customers in both the business and consumer travel segments are changing. Both types of travellers are looking for better value and are making new product and service demands of hotels they are considering using. Generally speaking, these trends benefit hotels in the economy segment, at least in terms of attracting clientele. But with a multitude of hotel choices available in the economy segment, customers can still be choosy when searching for the best value. The luxury segment has not been hit that hard, because wealthier customers continue to travel regardless of economic 4

5 conditions. These customers search for hotels offering premium services. They have the money and are willing to spend it at upscale hotels. The hotel market is segmented on the basis of price and quality (quality includes the extent and diversity of amenities offered). At the top end are hotels like Four Seasons, which charge more than $250 per night but offer a full complement of personal and business services. At the bottom end are hotels such as Comfort Inn, Quality Inn, and Roadside Inn, all of which are operated by Choice Hotels Canada. Holiday Inn Express competes in this category. Room rates are in the $89 to $109 range and in most cases offer a free breakfast. Holiday Inn resides in the middle, with competitors such as Radisson, Ramada, and Howard Johnson s. Holiday Inn and others offer a clean room, some business services, a restaurant, and a swimming pool. Rates are in the $119 to $159 range. As in a lot of other industries today, the mid-market segment is failing. Consumers are either heading up or down they want luxury on one hand and discounts on the other hand. Purchase decisions are a matter of priority and tradeoffs. Value (perceived value) provided is a primary source of purchase motivation. In the Canadian market, InterContinental and the Holiday Inn brand are not nearly as prominent as they are internationally. InterContinental ranks ranks third in terms of rooms and fifth in terms of number of properties. InterContinental revenues for 2004 amounted to $362.5 compared to $344 million in 2003, an increase of 5.3 percent. See Figures 5 and 6 for comparative data regarding properties and rooms. Figure 5 Top Five Hotel Companies, by Number of Properties Company # of Properties Company Type Choice Hotels Canada 269 Franchising Best Western International 170 Non-profit association Westmount Hospitality Group 159 Management, owning Travelodge Canada Corp 120 Franchising, management InterContinental Hotels Group 104 Franchising Source: Hotel Association of Canada,

6 Figure 6 Top Five Hotel Companies, by Number of Rooms Company # of Rooms Company Type Choice Hotels Canada Franchising Westmont Hospitality Management, owning InterContinental Hotels Franchising Best Western International Non-profit association Starwood Hotels & Resorts Franchising, owning, management Source: Hotel Association of Canada, 2005 InterContinental operates 104 properties in Canada. Similar to all other hotels, InterContinental must appeal to two distinct target groups: business travellers and recreational travellers (consumers). Business travellers currently account for 65 percent of InterContinental s volume. Recreational travellers account for the remaining 35 percent. The business-travel market has changed in the past few years. Given the trends stated earlier, it can be said that corporations won t be swayed to travel because they re getting cheaper rates. Canada s hotel-room rates remain a bargain when compared to rates in other countries. However, when corporate travellers do hit the road, they re definitely demanding the best possible price and a good list of services and amenities regardless of which segment of the market they are interested in. The gradual migration to the economy segment by a good many travellers has benefited lower-priced chains like Choice and Holiday Inn Express. Both chains are picking up a lot of corporate business. Holiday Inn s Product Plans Throughout Canada and the United States, Holiday Inn plans an intensive renovation program commencing in All new hotels will conform to new standards. The new Holiday Inn prototype will have high-speed Internet access (wireless and land line) in every room, though the company hasn t yet decided if it will charge for the service. The rejuvenation process will take years to implement. The initial plan is to open 25 new prototypes over three years (2003 to 2005). The rooms will be designed to accommodate bigger work areas and each will have an ergonomic chair to appeal to the brand s business-traveller base, which typically makes up 70 percent of Holiday Inn s reservations. The company also hopes to appeal to travellers nostalgia. The hotel sign will be redesigned to remind travellers of the iconic Holiday Inn sign of days past. Company executives believe there is considerable brand equity in that sign. 6

7 Each new Holiday Inn hotel will have a comfort-food diner with a standardized menu that will include pot roast, meatloaf, and fried chicken. Meals will be offered at affordable prices. The exteriors of the hotels will have a completely new look and all new hotels will have an indoor swimming pool. The prototype has 145 rooms. In developing new hotels, Holiday Inn plans to attract franchise developers to build new units while culling older units from the system. Some of the hotels are 40 years old and no amount of renovation can bring them up to the standards demanded by today s business and leisure traveller. As well, with so much urban growth, hotel location is becoming a major factor influencing hotel choice. Many present Holiday Inns are no longer in the best locations. The Marketing Challenge The initial challenge in this case is to develop a positioning strategy for each InterContinental Hotel in the various segments of the Canadian market: Crowne Plaza in the luxury segment; Holiday Inn in the mid-price segment; and Holiday Inn Express in the economy segment. Holiday Inn Select, a chain devoted specifically to business travellers, also requires a positioning strategy. Once the positioning strategies have been devised, the next challenge is to develop a positioning map that will plot the various InterContinental hotels along with their major competitors in each segment of the market. The final challenge involves the development of a revised marketing strategy for Holiday Inn in the mid-range segment and Holiday Inn Express in the economy segment. InterContinental wants to focus on these segments in Canada. The new marketing strategy must clearly differentiate Holiday Inn from Holiday Inn Express. The primary objective is to encourage more business and recreational travellers to stay at these hotels. Prior to developing the positioning strategy and marketing strategy it is essential you conduct some secondary research on the Canadian hotel market to familiarize yourself with any external influences that will influence the direction of the marketing strategy, and identify and evaluate primary competitors and their marketing strategies. In terms of the marketing mix, you must clearly identify the products and services that Holiday Inn and Holiday Inn Express should offer. You will then develop a fundamental marketing communications strategy that will clearly distinguish Holiday Inn from Holiday Inn Express in the consumer s mind. The message must help create a new and positive brand image. The marketing objective is to attract new customers to both hotel brands. What should the message say, and what media should be used to communicate the message? The budget is $2.5 million for one calendar year commencing January 1, Special Note This case can be completed in the traditional case study format or a marketing plan format. Consult with your teacher as to which format to use. If the marketing plan format is required refer to the marketing plan model included in Chapter 7 for guidance. Use appropriate sections from the marketing plan model to present your recommendations. Ensure you include adequate 7

8 background information to justify the actions you recommend in the plan section of your document. Discussion Questions 1. What type of market segmentation strategy is InterContinental Hotels following? Is it market differentiation, niche marketing, or market integration? 2. Is InterContinental s portfolio of brands an advantage or disadvantage? Assess the pros and cons of operating in so many segments of the market. 3. What type of positioning strategy (head-on, leadership, differentiation, innovation, lifestyle, or other) should the company adopt for Holiday Inn and Holiday Inn Express? Devise a sound positioning strategy statement for each brand. 4. What products and services should Holiday Inn and Holiday Inn Express offer to business and recreational travellers? How different should each brand be? Adapted from Ryan Chittum, Revamp at Holiday Inn, Globe and Mail, September 23, 2003, p. B14; and statistics from the Hotel Association of Canada. 8