Chapter 1 Overview of Hotel Industry

Chapter 1 Overview of Hotel Industry IN this chapter an introduction to the topic and its scope is discussed. It is shown how important this sector is and therefore through an insight into the Hotel Industry it is understood that such a study today has become quintessential. This has become so because of the growing importance of the Service Sector Hotel Industry being a part of it. Even the latest steps taken by the Government for this sector are motivating the development of this sector especially the Hotel Industry-a part of Tourism Industry. This is discussed through the following chapters- 1.1. Overview of Hotel Industry : A research in the Service Industry and that too in the fast growing Hotel Industry, seems to be the topic for research. It also seems to the researcher that this topic, since it is contributing a lot to the economy at large, should be of vital importance. Further more on account of the complexities involved in the preparing and offering of the service of a hotel industry, this area has to be researched upon. Therefore the topic of Services Marketing with special reference to the Hotel Industry was researched upon. Till the dawn of independence almost all hotels in India were owned by British or Swish except one i.e. Taj Mahal Hotel in Mumbai (the then Bombay) which was built by Jamshedji Nauroji Tata in 1903. After independence, by 1951, the Government recognized the importance of tourism sector and ITDC a PSU were established. Ashoka Hotel was built in 1956 in Delhi by the Government to accommodate the delegates for UNESCO conference. 1 After this there has been a significant development and change for the betterment, in this sector in India. Marketing plants the seeds and sales harvest the crops. But is harvesting possible without sowing. Same is the case here where it took long to apply the marketing concepts and principles in Hotel Industry which led to retarding development. In 1960 s and 1970 s the hotel marketers were unable to make the industry remunerating and also were unable to provide services of any international standards. The application of the marketing concepts and principles was at the stage of infancy which necessitated the handling of problem in the proper manner in order to lay a strong foundation for rapid development of it as an industry. In this context the contributions of the ITDC has been significant and its initiative has brought private firms who were previously hesitating, to enter in this sector. The Ashoka Chain was the largest hotel chain in India which is run by ITDC, a Public Sector Unit. The Oberoi chain runs hotels in India as well as in foreign countries. 2 The Taj group of hotels has added a number of hotels to its chain after 1903 in India as well as abroad. Welcome group is one of the fastest growing chains of hotels in India owned by ITC. Hyatt is also one of the biggest chains of hotels in India which practices a brand extension strategy. Hyatt s name is appearing in every hotel variation i.e. Hyatt Resorts, Hyatt Regency, and Park Hyatt etc... 17

These groups offer world class services but if they are able to apply marketing concepts and principles, it is no doubt that they can become market leaders in the true sense. 3 In the Indian context, it is not only sufficient that we concentrate on classified hotels, but also we should attempt to improve the managerial proficiency of unclassified hotels as well, as all the tourists or travelers are not in a position to afford the high pricing strategy of world class groups. Each and every source of gaining foreign exchange should be tapped. It is not only the price factor which is an important decision making factor, but there seem to be a host of other factors responsible as well. Furthermore, it seems to be pertinent that not only the owners but the employees as well as the customers should be involved in deciding upon the offering. Thus making the marketing aspect not only important but complicated /complex as well. It also would be pertinent here that the nature of the marketing of hotel products as services, calls for a detailed research upon this area. Further, the fact that not only the customers but the employees are also to be involved in the process of deciding and later on delivery of the services, it makes it necessary to study this topic. To summarize, in order to be able to deliver the service product, that too the augmented product, by involving the concerned parties, makes it important to study the need, the method and the degree of involvement of these parties into the entire process. Thus, this endeavor to research upon the intricacies of the services marketing in the hotel industry. 1.2 Steps Taken by the Government: The steps taken by the Government of India have been positive in order for all round development of the hotel industry. Long back in 1968, the Hotel Loan Development Fund was created with the motive of providing low interest loans to the private sector for undertaking new hotel projects. The Industrial Finance Corporation of India and State Financing Corporations also has come forward to motivate private players to enter into this industry. Apart from this, in every Indian Embassy abroad, the Government has opened separate office to provide different information to the foreign tourists coming to India. Almost every railway station has a person who provides information regarding places of attraction in that locality to the tourists. ITDC publishes books in which detailed information is given regarding the places, ways of communication and commuting, accommodation etc. Even the internet facility is being used by the government as well as the private players to communicate with the community at large about their respective offerings and further still how they i.e. the customers stand to benefit out of their services. This being an attempt to promote not only their individual services and thereby the provider but the hotel &tourism industry in totality. The main aspect of this shift is the development of this industry in to encouraging tourism industry so that the growing tourist s influx raises the demand of hotels and increases the occupational ratio as well. India, if highlighted, can become one of the most favorable south east destinations for tourists. Geographically on one side we find glaciers, deserts while on other side we find beaches stretching over thousands of kilometers. India is full of historical places and after every 100 kms. There is change in language and 18

culture. 4 Healthy culture is also one of the important factors which call foreign tourists. Culture exchange therefore should be encouraged and such programs to be leveraged for the benefit of the industry and the nation at large. 1.3. Hotel Services Marketing: The concept of hotel marketing confirms the alignment of marketing concepts and principals in the hotel business where customer satisfaction is the most important aspect. For initiating qualitative improvements in the services and generating guest s satisfaction, the marketing concepts and principles have to be applied in the hotel industry. This necessitates managerial proficiency so that professionalism is developed and all possible steps are taken to satisfy the guests. This managerial proficiency is found difficult unless marketing practices become an integral part of the hotel management. In the hotel industry, the expectations of the customers or guests are based on intangible qualities like atmosphere, image etc. The hotel marketing is a managerial approach to satisfy guests and strengthen the promotional measure, so that the potential guests are motivated and transformed into actual guests. Hotel services marketing is a device to promote business generate profits through satisfied customers. Today, the industrial scenario has forced manufacturers of not only intangible products but also tangible products to consider Services aspect of their products to play a dominant role in the acceptance of the product. The main reason being the role played by the benefits sought by a customer from the products he purchases. The understanding thereby developed is that, consumers do not purchase attributes but they pay for the benefits. Considering this influence on consumption, it is thought by the manufacturers that it is insufficient to merely talk and offer attributes and it further enhances the necessity of the benefits associated with the offerings. 5 Today, again, with the advent of many players, domestic as well as multinationals, the competition has become intense and also to meet the changing needs of today s customers. Keeping this in view point, also, it has become necessary to differentiate one s offering on the basis of not only the core product, but also the augmentation of tangible and intangible benefits with the product. It is comparatively easier to work on the tangible benefits, like the looks, features etc., but it is much difficult to think, plan and incorporate the intangible benefits. Today, once again, due to recession phase in the economy, this association has further become a challenge to the manufactures/ marketers. An attempt is required to be made to address a few issues related to the trends that were there in order to emphasize the benefits, as well as the present trends or development in the trends in developing and exploiting the intangible associations be it the benefits, the brand associations or any other associations. This has made the researcher think about the reasons for this paradigm shift. Was it on account of any dilemma, or was it on account of insufficient strategic planning? Was it on account of competitive advantage or was it due to the need of the hour? The researcher formed the opinion that it was predominantly on account of the need of the hour. 19

To further understand this phenomenon, a sort of pilot survey was conducted for the Hotel industry. The hotel industry, because it is a hard core service industry where not only delivery but more so the management of Services was a dominating issue required to being immediately, intermittently and continuously monitored. 6 Further the targeted sample for this survey was selected as Kolhapur, a city with comparatively less population, however many sites of historical, religious and industrial importance. The findings and the conclusions of this pilot survey have been an eye opener for these authors. It was realized that this shift in approaches and understanding was not merely to withstand the onslaught of competition, but more so to address the categorical development in the consumer perception. Thus it was evident from this that the values that would influence consumption, have to be identified, developed and delivered along with the product. This further emphasized upon the importance of stressing the intangible associations with the offerings i.e. the services. History of Hotel Industry The hotel industry is a mature industry marked by intense competition. Market share increases typically comes at a competitor s expense. Industry-wide, most growth occurs in the international, rather than the domestic, arena. Common American hotel classifications are as follows: Commercial Hotels cater mainly to business clients and usually offer room service, coffee-shop, dining room, cocktail lounge, laundry and valet service as well as access to computers and fax services. Airport Hotels are located near airports and are a conveniently located to provide any level of service from just a clean room to room service and they may provide bus or limousine service to the air lines. Conference Centers are designed to specifically provide meeting space from groups; they provide all services and equipment necessary to handle conventions. Economy Hotels provide a limited service and are known for clean rooms at low prices meeting just the basic needs of travelers. Suite or All-Suite Hotels are hotels which offer spacious layout and design. Business people like the setting which provides space to work and entertain separate from the bedroom. Residential Hotels used to be very popular. The typical residential hotel offers long term accommodations. Casino Hotels are often quite luxurious. Their main purpose is in support of the gambling operation. Casino hotels often offer top name entertainment and excellent restaurants. 20

Resort Hotels are the planned destination of guests, usually vacationers. This is because resorts are located at the ocean or in the mountains away from inner cities. Resort hotels may offer any form of entertainment to keep their guests happy and busy. A summary of key events in the history of the industry would include the following: While the practice of renting space to travelers stretches back to antiquity, what could be considered the modern concept of a hotel derives from 1794, when the City Hotel opened in New York City. While the practice of renting space was not new, the City Hotel was purported to be the first building devoted exclusively to hotel operations. For it s time, the building was quite large and possessed 73 rooms. Similar operations soon appeared in such nearby cities as Baltimore, Boston and Philadelphia. Interestingly, New York City s first skyscraper was a hotel - the six story Adelphi Hotel. Hotels took a distinct step up in style and class when the Tremont House opened in Boston in 1829. This hotel was considered by many to be the beginning of what was regarded as first class service. With 170 rooms, the Tremont House was a large facility. In addition, the hotel offered features which, for the time, were amazing. Private single and double rooms were available, which offered not only privacy, but also security. In addition to water pitchers and a washing bowl, free soap was provided in each room. The Tremont House offered French cuisine and, reportedly, was the first hotel to have a Bellboy. In 1908, the Buffalo Statler opened, marking the beginning of the modern commercial hotel era. Many services now considered standard were introduced by the Statler, including such amenities as a light switch next to the door, private bathe, ice water and a morning newspaper. The Statler set the standard of the day by being clean, comfortable and affordable. The Statler served as the pattern for hotel design and operation for many years. In the 1920 s, hotel building entered a boom phase and many famous hotels were opened, including the Waldorf Astoria, New York s Hotel Pennsylvania, and the Chicago Hilton and Towers, which was originally named the Stevens. Motels began to replace roadside cabins as use of the automobile spread throughout society. Offering clean rooms with adjacent parking, motels enjoyed great popularity with the traveling public. In the 1950 s and 1960 s, the practice of franchising appeared within the industry. Franchising enabled entrepreneurs to expand their operations without the use of substantial capital. For much of their history, hotels were owned and operated by individuals. However, as franchises and chains began to appear, individually owned hotels found themselves increasingly at a competitive disadvantage. By the 1960 s, independent prospects began to improve as the result referral organizations such as Quality Courts, Best Western, Master Host and Best Eastern. 21

From the 1980 s forward, mergers and acquisitions became common within the industry, and brands become hotly traded commodities. Recently, use of management companies has entered the mainstream. As a result, many chains are more involved in management than in ownership. These chains realize a much more predictable and steady income stream than had normally been yielded by ownership. A summary of key events in the history of the industry would include the following: While the practice of renting space to travelers stretches back to antiquity, what could be considered the modern concept of a hotel derives from 1794, when the City Hotel opened in New York City. While the practice of renting space was not new, the City Hotel was purported to be the first building devoted exclusively to hotel operations. For it s time, the building was quite large and possessed 73 rooms. Similar operations soon appeared in such nearby cities as Baltimore, Boston and Philadelphia. Interestingly, New York City s first skyscraper was a hotel - the six story Adelphi Hotel. Hotels took a distinct step up in style and class when the Tremont House opened in Boston in 1829. This hotel was considered by many to be the beginning of what was regarded as first class service. With 170 rooms, the Tremont House was a large facility. In addition, the hotel offered features which, for the time, were amazing. Private single and double rooms were available, which offered not only privacy, but also security. In addition to water pitchers and a washing bowl, free soap was provided in each room. The Tremont House offered French cuisine and, reportedly, was the first hotel to have a Bellboy. In 1908, the Buffalo Statler opened, marking the beginning of the modern commercial hotel era. Many services now considered standard were introduced by the Statler, including such amenities as a light switch next to the door, private bathe, ice water and a morning newspaper. The Statler set the standard of the day by being clean, comfortable and affordable. The Statler served as the pattern for hotel design and operation for many years. In the 1920 s, hotel building entered a boom phase and many famous hotels were opened, including the Waldorf Astoria, New York s Hotel Pennsylvania, and the Chicago Hilton and Towers, which was originally named the Stevens. Motels began to replace roadside cabins as use of the automobile spread throughout society. Offering clean rooms with adjacent parking, motels enjoyed great popularity with the traveling public. 22

In the 1950 s and 1960 s, the practice of franchising appeared within the industry. Franchising enabled entrepreneurs to expand their operations without the use of substantial capital. For much of their history, hotels were owned and operated by individuals. However, as franchises and chains began to appear, individually owned hotels found themselves increasingly at a competitive disadvantage. By the 1960 s, independent prospects began to improve as the result referral organizations such as Quality Courts, Best Western, Master Host and Best Eastern. From the 1980 s forward, mergers and acquisitions became common within the industry, and brands become hotly traded commodities. Recently, use of management companies has entered the mainstream. As a result, many chains are more involved in management than in ownership. These chains realize a much more predictable and steady income stream than had normally been yielded by ownership. 1.4 Introduction to Hotel Industry covered under Study A country of snow-peaked mountains, palm-fringed beaches, historic monuments, is a traveler s paradise. Being a country catering to the tourists around the world, it has all the facilities required for making the tourism sector a success. This country of Maharajas is home to the world class hotels in India. India caters to the needs of every pocket. If it has Palace hotels such as Umaid Bhavan and Jal Mahal, it also has the range of economy hotels. You have to just name it and India has it. The tourist destinations of India are dotted with different types of hotels. 7 if in Rajasthan you can relax in the lap of royal luxury; in Mumbai you have the budget hotels like Taj Mahal hotel, Le Meridian, Hilton towers, Intercontinental the Grand Mumbaj etc. New Delhi the capital of India also has a lot of accommodation options to choose from. It has delux hotels such as Ashoka, Oberoi, and Maurya Sheraton etc. Hotels Categories Luxury Hotels Deluxe Hotels Five Star Hotels Facility Hotels 23

1.5 Need for the Study Over the last decade and half the mad rush to India for business opportunities has intensified and elevated room rates and occupancy levels in India. Even budget hotels are charging USD 250 per day. 8 the successful growth story of 'Hotel Industry in India' seconds only to China in Asia Pacific. 'Hotels in India' has supply of 110,000 rooms. According to the tourism ministry, 4.4 million tourists visited India last year and at current trend, demand will soar to 10 million in 2010 to accommodate 350 million domestic travelers. 'Hotels in India' has a shortage of 150,000 rooms fueling hotel room rates across India. With tremendous pull of opportunity, India is a destination for hotel chains looking for growth. The World Travel and Tourism Council, India, data says, India ranks 18th in business travel and will be among the top 5 in this decade. Sources estimate, demand is going to exceed supply by at least 100% over the next 2 years. 9 Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, 'Hotel India' room rates are most likely to rise 25% annually and occupancy to rise by 80%, over the next two years. 'Hotel Industry in India' is eroding its competitiveness as a cost effective destination. However, the rating on the 'Indian Hotels' is bullish. 10 'India Hotel Industry' is adding about 60,000 quality rooms, currently in different stages of planning and development and should be ready by 2012. MNC Hotel Industry giants are flocking India and forging Joint Ventures to earn their share of pie in the race. Government has approved 300 hotel projects, nearly half of which are in the luxury range. Sources said, the manpower requirements of the hotel industry will increase from 7 million in 2002 to 15 million by 2010. With the USD 23 billion software services sector pushing the Indian economy skywards, more and more IT professionals are flocking to Indian metro cities. 'Hotel Industry in India' is set to grow at 15% a year. 11 This figure will skyrocket in 2010, when Delhi hosts the Commonwealth Games. Already, more than 50 international budget hotel chains are moving into India to stake their turf. Therefore, with opportunities galore the future 'Scenario of Indian Hotel Industry' looks rosy. In the present day world, the services sector is growing at a phenomenal rate. Almost all countries of the globe look interested in utilizing this sector of the economy. It is felt that specialty in the developing countries where growing demographic pressure is remitting multifaceted socio-economic hazards, the need of the hour is to assign due weight age to the development of this sector. The developed countries have developed heavily on this sector for their economic development. 24

Research Articles & Books Referred - 1. Black, J., Draper, C., Lococo, T., Matar, F., & Ward, C. (2007). An integration model for organizing IT service management. IBM Systems Journal, 46(3), 405-422 AN=2660257 2. Kumara, S., Bishop, P., Chao, T., Dhoolia, P., Jain, P., Jaluka, R., et al. (2007). Using a model-driven transformational approach and service-oriented architecture for service delivery management. IBM Systems Journal, 46(3), 513-529. AN=26602582 3. Ludwig, H., Hogan, J., Jaluka, R., Loewenstern, D., Kumaran, S., Gilbert, A., et al. (2007). Catalog-based service request management. IBM Systems Journal, 46(3), 531-548. AN=26602583 4. Mastrianni, S., Bantz, D., Beaty, K., Chefalas, T., Jalan, S., Kar, G., et al. (2007). IT Autopilot: A flexible IT service management and delivery platform for small and medium business. IBM Systems Journal, 46(3), 609-624. AN=26602588 5. Tomlinson, J. (2006, November). Routes to Part-Time Management in UK Service Sector Organizations: Implications for Women s Skills, Flexibility and Progression. Gender, Work & Organization, 13(6), 585-605. 6. Zeithmal, V.A., Services Marketing, 3 rd edition, TATA McGraw Hill. 7. Nargundkar, R, Services Marketing, TATA McGraw Hill 8. Srinivasan, Services Marketing, Prentice Hall of India 9. Rampal M.K., Service Marketing, Galgotia 10. Bhattacharjee C., Service Sector Management, Jayco Publication 11. Shanker,R., Services Marketing The Indian Perspective, Excel 25