Porter’s Five Forces Analysis on the Hospitality Industry

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Table of Contents

Introduction
Main body
Conclusion
Reference List

Introduction

It seems reasonable to apply Porter’s five forces method to the hotel industry as this sector has become a substantial part of the global economy nowadays. The analysis will reveal whether this industry is attractive to potential entrants or not.

Main body

At first approximation, the hotel market might be considered as a splendid opportunity for entrepreneurs to enter as it promises significant profit margins. However, in order to identify substantial risks that might occur, it might be rational to conduct research on the industry to evaluate the appropriacy of beginning entrepreneurship in it (Ebert and Griffin, 2018). A plethora of scholars emphasizes the fact that Porter’s approach to assessing an external business environment is significant and appropriate. The analysis covers five dimensions: competitive rivalry, power of suppliers, power of buyers, the threat of substitution, and the threat of new entry (Chappelow, 2020).

It might be assumed that in the hotel market, competition is intense as the expenses for service differentiation are relatively low. Then, the market indicates high capital costs, which makes competitors undertake price-cutting, excepting the periods of weekends and holidays. The abovementioned justifies fierce competition in the industry and seems to be one of the reasons for high barriers to entry. Then, the power of suppliers might be characterized as low since the sector is mostly affected by the force of labor. It means that there is a high demand for qualified and professional personnel; suppliers do not put great pressure on hotels.

The buyers’ power is high in the hotel industry; first, there are customers who purchase hotel rooms in bulk – it influences the market to a large extent. These clients are tour operators, airlines, and the organizers of conferences. Then, there are business travelers who take into account differentiation, which makes the chains build a recognizable and respected brand, as well as provide high-quality services constantly (Adamkasi, 2017). Finally, when it comes to leisure tourists, hotels have to rival in the framework of affordable prices. In contrast, the threat of substitute services is relatively low. Although there is a number of possible substitutions such as hostels, motels, or staying with friends or relatives, the industry remains thriving.

A new entrant is to be sure that the considerable capital costs are used to realize the maximum potential of a hotel, which requires much effort. Moreover, an existing hotel chain would have a substantial advantage over this entrant because it already has a brand, reputation, and loyal customers that are difficult to lure. The new industry actor also has to be conscious of the quality and uniqueness of services. The market requires plenty of investments into innovations as customers appreciate the continuous improvement of service-providing (Gupta, 2018). It should also be stated that the new entrant will search for a significant location for a long because the best ones are already taken by the biggest hotel chains. It might be supposed that the threat of a new entry is low.

Conclusion

Thus, the analysis revealed several points to consider for the new entrants into the hotel industry. The supplier power, the threat of substitution, and the threat of new entrants are low, which is a favorable condition for new actors. However, buyer power and competitive rivalry are intensively high – this is not an attractive factor. It seems rational to conclude that the industry is attractive for entrants who have substantial capital costs, willingness to spend on service differentiation, and are ready to be involved in tough competition.