An analysis of the lodging industry with a focus on Marriott, Hilton, and IHG.
This study was commissioned by Ohio University's Copeland associates and members of the team include Daniel Pannell, Alexander Talbert, John Klein, Andrew Varnis, Michael D'Elena, and myself.
Team 5 would like to give a BIG thanks to professors Lori Marchese and Paul Benedict for all of the help they gave us outside of class. These two are by far the best professors any of us have ever had the privilege of learning from at Ohio University, and this report would have been impossible if it weren't for their guidance. Lori & Paul, Thank you!
- Team 5
Understanding the Pakistan Budgeting Process: Basics and Key Insights
Lodging Industry Analysis
1. To: Paul Benedict, Jr., Xiaohu Deng, Mary Haines,
Lori Marchese, and Catherine Penrod
IBC Senior Partners
From: Taylor Crooks, Michael D’Elena, John Klein, Danny Pannell,
Alex Talbert, and Andy Varnis
Business Analysts, Research and Advisory Services
IBC MID001 - Team #5
Date: February 16, 2017
Subject: A refined and consolidated analysis of the the Lodging
Industry, as well as an assessment of three key competitors.
As requested by the senior partners of Copeland and Associates, our team has prepared a
detailed research and analysis report of the lodging industry for review. This report contains
a review of the current business climate and future prospects of this industry. The first part
of our research was to analyze industry data in order to determine the trends, opportunities,
and threats that exist. The second step was analyze they three major industry players to
determine their ability to respond successfully to the market needs. The final step was to
recommend solutions to the lowest ranking brand based on trend criteria. As a result, we
have noted within this report the important trends, opportunities, and viable threats present
within the lodging industry and assessed the ability of the major brands to successfully
navigate these issues.
Thank you for the opportunity to review the lodging industry and provide our analysis. We
would also like to thank the senior partners at Copeland & Associates, Chad Boeninger, and
our peer mentor for their guidance while conducting our research and analysis. If you require
have any questions regarding this analysis, or desire our input on future projects, please
contact us at MID001team5@gmail.com.
3. Prepared for
Copeland Associates
By:
Taylor Crooks
Michael D’Elena
John Klein
Danny Pannell
Alex Talbert
Andy Varnis
Lodging Industry
Analysis
January 2017
February 15, 2017
4. Table of Contents
Page 1
Industry Overview Page 2 - 3
Executive SummaryIntroduction
Page 2
Page 3
Key Competitor Analysis Page 4-9
Hilton Page 4-5
InterContinental Group Page 6-7
Marriott International Page 8-9
Reaching the Millennial Market Page 10
International Expansion into China
Page 11
Loyalty Programs
Page 12-14
Key Industry Trend #3
Page 12-13
Key Industry Trend #1 Page 10 -11
Key Competitors Against KIT #3
Page 14Key Competitors Against KIT #2
Page 15-16
Page 15
Industry Sales, Occupancy
Consumer Trends
Key Competitors Against KIT #1
Key Industry Trend #2
Page 16
5. Table of Contents
Page 17-19
Recommendation #1 – Hilton Mid-scale Chinese Hotel Firm Merger Page 17-18
Executive SummaryRecommendations
Page 19
Page 20Closing
Recommendation #2 – Loyalty Program – Hilton and Millennial
Mania
6. Illustrations
Executive
Summary
Figure 2. Lodging Industry 8 Major Competitors Gross Revenue (USD) Page 2
Executive SummaryFigure 1. Lodging Industry Decision Matrix
Figure 3. Revenue Per Available Room of the Hotel Industry Worldwide Page 2
Figure 4. Major Market Segmentation (2016) Page 3
Figure 5. Millennial Oriented Brands, Current Properties vs. Pipeline Page 4
Figure 6. RevPar of Hilton Worldwide hotels from 2012 to 2015 (USD) Page 5
Figure 7. Peer Comparison: Stock Equity (2016) Page 6
Figure 9. InterContinental Breakdown of Brands Page 7
Figure 10. Marriott’s Mobile App Page 8
Figure 13. Reaching the Millennial Market - Submatrix Page 11
Figure 14. Units in China by Group Page 12
Figure 15. Overnight tourism flows by region, 2012 vs. 2023 Page 13
Figure 16. International Expansion into China - Submatrix Page 14
Figure 12. Industry vs. Marriott Occupancy Rates by Region (2015) Page 9
Figure 17. Most Millennials Find Mobile Loyalty Apps Valuable Page 15
Figure 18. Millennials Want Loyalty Programs Page 15
Figure 11. Competitor Debt Ratio Page 9
Figure 8. 2015 Return on Assets Page 7
7. Illustrations
Page 16
Figure 20. Market Share of Top Five and Top Six Players Page 17
Executive SummaryFigure 19. Loyalty Programs - Submatrix
Figure 23. Millennial Mania Costs/Revenue Page 19
Figure 25. Attitudes Toward Hotels – Sharing Economy Appendix A
Figure 26. Hilton Worldwide SWOT Analysis Appendix C
Figure 27. InterContinental SWOT Analysis Appendix C
Figure 28. Marriott SWOT Analysis Appendix C
Figure 30. Hotel Capital Expenditures in Billions Appendix D
Figure 31. Hilton Expenses & Revenue: Millennial Mania Appendix D
Figure 21. China Lodging Group, LTD Page 18
Figure 29. Customer Payback for Key Industry Competitors Appendix D
Figure 22. Millennials and Hotel Loyalty Programs Page 19
Figure 24. Millennial Mania Icons Page 19
8. Executive Summary
Objectives and Conclusions:
This report will first examine the Lodging Industry for the trends, growth opportunities, and possible threats associated with the
current and future viability of the lodging industry. Next, two reputable models for determining business strategy, PESTEL
(Political, Economic, Social, Technological, Environmental, Legal) analysis, and Porter’s Five Forces will be studied against the
industry as a whole. A SWOT Analysis will then be used to identify the internal strengths and weaknesses, as well as external
opportunities and threats for three of the key players in the lodging industry, Hilton Worldwide, InterContinental Group, and
Marriott. Finally, the report will use the research findings to determine which of the key players is least positioned to address
core trends facing the lodging industry, and make recommendations for them going forward. Through our research, the three
important trends that will affect the success of these brands going forward involve, developing brands and loyalty programs
aimed at the millennial market, as well as international expansion, particularly into China. When comparing the major players
against our criteria, we found that Hilton is the least favorably positioned for future success. Below is the decision matrix used
to reach this conclusion.
Trends Hilton InterContinental Marriott
%
Weight
Raw
Score
Weighted
Score
Raw
Score
Weighted
Score
Raw
Score
Weighted
Score
Reaching the
Millennial Market
45% 6 2 10 3.4 10 3.6
International
Expansion
40% 10 3.3 13 4.3 14 4.7
Loyalty Programs 15% 12.83 4.25 13 4.4 11.58 3.825
Total
Score 28.83 9.55 36 12.1 35.58 12.125
Figure 1. Lodging Industry Decision Matrix
The Decision Matrix Methodology:
Key Trend Number 1: Reaching the Millennial Market was given the weighted measure of 45%. The growing Millennial
population in the US means that the lodging industry must think outside of the box in terms of location and amenities provided
to these large segments of the population. The industry must also factor into the segmentation mix the reason that people travel.
Whether it is for leisure or business, why they travel and where they travel affects lodging style and location. A good weighted
score for this trend would mean that a company has to have: (1) a clear marketing plan to reach Millennials, Hispanics, leisure
travelers, business guests, and international tourists coming into the US; (2) hotels that meet the needs and wants each of the
different segments; (3) a digital and mobile platform in place to lessen the threats of peer-to-peer room sharing options and
OTA’s who steal away brand recognition and customer loyalty.
Key Trend Number 2: International Expansion was given the weighted measure of 40%. The lodging industry has seen
increases over the past few years, with a positive trend predicted for the future as well with people having more disposable
income to spend on travel. However, in the US the annual increase going forward is expected to be small while emerging
international economies, like China, show the most potential for industry growth. China has the largest population in the world
and household disposable income is quickly on the rise. A good weighted measure for this trend means that a company; (1)
already has established hotels in China; (2) has a development plan in place to begin or continue expansion in that area; (3) has
the capital and management team in place to handle global expansion.
Key trend number 3: Loyalty Programs was given the weighted measure of 15%. It is given a lower weight because it could
be considered a subset of the other two trends, but we felt it was an important factor for measuring how well companies use this
marketing tool to gain market share. A good weighted measure for this trend means that a company has; (1) a global and highly
recognized loyalty program in place; (2) rewards that guests are interested in; (3) proven the program is effective in creating
brand loyalty and increased profits.
9. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
Introduction
This report was prepared by Taylor Crooks, Michael D’Elena, John Klein, Danny Pannell, Alex Talbert, and Andy
Varnis for the senior partners of Copeland Associates, along with those in the lodging industry that would benefit
from our findings.
The objective of this report is to provide an analysis of the global lodging industry in order to determine the trends,
opportunities and threats that may exist for hotel companies. Our second objective is to evaluate the overall business
structure of three major players, Hilton Worldwide, InterContinental Hotel Group, and Marriott International.
Thirdly, we will rank these companies on their ability to address the needs identified within the industry. Finally, we
will offer recommendations to assist the company least positioned for success in key trend areas.
As part of our investigation we prepared a SWOT analysis to determine the strengths and weaknesses of each
company. We also completed a matrix in order to compare each company in a logically way against industry trends
and one another. Additional research for this report includes databases provided through the Ohio University library
website, other trusted websites, comprehensive industry reports, periodicals, case studies, business magazines, and
research organization publications. Supplemental information includes appendices with a PESTLE Analysis, a
Porter’s Five Forces Analysis, as well as various other data to support our findings.
Our assumptions are based on research conducted with documents available to the public. Our determinations are
being provided without having full knowledge of what these companies have in the planning stages that has not been
released to the public.
The major players from our research share a large portion of the overall lodging sector. In order to retain or increase
their market share, they must quickly adapt to industry trends, growth opportunities, and threats. Those who are best
prepared for theses changes will have the most promising future.
1
10. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
Industry Sales Trends
As a result of a global recession, the U.S.
lodging industry faced decreases from $155
billion U.S. dollars to $133 billion U.S. dollars
in 2009, which was a 16.6% drop in one year
(STR Global, 2016). It took three years to
return to pre-recession revenue numbers (STR
Global, 2017). Since 2012, there has been a
steady increase with the global lodging industry
forecasted to generate $550 billion U.S. dollars
in revenue in 2016. The retail value in 2015 is
listed at $493.76 billion U.S. dollars (TUI,
2017). Revenues are projected to have a steady
increase over the next few years. One factor for
this growth is more disposable income available
to travelers due to the improved economy
(Fieldhouse, 2014). As shown in Figure 2, the
company that generated the most revenue
worldwide in 2015 was InterContinental Hotel
Group. They generated a combined total
revenue of $24 billion U.S. dollars, which is
nearly $10 billion more than its closest
competitor. In 2015, Marriott International had
revenues of approximately $14.5 billion dollars.
Hilton’s sales hit nearly 190 billion just in the
United States. Worldwide, Hilton was the third
largest hotel brand with $11.27 billion in
revenues for 2015. (Statista, 2017).
Industry Occupancy Trends
Europe and Asia Pacific remain key regions for
the industry. They have the highest occupancy
rates at over 68% respectively. The Middle East
and Africa have the most expensive room rates
with an average of $165.97 (USD) per day.
(STR Global, 2016).
The lodging industry uses a metric system
called revenue per available room or RevPAR,
which is calculated by multiplying a hotel’s
average daily room rate by its occupancy rate.
As shown on Figure 3, the Middle East and
Africa lead the way in revenue using RevPAR
calculations, with about $100.76 U.S. dollars.
They are followed by Europe, America, and
then Asia Pacific, which had the lowest at
$74.25. America just passed Asia Pacific in
2015 (STR Global, 2016).
Industry Overview
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2015 2014 2013 2012 2011
Figure 2.
Lodging Industry – 8 Major Competitor
Gross Revenue Comparison (USD)
IHG Marriott Hilton Accor
Starwood Wyndham Hyatt Total
2
(Source: Statista, 2017a, b, c, e, f)
61.3
72.28
85.47 87.06 86.83
81.46
74.51 74.25
44.66
54.6
58.02
62.81
66.79
70.12
74.33
78.9
69.13
80.46
82.31
92.43
86.27
91.75
83.2
89.06
75.2
93.35 94.69
92.35
97.54
100.24 100.77 100.76
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013 2014 2015
RevenueperavailableroominU.S.dollars
Asia Pacific Americas Europe Middle East / Africa
Figure 3. Revenue per available room of the hotel industry
worldwide from 2008 to 2015, by region (in U.S. dollars)
(Source: STR Global, 2016)
11. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
Consumer Trends
The hotel industry’s major markets are determined by
the income, purpose of travel, preferences, race, and
travel destination of the consumer.
Domestic leisure travel is expected to rise from 69.8
million users in 2015, to 94.2 million users by 2021
(Statista, 2016). Consumer spending from 2012 – 2017
has seen a compound growth of 2.55%, and projections
through 2022 show continued growth of 2.13% (Alvarez,
2016). This growth is directly related to improved labor
markets, stable gasoline prices, and an increase in per
capita disposable income in the U.S. With more
disposable earnings in their pockets, use of paid lodging
increases as guests elect to travel more for leisure and
special events. Statistics show that households with
higher income levels spend more on overnight hotel
stays.
International leisure travel into the U.S. is also
expected to increase in the coming years with 2017
expected to show a bump from 12.2% to 20% of lodging
sales coming from foreign guests (O’Donnell, 2014).
This increase is also due to positive economic forecasts
and currency exchange rates. China is just one example
of how an emerging international economy means more
foreign travel impacting the U.S. hotel industry.
According to Euromonitor, nearly 8 million households
in Beijing and Shanghai will reach the equivalent of
$35,000 USD by 2030, and they anticipate similar
numbers in many other cities. This is the target
household income for Chinese households to consider
foreign travel. Visits from Chinese tourists are expected
to raise by 138.6% between 2013 – 2018 (Passport,
2015).
Why They Travel
Domestic leisure travel is the number one reason for hotel
stays in the U.S. with 3 in 4 adults in the workforce receiving
some paid vacation time throughout a given year
(O’Donnell, 2014). At least 24% also travel to visit
family/friends and to attend weddings, funerals, and holiday
events. Sports, concerts, and other special events also factor
into overnight hotel stays (O’Donnell, 2014).
International leisure travel is often to visit U.S. tourist areas
such as theme parks, New York City, Las Vegas,
Hollywood, etc. They travel in larger groups, bringing
family and friends. The global average spent on hotel stays is
an average of 24% of the consumer’s total travel budget.
Chinese tourists tend to spend only 10% of their travel
budget on lodging and more on shopping and other activities
(Passport, 2015).
Business travel is determined by the geographical location of
the company and it’s particular industry. Sales meetings and
other business transactions are now being conducted by
video-conference which reduces the amount of travel
required by some professionals. Corporate conferences,
conventions, and training sessions often require hotels that
contain meeting and/or event facilities, along with large
blocks of rooms for guests.
Business travelers make up 18% of the market share for
the hotel industry, as shown in Figure 4. Business travel
is also sensitive to the economy. Corporate profits and
the overall business financial climate affect the number
of business trips taken, length of hotel stays, and the
number of business events scheduled, such as
conferences or conventions. Business travel actually
contributes a greater share to total hotel revenues because
of dollars spent for blocks of rooms, but more people
travel for leisure purposes.
(Source: Alvarez, 2016)
Figure 4. Major Market Segmentation (2016)
50.0%
Domestic leisure
travelers
19.5%
International
leisure travelers
18%
Business
travelers
12%
Meeting, events,
incentive travelers
Total $169.5bn
(Source: Alvarez, 2016)
Industry Overview
3
12. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
Mission Statement
“To be the most hospitable company in the world – by
creating heartfelt experiences for Guests, meaningful
opportunities for Team Members, high value for Owners
and a positive impact in our Communities” (Hilton
Worldwide (HLT), 2017d). Their vision is to provide
each guest with the perfect experience every time. HLT
uses the letters for Hilton to advertise their values:
“Hospitality – Integrity – Leadership – Teamwork –
Ownership – Now” (HLT, 2017d).
Overview
Conrad N. Hilton started the company with a 40-room
hotel in a small Texas town in 1919 (HLT, 2017b).
Today, Hilton Worldwide has 14 lodging lines
including those with high brand name recognition, such
as Hilton Hotels, Waldorf Astoria, Embassy Suites,
Double Tree and Hampton. They are in over 100
countries and regions and served over 140 million
guests in 2015 (Dudovskiy, 2016) . Their franchising
model won the #1 franchise opportunity in
Entrepreneur Magazine's Franchise 500® ranking for
their Hampton Hotel line in 2011 (Hampton Global
Media Center, 2011).
Marketing Strategies
One social media strategist handles Hilton’s various
intelligence platforms between its hotel brands (Hilton
Blends, 2015). This allows the brand a consistent
approach to consumer data obtained from this platform.
The company also uses product differentiation to gain a
competitive advantage by increasing the willingness of
customers to pay more for their stay. Hilton is targeting
millennials with several new soft-brand hotel lines.
However, they lag behind IHG and Marriott in terms of
aggressive development to meet this goal. Hilton’s Tru
brand has less units currently and in the pipeline than
comparable brands as shown on Figure 5. Their slogan is
”Travel with Purpose” (HLT, 2016) and states that while
they want while they want to take advantage of a global
footprint, they also understand the need for local solutions.
Hilton is also transparent in letting customers know about
specialized services, such as their transportation
partnership with Uber to provide a smooth travel transition
for guests.
Hilton Worldwide
4
IS Strategies & Technology
Hilton created HILCRON in 1955 as the first central
reservation office (HLT, 2107c). Their innovation has
continued to utilize cutting edge technology based on
their proprietary IS platform called OnQ (pronounced
“on que”). This system enables the company to
interface all aspects of their organization, as well as
collect real-time data to better meet guests' needs.
(Lorden, 2010). HLT has aggressively used technology
to develop innovative customer service programs.
Digital keys are now available allowing guest to access
their rooms with their smartphones. There is also an app
allowing guests to select rooms and customize their
stay, also by using their smartphone
0 50 100
Marriott - Moxy
Hotel
IHG - Indigo Hotel
Hilton - Tru
Pipeline
Properties
Figure 5 . Millennial Oriented Brands
Current Properties vs. Pipeline
Stock and Market Groups
Hilton Worldwide Holdings Inc. (HLT)
HNA Group, a Chinese investment company (25%) and
Blackstone Group, (21%) are the largest stockholders of
Hilton Worldwide. HLT has a market Cap of 19,284
Mil USD (Yahoo Finance, 2017).
SOURCE
13. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
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TrendsRecommendations
Management Team
Hilton President and CEO, Christopher Nassetta has
provided strong and effective leadership for the
Executive Committee and Board of Directors. He came
to HLT immediately following Blackstone’s acquisition
of the chain in 2007. He has degrees in Finance and
Commerce and was previously CEO of Host Hotels and
Resorts, Inc. Blackstone rebuilt the management team
from the top down, restructured company debt,
expanded the room count by one third, and then took
the company public in 2013. The company has doubled
their room count since Nassetta and Blackstone became
involved. (HLT, 2017b) As of 2016 Blackstone no
longer has a controlling interest in HLT, however, they
continue to hold two seats on the Board of Directors.
The Chinese company, HNA Group, also has two seats
on the Board, one being an HNA employee and the
other from an independent organization. (HLT, 2016)
Business Structure
HLT’s current business model caters to a wide range of
business and leisure clients with over 4,610 units all
over the world. According to their 2015 Annual Report
and their Form 10-K, HLT’s business model operates
using three different segments: (1) ownership; (2)
management and franchise; and (3) timeshare. Hilton
began their franchising model in the 1970’s and it
accounts for 91.5% of their US units, as well as 8.5% of
their International units. By franchising, Hilton follows
the current “asset light” trend being adopted by other
large brands. (HLT, 2015) Their hotels run from upper
midscale to luxury and includes 45 timeshare properties.
In response to the growing target markets of millennials
and Hispanics who want an economic, personal, and
unique lodging experience, HLT has recently developed
multiple new “soft-brand” lines. These include: The
Tapestry Collection which opened it’s first location in
2016; Tru, a low-cost, franchised hotel with modern
décor; and Curio, which features upscale hotels with
character. Hilton also has plans for an urban micro-hotel
brand and is working on five lines under this type for
2017. This would speak to business and economy
travelers. (HLT, 2017a)
General Financials
According to Hilton’s 2015 Annual Report, at year-end
overall debts were $5 billion, which included $726
million of non-recourse debt (HLT, 2015). Since 2007,
under Nassetta and Blackstone, the company has
reduced its debt from approximately $20 billion,
however, their current debt is still concerning and a
downturn in the economy, or management mistakes,
could cause serious financial issues for HLT. They have
also had a history of poor profit margins, low operating
cash flow, and a lower than expected stock performance,
particularly in the 3rd quarter of 2016. Their reported
revenues for that same quarter were $2.94 billion, which
was under the projected $3 billion. HLT adjusted their
RevPar predictions for 2016 from between 2%-4% down
to 1.5% - 2%. They noted that system-wide the RevPar
has risen 1.3% in 2016 over 2015, but occupancy went
down by 0.2%. As shown in Figure 6, their RevPar has
begun to slow/ Their Adjusted EBITDA numbers show
that HLT is positioned almost exclusively in the US.
They do not have a sufficient global market share to
protect them against shifts in the economy in the US.
(Graf, 2016)
Hilton Worldwide
Figure 6.
Revenue per available room (RevPAR) of Hilton Worldwide
hotels from 2012 to 2015 (in U.S. dollars)
5
93.38
98.65
105.63 106.51
0
20
40
60
80
100
120
2012 2013 2014 2015
RevPARinU.S.dollars
(Source: Statista, 2016)
14. IndustryOverviewIntroductionClosing
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Analysis
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TrendsRecommendations
InterContinental Group
Mission Statement
“To create great hotels guests love” (Intercontinental, 2016).
Overview
IHG has built their success upon their “asset light” strategy,
creating large revenues with relatively low costs for
operation. Within their 5,000+ hotels throughout the world,
over 4,000 are franchised, while roughly 800 are managed
by IHG (IHG, 2015). Even the hotels that are managed are
operated on behalf of third party owners. Moreover, IHG
chooses only to own and operate in select priority markets.
IHG elects this strategy as a method of driving growth in
emerging markets. Through utilizing the world’s largest
hotel loyalty program, maintaining an asset-light business
model, and segmenting their hotels in key markets, IHG has
long established itself as a top competitor in the hotel
industry.
Stock and Market Groups
InterContinental Hotels Group PLC (ADR)
IHG has a market cap of $9,144 Mil USD. They are unique
among the three companies being reviewed in that they have
zero stock owned by insiders. IHG and Hilton both have
much lower numbers of stockholders who are institutions or
investment funds as shown in Figure 7. (Yahoo Finance,
2017) Low numbers in this category mean less outside
influence on corporate decisions. With revenues of
approximately 24 billion dollars in 2015, IHG made up
roughly 31% of the market for Hotels (Statista, 2015). This
is due to their ability to expand, investing in their target
markets and providing accommodations for a huge variety of
consumers.
Marketing Strategies
IHG has a large variety when it comes to hotel
segments. They have a hotel for every sort of
occasion, from an overnight stay, to a luxury
experience. Their broad group of hotels is able to
target consumers of all types. They place their hotels
strategically in what they consider priority markets,
taking advantage of upcoming customer bases such as
China, where the middle class is expanding at a rapid
pace. IHG’s Rewards Club is the world’s first and
largest hotel loyalty program. Their program has perks
for any overnight guest. Reward points can be
redeemed for free stays. IHG’s marketing stratetgy also
offers random “point breaks” that reduces the point
requirements for nightly stays. Guests can also
exchange points to stay in luxury hotels at little or no
charge. However, this means they have spent time and
money to build up their reward points.
IS Strategies
Information systems are key in such a large
corporation. As a worldwide organization, IHG
utilizes internal systems customized for their key
employees across all parts of the business. Their
primary information system is the “Leaders Lounge.”
The Leaders Lounge allows managers to exchange
information, data, and experiences with personnel in
other hotels. Furthermore, it gives company leaders
access to daily updates, articles, new policies, major
changes, and events within IHG. Using this program,
all levels of management are able to build relationships
and learn from others’ experiences. This quick
exchange of information allows the business to fix
problems and implement new strategies with great
speed, which can be a problem in such a large
organization.
Peer Comparison: Stock Equity (2016)
Equity Ownership IHG MAR HLT
Market Cap (MIL USD) 9,144 33,292 19,284
# of Institution Owners 104 1,005 62
# of Fund Owners 43 1,444 157
% Owned by Institutions 6.43% 72.03% 2.19%
% Owned by Funds 4.40% 33.52% 2.19%
% Owned by Insiders 0 0.46% 1.48%
Figure 7.
6
Revenues = $24 Billion
Market Share = 31%
(Source: Yahoo Finance, 2017)
15. IndustryOverviewIntroductionClosing
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Analysis
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TrendsRecommendations
Management Team
InterContinental (IHG) emerged from the former Six continents PLC in 2003 with their current CEO, Richard Solomons
overseeing the separation. Solomons previously served as an investment banker and is a chartered accountant. In 2011
he helped develop the chain’s first international hotel brand, Hualuxe, tailored for domestic Chinese travelers, This was a
result of increased travel by this market. He was also instrumental in forming IHG’s EVEN brand, which focuses on
guest wellness. IHG’s management team has a reputation for strong leadership, with the British multinational company
showing a relatively high profitability despite having a debt ratio of 539.16% (IHG, 2015) (industry standards show this
should be 20% or less).
IHG is a publically held company with no one entity having a controlling interest. The two largest stockholders are
Fidelity Series International Growth with a 2.90% stake and Fidelity Management and Research Company with 4.36%
(Yahoo Finance, 2017). InterContinental is the youngest player among the three major companies in the industry.
However, Solomons has been in leadership from inception and has a strong international team in place.
InterContinental Group
Business Structure
IHG has three methods of operating their hotels,
franchising, managing, and owning/leasing.
Franchising is primarily done in mature markets like the
US, while they tend to manage the hotels in emerging
markets such as China. Their current priority markets,
which account for 87% of the IHG system, includes the
US, Middle East, Germany, UK, Canada, Greater
China, India, Russia, Mexico and Indonesia (IHG,
2015). The vast majority of hotels are franchised, and
over half are in the Americas. However, looking
forward, that mix may change with managed
development centered internationally. As shown in
Figure 9, IHG provides a variety of segments based on
the needs/occasion of their guests. "IHG is focused on
the three segments that generate over 61 per cent of
branded hotel rooms revenue – namely, upper midscale,
upscale and luxury. We believe these segments have the
highest growth opportunity and strongest resilience to
industry and economic cycles” (IHG, 2015). The
highest revenue brand within their company (50%)
comes from the The Holiday Inn Family, which are
upper midscale brands (IHG, 2015).
7
Figure 9. IHG Breakdown of Brands
General Financials
Financial statements show that of the three major
players in the industry, IHG generated the most
revenue for the year-ending 2015. While it did not
have the highest net income overall, it had more than
tripled from 2014. IHG’s net income sat at $1.224
billion at the end of 2015 due to a dramatic decrease
in operating expenses (IHG, 2015). IHG had the
highest return on assets (Figure 8). They are effective
in converting capital expenditures into profits. Their
debt also decreased this past year to a stable ratio of .9
(IHG, 2015).
5.20%
13.27% 37.10%
Figure 8.
2015 Return on Assets
Marriott
IHG
Hilton
(Source: Yahoo Finance, 2017)
Units in % of Gross
Brand Scale Units Rooms "Pipeline" Revenue
Intercontinental Luxury 186 63,742 58 19%
Kimpton Upper Upscale 63 11,379 17 5%
Crowne Plaza Upscale 401 112,112 90 18%
Staybridge Suites Upscale 231 25,081 132 3%
Hotel Indigo Upscale 72 8,554 68 1%
Even Hotels Upscale 5 780 6 <1%
Hualuxe Upscale 3 798 21 <1%
Holiday Inn Upper Midscale 1,155 209,297 253 26%
Holiday Inn Express Upper Midscale 2,469 243,234 678 25%
Holiday Inn Resort Upper Midscale 44 11,443 16 <1%
Holiday Inn Club Vacations Upper Midscale 22 7,275 0 <1%
Candlewood Suites Midscale 354 33,473 108 3%
(Source: IHG, 2015)
16. IndustryOverviewIntroductionClosing
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Analysis
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Marriott International
Mission Statement
“To be the #1 hospitality company in the world” (Marriott International, 2015).
Overview
In 1927 John W. Marriott and his wife opened a root beer stand in Washington, D.C. Over the decades John and his
family were able to transform their small root beer stand into a hotel giant with some of the most renown brands in the
industry. Marriott International operates, licenses, and franchises nearly 6,000 properties in 120 countries. Marriott has
an asset light business strategy with nearly 70% of its properties franchised rather than directly owned allowing for
swift expansion and low fixed costs (Marriott, 2017).
Marketing Strategies
With the acquisition of Starwood, Marriott now has even
another target market to attract new customers. These two
companies have now integrated their reward systems
together making it easier on the customer. One of the
biggest strategies used by the lodging industry is its reward
system. Marriot has a partnership with both the NBA and
NFL to offer one and only experiences to primetime games.
Customers seem to connect with the company better when
they get these experiences so Marriott is trying to build
customer relations with these sponsorships (Bethesda, 2016).
Marriott’s award-winning loyalty program spanning 18
brands and over 4,300 hotels worldwide. It has three
different levels in its reward systems, which are silver, gold,
and platinum benefit levels. These levels or ranks build up
when the number of stays increase. For instance, 250 stays
and 1.2 million reward points get into the silver class, while
for gold its 500 stays and 1.6 million rewards (Marriott
Rewards, 2016). These programs offer many benefits and
opportunities for customer, but is also a great way for
Marriott to keep and attract many brand loyal customers.
IS Strategies and Technology
Marriott has its own separate division of technology,
whose goal is to improve profitability and run efficiently.
The advancements to Marriott’s information system has
improved greatly over the years. They can now collect
data on their consumer hotel stays (Marriott, 2007). This
allows them to target the specific needs and wants of the
customer. Customers can either check-in or check-out
with a mobile app, which achieved an 86% percent
customer satisfaction because it creates a more seamless
travel experience. Figure 10 shows the results of their
mobile campaign. Mobile revenue was up 25% year over
the past year, and increases are expected to continue this
year. About 75% percent of customers that stay at a
Marriott hotels have visited their website before staying.
Marriott is in beginning stages of providing digital entry,
which uses a smartphone as a key to open your hotel
room (Norton, 2016). As a result of the Starwood
merger, Marriott is evaluating how to smoothly integrate
the two information systems.
Stock and Market
Marriott International, Inc. (MAR)
Marriott International experienced about a 5% increase in
revenue worldwide in 2015 compared to 2014. Marriott
just purchased Starwood for $12.4 billion dollars in 2016,
making it the biggest hotel company in the world (Picker,
2015). It looks like revenue will continue to increase for
the next couple of years. Mr. Sorenson became the third
CEO in the company's history in 2012, whom was also the
first without the Marriott surname. He played a big role in
why Marriott did this merger and could affect the market
for years. In 2017, their stock is back to where it was a
couple of years ago, which is around $85 dollars. This
spike in stock price could also correlate to the merger that
happened.
8
Figure 10. Marriott’s Mobile App
(Source: Beeby, Clark, and
Meyler. 2012)
17. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
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TrendsRecommendations
Marriott International
Management Team
J.W. Marriott, Jr. served as CEO of Marriott for over
40 years, but stepped down in 2012. He remains as the
Executive Chairman and Chairman of the Board. His
degree is in banking and finance. Marriott, Jr. was an
early pioneer of the asset light concept and shifted the
chain’s focus to property management and franchising
in the 1970’s. Arne Sorenson is the current President
and CEO. He has been with Marriott in various
positions since 1996. He was formerly a partner in a
law firm and specialized in mergers and
acquisitions. Marriott acquired Starwood in 2016,
which was the largest hotel/resort acquisition in
history. Marriott, Jr. is well known for being a hands-
on leader, following his parents’ chief core value of
putting people first (Executive, n.d.). Under Marriott,
Jr.’s continued input, they have become the world’s
largest lodging company in the world (Executive,
n.d.).
General Financials
Marriott’s financial statements reflect a cost of revenue
of $12.363 billion dollars, which was higher than
Hilton or IHG, whose costs of revenue were
respectively $4.065 billion and $640 million (Marriott
International, 2015). Marriott is also not as asset light
as the other two major companies causing Marriott’s
net income for the year-ending 2015 to be $859
million (Marriott International, 2015). This brand has
continued to experience steady declines in net income
over the last five years. Marriott’s debt ratio was also
the lowest of the big three as shown in Figure 11. This
appears to be from a higher degree of debt on their
books. The one positive item on their financial
statements was their return on assets, which was stable
at a respectable percent of 5.9 (Marriott International,
2015).
Business Structure
Marriott’s branding structure mirror those of Hilton’s and
IHG’s, by having a mixture of franchised and managed
units. They tend to manage or operate more units overseas
than in the United States, where 89.7% of Marriott’s units
are franchised. Marriott has 5,720 units worldwide and
4,347 of those are within North America. Ritz-Carlton
stands out as their premier luxury property and is the
exception to the rule with 98.89% of this brand remaining
company owned. (Marriott International, 2015) As an
international hotel firm, Marriott employs 30 different
brands, each unique in their own aspects. All of Marriott’s
brands have their own image that is strategically targeted
toward different market segments. Marriott classifies their
hotels by North American full service, North American
limited service, and international. As shown in Figure 12.
Marriott has experienced exceptional growth in each North
American segments, but a slow decline in their international
segment. Marriott international has such a large variety of
brands that it is able to attract a multitude of customers. By
appealing to a diverse consumer group in different market
segments, Marriott is able to hedge against environmental,
diplomatic, and economic downturns. As shown in Figure 9,
Marriott out performs the industry average occupancy rate
in most regions throughout the world. They are continuing
growth into Asia and plan to double their holdings in the
region. They have 535 existing units and 475 on tap for
development. (Asia-Pacific, 2016).
Figure 12.
9
0.000
0.500
1.000
1.500
2.000
2012 2013 2014 2015
Figure 11. Competitor Debt Ratio
Marriott Hilton IHG
(Source: Marriott International, 2015)
(Source: Marriott Int’l, 2015; HLT, 2015; IHG, 2015)
18. IndustryOverviewIntroductionClosing
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Analysis
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Key Industry Trend # 1
10
Strategic Acquisitions
According to Marriott’s CEO Arne Sorenson, former
Starwood hotel brands such as Aloft and W hotels were
recognized for their unique design, artistic dining
experiences, and happening lobbies that appeal to
younger travelers (Trejos, 2015). This Is a major reason
why Marriott spent over $13 billion in 2016 on buying
these chains. In total Marriott was able to acquire an
additional 9% of total market share and multiple unique
brands. Aside from the two aforementioned brands,
Marriott also gained Sheraton hotels. This consisted of
436 additional hotels specifically commissioned for
luxury-seeking millennials (Marriott News, 2015).
Hilton has taken a different approach. CEO Chris
Nassetta has said “I don’t see any of those deals on the
horizon” referring to mergers (Oats, 2016). He is
confident that Hilton does not need to acquire any hotel
chains to compete with his competition. This may be
seen as a detrimental decision, but currently Hilton
controls nearly 20% of all hotel rooms under
construction (Oats, 2016).
In December of 2014 IHG spent $430 million on
acquiring Kimpton Hotels (Eisen, 2014). This is
important because it made IHG a leader in the
boutique hotel industry. Kimpton currently has 62
hotels with 16 in the pipeline and this brand
compliments IHG’s other millennial brands Indigo
and EVEN perfectly.
Increasing Convenience Through Mobile
Solutions
According to the AHLA, hotels spent $8 billion on
technology in 2015 (Hotel Technology, 2015). This
is nearly twice as much as hotels spent on
technology in 2014 (Hotel Technology, 2015).
Forty percent of AHLA survey respondents indicate
that they will be investing in “customer-facing
mobile solutions” (Hotel Technology, 2015). In a
2015 survey conducted by lodging technology
39.5% of respondents also say they will also be
investing in customer-facing mobile solutions
(Feellah, 2015).
Marriott’s recently acquired millennial hotel brands
Aloft, Element, and W Hotels have implemented
mobile solutions through mobile room access.
Hilton’s TRU brand will also have keyless mobile
entry and if they are an HHonors member they are
allowed to choose their room within 48-hours
before their checkin (Oats, 2016). IHG’s Indigo
brand offers loyalty members mobile check-ins, and
real-time updates to their hotel bill through their
Mobile Folio app (IHG, 2016). IHG is also in beta-
testing of a mobile app that allows customers to
bypass the front desk while checking in (IHG,
2015). The IHG app also allows guests to submit
requests to hotel staff for room service and drinks.
Perhaps the most important innovation is the IHG
beacons that are placed throughout Chinese hotels
and automatically send information to IHG rewards
members as they walk by. These beacons are placed
by hotel restaurants, clubs, and spas that offer
information relevant to their stay. This is important
because according to a survey conducted by
daylighted.com 70% of millennials desire a
personalized stay (Millennials in the hospitality,
2015).
Reaching the Millennial Market
Launching New Brands
Marriott’s brand directed towards millennials is called
“Moxy”. Moxy was debuted in 2014, and in the last
two years they have built six hotels with an additional
62 in the pipeline (Marriott International, 2015).
Marriott’s Moxy brand aims to attract customers by
offering affordable pricing and technology savvy
amenities.
Hilton has followed suit by debuting their “Tru” brand
in the fall of 2016. Currently there is one hotel built
with another 132 in the pipeline (HLT, 2015). This is
the 13th brand commissioned by Hilton and they
describe as something that targets youthful energy, a
need for life, and a desire for human connection.
IHG pioneered the millennial brands by forming hotel
“Indigo” in 2004. Currently there are 72 built with
another 68 in the pipeline. Contrary to brand identity,
these hotels adapt to the local culture of where they are
constructed. This brand delivers an inviting guest
experience that is truly reflective of the local
community (IHG, 2015).
19. IndustryOverviewIntroductionClosing
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Analysis
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Criteria Hilton InterContinental Marriott
% Weight Raw
Score
Weighted Raw
Score
Weighted Raw
Score
Weighted
Launching
New Brands
40% 3 1.2 4 1.6 3 1.2
Strategic
Acquisitions 40% 1 4 3 1.2 5 2
Increasing
Convenience
Through
Mobile
Solutions
20% 2 4 3 6 2 4
Total Scores 6 2 10 3.4 10 3.6
Figure 13. Reaching the Millennial Market - Submatrix
Key Competitors Measured Against Key Industry Trend #1
11
The Decision Matrix Methodology: Key Trend #1 – Reaching the Millennial Market
Introducing New Brands was given the weighted measure of 40%. The growing millennial population means that the
lodging industry design new brands that cater to what millennials want. A good weighted score for this trend would
mean that a company has to have: (1) a clear brand identify that relates directly to what millennials want; (2) A strong
command of the market within specific millennial brand hotels. (3) A large pipeline or contractual plans for expansion.
Strategic Acquisitions was given the weighted measure of 40%. Acquiring established brands shows that company
leaders recognize the importance of finding successful companies and building off of them. In mature markets it is
difficult and often times wasteful to engineer new brands that accomplish the same goal of already established brands.
Acquiring brands to be franchised also fits hand in hand with a successful business strategy of being asset light. A good
weighted score for this trend would mean that a company has to have: (1) A strong CEO who recognizes opportunities
for expansion and capitalizes on them; (2) has a development plan in place to begin or continue expansion in specific
market segments; (3) has the capital and management team in place to handle acquisitions of large global firms.
Increasing Convenience Through Mobile Solutions was given the weighted measure of 20%. It is given a lower
weight than strategic acquisitions and introducing new brands because it is a very specific technology trend that does
not encompass the multitude of other smaller technology trends taking place, but we felt it was an important enough
factor to have its own section. A good weighted measure for this trend means that a company has; (1) Currently has
some form of mobile solutions implemented; (2) Caters to different customer segments with specific features that
encompass the personalized experience 70% of millennials are yearning for; (3) Are going above and beyond customer
expectations to improve convenience and satisfaction.
20. IndustryOverviewIntroductionClosing
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Analysis
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TrendsRecommendations
Current Establishment in Asia/Pacific Region
Due to the rapidly growing middle class in China’s booming economy, looking forward, there will be vast
opportunities in this region for the lodging industry. This will include consumers on both business and leisure travel.
Already in 2014, China officially surpassed the US in outbound travel spending (IHG, 2015). Outbound travel in
China will affects the landscape of the industry in the entire Asia/Pacific region, as a majority of outbound travel
from China is to other countries in the region such as Thailand and the Philippines . This will be a trend continuing
into the foreseeable future as more Chinese citizens pass an income level of roughly $35,000, which is required to
access international travel (IHG, 2015). Furthermore, despite a slowing economy, China is still growing at a rate of
7% annually, faster than any other country.
Looking at how the major brands are currently established in this region, we see that IHG, Marriott and Hilton have
already began to take advantage of this growing market. As shown on Figure 14, each major player is continuing
growth in China. Since entering the region in 1984, IHG was the first to establish themselves in China. This set
them up with an early competitive advantage, today accumulating up to 265 hotels in the region, with almost 200
more in the pipeline (IHG, 2015).
Although IHG is a secured leader in the Chinese lodging sector, we are now seeing Marriott International and Hilton
Worldwide taking advantage of this same market. Marriot, currently holding 102 units in the greater China region,
plans to more than double their presence in this area. More, Marriott having recently acquired Starwood Hotels and
Resorts, now has 260 hotel accounted for in this region. Hilton, having 71 hotels in china, has the smallest share of
this market, however they as well have plans for expansion in the immediate future, with 206 of their 266 hotels in
their Asia/Pacific pipeline planned specifically for locations in China (Chang, 2016).
Expansion Plans in Place
Coming into 2017 with a huge segment of the hotel industry in China, IHG has already implemented a program
specifically for Chinese travelers, whether they are staying on business, or for leisure. This operation, called the
“China Ready Programme” consists of implementing hotels in key Chinese outbound travel locations with
employees and accommodations specifically catering to Chinese guests. Further developing their presence in this
market, IHG has opened a new chain of hotels, Hualuxe, the first industry hotel brand designed specifically for the
Chinese consumer. With only three currently operating, 21 are already planned to open in the next several years
(IHG, 2015).
Hilton, similarly to IHG, has begun to operate
hotels in key travel areas for Chinese tourists
with accommodations made specifically for
Chinese guests with their “Huan Ying”
program. Hilton had done this in 83 locations
as of 2015, and they are continuing to do this
to support their program with the Chinese
travelers (Chang 2016).
0
100
200
300
400
500
600
Units(Hotels)
Marriott as well is making big leaps in the Asia/Pacific hotel industry. Recently acquiring Starwood, Marriott has
immediately become the largest hotel group in the region, their 260 current units will be more than doubled with
another 300 in their plans (Junqian, 2016).
IHG Marriott Hilton
Figure 14. Units in China by Group
2015 2015 20152010 20102010 Pipeline Pipeline Pipeline
Key Industry Trend #2
12
International Expansion into China
(Elmer, V., 2010; Gao, T., 2011; InterContinental, 2010)
21. IndustryOverviewIntroductionClosing
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Analysis
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Key Industry Trend # 2
International Expansion China (cont.)
Marketing Strategies
The three major hotel groups are all competing extremely hard against one another in this emerging market segment
of the hotel industry. We found that the marketing strategy by each group is strategically different, and attacks the
market with a new way of attracting and impressing the consumers in the Asia/Pacific region.
For example, IHG has taken initiative to not only expand their own brands in the Asia/Pacific region, but they have
also created a brand specifically for China and the rest of this region. This gives them an advantage by having a
chain specifically created for their culture and needs. Also, IHG’s “China Ready Programme” is a major advantage,
as they cover not only locations within China and the rest of the region, but locations all over the world where
Chinese citizens travel. With only 3 currently operating, there are already plans for 21 more Hualuxe hotels in the
next several years. (IHG, 2015)
On the other hand, Marriott is taking a different strategy. After combining with Starwood Hotels and Resorts,
Marriott has ended up with nearly the largest amount of hotels in the region, with the most currently in their pipeline.
Since Marriott has established themselves as a major player in this region, they are beginning to take steps toward
gaining loyalty in the consumers. For instance, they recently signed a deal with a company called Alipay, essentially
a Chinese brand of Paypal (Cai, 2015). This is a big advantage in marketing, as it makes paying for hotel stays more
of an ease for the Chinese consumers.
Hilton has, in a sense, taken a similar strategy to IHG. Through this, they have began to implement special services
in their hotels that cater to the Chinese tourists with their “Huan Ying” program (Chang 2016). Doing this in key
outbound locations allows them to market to the vast number of upcoming middle class travelers from the
Asia/Pacific region. Also, with a huge number of 266 hotels planned for the Asia/Pacific region, Hilton is looking to
stay competitive with IHG and Marriott (Chang, 2016). Partnering with Plateno Hotels Group is another strategy of
marketing and expansion for Hilton. Having another group managing major segments of development of their new
hotels will provide them with the ability to expand much more rapidly, increasing their predicted pipeline of hotels
exponentially.
Our three major hotel companies must review their current establishments, expansion plans, and marketing strategies
to remain competitive in the global market. As shown in Figure 15, Asia Pacific is expected to more than double
tourism flows by the year 2023. China is a primary development market within this region for the major players.
13
Figure 15 . Overnight tourism flows by region, 2012 (left) and Overnight tourism flows by region, 2023 (right)
Source: Oxford Economics, 2012
22. IndustryOverviewIntroductionClosing
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Analysis
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Figure 16. International Expansion into China - Submatrix
Key Competitors Measured Against Key Industry Trend #2
Criteria Hilton InterContinental Marriott
% Weight Raw
Score
Weighted Raw
Score
Weighted Raw
Score
Weighted
Established in
China
30% 3 .9 5 1.5 4 1.2
Expansion
Plan in Place
30% 4 1.2 4 1.2 5 1.5
Marketing
Strategies
40% 3 1.2 4 1.6 5 2
Total Scores 10 3.3 13 4.3 14 4.7
Decision Matrix Methodology: Key Trend #2 - International Expansion, is evaluated based on three
components in order to determine how successful each of the three major players are in addressing this trend: Having
an established network of hotels in place is weighted at 30% because there is an increasing importance to stay on top
of a growing market in china and certain companies are already more established than others in the region. The future
plans for expansion are also weighted at 30%. Hotel brands are already well established in the area but equally as
important are their plans for the future to reach their goal in the region whether that be to maintain dominance or to
grow into a more dominant role. The final component is the marketing strategy for the company at a 40% weight. This
component was weighted 10% higher than the others because Chinese consumers are a fast growing segment of
outbound international travel and the overall goal of expansion in the region is to appeal to the Chinese consumer and
gain their loyalty to the company’s brand.
Established in China:
For this criteria, we examined the
current establishment of locations
for each major group in the
Asia/Pacific region. Currently
having the highest number of
hotels in the region, 265 in China
alone, we gave IHG the highest
rating of 5 (IHG, 2015). Marriott
followed narrowly behind, having
roughly 260 hotels after acquiring
Starwood Hotels and Resorts
(Marriott International, 2015).
Hilton as of 2016 had by far the
lowest amount of hotels, with only
71 in the greater China area.
Expansion Plans in Place:
After gathering information on
plans for each brand to expand
their hotels to new locations in this
area, we found that they are each
taking their own approach. Since
Marriott, having acquired
Starwood, will have the most hotels
in their pipeline, we gave them the
highest rating of 5. Both IHG and
Hilton followed closely behind
with a rating of 4, since both of
them have a pipeline of roughly
200 hotels (IHG, 2015; Chang,
2016).
Marketing Strategies:
Each group took their own route when
it came to marketing to the Chinese
consumers. Marriott appears to have
the most effective strategies, partnering
with Chinese online paying company
“Alipay”, while rapidly expanding
their hotels into the Chinese market
(Chang, 2016). Acquiring Starwood
was a key asset in gaining control of so
many hotels so quick, earning them a
rating of 5 in this criteria. IHG was
very close to Marriott in this category,
while taking a different route. They
opened up a new chain specifically for
china, Hualuxe hotels, while also
implementing their “China Ready
Programme” into hotels in various
outbound Chinese travel destinations
(IHG, 2015) Hilton, running a similar
program on a smaller scale (for now)
received a lower rating of 3.
14
23. IndustryOverviewIntroductionClosing
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Analysis
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TrendsRecommendations
Key Industry Trend # 3
Loyalty Programs
In light of potential threats from peer-to-peer room
sharing options, such as Airbnb, and OTA’s who divert
brand recognition and commission revenues away from
hotel companies, this industry has to switch from a
strictly demographic mindset to include the
psychological aspects desired by their target market.
Key industry players, such as Marriott, Hilton, and
InterContinental are turning this threat into an
opportunity to reach guests through their loyalty reward
programs with an eye on providing economical,
personalized, and unique guest experiences via cutting
edge technology.
The global population is currently estimated at 7 billion
with approximately 318 billion located in the U.S.
According to Hilton Honors, only 319 million people are
participating in loyalty programs in the U.S. (Carter,
2016) Additional statistics report that 86% of the ever
growing millennial generation are not part of a hotel
loyalty program (Carter, 2016). The United Nations
estimates that millennial travelers generate more than
$180 billion in annual tourism revenue, which is a 30%
increase since 2007 (Carter, 2016). All of these statistics
add up to a vast untapped pool of potential lodging
guests who have not sworn allegiance to any one brand.
Our three research brands are making adjustments to
secure a larger market share of the undecided masses.
Hilton now gives members more control over how points
are redeem by allowing a mix cash and points to pay for
a hotel stay. They can also pool points with family and
friends for group stays. Points can then be used quicker,
which is a major feature for target markets. Honors
members will also soon be able to purchase items on
Amazon.com thanks to their partnership with Hilton.
(Hilton Honors, 2017)
IHG has one of the largest loyalty programs in the
industry and they continue to evolve with the needs of
their guests. Their rewards have been updated to include
unique experiences, which falls in line with A recent
Harris Poll Survey stated that 78% of millennials would
rather splurge on experiences instead of things (Berry,
n.d.). Over 2 million points were redeemed last year for
trips to New York, and London, and other venues (IHG
Pulls Back, 2016)).
Marriott Rewards has 30 years of data showing that most
members join before the age of 35 so they fully plan to
take advantage of the millennial trend (Bells, 2015).
Marriott has multiple test markets in place that will
provide memorable experiences, give quick
gratification, and are easy to use. One such test offers
mobile notices of a limited product offer that is given
away or sold at a deep discount (Bells, 2015). This
concept engages the customer and encourages
continued membership.
The use of digital technology across all aspects of the
loyalty program is key to reaching today’s consumers
with 58% of Millennials stating that a mobile hotel
loyalty app would be valuable to them per Figure 17
(Short, 2015). This demographic is not moved by the
same set of drivers as past generations. As seen in
Figure 18, Millennials have their own set of
requirements when it comes to loyalty programs.
Figure 17. Most Millennials Find
Mobile Loyalty Apps Valuable
29 %Very Valuable
29% Moderately Valuable
24% Minimally Valuable
18% Not at all Valuable
15
Figure 18. Millennials want loyalty
programs that:
are direct, clear and simple to use
are attainable in a short amount of time –
no lengthy waits to gather points
provides good quality, unique products,
and services
allows them to partner with a reliable
company
(Source: Short, 2015)
(Source:Berry, n.d.)
24. IndustryOverviewIntroductionClosing
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Criteria Hilton InterContinental Marriott
% Weight Raw Score Weighted Raw Score Weighted Raw
Score
Weighted
Global Loyalty
Program in Place 30 4.33 1.3 4.0 1.2 3.33 1.0
Rewards Offered 30 4.5 1.35 4.0 1.2 4.75 1.425
Profitable Program 40 4 1.6 5 2 3.5 1.4
Total Scores 12.83 4.25 13 4.4 11.58 3.825
Figure 19. Loyalty Programs - Submatrix
Decision Matrix Methodology: Key trend number three, Loyalty Programs is evaluated based on three components
in order to determine how successful each of the three major players are in addressing this trend: Having an
established program in place is weighted at 30% because there are over 7 billion loyalty members globally and
without a highly recognizable foothold then hotel companies are lagging in an important customer service feature.
The benefit options for reward members are also weighted at 30%. Hotel brands must engage the customer and
create a desire for participation in their program and reward offerings are the motivator. The final component is the
program profitability for the company at a 40% weight. This component was weighted 10% higher than the others
because the overall goal of such a program is to increase repeat guest stays and business profitability.
Global Loyalty Program in Place:
One of factors to determine the
score for this component is based
on current membership with IHG
scoring a 5 at 92 million and
Marriott scored a 3 with 54 million.
The Starwood merger brings an
additional 21 million members to
the table, however it is unclear how
the company plans to combine these
programs so no weight was given to
their combined membership. Hilton
has 60 million members and scored
4. HLT’s membership grew by
15% in 2015 giving them an edge
with a score of 5. Both Marriott
(w/o Starwood) and IHG saw
approximately an industry standard
increase of 10% and each receive a
score of 3. (The 9 largest, 2016).
HLT scored high on overall
visibility with current ad campaigns
that create social currency with
guests, although the others have
significantly higher global
exposure which evens the score to 4
each. Final raw score tally: Hilton,
4.33; IHG, 4.0; and Marriott, 3.33.
Rewards Offered: These competitors
offer similar rewards including free
stays, merchandise, experiences, etc.,
plus similar tiered benefit structures
and hidden exclusions. Therefore, the
scoring weight centered on guest
reward payback and any differentiating
program features. As seen in Appendix
D, Figure 29, Marriott is clearly
leading in the value guests receive as
payback, placing the scores at Marriott,
5; HLT, 4, and IHG, 4. All have made
efforts toward program changes that
target Millennials who value the
brand/guest relationship more than the
“stuff” they get (McCartney, 2015).
Marriott offers guest personalization,
IHG focuses on experiences, and
Hilton just made changes so that cash
& points can be combined to give more
guest control, and they allow family
and friends to pool points to make
group travel plans. Hilton received a
score of 5 for a more aggressive
campaign focusing on what guests
really want, with Marriott coming in
second at 4.5, and IHG at 4. Final raw
scores: Marriott, 4.75; HLT 4.5; and
IHG, 4.
Program Profitability: Specific
profitability numbers were
unavailable, however research
shows that occupancy rises by 49%
in guests that are part of a loyalty
program. It was also noted that a
1% increase in loyalty program
spending, in relation to overall
sales and marketing expenses,
provided an average increase of
12% in operating income over
revenue and a 3% increase in the
average room margin. (Lee, et. al.
2014). Statistics show an average
of 42% of members actively
participate in such programs on a
regular basis and more active
members means higher profits
(Carter, 2016). So, if we assume
equal program efficiencies among
the three brands, 42% of their total
membership should provide an
estimated profitability score for this
ranking. The raw scores would be:
IHG, 5 (38.6 m active members);
HLT, 4 (25.2 m active members);
and Marriott, 3.5 (22.m active
members).
Key Competitors Measured Against Key Industry Trend #3
16
25. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
17
After examining our trend of Chinese expansion we
showed that China is the most opportunistic region for
international expansion. They have an emerging middle
class, a booming economy, and we can already witness
consolidation into the market from major hotel firms.
Hilton is currently in the process of expanding their
Hilton Hotels & Resorts brand in the region, but with a
small pipeline they are unable to keep up with
competition. More importantly, we believe that Hilton’s
current plan involves expansion into an over-saturated
segment.
According to the National Bureau of Statistics of China
(NBSC), the largest hotel market segment in China is the
mid-scale, netting over $36 billion in 2015 (China’s
Hospitality, 2016). The mid-scale market is anticipated to
reach $57 billion by 2022, expanding at a 6.6% CAGR
(China’s Hospitality, 2016) Statistics from the NBSC
show (Figure 20) the market share of the top five and six
players for each market segment. By 2022, 70% of the
luxury and budget hotel markets respectively, will be
controlled by the largest holding firms (China’s
Hospitality, 2016). In contrast, only 28% of the Chinese
mid-scale hotel market will be controlled by major
players in 2022 (China’s Hospitality, 2016). From these
results, we can confidently say that the mid-scale Chinese
hotel market is fragmented.
Hilton has plans to expand its own mid-scale brand, the
Hampton Inn, in China. But Hilton has not fully
understood the growth potential of this market as evident
by their less than impressive pipeline numbers. For these
reasons we recommend that Hilton should acquire a mid-
scale hotel brand in China. Most companies operate
multiple brands in different market segments, but we were
able to narrow our selection down to HTHT, or “The
Huazhu Hotels Group Ltd.”
Recommendations
Merger Options:
The Huazhu Hotels Group is one of the largest hotel
holding firms in China. Currently, they have over 3,000
hotels with an estimated 700 in the pipeline (Profile,
2016). These hotels are strictly based in China and
operate in 365 cities (CLG, 2016). The Huazhu Hotels
Group operates seven brands which include the JI Hotels,
Elan Hotels, The Hi-Inn, and Starway. However, the
main reason for this merger is for Hilton to acquire the
Hanting hotel brand. This brand has over 2,000 hotels
with an estimated 286 in the pipeline (Profile, 2017).
According to the Huazhu Hotels Group website, Hanting
hotels are primarily located in the business and
commercial regions of China. This is important because
in 2015 the Chinese spent over $291 billion on business
travel, surpassing the $290 billion American companies
spent (D’Ambrosio, 2016). In 2016, it is estimated that
the Chinese will spend over $320 billion on business
travel, resulting in higher profits for hotel brands
strategically placed in commercial districts (Jones, 2016).
Also, the Chinese government has recently put pressure
on businesses by capping their spending on high-end
hotel stays (China’s, 2016). This will likely result in an
increased demand for mid-scale venues such as those
owned by The Huazhu Hotels Group.
One of Huazhu Hotels biggest competitors is Jin Jiang
Hotels. Even though Jin Jiang is a strong hotel chain in
China, we don’t think it would be smart for Hilton to
acquire this company because they would also be using
capital funds to acquire hotel brands that are outside of
China. Jin Jiang Hotels has seven mid-scale brands
throughout the world. Only three of the brands are in
China (Plateno, 2017). Another large competitor for
Hauzhu Hotels is Home Inn Hotels. Home Inn Hotels
has five mid-scale brands in China (China Travel, 2015).
A merger with Home Inn Hotels might not be the
smartest because their profits are on the decline
(Rosenberg, 2015). Hilton should merge with a company
like Hauzhu Hotels that has a priority toward the mid-
scale hotel market.
Recommendation # 1 – Hilton Mid-scale Chinese Hotel Firm Merger
Figure 20.
(Source: China's Hospitality Industry, 2013)
26. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
18
2,249,597
3,224,527
4,168,629
4,964,728
5,774,624
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2011 2012 2013 2014 2015
CLG Net Revenues (in thousands)
Risk Factors:
This acquisition will have multiple risk factors. It would be unrealistic to not acknowledge the amount time, money,
and government interference this transaction will be subjected to. We estimate that if negotiations were to take place
today, the merger could be completed as early as next December. We found this estimate to be accurate based off of
criteria from the Marriott & Starwood merger. It is important to note that The Huazhu Hotels Group is a larger
company than Starwood, but it would likely take less time to complete because it is solely located in China. This
means that the only approval needed would be from the Chinese Ministry of Commerce, rather than multiple
government agency approvals as needed in the Starwood acquisition.
It is also important to note that the Chinese government could try to prevent the acquisition of a Chinese hotel firm by
a U.S. company. Chinese regulators are cracking down on outside investments totaling more than $10 billion, or
investments over $1 billion on companies owned by the government (Van Horebeek, 2016). At the same time, the
Chinese government has encouraged real estate investments. It appears that they want to vet outside investments to
ensure control remains primarily in China’s hands. That is why the Huazhu Hotels Group is such an attractive
purchase. It competes in a specific segment and will not set off any alarms when being bought out.
Financial Impact:
Mergers and acquisitions are costly and require a great deal of negotiating between the companies that are planning to
merge. There are many ways to evaluate how much a deal is going to cost based on the value of the company -- based
on both present and estimated future value -- while also factoring in similar deals happening within the market to see
what others are paying. For example when Marriott purchased Starwood they payed a total value of $79.88 per share
on 170 million outstanding Starwood shares. The deal, at the time, cost Marriott roughly 13 billion dollars and
comparing different financials from Starwood and HTHT we can scale the deal to see roughly how much Hilton
should pay for such a merger (Marriott International, 2015). Using different financial ratios, we estimated that the cost
of this merger to be somewhere between 2-3 billion U.S. dollars. We based this on the two company’s financials and
the premium it would take for HTHT to be willing to sell based on the estimated growth of the Chinese market and
China’s unwillingness to allow domestic companies to be purchased by foreign investors.
Recommendations
Recommendation # 1 – Hilton Mid-scale Chinese Hotel Firm Merger (cont.)
Source: China Lodging Group, 2016
Figure 21. China Lodging Group, LTD
27. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
19
Recommendations
Recommendation # 2 - Loyalty Program – Hilton and Millennial Mania
Hilton Honors has made strides to enhance their loyalty program to target millennials. Such programs can offer all of
the right rewards, however, if they do not engage the consumer in a way that makes them want to participate, then they
are useless in driving hotel loyalty and gaining market share. Using these statistics from Figure 22 we have developed
an online game to help Hilton engage and entertain millennials while they earn reward points.
Millennial Mania Objectives:
Use of a unique icon to become associated with the Hilton
brand.
Our example is a human figure with the Hilton logo
on it’s shirt as shown in Figure 24.
Each character appears to be exactly the same
except for the letter in their hand.
Members who check their mobile or online Hilton Honor
account will be eligible to receive one icon per day.
The Hilton Honor website/mobile app will provide a
clue to search the web for the icon of the day.
After retrieving the icon, members can personalize
the face and background for a creative experience.
Put a selfie on the empty circle, a picture of
their child, pet, or others.
Put a picture of where they are currently, or
their favorite Hilton experience as the
background.
The icon is then posted to the member’s
online/mobile Hilton profile in order to gain the
daily points.
Posting on social media, like Facebook or Twitter
will earn Bonus Points.
Collect the letters to spell out “Hilton Honors” for
additional Bonus Points.
“Surprise and delight” (Short., T., 2015) rewards will be
provided to encourage members to continue to collect and
post icons.
Existing members will have the option of playing the game
or answering a weekly online trivia question for points.
This provides non-tech savvy members an avenue to
gain extra points without chasing the icon.
Millennials and Hotel Loyalty Programs:
86% of this group do not currently participate in a hotel loyalty program
58% are in favor of using a mobile app for a loyalty program
81% are willing to participate in an activity to get reward points
27% say they would participate in an interactive, online game
13% check their point status daily
Development, Implementation, Economics:
Millennial Mania can be developed and
implemented within 60 to 90 days using existing
marketing and IT staff. Use of a third party
developer for an interactive geo-targeted app would
cost between $12-$15K (Know the cost, 2016).
However, Hilton already has an SMS and email
marketing system in place which reduces
implementation costs. Tag lines can be added to
current advertising, such as Hilton’s “Stop Clicking
Around” campaign with little additional charges.
Digital ads featuring the game icon with teaser lines
leading to the Hilton Honors app can be placed on
social media and the company website, also at little
to no extra charge. Hilton can direct members to
loyalty partners in exchange for free placement of
the icon on their websites or social media accounts.
This creates buzz with minimal additional costs.
We anticipate the expense and revenue numbers
listed in Figure 23:
Figure 23. Millennial Mania Costs/Revenues
*See Appendix D for calculation methodology and
sources.
Figure 24. Millennial Mania Icons
H I L T O N H O N O R S
Initial Expense
Annual
Expense
1st Year Net
Profit
Yr 2 &
Forward NP
$12,000 $30,104,872 $29,721,112 $29,733,112
(Source: Carter, B., 2016)
Figure 22.
28. IndustryOverviewIntroductionClosing
KeyCompetitor
Analysis
KeyIndustry
TrendsRecommendations
Closing Thoughts
After review of the international and domestic data on the Lodging Industry, there are several
important factors that stood out. This industry must catch-up to keep pace with current trends
that appeal to a very diverse customer base by looking at the psychological aspects desired by
their target market. Hotel giants can no longer merely provide a range of facilities based on
varying levels of room rates and traditional services. Millennials are seeking an economical,
personalized, and unique guest experience. While it was not directly addressed since this
group is largely a part of the millennial demographic, the widening Hispanic population in
the U.S. is an important consideration as many of their overall numbers also make them a
valuable target market for hotel stays. Increases in disposable income in light of a growing
economy in countries such as China, also mean that incoming foreign travelers will
supplement occupancy rates in many U.S. accommodations, particularly around popular
tourism spots. The international financial climate also opens the door for major industry
players to begin or continue overseas development that stands to show potential for a greater
return on capital investments than in domestic markets over the next few years.
Equipped with the overall industry outlook, three trends were established to evaluate the
current and future prospects of Hilton Worldwide, InterContinental Hotel Group, and
Marriott International. Based on the criteria selected, Hilton Worldwide was in the least
favorable position. International expansion into China to take advantage of capital growth
opportunities, as well as improvements to their consumer loyalty program have been
recommended so that Hilton can aggressively compete against other industry giants for a
larger market share of the lodging sector.
20
Closing
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36. Appendix A: Porter’s Five Forces Analysis
Supplier Power
The supplier power in the lodging industry is weak, especially in the area of labor. It is getting harder for
companies to find a great work force that gives guests the best experience possible. One of the industry’s main
focus points is to obtain the greatest level of satisfaction among guests, so that they won’t switch to the
competitors facilities. The U.S. government has also been cracking down on the legal issue of having
undocumented workers, which has been a trend in the lodging industry. To sustain a competitive advantage
over its competitor for a long period of time, hotel brands must have good feedback from their guests, and
customer service is an important factor.
Supplier power for selling products to hotels is also low, due to the large number of vendors who can provide
towels, soap, furniture, and other supplies used in hotels. This balance of power can shift slightly if hotels
want products outside the norm. The challenge for hotels would be to find unique products that speak to
current trends like green energy, recycled paper or plastic products, and natural soaps which are at a higher
cost than many of the mass-produced items some hotels have used in the past.
Property owners my have the upper hand when it comes to supplier power when it comes to negotiating the
sale of real estate to a hotel company. Hotels often face zoning restrictions, property size limitations, and
desirable location concerns, so property owners are in a better position to get prime prices for their real estate
if it meets the needs of the industry.
Buyer Power
In the lodging industry, there are many different factors that can affect the buyers’ power, such as the location
of hotels, population in which the hotels are located, climate conditions, and type of lodging industry the
customer is looking for. Some locations that are hot spots for hotel companies to expand are in coastal regions,
particularly near a body of water. This is a good example for where the guest has a lot of power, because they
can choose from a variety of companies within the region. There are also many other prime location industry
spots, such as New York City, Las Vegas, Miami, Italy, Tokyo, and Sao Paula that also give the buyer a lot of
power when picking their spot to stay. The guest would have less buying power if they are seeking a limited
type of lodging, such as a luxury hotel. The growing technology sector will continue to make hotel bookings
easier and more convenient. Guests now rarely depend on traditional travel agents, corporate travel
consultants, or middle men to provide travel arrangements, giving them more insight to how their travel dollars
are spent.
37. The Threat of Substitution
The lodging industry can be found in almost every city in the world, and is often located in convenient
locations like interstate exits or prime shopping and tourist spots. That being said, there are various types of
lodging that customers can choose between. Campgrounds, bed and breakfast inns, and specialty resorts have
been a minor threat over the years. However, the wants and needs of the Millennial generation is bringing
some new options to the industry. IBIS Industry Report 72111 indicates that the highest growth for domestic
lodging will be in niche markets, such as spas, resorts, boutique hotels, and areas with sports venues (Alvarez,
2016). This younger market wants more from their paid lodging as shown in Figure 25.
Peer-to-peer facilities, such as Airbnb are becoming more popular with Millennials who will are willing to try
more unique lodging options. About 10% of adults who stayed in a hotel in the past 12 months indicate an
interest in economy sharing options as shown in Figure 25. From 2011 to 2014, Airbnb’s global listings
increased by 500,000 and Homeaway revenues rose 24% in just one year. Statistics from a study performed in
Texas also shows that a 1% increase in Airbnb listings meant a 0.05% decrease in traditional hotel sales. While
home or room sharing options aren’t a major threat to the hotel industry today, they are growing and should not
be ignored as future concern. (O’Donnell, 2014)
8%
4%
4%
10%
6%
5%
I would be interested in using a
home-share service (eg airbnb.com,
vrbo.com, homeaway.com) instead…
Home-sharing services are as
safe/reliable as staying at hotels
I would recommend using a home-
sharing service
All Stayed in a hotel in the US in the last 12 months
Sharing economy:
Figure 25. Attitudes toward hotels – sharing economy, by all and past 12 months hotel users,
July 2014
Source: O’Donnell, 2014
Appendix A: Porter’s Five Forces Analysis