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The hotel business value chain

Course video 3 of 53

The hotel business has evolved from its early days to today. Through this evolution, it has become increasingly specialized. This module introduces the business models, strategies for growth, levels of competition and biggest changes and challenges hotels have to face today.

The fundamentals of hotel distribution

Escuela de Negocios ESSEC

Curso 1 de 4 en Hotel Management: Distribution, Revenue and Demand Management Programa Especializado

In today’s hotel sector an increasingly complex network of traditional and web based channels have to be managed to insure hotel success. Key questions include: how should you distribute over the web? What should you include on your brand.com website so people book through it? How can you maximise the potential of online travel agents (OTAs)? With the distribution environment both highly complex and constantly evolving, this course will give you comprehensive foundation of current industry practices to help jump start your career in this fascinating domain. Acknowledgements: Claire Bertrand, Vincent Chatain, Jessica Moses, Benjamin Six (ESSEC Business School), Emilie Dupré (Image-In), Gregory Halidy (Triplay)

Destrezas que aprenderás

Hospitality Management, Revenue Management, Hospitality Management Studies, Hotel Management

Impartido por:

Peter O'Connor
Professor of information systems, Director of the MBA in Hospitality Management
Nicolas Graf
Professeur

Transcripción

[MUSIC]

In general, one can distinguish between three generic approaches to running

a hotel, owning and operating, franchising and management service agreements.

To make the distinction, it is easier to first introduce the value chain of

the hotel business and its key players.

A value chain is traditionally, presented by discussing the primary and

secondary value adding activities in a business.

For the hotel sector,

I prefer to present it by grouping activities by type of players.

As illustrated on this graphic, one can distinguish four key sets of value adding

activities that form the value chain of the hotel business today.

These groupings of players involve all activities performed to own, operate,

distribute, and brand the hotel.

The first two key value adding activities within the value chain of

the sector are the best known and most obvious sets of activities.

First, brands are the most visible and

recognizable part of hotel chains any dependence at time.

They include brand names such as Intercontinental or Holiday Inn for

IHG Group.

Novotel and ibis for Accor, Hilton or Hampton for the Hilton Group.

These activities include branding related tasks

as well as customer relationship management.

Wich includes the management for loyalty programs for instance.

Secondly, the actual daily running of hotels' operations,

which I label the operator's set of activities.

Represents all the tasks related to the day-to-day servicing of guests,

as well as the upkeep of the property.

It includes front desk operations, food and

beverage operations, housekeeping, cost control and so forth.

This activity can be under the responsibility of a hotel brand, but

also of local, national, or global hotel operators such as Interstate Hotels and

Resorts.

These companies specialize in the running of hotels and may or

may not carry a brand name.

The third and lesser known activity relates to the ownership of the property.

I term this activity the owners.

This group is diverse and includes private equity funds, reads,

private wealthy investors, hotel groups and other types of investors.

Corporations like the Blackstone Group host hotels and resorts.

Felco Lodging Trust are an example of the players in this field.

This activity generally involves some kind of asset and financial management tasks.

The fourth and last value ending activity to date is the distribution

including sales and marketing activities.

The tasks involved here all aim at bringing heads in the beds,

as is commonly said.

Companies involved in this activity include hotel chains,

membership affiliations, off and online travel agents,

such as the Priceline Group or Expedia, and many others.

The emergence of companies in the distribution space driven by

digital revolution has significantly affected the relationship between

all of the players within the value chain.

Their emergence has been key to the current environment of

the hospitality industry.

The next modules of this MOOC will uncover the keys to this new environments.

And provide you with deeper understanding of distribution and demand management.

The exponential growth of hotel business that started in the late

70s has profoundly changed the degree of integration of

the four activities within the value chain.

Several terms have been employed to discuss this evolution.

Ranging from the separation of the bricks from the brains, or the pursuit for

an asset light strategy or even the disintegration of the value chain.

What this terms mean is that, companies involved in the industry started to

specialize on the few sets of activities within the traditional value chain.

For instance, most of the traditional branded hotel chains seem to be

concentrating primarily on the branding and distribution functions.

In doing so, they essentially outsource ownership, and

even operations to some extent, by means of franchising.

At times, mostly for large upscale hotels,

they maintain control over the operations through the use of management contracts.

Next, we examine how both franchise agreements and

management contracts work in more detail.

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