74101747-Strategic Analysis of Marriot and Starwood Merger

ST4S15-V1 Strategic Analysis of Marriot and Starwood Merger

industry to increase the buyers competitive strengths. Horizontal Integration has become one of the most prevalent Growth strategies in the modern economic world. In 2016, Marriott International created the largest hotel chain in the world by closing a 13 billion Dollar acquisition of Starwood Hotels and Resorts Worldwide. Thirty hotel brands have fallen under the Marriott empire with more than 5,800 properties and 1.1 million rooms in more than 110 countries, which is more than 1 out of 15 hotel rooms around the globe, says CNBC (2018).

Arne Sorenson, President and Chief Executive Officer of Marriott

International from Marriott News Center (2016) says that “The marriage of these two leading hotel

companies means Marriott will deliver an unparalleled guest experience with more hotels in more global destinations, an unrivaled range of comprehensive accommodations to suit every traveler, and the industry’s best loyalty programs,”.

Marriot’s Strategy on a Business Level According to elearn.uta.edu (2010) website, our understanding of the three strategies is as follows; 

Cost Leadership Strategy: here the strategy’s ultimate purpose is to produce products or deliver

services with attributes that are satisfactory to the customers sold at the lowest cost in relation to the other competitors, 

Differentiation Strategy: this strategy aims at introducing a non-standardized service or product to a broad segment of customer with a certain added-value at a competitive cost.



Focus Strategy: To execute a set of integrated actions that focus on either being different or cost leader amongst a specified segment of the market.

Based on the definition of the above categories, I believe that Marriot’s step to acquire Starwood hotel

was steered by adopting the Differentiation and Cost Leadership strategies. 

Marriot Differentiation Strategy

To elaborate more on this approach, we can dig deeper into the introduction of the A+ brands- Autograph Collection and Ritz-Carlton- to the chain. These two chains seek out the type of customer that would pay a premium priced package for a luxurious, high-end accommodation. The brand has been able to sustain and increase competitive service that offers a unique edge of quality that does not only meet the customer’s expectations but supersedes it compared to other competitors in the same pool. Although

mainly focuses on certain target group of clients, its services has reached out to the luxury segments as well after acquiring the Ritz and Autograph Collection, thus boosting its market share as illustrated in figure 2. The new cluster of the groundbreaking brand provides wide-reaching hotels that suits the different tastes and experiences the lodgers are seeking; whether it is an urban edge hotel, a resort, or a


boutique hotel. Preserving the identity and personality of Marriot, this brand aims at capturing a new segment of guests who are looking for a type of service that a standalone hotel cannot offer. As exemplified by UKEssays (2010) golf courses, exceptional health spas, and tennis courts. The brand has been able to charge the high-end customer with high-priced charges in return to the added-value those customers uniquely perceives from Marriot. This move has enabled the enterprise to counterbalance the increase in prices from suppliers and any superfluous expenses resulting from the operations of the upper scale brands that sometimes offers a service beyond the limits of its class.



Marriot Cost Leadership Strategy

As mentioned before, Marriott International is primarily a key player within the upper scale category of hotels. This category targets a broad market segments that is considered the dominant end users of the lodging business. Among the moderate tier segment, brands such as SpringHill Suites, and Courtyard is after the upper level, whilst Fairfield Inn aims for the lower levels. The corporation has surpassed many of its competitors by increasing the efficiency of its cost production process thus enabling it to make a sensible margin of profit from charging their customer a relatively low price for the service. Through a variety of methods Marriot was able to lower its operating costs like including applying more environmental friendly buildings, waste reduction procedures, and green supply chains. Marriott adopts the moto of "spirit to preserve", a concept that promotes long-term sustainability plan that elevates their environmental performance in a two-fold way; conserve and preserve the environment and also reduce costs. As indicated by Marriott International, Inc. (2018). In 2015 they were able to get LEED certification for 142 properties compared to 137 properties in 2013. Applying LEED regulations


has led to a drop in the rates of energy and water consumption by 25% which has led to a substantial decrease in their costs. Similarly environmental friendly products have been integrated in their procurement system since 2008 including greener key cards, recycled stationary, low energy light bulbs, water-efficient showerheads and toilets. Stonybrook.digication (2018). 

Starwood Focused Differentiation

According to Ebooks.narotama (2018), Focus strategy, as implied from its name, focuses only a niche market segment to serve. The firm tries to attain its competitive advantage by choosing to adopt the differentiation strategy or the cost minimization with the focused targ et segment. In Starwood’s case, it is a brand that engraved its name in the high-end market. Despite the drop in the economy, Starwood brands like Ritz-Carlton St. Regis, W hotels and the Luxury collection have not deviated from their positioning the hospi tality market as “ distinctive luxury” hotels. Besides Le Meridien and Westin, the brand owns four- and five- star independent hotels, but still they are considered part of Starwood’s “distinct premium” portfolio.

Marriott and Starwood Strategic Positioning- Bowman’s Strategy Clock The red triangle encompasses the positioning of Marriot, Starwood before and after the merger, as explained by Riley (2017):


(Position 3)-H ybri d This position involves some merge between low price – in relation to the competitors – and service/product differentiation. This position reflects Marriot’s positioning pre-merge which is maintained also after it.

(Position 4)-Differentiation The aim is to focus on providing the client with the maximum added value from his perspective. Branding and the product’s quality are key factors that contribute to the success of this strategy. The high quality

service along with strong brand awareness and loyalty reflects Marriot’s positioning pre -merge which is maintained also after it.

(Position 5)-F ocused Differentiation This strategy aims to position a product at the highest price levels, where customers buy the product because of the high perceived value.

This strategy’s core key player is the perceived added value.

Customers will pay prices that are above and beyond the market average in return to the value they distinguish in this specific brand. This strategy was adopted by Starwood’s which positioned it pre-merge

and then acquired by Marriot after the merge.

External Analysis- PESTLE Key Trends Identification Political Factors

Taxes : Generally development in the hospitality sector corresponds to stable income for the governments from tax payments, so usually foreign investments are encouraged. However the instability of the wavering political and economic circumstances around the globe may increase risk on new market entries according to UKEssay (2010). National Campaigns: With more than 4,016 properties just in the US, Marriot is heavily affected by the US situation. In 2009, the U.S. received visitors less than in 2000 by 2.4, Oxford Economics has named this year by the this “lost decade” for the tourism industry. This failure to keep pace with the growth in

global travel has cost the US economy nearly 70 million visitor equivalents to a loss of $500 billion in revenue, and over 440,000 jobs. Travel Promotion Act decided to step up by marketing “brand America”

and explaining U.S. security policies with the aim to bring in more visitors, Renner (2010). Laws and Regulations: Marriott International developed its own Code of Conduct and strictly abides by its guidelines. One of the many aspects covered is that they acknowledge that their international activities


are may be subject to both U.S. antitrust laws and the laws of the European Union or of other countries they operate in. Marriot’s policy is to comply with all these applicable laws and regulations as declared by

Marriot (2010) Terrorism: Since they are the largest hotel company in the world, the volatile political climate directly affects the chain’s strategy and market positions. Things like terrorism attacks in tourism destinations and

international relations between countries and attacks on airplanes affect the rate of visitors in those countries and the probabilities of tourists getting on board on flights in the first place. Examples of such incidents are the missile attack on the Malaysian Airlines Flight in 2014 and the September 11 attacks in 2001 in the US. Also it includes attack in the touristic site such as the murder of 39 people at a hotel beach in Tunisia and the attack on a Las Vegas festival by a gunman in October 2016, Pestle Analysis (2015). Public View: Offensive statements like the ones publicized by Donald Trump against the minorities had a severely negative impact on the turnout rates of tourists to US especially from the Middle East area. To begin with, the number of arrival flights to America has declined with 1.4 percent in sum between the period of 27 and 30 September last year. The analysts rationalise this from the correlation between the travel ban that Trump announced by prohibiting Muslims from coming into America followed by the decline of international visitors to the US, Coffey (2017). Economical Factors

Currency: As the monetary weight of the US Dollar currency has boosted in the capital market, this has adversely affected the US position globally as a holiday destination because it has become expensive and non-affordable for a large segment of tourists. Economic Growth: Money is made were the economy is flourishing and Marriot looks at this concept with a pure business-oriented approach. On the other hand, as described by Pestle Analysis (2015), one the risky economic factors that might affect Marriott’s business is the slow rate of economic growth in China and the continuing economic confusion in Europe. Moreover, the breakdown of the stock market in China and the debt crisis in Europe has greatly diminished the leisure purchasing power and re-arranged their priorities in terms of where to spend their money. Social Factors

Diversity and Inclusion: Marriot’s continuing growth has reached 60% outside of North America, which they plan to enhance by increasing awareness on openness towards diverse cultures and backgrounds.


Also in the US, which is Marriot’s biggest market, one out of every nine individual is foreign -born, so Marriot’s vision is to integrate diversity and inclusion into their organization , Marriott International, Inc.

(2010). Guest Satisfaction: Marriot believes that clients’ stopover to their properties should not be a one-time thing, based on that they have developed a Robust Reward System and Loyalty Program where they ensure that they form a bond with their clients and that they will come back. The system offers rewarding travel experiences and the loyalty program provides a customer feedback program and care centers. The benefit here is two way; the customer enjoys the perks of a program of special benefits and thus the sense of attachment to the brand is heightened making Marriot their preferred choice, Renner (2010). Technological Factors

Online Booking Portals: Websites that utilize technological systems that facilitate update and expedite the booking process, but meanwhile they take a margin of profit giving a false indication of hotel’s prices .

Thus, Marriott has its own user-friendly and reliable website that encourages the clients to access it instead, thus reduces the probability of agents to manipulate the published rates of the hotel. Online Rental Services: Nowadays, Technology has a direct impact on the lodging business in the form of online rental portals such as Airbnb. This service allows private owner of houses or room t or rent their properties to travelers worldwide. It has become real threat to the hospitality market with figures showing that approximately six million guests resided in properties via Airbnb in 2013. Environmental Factors

Environmental factors like hurricanes that his tourism destination, raise in fuel prices thus making the airplane tickets beyond capability of certain segment of tourists. Legal Factors

One of the favoring Legal factors that can positively impact Marriot is the legal situation of online services like Airbnb. Cities globally like Barcelona and New York has is in the process of suing Airbnb for violating city laws like health and safety regulations, zoning laws, and illegal


contractual issues related to not paying the lodging taxes, Pestle Analysis (2015).

Key Stakeholders Analysis The Project Management Institute define the term Stakeholder in its Project Management Body of Knowledge (PMBOK) as “An individual, group or organization who may affect, be affected by, or perceive itself to be affected by a decision, activity or outcome of the project” . On the other hand, as

defined by Marr (2016), Key Stakeholder is a person or entity that has significant influence over the success of an organization . According to the PMI there is multiple classification models used for stakeholders analysis, in the following diagram the Power/interest grid is used; the stakeholders are grouped based on their extent of authority (“power”) and their level or concern (“interest”) regarding the project outcomes and focuses on the higher power zones; Employees: Marriot has been named in Fortune’s list of “100 Best Companies to Work For” for the past

19 years. After the merge and adding 200,000 Starwood employees to new company, total number of labor will reach to half million. Third of Marriot’s employees have worked for the corporation for more than 10 years, which implies the low turnover rate and high sense of commitment and allegiance. Regarding Starwood staff, according to David Rodriguez the global chief human resources officer of Marriot, the ones who will be affected by the merge are the high-rank calibers like CEOs , but the vast majority of the staff are coming on board. The new company bears the responsibility of sustaining these new staff that have the better knowledge of the Starwood properties and thus big power but also they have the interest in keeping their jobs. Shareholders: Marriot’s CEO stated regarding the bid that “Clearly, Marriott is the only deal on the table

and brings tremendous value for our shareholders”, Ting, D. (2016). Although m ore than 79 percent of

outstanding shares, voted pro the bid, the shareholders from both Starwood and Marriott will no doubt be keeping a close eye on Marriott’s stock price.

Industry Analysis-Porter Five Forces Model After Marriot’s positioning in the market has been analyzed, we can conduct an informed analysis to the deep and underlying competitive forces that affects the position and competitive advantage of the brand.

Buyer Power With Marriott strong brand recognition, it has always been able to attract buyers from different segments; mid-scale, upper and now after the merger it luxury scale to the list. Now with over 100 million unique


members, Marriot’s loyalty programs have developed a strong and powerful platform of dedicated clients.

Marriott hotels rom and accommodation facilities has become more affordable, because a client is a member of the Starwood loyalty program, he will be able to book the premium room with no extra charge, Marriot (2017). However, generally buyer groups can act as a bargaining power as a result of the bulk purchase of room. Although differentiation is a serious element of choice for the business travelers and for other categories of leisure travelers, but its importance decreases in the group catering vs budget leisure groups. Cheng (2013).

Supplier Power Operationally, online travel agencies (OTAs) obtain a profit percentage of the total bookings transacted through it. But they do offer an opportunity for room price comparisons which limits the chance of price increase, Horwath HTL Croatia (2015). The merger frenzy is also taking place in the OTA business: in 2017 alone the famous online booking portal Expedia acquired Orbitz, Travelo city and ‘home -sharing’ website. Suppliers have more bargaining power if their product is an important input in the industry success, Suppliers may have the upper hand in the bargaining game, if their product/service is of premium importance to the industry’s success as Cheng (2013) expl ains. From my point of view, the only supplier

that may seize this kind of power is the providing the industry with skilled and experienced labour, which has become more valuable than many tangible products.

Degr ee of R ivalry The competition for market share becomes fierce when service or product substituting costs or differentiation is low. Before the merge, Marriott International came in second with 5.6% market share after the Hilton Hotels Corporation with 7.2% market share. Starwood Hotels and Resorts Worldwide on the other hand was 3.4%, Cheng (2013). After the merge the group nearly has a third of the corporate travel hotel spend and even rising to half in 14 of the world’s top 20 cities, Renner (2010). The Starwood acquisition had a life-altering impact on

Marriott’s global footprint. Marriott’s property portfolio was limited to 87 country in operation at the end of 2015 and rocketed to 122 by the end of 2016, placing it at the front of the market sharers and above Hilton its largest competitor, Marriott (2017)

Threat of N ew Entrants The declination in the European economy has made the purchase of land areas in prime location a no impossible target for many entrepreneurs. Threat of new entrants has increased significantly if those


businessmen are no risk takers and want to buy a fully finished property as the value of real estate also decreased.

Threat of Substitution One of the major advocates of the ‘shared economy’ model is the popular company Airbnb which expands a room portfolio that exceeds globally Marriott and Starwood combined. Goetz (2016) Marriott was subject to vulnerability as a result of the U.S. economic recessions.

Conclusion The incursion of capital has initiated fund managers to look for alternative ways to grow and strengthen their real estate portfolios in an aggressively competitive environment with less risk appetite to place capital, Ernest&Young (2015). Consequently, hotel acquisitions and mergers broadened since 2014 involving a publicly-traded or largescale global company total nearly one million hotel rooms. With the natural attrition in properties and limits to new supply growth, the surest way to grow is often by acquiring operators with management and franchise contracts, JLL(2017) Before the bid Marriot spent over 15 billion USD on luxury class hotels, now after the bid it increased its properties in the hospitality sector from 11% to 25% including brands like brands such as the JW Marriott, Bulgari Hotels & Resorts, Ritz-Carlton, EDITION, Autograph Collection and saving billions, Renner (2010). Marriot vivid Differentiation and Leaderships strategies have been showcased by their strong presence not only the middle-class markets but has expanded to the upper scale starting with acquiring hotels like Ritz and then fortified with the deal with Starwood. The brand simply seeks to fulfil the desire of every customer apart from his/her buying power.


References Baltin, B., Butler, J. and Benudiz, P. (2005). The Hotel Acquisition Process. Hotel Online. [online] Available at: http://www.hotel-online.com/Trends/Jeffer/Articles/09.htm Barnat, R. (2014). Strategic Management: Formulation and Implementation . [online] Strategyformulation.24xls.com. Available at: http://www.strategy-formulation.24xls.com/en408 [Accessed 2 Feb. 2018]. Chitrangkumar,

T.

(2013). Different

Levels

Strategy .

of

[online]

Available

at:

https://www.slideshare.net/chitrangtandel/different-levels-of-strategy CNBC (2018). Marriott buys Starwood, becoming world's largest hotel chain . [online] Available at: https://www.cnbc.com/2016/09/23/marriott-buys-starwood-becoming-worlds-largest-hotel-chain.html [Accessed 3 Feb. 2018]. Coffey,

H.

(2017).

"Trump

Continues”. Independent .

Slum"

[online]

Available

at:

http://www.independent.co.uk/travel/news-and-advice/trump-slump-us-tourists-travel-numbers-fallamerica-president-a7999216.html. eHotelier (2017) Marriott International reports third quarter 2017 results highlights. [online] Available at: https://ehotelier.com/global/2017/11/08/marriott-international-reports-third-quarter-2017-resultshighlights/. Ebooks.narotama. (2018). Strategic Management for Hospitality and Tourism . [online] Available at: http://ebooks.narotama.ac.id/files/Strategic%20Management%20for%20Hospitality%20and%20Tourism/ CHAPTER%205%20%20%20Business-Level%20Strategies.pdf [Accessed 4 Feb. 2018]. Elearn.uta.edu

(2010). Cite

a

Website

-

Cite

This

For

Me .

[online]

Available

at:

https://elearn.uta.edu/bbcswebdav/users/jmcgee/Syllabus/Content/Syllabus%20and%20Course%20Conte nt/pdf/Chapter%2005.pdf [Accessed 3 Feb. 2018]. Ernest&Young

(2015). Global

hospitality

insights .

[online]

Ernest&Young.

Available

at:

http://www.ey.com/Publication/vwLUAssets/ey-global-hospitality-insights-2015/$File/ey-globalhospitality-insights-2015.pdf [Accessed 2 Feb. 2018]. Goetz, L. (2016). Marriott International Vs. Starwood Hotel & Resorts (MAR, HOT) . [online] Investopedia. Available at: https://www.investopedia.com/articles/markets/012516/marriot-internationalvs-starwood-hotel-resorts-marhot.asp [Accessed 2 Feb. 2018].


Horwath HTL Croatia (2015). Consolidation within the hotel industry: Global vs. local perspective. [online]

Available

at:

http://29b8je4dgl4v2ndf9h4bmut9.wpengine.netdna-

cdn.com/files/2015/12/Consolidation-Croatia-report-EN1.pdf . JLL (2017). Hotel Investment Outlook 2017 . [online] 2017 JONES LANG LASALLE IP, INC. Available at: http://www.jll.com/Documents/Hospitality/JLL-HIO-2017.pdf [Accessed 2 Feb. 2018]. Karmin, C. (2015). Britain's merger feeding frenzy continues unabated. Market Watch. [online] Available at: https://www.marketwatch.com/story/hotel-industry-enters-a-merger-frenzy-2015-10-30 . Lynn, M. (2011). Segmenting and Targeting Your Market: Strategies and Limitations . [online] Cornell University

School

of

Hotel

Administration.

Available

at:

http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1238&context=articles [Accessed 2 Feb. 2018]. Marriott International, Inc. (2018). Environmental & Green Initiatives | Marriott Corporate Responsibility . [online] Available at: http://www.marriott.com/corporate-social-responsibility/corporate-

environmental-responsibility.mi [Accessed 3 Feb. 2018]. Marriott International, Inc. (2010). Marriott_Sustainability_Report_Update . [online] Available at: http://www.marriott.com/Multimedia/PDF/CorporateResponsibility/Marriott_Sustainability_Report_Upd ate_2010.pdf [Accessed 3 Feb. 2018]. Mangunsong, R. (2012). Strategic Management | 3 Main Types of Corporate Strategies . [online] Myllurmanagement.blogspot.com.eg.

Available

at:

http://myllurmanagement.blogspot.com.eg/2012/08/strategic-management-3-main-types-of.html [Accessed 2 Feb. 2018]. Marriott News Center. (2016). Marriott International’s Expanded Portfolio of 30 Leading Hotel Brands Sets New Global Standard for Unrivaled Travel Experiences and Expanded Loyalty Benefits - Marriott News Center . [online] Available at: http://news.marriott.com/2016/09/marriott-international-expanded-

loyalty-benefits/ [Accessed 2 Feb. 2018]. Marr, B. (2016). Managing and delivering performance. Routledge. Nycz-Conner, J. (2015). Marriott to acquire Starwood Hotels & Resorts in $12.2 billion deal. biz journals . [online] Available at: https://www.bizjournals.com/baltimore/news/2015/11/16/marriott-international-toacquire-starwood-hotels.html.


Pohlman, M. (2017). Mergers and acquisitions in hospitality expected to accelerate | Hotel Management . [online] Hotelmanagement.net. Available at: https://www.hotelmanagement.net/transactions/mergers-andacquisitions-hospitality-expected-to-accelerate [Accessed 2 Feb. 2018]. PESTLE Analysis (2015). PESTLE Analysis of Marriott International . [online] Available at: http://pestleanalysis.com/pestle-analysis-of-marriott/ [Accessed 3 Feb. 2018]. Riley, J. (2017). Bowman's Strategy Clock (Strategic Positioning) | tutor2u Business . [online] tutor2u. Available at: https://www.tutor2u.net/business/reference/strategic-positioning-bowmans-strategy-clock [Accessed 3 Feb. 2018]. Renner, L. (2010). Strategic Analysis of Marriott International, Inc. . [online] Carlsonwagonlit.com. Available

at:

https://dra.american.edu/islandora/object/0910capstones:145/datastream/PDF/view

[Accessed 2 Feb. 2018]. Reed, J. (2014). Marriott's Vision & Mission . [online] prezi. Available at: https://prezi.com/9ylj8p4y2bt/marriotts-vision-mission/ [Accessed 3 Feb. 2018]. Stonybrook.digication (2018). Digication e-Portfolio :: Sangeeta Bhola :: Business Level Strategy . [online]

Available

at:

https://stonybrook.digication.com/sangeeta_bhola/Business_Level_Strategy

[Accessed 2 Feb. 2018]. Ting, D. (2016). Marriott and Starwood Shareholders Approve Merger To Become World’s Largest Hotel

Company. Skift. [online] Available at: https://skift.com/2016/04/08/marriott-and-starwood-shareholdersapprove-merger-to-become-worlds-largest-hotel-company/ [Accessed 4 Feb. 2018]. UK Essays (2015). Strategic Evaluation Of Marriott International Inc Tourism Essay. [Online] Available at:

https://www.ukessays.com/essays/tourism/strategic-evaluation-of-marriott-international-inc-tourism-

essay.php. UKEssays (2015). Marriott International Generic Business Level Strategy Marketing Essay . [online] Available at: https://www.ukessays.com/essays/marketing/marriott-international-generic-business-levelstrategy-marketing-essay.php [Accessed 2 Feb. 2018].

74101747-Strategic Analysis of Marriot and Starwood Merger

Recommend Documents