MKT00720 Marketing-Industry and Market Segment

Industry analysis

The hotel industry is very vibrant in New Zealand. The hotel and hospitality industry is a very important contributor to the economy of New Zealand. The demand for hotel accommodation in New Zealand especially in regions such as Auckland, Rotorua, Wellington, Queenstown and Christchurch has increased. There is acute shortage of hotel rooms especially during the peak season. There has been strong growth in the hotel sector especially in the last three years since 2013. The high demand is accompanied by minimal growth in supply of accommodation and hotel services.

This has resulted to shortage and therefore the prices of hotel rooms and other services in the hospitality industry has increased. In the first quarter of 2015, all the five key areas in the industry recorded high occupancy rate. Every one of the above mentioned regions recorded an occupancy rate of more than 79%. By December 2015, all the above listed focus areas in New Zealand recorded an occupancy rate of between 81% and 87%. This is one of the highest occupancy rates in many countries across Europe. Hotels in this region are almost running at full capacity. It’s very difficult for hotels to record occupancy rate of more than 90%.

This is due to the situational factors such as the need for continuous maintenance of hotel rooms. It is observed that the room prices have increased sharply over the last three years. The annual demand rate for accommodation and other hotel services has been increasing by more than 8% in the regions that have been focused in this study (McManus, 2013). In the previous one year, Queensland undergone the biggest growth with an increase of 10.5% . This was followed by Auckland which experienced an increase of 10% together with Rotorua. Wellington came fourth with a growth rate of 6.9%

A projection of future demand for hotel services indicates that there will be increased demand for these services. Supply is also expected to increase over the next three years but the rate of supply is very low compared to the rate of demand (Laing & Hughes, 2010).  The cities that are expected to record the highest increase in demand include Auckland and Queenstown which are expected to record the highest growth in demand. ADR is expected to grow in most of the tourist destinations in New Zealand. This is because of the increased demand and low supply for the services. In the short term, it is very unlikely that the increased construction of hotels in many regions across the country will lead to increased supply for hotel and accommodation services.

The industry expects increase in demand of accommodation services. This is expected to be driven by an increase in number of tourists arriving into the country. There is an increasing inflow of Chinese tourist in New Zealand. The increase in international tourist arrivals from China and other Asian countries began in 2013 and this cycle has been continuing over the years. According to MBIE, international tourist arrivals increased from 3.12 million to 3.97 million in 2016. This number is expected to reach over 4.53 million by the year 2022.

This represents a general growth rate of 43%.Over the next two years; the number of international tourist arrivals is expected to increase by more than 550,000. Growth in the international air capacity is one of the factors that will contribute to the growth of this industry in the next few years. Judging from the flight schedules, the number of arrivals into New Zealand will increase from 9.4 million to 10.1 million (Smith, 2008) This is an obvious indication that the number of people in need of hotel and accommodation services is going to increase. The number of low cost carriers has increased rapidly in many parts of New Zealand and especially those flying to Auckland

The positive political environment has also contributed immensely to the growth of this industry. The prevailing peace in the country has helped businesses to thrive in New Zealand and in particular Auckland. Conventional facilities have been on the rise in both Auckland and Wellington. When business conventions are organized in this cities the demand for hotel and accommodation services will increases (Davidson, Timo & Wang,2010)

Market analysis and research

Vibe hotels are a subsidiary of TFT hotels which is very large company operating in the hotel and hospitality industry especially in Australia. This Industry is very complex and with many dynamics. The group was created in 1982 and has over 2900 employees in Australia alone. The company plans to grow and expand in other countries such as New Zealand. In the market analysis, the first section will carry out the SWOT analysis of the company/ business that plans to open in Auckland. Vibe Hotels is a reputable and respected brand in Australia and in many other countries across the world where it operates. There are various strengths and weaknesses of this business organization.

One of the strength of Vibe hotel is its flexibility and therefore its able to meet and fulfill the needs of customers. Vibe hotels carry out continuous market research to determine emerging trends in the industry and among consumers. The market research helps the business organization to continue modernizing and improving its services and the products that it offers (Knox, 2010). Since the hotel and hospitality industry is very competitive and dynamic, it is very important for Vibe Hotels to continue being innovative and be responsive to the needs of the consumer.

Another advantage that Vibe hotels possess is the deep knowledge of the industry. Vibe hotels have been in the hospitality industry for more than 30 years. This gives the company a competitive advantage over its rivals. This is despite the fact that Vibe hotels has never operated in New Zealand and therefore meaning it does not have deep understanding of the market. The experience that the company has in operating hotels in Australia will be very crucial when Vibe Hotels opens a branch in Auckland. Another strength possessed by Vibe

Hotels is that a very experienced, knowledgeable and committed human resource team. The company can depend on the experienced management team that has worked in Australia to help it venture into the Auckland market. This is very important because it means the company will possess a very experienced team of management staff who will help it to start business without major challenges

A look at the weaknesses of Vibes Hotel reveals that the major weakness of the company is the scarce knowledge of the market. Vibes hotel is new in the New Zealand market. The market dynamics in Australia are different from those of New Zealand (Koutromanis, 2008).  It therefore means that the company will take time to acquit itself to the new environment and therefore the competitors have an upper hand in this aspect.

The threat for Vibes Hotels in Auckland market is mainly the high level of competition. The level of competition in the hospitality industry especially in Auckland is very high. An analysis of likely competitors for Vibes Hotels in the Auckland market reveals that there is a very high number of competitors. The competitors also have large financial muscles and they have already created a very strong brand for themselves in New Zealand.

Some of the biggest competitors for Vibes Hotels include: Skycity Grand Auckland, Scenic Plaza, The Langham hotel, Stamford Plaza and the Waldorf Stadium Apartment Hotel. In this market, there is also very high competition in terms of prices (McManus,2013). Most of the hotels in Auckland offer similar products and the prices for these products are in the same range. This makes it very difficult to use competitive pricing technique to compete. Differentiation strategy is very important in for Vibes Hotels to become competitive and achieving the desired market share .

There are also various opportunities in the hospitality industry that Vibes Hotels can tap into. One of the opportunities is the high potential of the domestic tourists (Kandampully & Suhartanto,2010). There is very high business potential for companies in the hospitality industry to exploit especially when it comes to domestic tourists and holiday goers. Vibes Hotels should set special subsidized prices for domestic customers to encourage them to spend more time at the hotels when they are out for holiday. Most of the businesses in this industry and especially in Auckland have focused so much on international visitors to the extent that the domestic market is not well exploited

Anticipated future market growth

The future growth for this market is expected to be high and to rise continuously at least over the next 10 years. The market growth for the hotel and hospitality industry is expected to grow rapidly over the next one decade because of the favorable economic environment of this region (Davidson & Guilding ,2006).  One of the major reasons why this market is expected to grow is due to the increasing commercial activities in Auckland. Auckland being one of the largest and most popular cities in New Zealand has seen a tremendous increase in economic activities over the last five years. This is coupled with increase in number of business conventions held in this city which means the demand is expected to increase .

Auckland is a also one of the major tourist attraction areas in New Zealand. There are always a very high number of foreign and domestic tourists visiting the city which means that the demand for accommodation in the city is expected to rise. This is because tourism is one of the major drivers of growth in this industry.

The political environment of Auckland is relatively calm. This is very favorable for business to thrive and therefore more foreign investors and tourists will be arriving in the city. The calm political environment is very crucial for the hotel business since a volatile political environment scares away investors and visitors who are the main customers in this market

The technological environment is also expected to undergo major changes. With the technology era, most of the companies in the hospitality industry prefer to carry out their activities especially booking and advertising by the use of technology (Knox & Nickson, 2006).  In future, we expect increased innovations in this sector. Companies who won’t keep up with the fast change in technology will be easily pushed out of the market.

Potential buyers and sources of revenue

The potential buyers of Vibes Hotel products and services will be mainly tourists. This includes both local and domestic tourists. Auckland registers one of the highest numbers of visitors per year in New Zealand. Most of the customers for this industry are visitors with residents contributing a very small proportion of the businesses` customers (Akbaba, 2006).  The main source of revenue for Vibes Hotels Auckland will be from the sales of goods and services. This is because the primary objective of the businesses to provide the highest quality products at cheap and affordable prices while at the same time maintain high levels of customer satisfaction

Sales projections

The following is a table showing Vibes Hotels Auckland projected sales for the first year of operation.

Unit sales         Jan  Feb.  march  April  May  June  July  Aug  sep   Oct  Nov Dec

Accommodation/night74  102   110   133   140   145  165  170  181   193  196  307

Lunch          59   87    84      96   102    130  117  137   170   179  191  301

Supper           59   80    78    86   94     124  110  143   160   170   188  292  

Breakfast         70   67    49    80   90     100  103  139  170    167   180  200

Unit prices

Accommodation/night $ 120

Lunch            $ 80

Supper           $ 85

Breakfast         $48

Conclusion

There is great need for a company that is venturing into a new market to carry out adequate market research. This helps the organization to be prepared adequately in terms of resources required to launch the business in the new market as well as the expertise needed to make the enterprise a success. The first step of this process is carrying out an analysis of the industry which the company wants to venture into.

The requirements and industry regulations should be determined at this point. One also needs to identify the average per unit costs of production in this industry. This helps the organization to estimate the costs of production and possible profit margins it can generate if it intends to open business in that particular region. The opening of businesses a new country also requires the investor to identify the competitors that he/she is likely to face if they open business in a new market. Market trends and potential needs to be determined on time. Projection of financial statements is also crucial in order to put the whole idea into proper perspective though numbers.

 Reference List

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Davidson, M., Guilding, C., & Timo, N. (2006). Employment, flexibility and labour market practices of domestic and MNC chain luxury hotels in Australia: Where has accountability gone?. International Journal of Hospitality Management, 25(2), 193-210.researchgate.net

Davidson, M. C., Timo, N., & Wang, Y. (2010). How much does labour turnover cost? A case study of Australian four-and five-star hotels. International Journal of Contemporary Hospitality Management, 22(4), 451-466.griffith.edu.au

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Koutromanis, D. A. (2008). Organisational culture in the casual dining restaurant industry: the impact that culure has on service quality and customers' interntions to return. Handbook of hospitality human resources management (63-82). Oxford: Butterworth-Heinemann.

Laing, G., Dunn, J., & Hughes-Lucas, S. (2010). Applying the VAIC™ model to Australian hotels. Journal of Intellectual Capital, 11(3), 269-283.researchgate.net

McManus, L. (2013). Customer accounting and marketing performance measures in the hotel industry: Evidence from Australia. International Journal Of Hospitality Management, 33, 140-152. https://dx.doi.org/10.1016/j.ijhm.2012.07.007

Patiar, A., & Mia, L. (2009). Transformational leadership style, market competition and departmental performance: Evidence from luxury hotels in Australia. International Journal of Hospitality Management, 28(2), 254-262.

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Smith, R. (2008). Barometer of the Hotel Industry. Cornell Hospitality Quarterly, 49(2), 97-98. https://dx.doi.org/10.1177/1938965508317467