Key Macro and Micro Environmental Factors Impacting Savoy - Essay Example

? Marketing Exam BY YOU YOUR SCHOOL INFO HERE HERE Marketing Exam 0 Key macro and micro environmental factors impacting Savoy Maintaining an understanding of what micro and macro-level factors impact business strategy development, competitive strategies and marketing tactics is necessary for the Savoy Hotel to ensure an appropriate market position. The PESTLE framework and SWOT analysis outline are relevant and credible models for understanding the external environment impacting the Savoy. 1.1 PESTLE Analysis Political Forces Legislation in the UK provides for a lowering of corporate taxation from the current 22 percent to 21 percent in 2014 (Sharma 2012). This is one of the lowest global corporate tax rates giving the business additional capital to recapture the costs of renovation and expand service offerings. The UK Value Added Tax (VAT) increased from 17.5 percent to 20 percent since the Savoy closed and completed its reconstruction, this increased taxation rate is reflected in the pricing structure at the Savoy (Fairmont Hotel & Resorts 2013). Savoy must now retain 20% to comply with this legislation. Economic Forces The UK Consumer Price Index indicates rising prices for consumers at an inflating rate of 2.7 percent. Impacted products experiencing the highest inflation include fruits, bread, cereals and utilities (Peston 2012). This has implications for rising costs in the Savoy supply chain. The government is actively establishing a variety of austerity packages and making cuts in order to prevent a return to recession. Driving down the national interest rate impacts the wealth management portfolios of important target consumers. The Euro continues to gain against the British Pound, creating a favourable exchange opportunity for Savoy’s European clients. Social Forces Schiffman and Kanuk (2010) identifies that consumers often rely on first impressions and stereotypes when determining future repurchase intentions. This has implications for Savoy in terms of providing a positive servicescape and ensuring helpful and constructive initial impressions when working with guests. Growth in utilisation of the Internet continues in the UK, with many consumers using mobile technologies to access the Internet and social media (Arthur 2012). Mobile internet technologies becoming a significant part of lifestyle and social behaviour. Technological New consolidated technologies that facilitate more effective guest messaging and booking systems are now available for Savoy. Known as Adaptive Messaging, this technology has the ability to properly queue guest messages and retrieve all guest messages effectively in an environment that fields approximately 1,000 telephone calls daily (NMS Adaptive 2005). Technologies are also available that support the ability to sustain self-owned internal power systems that reduce reliance on the national grid and save financial resources. This provides opportunities for gaining a better reputation in areas of corporate social responsibility. Legal Booking systems online that require electronic signatures from customers serve as binding, legal contracts. New 2012 legislation now forces companies that use cookies when consumers are utilising a business’ website to gain permission before placing cookies (BBC News 2012). This has significant implications for data mining and tracking consumer behaviour. Environmental Hybrid vehicles are gaining prominence with many consumer markets that care about environmental sustainability. Savoy offers transport for many guests to airports or local commercial centres. Technologies are now available for businesses to recycle paper products and even food waste for transformation into biofuels. This, too, has implications for Savoy in maintaining a positive CSR reputation. 1.2 SWOT Analysis Strengths A very strong brand identity/reputation stemming from respected operations in the UK since 1889 Diversity of food and beverage services providing unique themes and performances to enhance guest stay The Savoy Cocktail Book illustrates the brand equity achieved by Savoy, a book describing most popular cocktails offered with visual illustrations of hotel and bar decor. Strong partnerships with local Thames yacht and ferry operators. Achievement of Michelin Star with the brand and talent assistance of Gordon Ramsay. Weaknesses Original refurbishment budget was set at ?100 million, but increased by 120% to a final total of ?220 million. This suggests a long period before recovering all renovation costs, impacting cash flow. Unable to attract top Hollywood and UK talent stars in the same proportion to its historical celebrity guest register. Unable to create barriers for new market entrants. Opportunities Viral and social media marketing to gain international customer segment attention. Kosher and other specialty catering service developments Development of more specialty events, such as recruitment of prominent UK orchestras to gain prestige market interest in extended stays. Build partnerships/alliances with domestic and international airways. Threats Rising prices throughout the entire supply network. Emergence of many 4 and 5 star hotels in London building a highly competitive environment Presence of blog websites and many other Internet-based opinion columns could jeopardise reputation if the business cannot control negative sentiment about the brand. 2.0 Evaluation of market segments and current positioning The Savoy is currently positioned as a luxury service, providing services to upscale luxury markets with ample financial resources. The lowest priced room, the superior queen room, costs ?354 per night. Larger suites range between ?750 and ?2094 per night, with a full package suite available, including a full-time butler during the stay, at ?12,000 per day (Fairmont Hotel & Resorts 2013). Target segments are identified through demographic segmentation (associated with income and occupation) as well as psychographics, focusing on providing products and services that are aligned with cultural capital, lifestyle and personality constructs of consumer markets. Savoy’s largest target market is the Innovator market, a market identified through the VALS 2 psychographic segmentation model as sustaining very high self-esteem with abundant financial resources (Strategic Business Insights 2013). This market, due to its high financial capabilities, purchases products and services that reflect their cultivated tastes and demand variety in lifestyle. This market often selects luxury products and services that provide them with better social status among important reference groups, a phenomenon known as conspicuous consumption. The prestige and psychologically-driven levels of satisfaction that come from using luxury products to justify their achievements and successes drive their consumption behaviours (O’Cass and McEwen 2004). The Savoy also appeals to a smaller niche market known as Strivers, those that have only moderate resources, but in which money is seen as a significant definition of achievement and success. These markets often consume luxury products to attempt to imitate the lifestyles of those with more material wealth and are greatly concerned about social opinion associated with the aforesaid phenomenon of conspicuous consumption. Strivers appreciate having the opportunity to demonstrate to their reference group peers that they have the ability to explore luxury products and services. The Savoy cannot justify its premium, five-star pricing structure without positioning the business as a premium brand. This business reflects this premiumisation strategy through its marketing-based exploitation of its rich history with famous guests, including such notable figures as The Beatles, King Edward VII, H.G. Wells, Cary Grant and American President Harry Truman. These figures provide the level of sophistication necessary to attract markets with stylish and classy consumption needs. The business has even set-up homage suites to such names as Frank Sinatra and Marlene Dietrich, known as personality suites (Fairmont Hotel & Resorts 2013). Furthermore, the business achieves this luxury and quality positioning by citing its rewards provided by the Forbes Magazine Travel Guide which awarded the Savoy as London’s “highest rated hospitality establishment”, an achievement only accomplished by five other hotels in London (Fairmont Hotel & Resorts 2013, p.1). From upscale decor highly publicised in a variety of Savoy-created brochures and online video tours, the Savoy positions itself as a sophisticated leader in hospitality service provision and exceptionally opulent servicescape. The Savoy operates in a dynamic competitive environment, with such five-star establishments as the internationally-renowned Four Seasons on Park Lane, the Shangri-La and the new entrant Corinthia that has recently renovated a former Ministry of Defence property into a chic, 300-room hotel property (CPP Luxury 2009). Differentiation of the business model from other establishments such as the Four Seasons (sustaining a powerful and recognised international brand) relies mostly on the opulent furnishings and decor in order to position the business appropriately as a luxury facility with quality-focused service dimensions and ideology. Critical analysis of market segment characteristics and the business relying too heavily on tangible aesthetics to differentiate the Savoy from competition leads to recommendations for improving business positioning and ensuring adequate return on investment for gaining target market brand interest. The Savoy is targeting the appropriate markets based on income and occupational demographics and lifestyle characteristics associated with the luxury consumer segment (the Innovator market). Because the high pricing structure for even the most basic of rooms is out of the reach of other potential markets, those maintaining only low or moderate resources, the business must rely on the high-resource Innovator market to achieve revenue growth. It would be viable and recommended that the Savoy conduct considerable market research in the form of questionnaires, interviews or surveys to identify the specific needs of consumer segments and their impression of luxury hospitality consumption to create more effective advertising and other relevant promotions. Research did not uncover any evidence that The Savoy engages in this important marketing conception. Furthermore, the business cannot rely solely on servicescape as a means of differentiating or justifying its market position as a luxury brand. The business maintains such a high diversity of services, ranging from many different themed restaurants and bars, to the ability of consumers to observe chefs in the luxury dessert preparation processes via an upscale Tea shop with a window illustrating the competency of the master chefs. The Savoy, therefore, should be positioning the business with a differentiation focus, illustrating what this establishment can accomplish more effectively than its competitors. There should be much more emphasis on service quality rather than aesthetic opulence to ensure longevity of the Savoy brand. 3.0 Assessment of effective marketing channels The Savoy is primarily a service-centric organisation, providing only products that are produced in-house in the restaurant and bar environment, wholly developed by internal staff members. Based on identified market characteristics of the Innovator and niche market of Strivers that will be utilising the Savoy as their hospitality choice, a series of recommendations associated with the extended marketing mix can be provided. 3.1 Product Similar food products in an upscale dining and night club recreational environment are provided by competition, which would make it difficult to differentiate effectively in terms of product. However, what makes the Savoy unique is the volume of different themed restaurants that provide seafood, international cuisine, and classic dishes such as roast saddle of lamb. For instance, the internal restaurant named Simpson’s in the Strand provides very intensive and focused service including at-table servers who carve different beef products using classic silver-domed food carts (Fairmont Hotels & Resorts 2013). The Savoy should be developing products that are relevant to lifestyle, this illustrating sophistication of the markets’ characteristics, including more diverse and top quality food items. The Savoy is not adept under the current model of emphasising the benefits to consumer markets related to its core restaurant products. Quality should be the product emphasis which translates into more dynamic and sophisticated procurement, which includes aged beef for flavour enhancement, caviar to represent sophistication, and other exclusive products ranging from North American Lobster to sushi products that reflect this level of culinary cultivation that is reflected in the Innovator markets. 3.2 Price Savoy is adept in not emphasising its high pricing model in its promotional materials. It is generally understood that consumer segments that will be booking stays at the Savoy maintain the resources required for rooms exceeding ?700 per day. The business must take into consideration the specific consumer perceptions of value at the Savoy, coupled with consideration of competitor pricing structures and costs of product and service delivery when establishing effective pricing models. The Savoy must come to understand, through quantitative market research, at what point demand would decline at a certain pricing range. Values-based pricing, therefore, would be the most viable strategy once the business ensures its pricing structure will recoup the costs of service delivery and product procurement, as well as labour and other operational costs. Non-price variables, such as decor and chef competence, can be utilised as effective rationale for values-based pricing. 3.3 Place Place is a significant factor for the Savoy and there should be more emphasis on these benefits. The Savoy is located just a few steps from the Savoy Pier which offers luxury yachting services and tours along the Thames River. These elements should be included in promotional literature and online to illustrate the benefits provided by the site. The location of the Savoy maintains a rich historical significance in London as well. In 1246, the site housed the Savoy Palace after King Henry III gave Peter Earl of Richmond the property. In 1505, the site housed a hospital commissioned by King Henry VII that endured for over 200 years. Savoy is not properly exploiting the place characteristics associated with sophisticated cultural history as a means of improving its brand position. Market characteristics value sophistication and expression of their cultivated tastes. 3.4 Promotion Promotion is a key attribute to success in a competitive industry. There is little evidence that the Savoy invests appropriate resources into the promotional function to build market interest in the Savoy brand. The business should be utilising market research to identify the magazine or trade-related publications that would be relevant to the Innovator markets whereby advertising illustrates the holistic value of the Savoy business model. Social media is also being utilised by the Innovator group that values utilising innovative technologies (Strategic Business Insights 2013), an excellent opportunity for gaining more domestic and international brand visibility. Promotional strategies should also focus more intensely on the rewards and loyalty programmes in place at the Savoy, such as the Fairmont President’s Club, provide significant airline miles per stay, complimentary nights after a three-day stay, and even suite upgrades after attaining necessary point volume (Fairmont Hotel & Resorts 2013). Customers who use loyalty programs are known to experience a perception of personal ownership of the firm issuing the program (Hart et al. 1999). The benefits of the loyalty program should be included in online and print advertising. 3.5 Physical layout Savoy has no problems or issues with the servicescape which is highly attuned and decorated to the needs and aesthetic values of high resource consumers, keeping the physical layout keenly decorated with the luxury consumer segments in mind. 3.6 Processes The only notable weakness in service delivery and operational strategy is that the business does not focus on its supplementary services, such as room service or utilisation of butler and chauffeuring services. The Savoy should be developing a pay-per-use process for those consumers not expending thousands of Pounds on rooms with full-time butlers as a means of enhancing the lower-cost room experience. As the lower resource consumer segment, the Striver group, would find considerable value in this process by emulating the lifestyles of higher resource society, this could be a valuable method of attaining more demand from the Striver groups. 4.0 Product versus service marketing In certain industries, it is becoming much more simplistic for competitors to replicate existing products (Nandan 2005). Available technologies and the ability of firms to devote resources to the research and development process make competitive differentiation much more difficult in the contemporary competitive environment. Product marketing involves attempting to align tangible product benefits with known consumer needs and value perceptions, such as a toothpaste brand adding a whitening agent for consumers that are concerned with vanity aspects of grooming product procurement. Many other toothpaste marketers have added these same ingredients in a competitive response, which provides consumers with undifferentiated choice. Service marketing, on the other hand, provides a firm with the ability to differentiate without having to rely on costly product innovations (which can be replicated over time) in order to build a more valuable brand and position the business effectively. In an empirical study, Boulding et al. (1993) found a direct correlation between perceived service quality and consumer segments’ willingness to provide positive word-of-mouth and higher repurchase intention. However, the dynamics of how to market a service successfully must take a different approach than product marketing that focuses on the dynamics of the marketing mix to achieve gains and build revenues. Zhang, Hong and Chan (2009) reinforce that the relationship between consumers and the established brand is very egocentric, meaning that if loyalties are to be developed with profitable markets, there must be some dimension of psychological fulfilment. Oftentimes, this is not accomplishable with emphasis on product or price, but must be established with the service ideology being utilised by the business. Consumers are known to be very reflexive and extremely self-aware and will only consider making future purchases if the brand somehow manages to contribute to a person’s well-being or contribute to their self-concept positively (Fournier 1998). It is through service that the organisation is able to build trust and establish interactive relationships that provide this psychological fulfilment that leads, ultimately, to better revenue growth and brand loyalty. Where product marketing is focused on the industry (competitive) characteristics and the tangibles of product to gain revenues, service marketing is more internalised and requires more managerial-based competencies to achieve an effective service design and promotional strategy. For instance, there is much more emphasis on the human resources functions as part of supporting value chain activities to ensure proper recruitment and training of front-line employees responsible for establishing positive first impressions. It is imperative that a blueprint of service activities be developed in service marketing with far more emphasis on human capital productivity than in traditional product marketing. People, in service marketing, then become a fundamental promotional opportunity as a selling proposition. Since it is known that physical evidence contributes to how consumers decode service quality, service marketing ideologies differ from product marketing because employees are absolutely critical to ensuring future sales volume and future demand. This is typically not true in product marketing where the tangible benefits of product (i.e. its formula, function, flavour, etc.) serve as significant selling propositions for the marketing business. In some markets, such as between competitive television sales, the most important dimension for ensuring brand interest is functional attributes of the product. Sales support, in some instances, is not necessary to gain higher demand and any sales support is highly disparate depending on the retail organisation stocking the marketers’ electronics merchandise. Service marketing involves working with service dimensions that are perishable; they cannot be stored in the same fashion as products. It then becomes absolutely paramount that services are competently performed by trained employees which place much more emphasis on the management processes under the business’ internal organisational model. There is variability to service provision that does not exist with companies that are attempting to market a product. Though some dimensions of service marketing are similar, such as using promotions to describe the differentiated benefits of product versus service, the fundamental differences are centred around the role of human contribution to providing consistent and effective service delivery. For a business marketing a product, it is difficult to recover damage by offering a non-relevant product or establishing too high of a pricing model. Services, however, can be more easily recovered in the event of service problems or failures. The ability of a marketer to recover a failed service is correlated with how consumers perceive trust in the firm, word-of-mouth willingness, and repurchase intention (Blodgett, Hill and Tax 1997). As such, it is actually easier for a service firm to take accountability for a failure and make promises to improve the service with a variety of recovery strategies (e.g. better training, better queue systems, more labour). Intangibles of service are psychologically-related in relation to how consumers perceive value whilst product marketing, in the event of a failure, often cannot regain consumer loyalty until a wholly new product has been launched. 5.0 Marketing in non-profits versus profit-oriented service businesses The main difference in non-profit marketing as compared to profit-oriented service business marketing is the type of information provided to customers under an integrated marketing communications model. Since the non-profit supports a particular cause or social issue, the main goal is to improve customer knowledge of the issue or cause in order to gain support. The customer, based on these communications, provides funds for the non-profit organisation with the psychological fulfilment that this money will be utilised effectively to support the main issue that the non-profit supports. Therefore, the traditional elements of the product-based marketing mix are rendered largely irrelevant in marketing strategy, with more emphasis placed on the effectiveness of promotional messages to gain external stakeholder support. A recent interview was conducted with Brian Eddy, a marketing director for The Rehabilitation Centre in New York, USA, to uncover the fundamentals of non-profit marketing strategy. Most non-profits have to report to several governance boards, the CEO of the organisation, and customers as well, which puts, according to Mr. Eddy, 99 percent of marketers’ energies into trying to satisfy internal constituents (Brown 2010). The mission-centric non-profit organisation works diligently to gain the satisfaction of important constituents, both internal and external, since these stakeholders are the gatekeeper of program structure and services that are considered relevant and appropriate for the organisational mission. Additionally, risk-taking activities are not present in the non-profit organisation, but are considered fundamental methods by which for-profit businesses expand or differentiate (Brown 2010). Thus, whilst resources are being allocated in the for-profit business model in areas of research and development or improving manufacturing and procurement to launch new innovations, in the non-profit there is more emphasis on removing expenditure waste to sustain an existing program or supporting service. Marketing, therefore, involves more financial and human capital measurement in areas of metrics and controls to ensure program sustainability while the for-profit business model seeks to expand services or create demand for the services that involves concentrated advertisement and other promotional activities. However, in the for-profit business, oftentimes it is considered excellence in marketing strategy to develop alliances with other organisations under co-branding philosophy or improve cost such as that in the supply chain. From an operational viewpoint, alliances in marketing strategy provide for cost synergies or the ability to exploit the knowledge resources of alliance partners that give a firm competitive and comparative advantages. For instance, being able to piggyback on a partner’s existing distribution network as part of the alliance significantly improves costs of logistical support. This is quite common for the non-profit organisation: to seek out alliances that can improve the brand visibility of the organisation. For instance, a non-profit organisation such as Save the Whales might have endorsements and appearance of an alliance partner’s logo to add more credibility to the Save the Whales program and mission. Dual branding strategies are common in both business structures, which involves having executive-level prowess in finding appropriate and profitable partnerships and sharing vital resources mutually. Co-branding is used in for-profit and non-profit industries, especially with partners maintaining a strong brand reputation, to build trust in the consumer/customer markets and gain more demand for supporting the service or the non-profit organisational mission. Even the importance of the servicescape can be crucial to gaining support in both the non-profit and the for-profit service business. The fundamentals of design and decor and all other tangible physical evidence often give consumers perceptions of quality, sophistication or general value. Non-profit organisations often have a headquarters by which investors (“customers”) meet to describe the organisational mission and intention to donate. If the business does not appear reputable, with well-dressed and professional employees visible supporting the model, it might appear to the customers that the business is not proficient thus changing intention to provide financial support. The same is true in the for-profit model where employee grooming and professional behaviour will dictate whether a customer segment decides to re-patronize the service business. As with the for-profit business, the non-profit must also consider consumer behaviour as it pertains to using stereotypes and first impressions within the servicescape as part of crucial marketing strategy to gain loyalty and revenue growth. Finally, the usage of Internet marketing, such as in social media, are similar constructs in marketing strategy for both types of organisations. These mediums provide excellent low cost and broad-spanning brand opportunities for promoting a mission or cause that has the potential to reach many more target markets. 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