Hyatt Porter Five Forces Analysis
Five Forces analysis of Hyatt covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Hyatt is one the most popular & luxurious hotel chains in the world. In the hotel industry the investment required to set up the business is very high, and this creates a very high barrier to entry. Also, since there are already very high number of well-established players in this tier of hotel chains, it will be very difficult for any new entrant to match up with the kind of brand recognition that is already held by the established players. There is virtually no differentiation in terms of service offered between Hyatt & similar luxury hotels and hence location becomes a very important factor when it comes to differentiation. Since most of the prime location already have most of the well-established players, this increases the barrier to entry. However, since there is virtually no switching cost involved, if a new entrant were to set up good services at a prime location and if it manages to market itself well, it is easy for the new entrant to steal market share. Overall, the threat of new entrant is quite low and hence this is a weak force.
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This concludes the threat of new entrants in the Hyatt Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Hyatt:
There are a wide range of hotels at different price points in most of the prime location at which Hyatt Hotels has their properties. This makes this threat very high.
There are no switching costs at all and also there is service differentiation. These hotels tend to all be the most profitable only during peak seasons when all the hotels are occupied to near peak occupancy. In the off season or if there is some kind of adverse condition such as the lockdown because of the COVID-19 pandemic, then all the players suffer. However, budget hotels would tend to suffer the least in these cases as the few customers in these times that do want to rent hotels will do so at the cheaper price points and Hyatt Hotels will face losses. Hence, we can say that the threat of substitutes is very high and hence this force is very strong.
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Bargaining Power of Customers:
In the Hyatt Porter Five Forces Analysis the bargaining power of the customers can be explained as:
In this industry, the bargaining power of the customer is moderately high. Since there is not product differentiation between the competition, the customers will make their decision based on price point. However, for the luxury and business customers that Hyatt Hotels tends to cater to, there is a tendency for all the competitors to be very high priced because of the value they provide. These customers also tend to be price insensitive and are willing to pay a high price for the luxury experience and prime location that is on offer. The threat is quite a bit higher in the off season in this kind of seasonal industry and there is a tendency for customer to elect not to choose to settle for a lower tier hotel and hence the company has to price their rooms accordingly to account for this but the pricing cannot be too low as that might lead to the existing customers being put off as the exclusivity aspect is loss.
Overall, this threat is moderate and hence this force is moderate.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Hyatt:
The primary suppliers in the hotel industry are the personnel involved. The only thing that a luxury hotel like Hyatt provides over the lower tier budget hotels is the fact that the luxury hotel employ staff that give a much better service. This means that these are the suppliers who have a higher bargaining power. The other augmented services offered by the hotel such as a restaurant requires suppliers for high quality ingredients but since this is in a much lower volume, this does not pose much of a threat. Since the working conditions for the employees in the luxury hospitality industry might not be the best as there are long working hours and odd timings, they have to be compensated with higher pays. These staff include the managers, chefs, waiters as well as the maintenance workers such as janitors, room cleaners, swimming pool maintenance, gardeners as well as the restaurant staff such the chefs, sous chefs, and servers. This is a moderately high threat for a brand like Hyatt and hence the force is quite strong.
Competitive Rivalry:
The impact of key competitors in the Hyatt Porter Five Forces Analysis is as follows:
This is an intensely competitive industry as there are a huge number of players in the market at all price points fighting with Hyatt and there is virtually no differentiation between the services offered by the various players. There is also no switching cost so one cannot expect customers to stay loyal to the brand. In this luxury category this is especially a pressing matter as exemplary service is expected and if there is even a little customer dissatisfaction, this could lead to huge backlash in terms of the customer coming back. In this industry, one can see that location is one of the most important factors that can affect how popular a hotel can be. The locations of Hyatt hotel chains generally include airports, tourist destinations, and business parks depending on the kind of customer the hotel is targeting. It is common to find many competing upscale hotels in the same area.
Hence, this competitive rivalry is fierce, and this is a very strong force.
To conclude, the above Hyatt Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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