(1) Buyers are largely price sensitive except in the high-end segment
(2) Lack of major buyers across the industry with influence
(3) Internet has changed the game and provides easy price comparisons
The bargaining power of customers has to do with the end users and the outputs or products and services they purchase from industry players. It is their ability to influence or exert pressure on industry players with regards to these outputs. In the Global Hotel industry, customers are mostly price sensitive however, they are primarily independent and a lack of major buyers or large customer groups limits their power and influence over the industry. The customers that purchase services from the Global Hotel industry are individual consumers, corporate businesses, airlines, convention groups, and tour operators.
Among the previously stated groups, individual consumers who are mostly price sensitive outside the high-end hotel segment, overall lack loyalty, have negligible switching costs among players, and are benefited by the difficulty in industry player differentiation and the large number of players that allows them to influence hotel pricing. Thanks to these factors, pricing becomes one of the primary uses with which hotels attract customers. However, due to customers’ independent nature, there influence over industry players is limited. In the high-end segment of hotels, price influence becomes even less as hotels find it easier to differentiate themselves from the competition and customers become less price sensitive coming to expect higher prices as a symbolism of superior quality and services. Lastly, corporate business and tour operators can exert more influence due to...
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...ods of economic recession have the opposite affect by impacting demand negatively thus forcing hotels to greatly lower prices to spur demand or compete with other industry players. During the last US recession, the average hotel occupancy rate dropped to a record low of 45% at one point from the normal average of 63%. As a result of the greatly declining revenues, such as a 48% drop by Marriott International, industry players laid off over 400,000 employees and greatly scaled back costs and new developments. Also importantly to customers who now saw more power in the relationship drift to their side during this time period, the average daily room price dropped to $98.18 (2009) from the record high of $107.42 pre-recession (2008). Both effects on opposing fulcrums show how important customer demand can affect the industry and the players’ actions (Statista, 2014).
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