The Five Forces Model
David Litman and Robert Deiner founded Hotels.com in 1991. It was originally named Hotel Reservations Network (HRN), which was a telephone-booking establishment for cheap hotel rooms. Beginning in 1996, Hotels.com started streaming their services over the Internet and in 2002, the website was launched. Now, it is an subsidiary of Expedia. It provides hotel accommodation around the world, it offers reservations through its website and call center. The company is privately held and headquartered in Dallas, Texas (Market Line). When Hotels.com was first established, the public did not know about it and only few people knew about the business. Later on, the when the business expanded and grew, more and more customers were using their service to book and compare cheap hotel rooms. This paper will be discussing the five forces model to better analyze and understand the long run for this firm.
Threat of Competitive Rivalry (High): it is high in the industry because there are many similar businesses, which operate, online and provides the same services are hotels.com. key competitors are Priceline Group, Orbitz Worldwide, and Booking.com (Market Line).Not only that, but hotels.com are competing with the actual hotel booking websites and travelling agencies. There could be better deals found by using directly the hotels website to book a room with having to go through a third party such as Google, AOL and Yahoo! Travel (Market Line). These competitions could reduce the market share for Hotels.com and can have a negative financial impact on it.
Threat of New Entrants (High): it is high in the industry because a new entrants can easily get into the online hotels booking business because the technology has made it easier than ever to create a website and get customers to visit their websites. It does not require a lot of effort or resources, however if a new entrant want to be at the same level as Hotels.com, it would needs to work on its customers base as well as having reasonable pricing.
Threat of Substitutes (High): it is high in the industry because there are many substitutes to using another online booking agency beside Hotels.com. Priceline and Booking.com, are the most known competitors to Hotels.com, simply because they offer the same services and terms of booking as well as they are close in price (Market Line). Also hotels are subject to be effected by this strategy, because the buyer has the power to choose another hotel for the same rate per night. However, for people who are more in the “upper” group for those who are business travelers, middle aged, old aged bracket they will be less likely to look for substitutes for a particular hotel or a hotel booking agency (Porter). They depend on their past experiences to make the decision, they don’t like to switch around (Dr. David).
Bargaining Power of Buyers (Moderate): it is moderate in the industry because the costs are low for switching to another businesses that offer the same service. Even though that Hotels.com offers a loyalty program, which allows the customers to get discount on most hotels regardless of its type or location. The customer gets one free night for every 10 nights stayed at the hotel, but it has to be booked through Hotels.com. However, the customers have the option of booking with another website as long as they get a lower price for a similar hotel. The customers are only paying when reserving the rooms, so they can switch to another business at any time because there is no membership involved.
Bargaining Power of Suppliers (Low): the power is low becausehotels have many competitors in the industry, which prevents them from increasing their prices. Also they have to compete with other hotels that have better quality, image or better customer service (TechTarget). Their range of increasing the prices is low, because they are constantly dealing with higher strategic groups, such as hotels with five or four stars (Dr. David). As a result, when the prices are low, Hotels.com percent of the total profit is low as well.
· Caroline Baldwin, (2014). Hotels.com CTO discusses the future of omni-channel, TechTarget.http://web.a.ebscohost.com.proxy.lib.pdx.edu/ehost/pdfviewer/pdfviewer?sid=78f86463-9d60-4746-9589-9919eabe6b5c%40sessionmgr4003&vid=1&hid=4214.
· Dr. David, S. Y Cheng, (2008) Analyze the Hotel Industry in Porter Five Competitive Forces, Upper Iowa University: Hong Kong Campus. http://www.jgbm.org/page/7%20David%20S.%20Y.pdf
· Porter, M. E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press.
· Porter, M.E. (2003). Strategy and the Internet, Harvard Business Review on Advances in Strategy, Harvard Business School Publishing Corporation.