Market Analysis for Hilton Worldwide

Market Analysis for Hilton Worldwide
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Table of Contents 1.0. Executive Summary. 3 2.0. Industry Analysis. 3 2.1. Market Size. 3 2.2. Current and Projected Market Share. 4 2.3. Growth Prospect 5 2.3.1. Drivers of Growth. 5 2.3.2. Deterrents. 8 2.4. Addressing International Markets. 8 3.0. Target Market 9 4.0. Customer Profile. 10 5.0. Major Competitors and Participants. 11 5.1. Wyndham.. 11 5.2. Marriott 12 5.3. IHG.. 13 5.4. POP for Hilton Worldwide. 13 5.5. POD for Hilton Worldwide. 14 5.6. Intensity of Competition. 14 5.7. Threats of New Entrants. 14 6.0. Market Segmentation. 14 6.1. Demographics. 15 6.2. Psychographics. 16 6.3. Lifestyle-Based Segmentation. 17 7.0. Projected Market Growth and Market Share Objectives. 18 7.1. Projected Market Growth. 18 7.2. Social Trends. 19 7.3. Geographic Trends. 21 7.4. Demographic Trends. 23 7.5. Market Share Objectives. 25 8.0. Product and Service Offering. 26 8.1. Key Products. 26 9.0. Product and Service Uniqueness. 29 10.0. Product and Service Descriptions. 31 11.0. Summary of Key Findings. 34 12.0. Recommendations. 34 References. 36   “Organizational Analysis for Hilton Worldwide”
1.0. Executive Summary
The first section lays out the key trends in the industry and market. The market size for the hospitality industry is found in a long-term uptrend, with the upheavals caused by the pandemic in 2019-2020 being the only exception. After the pandemic-related instructions have begun to ease down, the industry is back on track for growth. Hilton Worldwide, with its 18 luxury brands in different countries, has managed to secure 11% of the global hospitality market share and its developmental pipeline indicates considerable growth in its market share in all key regions, including the US, Asia Pacific, and Middle-East. The industry’s growth is primarily driven by the growing trends of urbanization, growing disposable income, and demand for luxury, getting increasingly integrated into social norms. However, the geopolitical tensions resulting from the Russo-Ukraine war and tense relations between the US and China remain vital deterrents. The inflation triggered by the Russo-Ukrainian war is also a potential concern for the industry.
The company targets leisure and corporate travellers seeking value-added services with a touch of personalization. The company successfully maximizes the coverage of a broad range of demographic segments thanks to its diversified portfolio of brands. Each of the 18 brands positions itself to tailor its services to a specific audience’s needs, moods, and tastes. While Marriott, Wyndham, and IHG are strongly competing against Hilton, Hilton differentiates itself based on its rich legacy, brand equity, and convenience associated with its digital service plan.
2.0. Industry Analysis
This section analyses Hilton Worldwide’s market, focusing on crucial dynamics, structures, and market share.
2.1. Market Size
As mentioned in the last analysis, Hilton Worldwide operates in multiple industries, primarily focusing on the hotel industry. The global hotel industry grew steadily within the past decade peaking at USD 1.5 trillion in 2019, which is a significant growth seen from the standpoint of its status in 2012, measured at USD 0.9 trillion. These findings are further illustrated through the figure below:
Figure SEQ Figure \* ARABIC 1: Market size of the hotel and resort industry worldwide from 2012 to 2021, with a forecast for 2022
[(Statista, 2021)]
However, the trend could not sustain its momentum since the global industry was hit hard by COVID-19 by the end of 2019, and COVID-19-induced restrictions triggered a critical reversal that caused the industry’s worth to shrink up to USD 0.7 trillion, which is the lowest level recorded within past ten years. However, as the restrictions eased, the industry bounced back to USD 1 trillion with a positive outlook of growth, which is currently barred by the Russo-Ukrainian war. However, on the whole, the industry is in a steady uptrend, growing at CAGR 13.4%, and is projected to grow at the rate of CAGR 7.9% by 2026.[(Holovnia et al, 2022)] [(Statista, 2022)]
These findings portray an optimistic picture for Hilton Worldwide, ensuring the company is in a growing market. The market’s growth is driven by several factors, discussed later, and limited by a few opposing forces. Before proceeding to these factors, assessing the company’s current and projected market share in the industry is essential.
2.2. Current and Projected Market Share
Hilton Worldwide’s market share needs to be analyzed from two different perspectives: developmental share an existing share. It is essential to consider that the company has a rich development pipeline with a vast number of rooms under construction worldwide which count towards the projections for the growth in the market share (Seeking Alpha, 2019; Statista, 2022). The current market share for the company is visualized as under:
Figure SEQ Figure \* ARABIC 2: Hilton Worldwide’s Market Share
[(Seeking Alpha, 2019)]
As shown in the figure borrowed from Seeking Alpha above, the company’s developmental market share is comparatively higher because it has already entered multiple growth avenues worldwide. Despite its aggressive growth strategy, thriving on exploiting the opportunities of growth (as discussed in organizational analysis), the company’s operations are highly concentrated in the US market, where its market share remains 13% (existing) and 23% (when under constructed rooms are factored into the equation). However, the company’s market share ranges between 2% and 3% in the rest of the global market. The main highlights while considering the market share is the projected development in the Asia Pacific and the Middle East, indicating that the company tends to secure 22% and 14%, respectively, in terms of future market share in these regions. As shown in the figure, the company is growing faster than its two near competitors: Marriott and IHG.
2.3. Growth Prospect
To assess the growth prospects for the company, it is essential to understand the role of the forces at play in its external environment. Critical drivers of and deterrents to its growth are discussed as follows:
2.3.1. Drivers of Growth
Growth of Tourism
The success of hotels is predominantly tied to the trends in the tourism industry. Over the past decade, the growth of the global tourism industry outpaced the growth of the global economy. However, similar to the hotel industry, the tourism industry crumbled under the devastating implications of COVID-19 and underwent a sharp decline. However, by 2021, the industry was back on track for growth as its contribution to the global economy increased by more than USD 1 trillion in 2021. The trends within the tourism industry are visualized as under:[(World Travel & Tourism Council, 2022)]
Figure SEQ Figure \* ARABIC 3: Tourism Industry Growth Trends
[(World Travel & Tourism Council, 2022)]
Post-COVID recovery is illustrated through the chart below:
Figure SEQ Figure \* ARABIC 4: Post-COVID-19 Recovery of Tourism
[(World Travel & Tourism Council, 2022)]
Hence, tourism is evident on the rise, which significantly contributes to the hotel industry’s growth. The current trends hold strong growth momentum, which is an optimistic sign for Hilton Worldwide and explains the company’s enormous developmental pipeline.
The growth of tourism is based on multiple factors, with primary contribution from the growing per capita disposable income and consumer spending on luxury goods and services. As the per capita income grows, it bolsters the buying power of consumers, and they continue to increase their spending on travelling. Hence, growing trends of affluence worldwide remain the key thrust behind the growth momentum of travelling.[(Sofronov, 2018)]
Globalization and Urge to Explore Different Cultures
The growing trends of globalization remain one of the key propellers for the interest in travel and tourism, which predominantly lies behind the growth of the hotel industry. The rise of social media and other fast communication channels has brought people from different countries and parts of the world to interact with each other. Cross-cultural interaction is driving the interest in exploring different cultures through personal. People are increasingly interested in exploring new places and learning about distant regions. These trends also contribute to hospitality growth by fueling travel and tourism.[experience (Sofronov, 2018)]
Accessibility
With the ubiquity of the internet and the evolution of Web 2.0, it is getting increasingly more accessible for people to book rooms from the comfort of their homes in any part of the world. This factor has created value for the customers and provided hospitality organizations with a potential source of enhanced visibility. It is a crucial trend for Hilton since the ease of booking impacts the customer buying behaviour and purchase intention. High levels of accessibility translate into a comparatively higher number of bookings and enhanced growth prospects for hospitality organizations. As technology continues to improve and the accessibility of internet service expands, the potential for this particular growth factor tends to multiply.[(Sofronov, 2018)]
2.3.2. Deterrents
Pandemic
COVID-19 has left critical imprints on the industry, questioning the resilience of several business sectors, including hospitality. As shown earlier, even the industry giants, like Hilton, failed to respond effectively to the restrictions brought by the pandemic. Even though COVID-19-related restrictions are easing and the industry is showing signs of recovery, any similar pandemic or reemergence of COVID-19 can reverse the gains and bring operations to a halt. Therefore, the organizations will have to find a way to effectively respond to the scenario, which may simulate the obstacles of COVID-19.[(Sun et al., 2022)]
Oil Prices
Oil prices are peaking worldwide in the wake of the Russo-Ukrainian War. Oil prices remain crucial since tourism costs are closely tied to fuel prices. As the petroleum prices increase, they add up to the cost of airfare resulting in the shrunk buying power of the customers. It is vital to recall that tourism growth is primarily fueled by the increase in disposable income over the past few years. However, if the cost of travel increases, it tends to offset these gains and curtail the growth.[(Silva, 2022)]
Geopolitical Situation
The global geopolitical situation needs to be closely monitored by global hospitality organizations, similar to Hilton because they have a ripple effect on the hospitality industry. A critical threat in the current scenario is the ongoing war between Ukraine and Russia which has already begun to show its devastating implications in the form of surging inflation accompanying the threats of an impending global economic slowdown. At the same time, the trade war between China and US has already taken a toll on inbound travel affecting the tourism industry on both sides. For example, when the trade war started, the number of Chinese tourists to the US dropped by 23% within the first quarter of 2019, breaking the growth trend stretched over 15 consecutive years.[(Silva, 2022)] [(Silva, 2022)] [(Talty, 2019)]
2.4. Addressing International Markets
As discussed in ‘Organizational Analysis,’ Hilton Worldwide adopts an aggressive approach to international market expansion. The company actively seeks expansion opportunities and aims to exploit those opportunities using the traditional established tactics. One of the critical strategic approaches has been to assume the management of reputed hotels and restaurants. As shown in Figure 2, Hilton’s operations are still highly concentrated. However, the company strives to expand its presence through a massive developmental pipeline. The company’s primary focus is the Asia Pacific, with 22% of the room supply being under construction. An overview of the international market reveals that the company’s focus on Asia Pacific is well-timed and backed by strategic insight since Asia is home to significant growing economies. Hilton can potentially focus on India, where its presence is still low despite potential growth prospects. In a recent visit to India, President Asia Pacific at Hilton, Alan Watts, believed India was rapidly catching up with China’s demand for hospitality and tourism. He also intends to expand the company’s presence in India in the next growth phase. Currently, the organization has only 24 restaurants in India, which is not comparable with its presence in China, comprising hundreds of busy restaurants.[(World Travel & Tourism Council, 2022)] [(World Travel & Tourism Council, 2022)] [(Khosla, 2022)] [(Caswell, 2021)]
One of the critical questions when it comes to addressing the international markets is the management of the escalating tension between the US and China. Hilton will have to adopt a neutral approach and be careful that it does not become a party to any country. For instance, the pressure regarding the escalating tension between the countries is already on Hilton. For example, in a recent announcement from the platform the UN, America strongly warned Hilton against being a part of the president’s project to utilize the land for building hotels where China has allegedly bulldozed a mosque and got engaged in Muslim genocide. These allegations show the risks associated with being a global organization. The company has to keep its reputation unstained, for which it has to stay away from political strife. The company must distance itself from the projects and visions backed by a political sense, especially in the regions where anti-American sentiments are on the rise.[(Yan, 2021)]
3.0.Target Market
Every business targets specific markets, which comprise people from a specific background residing in specific regions and having specific age brackets and interests (Annual Report, 2021). Hilton Worldwide also targets a specific audience, the characteristics of which align with its provisions and sources of value creation. The target audience of the company is as under:
Age: The age of Hilton World’s customers is 18 years, at which the person is eligible to travel. The customers can bring their children, but the person who books a room must be 18 years or older. However, there is no upper limit to the age since people from different age categories stay at hotels and enjoy travel.
Aptitude: The targeted customers for Hilton Worldwide usually have a high propensity towards multiculturalism. These people tend to explore new cultures and new locations and want to get identified as having good taste. As discussed earlier, the company competes on differentiation. Therefore, it is understandable that customers, to a certain degree, tend to express their success through their choices. Having a booking in a high-end restaurant is a symbol of status for the customers. It means that the company’s target audience is travel lovers who actively seek added value and luxury.[(Hilton Official, 2022)]
Besides, psychologically, customers are highly brand conscious and look for brands with established identities and recognition. Hilton Worldwide is an established brand name with over 100 years of success, setting it up as an appropriate choice for brand-sensitive groups of customers.
By gleaning insights from the characteristics of the target market stated above, the company’s target market can be described as travel lovers seeking value-added hotel services on their trips.
4.0.Customer Profile
The detailed customer profile for the company is provided as follows:
Age: Above 18 years
Taste: The typical company customer is interested in exploring new destinations worldwide. Customers love to discover new places and visit healthy resorts where they can have a memorable experience. Besides, the customers enjoy being at a place where they can interact with people from other cultures. In terms of taste, the customers are active travellers.[(Sofronov, 2018)]
Income: As mentioned earlier, a typical Hilton customer belongs to the high-income group, either from the upper class or upper-middle class. From an international standard, the income bracket within which the customer falls is above $106,000 per year. Customers with this income will likely set aside sufficient savings for travelling and booking rooms with luxury hotels.[(Sofronov, 2018)]
Aside from demographics, a few critical aspects of customer profile are provided in the table below:
Who is expected to use the service?
The service users are travellers having the characteristics and demographics described above. Besides, corporate travellers will likely book hotels with Hilton Worldwide on their business trips.
What will they use it for?
The guests use the company’s services to get shelter on quick trips to a region away from their homes. They pay for their stay. Besides, they use the amenities provided by the hotel to get facilitated during their stays, such as Wi-Fi, food, and drinks.
What features of the service attract them the most?
The customers of Hilton Hotel are highly brand sensitive and luxury-seekers. One of the critical features of the service is easy accessibility. The hotel’s online booking services and affiliation with other travel websites serve this purpose.
Besides being luxury seekers, the guests want the hotel equipped with value-added features, such as free Wi-Fi, contactless access, and a relaxed and spellbinding ambience. Furthermore, the customers want the food to carry high quality and superior taste.
Do business ethics matter to them?
Yes, hospitality customers are increasingly conscious of brands’ environmental and social performance. In response to the trends of ethical consumption, the brands also tend to develop proper CSR plans considering that the reputational gains can translate into financial performance. The trends of eco-tourism and green travelling also bring the company under an obligation to keep its services environmentally sustainable. The value that the hotel creates on social and environmental levels has an interaction with the customer buying behaviour in the Hilton industry.[(Sancho & Martín Navarro, 2022).] [(Sofronov, 2018)]
Are they loyal?
The customers’ loyalty level is high since they tend to rely only on reliable names with which they have had a good experience in the past. Customers repeat their stay at the hotel more often than not, which is evident from Hilton’s room occupancy rate of nearly 60%.[(Statista, 2022b)]
Level of cost-sensitivity
As mentioned before, Hilton Worldwide’s customers seek value-added services and features. Hilton also responds to the taste and dispositions of its audience by competing on differentiation instead of cost leadership. This implies that the cost sensitivity of customers is extremely low. Customers take pride in paying a substantial amount for high-quality services. The ability to book a room with Hilton Worldwide is the source of expressing socioeconomic status, also called a symbol of status.[(Annual Report, 2021)]
Lifestyle
Hilton Worldwide’s customers maintain a luxury lifestyle. These customers have affluent backgrounds, have the least tolerance for any loopholes in quality, and are willing to pay extra if higher quality is promised by a brand.
5.0.Major Competitors and Participants
5.1.Wyndham
Wyndham is comparatively a smaller competitor of Hilton Worldwide, with its revenue recorded at $1.3 billion, lower than IHG and Marriott. The company’s market capitalization, determined just above $6 billion, is substantially lower than that of Hilton, recorded above $36 billion as of 2021. Wyndham has an advantage over Marriott and Hilton thanks to its discount offers. The company competes on cost leadership and targets cost-sensitive groups of customers. It appeals to customers who want to plan budget-friendly trips. Therefore, it is most suitable for local tourists, while Hilton targets affluent international tourists.[(Hilton Annual Report, 2021)] [(Wyndham Annual Report, 2021)]
The cost-centred strategy of the company makes it more resilient to the scenarios marked by the economic slowdown. In such scenarios, the demand for high-end services declines while customers seek cost-effective solutions. Therefore, the company has the potential to garner customers of high-end brands, similar to Hilton, as the economy goes through a rough phase in its cycle.[(Wyndham Annual Report, 2021)]
Wyndham also has a visible edge over Hilton regarding presence and coverage. For example, Wyndham’s 9000 franchises worldwide are incomparable to Hilton’s 584 hotels. The more extensive network of Wyndham makes it easily accessible and an ideal choice for customers who want to minimize their commute across different checkpoints during their trip.[(Wyndham Annual Report, 2021)]
While Wyndham has certain advantages, it also has its downside. For instance, Wyndham has established its identity as a low-cost brand that does not resonate with affluent customers. Besides, Wyndham faces administrative complications attributable to its massive business size. A close look suggests that the company has not yet transited to the higher stages of its business lifecycle. Similarly, the company does not accept any globally recognized payment methods and the customers have to use traditional methods to make transactions, which makes it score low in terms of convenience and accessibility.[(Daft & Armstrong, 2005)] [(Daft & Armstrong, 2005)]
5.2.Marriott
Marriott also has a slight edge in terms of coverage over Hilton since Marriott occupies valuable urban and densely crowded destinations worldwide with its 7000 properties. Like Hilton, Marriott competes on differentiation and poses as a high-end brand. It also tends to attract affluent customers seeking luxury and value-added services. Both hotels compete evenly in terms of customer experience since both serve the same audience.[(Marriott Annual Report, 2021)]
However, Hilton Hotel has a fair advantage thanks to its special loyalty programs. More guests are attracted to its loyalty cards since Marriott devaluated its loyalty programs in 2019. Therefore, customers who seek highly reliable and beneficial loyalty programs are more attracted to Hilton than Marriott, while occasional tourists may find both equal.[(CNN, 2022)]
As for Ambience, Marriott has a slight advantage for those who have a taste for antiquity. The elevation of Marriott is often classy and mostly resembles a castle. The interior is also consistent with its antique theme, while ample space allowed for walking and sitting together with friends and other guests adds to the value of its ambience.
While Hilton’s elevation shares much of its features with Marriott, the former focuses on ensuring that the rooms are adequately facilitated and in line with the hotel’s standards. However, it does not allow as much space for outdoor activities as Marriott. However, the difference in terms of loyalty programs considerably outweighs this imbalance.[(Trefis Team, 2021)]
Regarding profitability, Hilton Worldwide has a fair advantage over its competitor. For example, the company’s operating margin is 3-4% higher compared to Marriott, while its cash flow is also comparatively better. However, the revenue growth is slow for both companies, mainly due to the aftermath of COVID-19. Similarly, both companies have long-term debt obligations, which restrict their ability to properly channel net and operating margins into shareholder returns. With slow revenue growth coinciding with long-term debt obligations, both companies are at high risk, especially in the scenarios marked by economic slowdowns. However, a key advantage for both businesses is their asset-light model, which mainly relies on franchised instead of owned properties.[(Trefis Team, 2021)] [(Trefis Team, 2021)]
5.3.IHG
IHG is another giant chain of hotels with more than 6000 properties worldwide. The number of properties for IHG is slightly lower than both Marriott and Hilton. While both hotel chains compete closely on customer experience and loyalty programs, Hilton has a fair advantage in empowering customers thanks to its diverse portfolio of brands. Hilton has tailored solutions for guests, such as family travellers, single-person, and corporate guests. While IHG is also striving to improve on diversification, its plans to capture the needs of business travellers are still in their initial phase.[(IHG Annual Report, 2021)] [(Annual Report, 2021)] [(IHG Annual Report, 2021)]
Like Hilton, IHG has also recovered speedily from the detrimental implications of COVID-19. For instance, the company’s profits rose to $361 million within the first six months of 2022, significantly higher than the $138 million recorded in the previous year’s first half.[(Mayling, 2022)]
The flagship brand of IHG has a higher market share, recorded at 11% in the global market compared to 7.8% for Hilton Worldwide. IHG also pursues an aggressive growth strategy and tends to expand its presence into potential markets. While IHG and Hilton Worldwide have a near tie in several aspects, Hilton Worldwide has a substantial lead in value that it draws from its history and legacy. While Hilton has a deep and bright history of success, enabling it to effectively unleash emotional appeal, IHG is an emerging name in its 20th year since its inception at the time of writing this. Hence, IHG can’t earn the status of pioneer or trendsetter that has been the hallmark of Hilton Worldwide.[(IHG Annual Report, 2021)] [(IHG Annual Report, 2021)]
Competitive Advantage of Hilton Worldwide
After comparing the above, it is evident that there is a range of points of parity and difference. The points of parity (POP) refer to the qualities a business must possess to ensure its competitiveness and alignment with industry standards. On the other hand, a point of difference (POD) is where a firm or business differentiates itself and stands apart from the rest.[(Daft & Armstrong, 2005)]
5.4.POP for Hilton Worldwide
Hilton Worldwide ensures appealing ambience, speedy service, tech-integrated servicescape, and a competitive loyalty program. These features are highly demanded throughout the industry, and compromise on any of these features will cause brand equity and recognition to suffer.
5.5.POD for Hilton Worldwide
Hilton’s Worldwide’scritical competitive advantage resides in its diversity of brands. The company, with its 18 luxury brands divided into upscale, midscale, and upper-midscale, is poised to capture customers’ needs from a wide range of demographic, psychographic, and geographic segments. While most brands will compete on either one or a decent combination of features, Hilton Worldwide combines a vast number of features, thereby ensuring a comprehensive package. Besides, the company’s unique selling proposition draws much of its strength from the rich and deep history of the brand over more than 100 years.
5.6.Intensity of competition
While Hilton has the edge over its competitors in certain aspects, it is challenging to sustain that edge since the intensity of competitive rivalry is exceptionally high in the industry. Renowned brands such as Marriott and IHG compete against Hilton, using aggressive marketing tactics with an ever-increasing focus on social media and traditional marketing sources. The competitors are also active in capturing opportunities for growth and expansion. Despite being relatively new names, the competitors have almost caught up with Hilto...