Factors Influencing Five Forces

Finding the Attractiveness of the Hotel Industry using Porter’s five force model
Factors Influencing Five Score out Reasons

forces of 5
THREAT OF NEW ENTRANTS
Economies of scale 2  Upscaling takes time.
 Huge capital required for expansion.
Capital requirements 2  Initially capital requirements are very high.
 Very high fixed assets to current assets ratio.
Product differentiation 3  Hotels offer differentiated services ranging from
luxury to economic hotels and also services like
F&B, Lodging.
 But the Competition is fragmented and
insignificant.
Switching costs 3  Switching costs are very low between hotels.
 Little customer loyalty is gained by issuing
memberships and corporate agreements
Access to distribution 4  The Raw materials required for industry are very
channels easily available and are procured by Tender
procedure.
 Vendors Who can supply multiple products
emerged which is a positive sign
Costs independent of scale- 3  The costs are dependent on the purchase of raw
knowhow, access to raw materials, type of location, subsidies provided.
materials, location, subsidies,
experience curve
Govt. policies-licensing, 4  Govt. Policies such as tourism & Make in India

access to raw materials are a good sign for the industry
 But licenses are required for a new player
 It easy for an already existing player to get all
the approvals within a short span as they are well
versed with the procedures.
INTENSITY OF RIVALRY
Equally balanced 4  Players of different sizes are present.
competitors  The exit barriers are high because of which firms
stay in the business and try to expand market
share
 Too many rivals make it difficult to desired
occupancy rate
Slow industry growth 4  Industry growth is slow as Hotel Industry is of
Monopolistic market structure.
 Potential Markets in the metropolitan and tourist
places are already captured so new players wont
have a high growth.
High fixed or storage costs 1  Fixed Costs are extremely high.
 Fixed costs are majorly in terms of
infrastructure.
No differentiation- 4  Differentiation in terms of rooms, banquets etc.
commodity
Large Capacity Addition 3  No one has overcapacity which would reduce the
because of economies of demand of other but there may be some
Scale differences in the no.of rooms available.
Diverse Competition 2  Not very Diverse competition so intensity of
rivalry is high.
High strategic stakes 2  strategic stakes are high. Like Blue Dart DHL
are kind of image of the industry.
High exit barriers 1  Exit barriers are high because of huge capital
investment.
Shifting rivalry-M&A 3  Because of M&A, number of players are
decreasing which reduces rivalry
THREAT OF SUBSTITUTES
Function of collective 2  Substitues such as OYO, airbnb, motels,
industry action apartments which make it less attractive to
invest.
Price-performance trade-off 2  Services and prices are directly propotional to
each other.
Produced by industry NA
earning high profits
BARGAINING POWER OF BUYERS

Buyers purchase large 5  This is not possible as the service like room
volumes relative to Sellers’ occupancy, food and beverage, lodging are fixed
sales and buyers can purchase or use only based on
the availability.
Products purchased by 4  They do not constitute significant portion of
buyers constitute a their operating cost as the operating costs are
significant portion of their lower for the industry compared to the capital
total operating costs costs.
Few switching costs 3  Switching costs are low so bargaining power of

buyers increases.
Earn low profits 2  Earn low profits because of which bargaining
power remains low and the overall industry is
making losses.
Possibility of backward 2  Costs of backward integration are high
integration
Industry’s product does not 4  The main product of the hotel is the rooms and
affect quality of product or its quality is most important for customer
service of Buyer satisfaction
 Other than rooms, food, room service, house-
keeping and transportation facility is also
important
Products are standard and 2  Not much differentiation. However,
undifferentiated differentiation could be achieved in terms of
cuisine offered or additional services. But the
basic product is same throughout the industry
BARGAINING POWER OF SUPPLIERS
Supply dominated by few 4  There are large number of suppliers procured
companies with tender procedures.
No competition from 4  There are competition from substitutes like

substitutes OYO, Airbnb
Industry is not an important 3  Industry is an important segment for those
market segment suppliers who provide raw materials and also
man power requirement is very high.
Product supplied is an 3  Raw materials for F&B and for lodging form a
important input to industry major part of hotel expenses.
Supply products are 1  Suppliers products are not much differentiated.

differentiated or it has in-  Switching costs are low.
built switching costs
Suppliers can forward 4  Suppliers do forward integration in the hotel

integrate industry.
Score Attractiveness
Above 120 Highly attractive
100-120 Mid attractive
80-100 Unattractive
Less than 80 Highly unattractive
Total = 90
According to the Porter’s Five force model, Courier Industry is Unattractive.

Factors Influencing Five Forces

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Factors Influencing Five Forces

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Finding the Attractiveness of the Hotel Industry using Porter’s five force model

Factors Influencing Five Score out Reasons

Govt. policies-licensing, 4  Govt. Policies such as tourism & Make in India

BARGAINING POWER OF BUYERS

Few switching costs 3  Switching costs are low so bargaining power of

No competition from 4  There are competition from substitutes like

Supply products are 1  Suppliers products are not much differentiated.

Suppliers can forward 4  Suppliers do forward integration in the hotel

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