Intercontinental Hotels Group (IHG) is a luxury brand in the global hospitality and resorts industry. The group, which has its headquarters in Denham, the UK, leases and operates 5,603 luxury hotels and brands in over 100 countries (IBISWorld, 2020). IHG’s primary operations are in the Americas, Asia Pacific, Europe, and Africa. Through its major brands, including InterContinental and Holiday Inn, it provides accommodation and dining services and corporate events. IHG’s revenue in 2019 was US$4,627, a 6.7% rise in its 2018 earnings (MarketLine, 2018). This hotel chain has diversified products, market segmentation, and revenue streams.
The objective of this paper is to develop a marketing plan for IHG’s China segment. An economy brand is proposed to increase its market share in this location. The Chinese market, competitive landscape, and IHG’s products and services are reviewed in this paper. A SWOT analysis is also completed to identify the company’s major strengths and weaknesses as well as opportunities and threats to its business growth.
The paper is limited to IHG’s Chinese operations and opportunities for growth into the economy segment. The review of IHG’s market and competition and SWOT analysis is based on recent information and data.
The Method of Investigation
The discussion is based on extensive secondary research focusing on trends in the global and Chinese hotel market. Various information sources are analyzed, such as industry reports. IHG’s annual reports and website are also used as sources of data and information about its brands. Additionally, articles analyzing useful marketing strategies and operations in the hotel sector are used.
Body of Analysis
The global hotel industry experienced years of strong growth until 2020, when the COVID-19 pandemic caused a sharp drop in revenue. In 2018, the industry’s value was €444.3 billion, with 18 million rooms on offer (Intercontinental Hotels Group [IHG], 2018). The Americas, especially the US, constitute the biggest hotel market by the number of lodging rooms, followed by Europe and China. Economy hotels are a fast-growing segment due to lower operational costs (Pedruco, 2019). China’s domestic tourism sector is growing, increasing the demand for lodging facilities. The main local economy brands include Home Inn and Shanshui, while multinational chains are Ibis and Super 8 (Pedruco, 2019). The economy product’s key features are large networks, accessibility, low room rates, and value-for-money proposition.
The hotel and resorts market is a highly competitive environment. The high demand for economy products has fuelled the growth of brands in China. Economy-branded hotels in this market involve a three-tier structure based on the capital source. National brands that will compete with IGH in the budget segment include Home Inn and JJ Star (Yang and Cai, 2016). The competition will also come from regional economy hotels, such as Shanshui, and international players, including Ibis. IHG’s other competitors include online booking sites, travel agents, and home rental companies. Competition is based on price, value for money, and service quality.
Product or Service Review
IHG’s products fall mainly in the upscale and luxury hotel segments. The group offers 12 top brands, including Regent, Holiday Inn, and Indigo, which serve upmarket clients (IHG, 2018). In recent years, IHG added HUALUXE, a luxury brand custom-designed for the Chinese market, to its list. The product categories in the budget hotel segment include lodging, check-in/out, food, drinks, and entertainment (Luo, Huang, and Wang, 2020). The service provision also entails online reservations or room bookings.
Strengths, Weaknesses, Opportunities, and Threats
IHG’s strengths lie in its strong liquidity position, extensive operational network, and robust luxury segment performance. Its current assets in 2018 rose by 59.1%, increasing its working capital and cash position in the market (IHG, 2018). IHG’s operational network is characterized by diverse brands and geographical segmentation. It offers 12 different branded products and operates in over 100 countries through franchises, ownership, and leasing, ensuring a large client base (IHG, 2018). IHG’s main weaknesses are its high operational costs relative to the industry’s average and over-dependence on the Americas – account for 42% of its revenue.
Opportunities for further growth exist in the economy hotel market. Strong demand for tourism after the COVID-19 pandemic is likely to increase budget room bookings. Also, IHG has expansion opportunities to holiday destinations and resorts in new destinations through franchise agreements. Threats to IHG’s operations include the rising labor costs in China, cultural and language differences, and unforeseen circumstances that affect leisure travel, such as the COVID-19 pandemic. Intense competition in the budget hotel segment will also impact market share and profitability.
Goals and Objectives
Mission and Vision
IHG’s mission is to build great brands that guests love, while its vision is becoming the world’s greatest hotels. For the 2019-2020 period, IHG will expand its franchise offerings in the Chinese market to the budget segment. IHG’s vision is the Great Hotel Guests Love, which means its products and services are tailored to diverse experiences to win the heart of clients (IHG, 2018). The guest love is central to the IHG’s reputation as it enters the economy segment.
- Increase bookings by €5 billion in the third quarter or Q3 (October-December 2020), with €3 billion as expected profit from its Chinese budget brand.
- Grow total room earnings from franchised Chinese economy hotels by €15 billion in the 2020/21 financial year, with €7 billion as expected profit.
- Increase the order value by 40% through direct booking campaigns – online presence.
- Raise metasearch reservations by 30% through mobile-friendly booking application.
As a holdings company, IHG has not engaged in hotel operations but rather owns investments or firms that provide those services. The Chinese budget segment strategy entails creating a strong presence in smaller cities and providing complementary booking services such as telephone bookings (Richard, 2017). IHG can include fee-based (franchise), owner-operated, and leasing models to expand to the economy segment.
IGH’s differentiated brands target diverse market segments or income groups. The average price for a room in Chinese economy hotels is $30 (Li et al., 2020). IHG, being an international brand, can offer higher rates but include free internet service in the package. The price should be changed according to location or season.
IHG operates in over 100 countries globally, with most of its operations being in the Americas. In order to provide competitive rates, IHG’s economy brand should be located in suburban areas, not upmarket locations. According to Subramanian, Gunasekaran, and Gao (2016), railway or subway stations and shopping complexes in cities are the best places to locate economy hotels. IHG’s budget brand should be established in locations with surrounding leisure support or businesses.
IGH can use technology (website and social media) to market its economy products efficiently. Direct online booking can help enhance branded experience and repurchases (Ren et al., 2018). Other IHG’s promotional strategies include word-of-mouth (personal selling) and travel agents to connect low-income customers to its budget brand.
IHG’s employees are the source of the firm’s strategic advantage in its industry. It can hire and train the local workforce to address cultural and language barriers to its growth in China. Friendly, efficient, and hospitable employees would also ensure good public relations and brand reputation.
IHG will achieve cost efficiency and effectiveness in its Chinese operations by adopting its global standards. Established processes for routine tasks will ensure quality services at minimal costs (Ren et al., 2018). IHG economy hotels can use standardized operations management and guidelines for its economy customer service.
For IHG, the physical infrastructure is a source of strategic advantage. As an economy brand, the company can invest in modern low-cost architectural designs, quality amenities, and technology to achieve operational efficiency. The décor and interior designs of the rooms should be simple and tailored to Chinese tastes and preferences.
IHG should position itself as an economy hotel brand that offers value for money. It should promise to offer quality, branded experience at competitive prices. The focus should be on amenities and services designed for the budget clientele in top destinations in China.
Action Plan and Implementation
The proposed sales and marketing goals are achievable, as there are different approaches to influencing success. One way to attain the objectives is improving rate parity with online travel agencies (OTAs) to increase bookings by the middle class in Europe, Asia, and the Americas. Other proposed approaches are investing more in digital marketing through social media platforms to gain additional traffic and adopting direct booking and customer relationship management apps to ensure customized reservation experience and efficiency. The time-frame for achieving these goals is November 2020 to October 2021. The budget projected for digital marketing and implementing booking tools is €150 million. IHG’s Global Corporate Affairs executive (Yasmin Diamond) will be responsible for renegotiating contracts with OTAs, while the Chief Commercial and Technolgy Officer (Eric Pearson) will oversee technology developments.
Success in achieving the two sales objective will be measured by a rise in direct bookings and the number of budget room packages sold in Q3. Progress towards achieving the marketing goals will be tracked based on website conversion rates and bookings made through newly developed apps in Q3. The broader objective is improving profitability per guest and overall revenue in the 2020-2021 period.
The economy hotel segment in China is the fastest-growing sector and an expansion opportunity for IGH. The mass domestic travel and cultural tourism underpin its growth. For new entrants into this sector, the focus should be on service quality, innovative features (online booking), and local workforce training to address cultural gaps and meet customer needs. IHG can perform very well in the economy segment owing to its strong liquidity and large operational network. Suggestions for future competitiveness in this sector include investing in online reservations to reduce revenue loss to OTAs and offering standard facilities – rooms with internet.
IBISWorld. (2020) Global hotels and industry trends: market research report.
Intercontinental Hotels Group. (2018) Annual report and form 20-F 2018.
Li, L. et al. (2020) ‘The spatiotemporal evolution and influencing factors of hotel industry in the metropolitan area: an empirical study based on China’, PLoS ONE 15(5), e0231438.
Luo, J., Huang, S. and Wang, R. (2020) ‘A fine-grained sentiment analysis of online guest reviews of economy hotels in China’, Journal of Hospitality Marketing & Management, 1-25.
MarketLine. (2018) InterContinental Hotels Group Plc – strategy, SWOT and corporate finance report. London: MarketLine.
Pedruco, B. (2019) Research and market: China hotel market report 2019-2023.
Ren, L. et al. (2018) ‘Investigating accommodation experience in budget hotels’, International Journal of Contemporary Hospitality Management, 30(7), pp. 2662-2679.
Richard, B. (2017) ‘Hotel chains: survival strategies for a dynamic future’, Journal of Tourism Futures, 3(1), pp. 56-65.
Subramanian, N., Gunasekaran, A. and Gao, Y. (2016) ‘Innovative service satisfaction and customer promotion behaviour in the Chinese budget hotel: an empirical study’, International Journal of Production Economics, 171(2), S0925527315003631.
Yang, Z. and Cai, J. (2016) ‘Do regional factors matter? Determinants of hotel industry performance in China’, Tourism Management, 52, pp. 242-253.