This report is aimed at analyzing the various ways through which Sheraton Hotel and Resort creates and adds value in its operation.
Background to the study
According to Barnes (2006, p.38), value addition refers to the various strategies that an organization undertakes in an effort to improve the products and services it offers to its customers. Value addition provides customers with extra benefits after consuming products of a certain company, especially when their needs are satisfied. It is important to mention that when a business develops products which match the specific needs of its consumers, the demand for the products increases and consumer loyalty is developed (Irene, 2008, p. 99). Therefore, by delivering value to its customers, a firm is able to develop a higher competitive advantage relative to its customers. Various value creation strategies are applied in organizations to achieve competitive advantage and long term sustainability of an organization. The management of an organization must ensure that all stakeholders benefit from the value-added activities. For instance, adding shareholder value increases the capital base of an organization because investors benefit from better returns obtained by increased sales. In addition, creating appropriate financial policies, better capital structures, and other strategic measures can add value to the activities of an organization both in the short term and in the long term (Schermerhorn, 2010, p. 2009).
According to Michael Porter who is a renowned scholar, there are various activities through which a firm can add value in its operation. Porter categorizes these activities into 2 categories, that is primary and support (Lai & Cheng, 2009, p. 44). The primary activities include outbound and inbound logistics, operations, marketing and service. On the other hand, the support activities include procurement, human resource management, and infrastructure and technology development. Through these activities, it is possible for a firm to position itself optimally in the market (Cristol & Sealey, 2000, p. 56).
Over the past three years, various industries were affected by the economic recession. One of these industries is the hotel industry. This led to a decline in the firms ‘level of profitability. However, this trend is likely to improve in 2011 with the recovery of the global economy. This will lead to an increment in the level of competition amongst firms within this industry. Since its inception in 1937, Sheraton Hotel and Resort have been very successful. The firm has managed to expand its operation to 55 countries. The firm’s success is associated with its emphasis on value creation. The lucrative nature of the industry has led to a large number of new entrants leading to an increment in the level of competition. Therefore, it is vital for firms in this industry to consider incorporating the concept of value creation and value addition (Scoop Business, 2009, para. 1). Their value addition activities should not only include internal activities but also external activities. In its operation, Sheraton Hotel and Resort has laid more emphasis on innovation as one of its core external value addition activity.
Findings and Analysis
Adding value through modeling customer satisfaction
Huse (2007, p.7) argues that the aim of every firm is to create value in its operation. This arises from realization of the fact that creating value can contribute towards the firm attaining its profit maximization objective (Duam, 2003, p.310). In addition, some scholars are of the opinion that making value creation to be a priority in the firm’s course of operation is paramount. John (2003, p.106) asserts that this will ensure that all the employees’ activities are focused towards value creation culminating into a high level of customer satisfaction.
According to Hesselbach and Hermann (2007, p.88), consumers’ behavior towards consumption of a particular product or service is determined by the value he/she expects to attain through consumption of the product. This is in line with the means-end theory that postulates that consumers develop a conception on suitability of a particular product or service on the basis of three elements (Rao, 2006, p. 36). These include the attributes the set values and the utility expectations. In this case, attributes refer to the quality of the product or service. The chart below illustrates the process through which the customer attains satisfaction through acquisition of the expected value.
Additionally, John (2003, p.106) is of the opinion that firms management team are also required to conduct continual evaluation and monitoring of the desired customer value. This arises from the fact that customer value is dynamic and hence the need to adjust to these changes so as to sustain the created competitive advantage.
Adding value by the organization’s services delivery strategy
Woodruff and Gardial (1998, p.7) defines a value delivery strategy to include the various decisions that a firm undertakes in ensuring that the customers attain value. To attain this, it is important for a firm’s management team to understand the value that the customers require. Woodruff and Gardial (1998, p.7) assert that customer value is not mainly inherent in the particular product or service that a firm offers but in the experience that he or she receives after consuming the product. Value delivery strategy is composed of five steps as illustrated in the chart below.
Adding value by the process of planning customer value delivery strategy
Therefore, the first step in delivering value to the customers is identifying it. In order to create value effectively to the customers, it is important for a firm’s management team to conduct a comprehensive market research. The research should be focused on the customers as the main marketing variable. Market research should enable a firm to analyze the customers’ wants and needs comprehensively. According to Webb and Gorman (2006, p.137), one of the mistakes that undermine the effectiveness of a market research is failure to analyze the customers’ values. In an effort to align itself with the customers’ requirements, Sheraton Hotel and Restaurant has instituted a comprehensive market research with regard to the various business environments that include the legal, social, economic, political and technological environments (Choi, 1999, p. 4). The research is aimed at learning the environment in which the company operates in. This strategy has improved the understanding of the needs of customers with the aim of delivering high value services and products to customers. Market research has also helped the management identify the potential and viable markets in the global scene.
According to Pizam (2005, p.656), technological innovations have revolutionized the hotel industry. In addition, Enz (2010, p.18) suggests that managers should be alert to the technological changes occurring within the business environment. This way, the firm will be able to take advantage of the emerging technologies. Enz (2010, p.18) further asserts that consideration of technological advances is important if a firm is to create value to its customers.
Adding value by improving the physical environment
Sheraton Hotel & Resort has established value creation strategies to improve its processes. This has been integrated in all processes of the company such as the outsourcing of supplies, services offered to customers and the management of human resources. In addition the company has improved its physical environment to ensure that it conforms to corporate social responsibility. The company has created processes to ensure that the physical environments conform to the legal systems, political, technological and social systems. The processes of the company have added value to the company by enhancing smooth operation of activities. The company has achieved better market position due to its adherence with the requirements of the society and customers.
Findings of a market research conducted by the firm revealed that there is an increment in demand for fast Internet amongst travelers especially the business travelers to enable them transact electronically at their hotel rooms. In addition, other customer categories also required a fast Internet connection so as to be network with others individuals in a more reliable manner at the comfort of their rooms. For example, the company installed free internet access in China to improve the global strategy of attracting customers from different parts of the world. The company was able to position itself strategically in the world by the use of online marketing (Kluyver, 2010, p.123). The increase in demand is illustrated by Whiteling (2010, para. 5) who assert that travelers who patronize various hotels and resorts are increasingly demanding the service of a world-class Internet services.
In an effort to create value to its customers through incorporation of information technology in its infrastructure, Sheraton Hotel and Resort has undertaken an extensive investment in information technology with regard to Internet technology. The firm instituted a free high-speed Internet within all its premises located in California, Culver City, Monrovia and Rafael. The firm achieved this by outsourcing the services of IT Global Solution that specializes in installing Local Area Networks (LAN) and the associated wireless LAN. IT Global Solution installed an Internet network which met the specifications of Sheraton Hotel and Resort.
Apart from provision of the Internet, Sheraton Hotel and Resort also provides other support technologies. According to Woodruff and Gardial (1998, p.9), value delivery strategy should also incorporate the related support services. The support services increase the probability of a firm developing customer satisfaction. As one of the support services, the firm offers internet security of its customers. This was achieved by IT Global Solutions selecting D-Link Wireless Access Points as its security mechanism due to its ease of configuration and its strong security features. The firm ensures that customers can access internet in various parts of the hotels such as the guest rooms, conference rooms, game rooms and lobbies. To ensure that there is no unauthorized usage, the firm has implemented D-Link DSA-3100 Hot Spot Gateways that ensures that those accessing the internet are only the authenticated. This prevents the firm from losing value (Woodruff & Gardial, 1998, p.9).
Through the Internet, customers attain a unique experience through provision of a secure hotspot network, which enables their information to remain confidential. Sheraton Hotel and Resort has been able to create value and meet the demand of business travelers who patronize the firm. The resultant effect is that the firm has been able to create a high level of customer satisfaction (Woodruff & Gardial, 1998, p.9).
Woodruff and Gardial (1998, p.9) assert that a firm’s management team should not assume that the customers are aware of the value it is offering through its products and services. However, the firm should take the initiative of ‘communicating the value’, which the customers expect to achieve upon consuming its products. In order to create awareness regarding its development, Sheraton Hotel and Resort has integrated an aggressive marketing campaign program. The aim of the campaign is to create awareness regarding the new technological development within the firm (Woodruff & Gardial, 1998, p.10).
Creating market awareness plays a significant role in attracting and retaining customers within the firm. Doole and Lowe (2005, p.211) are of the opinion that brand awareness contributes towards improvement of a business’ brand image. According to Doole and Lowe (2005, p.211), customer brand knowledge is vital in enhancing brand value. In order to create value through marketing, it is important for a firm to be committed in its integrated communication strategy. Integrated communication campaign entails undertaking product or service promotion through various methods such as advertising, sales promotion, public relation amongst others. This ensures that a large number of customers learn about the intended value (Craven, 2002, p. 124).
The final step in value delivery strategy is assessing the value. This entails monitoring how the intended value is being implemented. Assessing the value also includes evaluating the level of customer satisfaction achieved. For example, the firm can conduct a post purchase evaluation to determine the perceived value of its service or product in comparison to that of a competitor. Additionally, value evaluation also includes identifying the consumers’ complaints regarding its services. This will aid in identifying areas, which should be improved (Woodruff & Gardial, 1998, p.10).
To be effecting in assessing the value created, Sheraton Hotel and Resort has implemented the concept of Consumer Relationship Management. This has been made possible through integration of CRM software which enables customers to post their opinions regarding the firm’s operation to the management. Other strategies that can be used to assess value delivery include analyzing the firm’s market share, sales volume, and profitability (Woodruff & Gardial, 1998, p.10).
Advantages of the value delivery strategy
By incorporating hotspots within the hotel premises, there is a high probability of the firm increasing its occupancy rate. Currently, potential customers inquire whether a particular hotel or resort provides Internet services before booking in. If the answer is no, then the firm loses a potential customer. Provision of the Internet increases the guests’ satisfaction. According to a report by Farpoint Group (2006, p.1), a significant number of business travelers enjoy the services of a convenient and fast Internet at hotels. Despite the fact that implementation of fast Internet is costly, the benefits cannot be downplayed. For example, increase in occupancy rate will culminate to an increment in the hotels level of profitability. Access to fast internet can also encourage customers to spend more time within the hotel. Through the fast Internet, it is also possible for the firm to promote other services to its guests. This can be done through the customized hotspot screens.
The strategy of providing internet services will also improve customer loyalty. This means that customers will be willing to rebuy products and services from the company. Repeated purchase behavior is encouraged by offering high value services to customers. The internet services will encourage customers to buy more products of the company. Increasing customer loyalty will increase the profits made by the company. Therefore, the competitiveness of the company will be improved because the customer base will be high (Salver, 2006, p. 64). With the high level competition in the hotel industry, Sheraton Hotel & Resort will achieve a better market position.
Disadvantages of the value delivery strategy
Despite the benefits of the above value delivery strategy, there are some challenges that remain open to the firm. For example, the firm will be required to readjust its business model so as to cater for the investment required. In addition, provision of the free Internet through outsourcing means that new stakeholders to the firm will emerge. These stakeholders need to be integrated in the firm’s business model (Farpoint Group, 2002, p.1).
Farpoint Group (2002, p.2) asserts that there are security risks associated with wireless hotspot. Despite the fact that incorporation of appropriate safeguards in the Internet network can protect business personnel, a considerable number of customers risk their systems and data through the hotspot Internet. For example, sharing data using LAN may lead unencrypted packets. In addition, using a public LAN can be risky to the firm. This is due to the fact that there is a possibility of the Internet being used by competitors or other individuals to attack the firm’s network. Farpoint Group (2002, p.3) is of the opinion that hotels can be potential venues through which individuals interested in hacking traveler’s confidential data can use. In most cases private Local Area Networks use firewall to protect users against internet-borne attacks. However, hotel LANs have got topologies that vary widely.
Value creation especially in the service industry can contribute towards a firm’s long-term success. The high rate of competition within the hospitality industry requires firms in the industry to develop a high competitive advantage. There are a number of ways through which firms can achieve this. Some of these relate to primary and support activities. In order to attain a high competitive advantage through value addition, firms need to concentrate on both internal and external value creation activities. Some of the external value creation services include incorporation of emerging technologies.
In its operation, Sheraton Hotel and Resort has been able to develop a high competitive advantage through improvement of its infrastructure. The firm has attained this by offering free fast Internet to its guests. Decision to incorporate the fast Internet arose from an increment in demand for Internet services amongst travelers. The Internet service has enabled the firm to attract and retain a large number of customers. The flexible Internet provides the customers a unique experience. As a result, they are able to derive value hence attaining their desired utility. Some of the benefits, which a firm can attain through value creation, include increment in its profitability potential as a result of increase in the volume of its customer base. However, firms should also institute mechanisms to deal with the possible drawbacks of value creation.
For Sheraton Hotel and Resort to be effective in value creation, it is paramount for the management team to consider the following.
- Continuous market research should be conducted. The research should focus on both the competitor and the consumers. Consumer market research will enable the management team to identify the most desired value amongst the customers. As a result, it will be possible to formulate its value delivery strategy. The competitor market research will aid the firm compare its value creation with that of its competitors.
- Additionally, the firm should evaluate and monitor the effectiveness of its value creation strategy. This will enable the firm to determine whether it is contributing towards attainment of its profit maximization objective. As a result, it will be possible to make necessary adjustments.
- Prior to implementing its value creation strategy, a firm should ensure that all the possible drawbacks that would limit its ability to attain the desired objectives are eliminated.
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