Chapter 6

Locating the offer

Chapter objectives Identify the main classes of hospitality locations

Research the characteristics of potential sites using relevant criteria

Evaluate the components of a destination’s image

Understand how hospitality companies work with destination marketing organizations

Introduction Location has a critical influence on the selection of

target markets and on potential demand

Finding suitable location(s) is a prerequisite for managing a profitable hospitality company

The famous quotation attributed to Conrad Hilton, who defined the three most important factors for success in the hotel business as ‘location, location, location’ remains valid today

Importance of location

For owners, location choices have major capital investment and long term consequences

When the agreement to buy a site or rent premises is finalized, it is difficult and costly to change the decision – the location is fixed

An appropriate site will have the necessary characteristics to ensure strong demand for the product concept

Hospitality chain expansion

Theory of location strategy has primarily been developed for multiple retail shopping outlets; however, the principles are applicable to hospitality operations

Multiple-site hospitality operators have dramatically expanded their network of outlets in the recent past and plan to continue to expand

This expansion is driven by the need to: grow the business (sales and profits) to satisfy shareholders’

expectations locate where customers need to stay or dine be where competitors are located

If your brand is not located where your customer wants to stay or dine, then you might lose that customer forever to one of your competitors

Development routes for network expansion

There are three options for network expansion:

Acquisition – companies buy a group of hotels (or restaurants), and/or independent hotels, and re-brand these properties. This is the most convenient, proven and popular approach; however, there often are issues of ensuring brand conformity between the newly acquired properties and the company’s international brand standards

Conversion – companies buy an existing property (e.g. an office block, high-rise flats or warehouse) and convert the property into hotel (or restaurant) premises. This is much more time-consuming and expensive. Softer hotel and restaurant brands with more flexible approaches to brand standards can convert premises more easily than harder hospitality brands

New-build development – companies purchase land and build their own property to their own design specifications or to the design brief of the designated brand (subject to planning controls). For hotels, this can be more time-consuming than acquisition, but the advantage is that the brand standards are delivered from the moment the property opens. For fast-food operations, a common option is to acquire a site and erect a purpose-built unit constructed from modular components

Attraction and deterrence

Each hospitality unit’s location possesses a bundle of attraction and deterrence factors, which determines the flow of customers to the property – and the potential demand

Attraction factors might include a large number of business and retail facilities in the area

Deterrence factors might include travel times and inadequate local transportation

The balance of attraction and deterrence factors accounts for variance in customer flows to different hospitality sites

Classes of location

Capital city Provincial city Gateway Highway Resort Rural Honey-pot

Researching locations

The three levels of spatial analysis in researching locations are:

Market selection – decisions analyse the geo-demographic and socio-economic characteristics of a geographic region or country; including the current situation, examining trends and projecting future conditions

Area analysis – focuses on the characteristics of specific local areas within a region

Site evaluation – examines local demographics, traffic flow and accessibility, individual competitors and the attractiveness of specific sites

Market attractiveness

Evaluation of market attractiveness uses demand analysis and competition analysis. Key data includes:

visitor arrivals, visitor mix (by country) and visitor spend host population and demographic statistics economic statistics hospitality industry operating performance benchmarks

The attractiveness of a market will depend on the potential demand from the selected target markets and the intensity of competitor rivalry

Figure 6.1 A typical example of the data used in a Europeandevelopment strategy for a major international hotel group

Site selectionSites can be categorized as follows:

P rime – these sites are the best locations. They are in high demand and can be difficult to acquire (because most are already in the hands of existing operators), and expensive to maintain

Secondary – these sites are not prominent but are still reasonably accessible. Most hospitality units are in this category

Tertiary – these sites are less accessible and may have other deterrence factors, for example, being close to a truck stop or an industrial estate

Factors influencing individual site selection include the following:

local demographics and the characteristics of neighbourhoods accessibility, pedestrian and vehicle traffic flows and car parking Competitors: the number, size, quality, prices and occupancy of branded

and local competitors provide an insight into the local marketplace individual site characteristics, which include the size, landscape, adjacent

buildings, aspect (south or north facing)

Location decisions Location decision theory assumes a high element of

rational decision-making, but historically, hospitality companies have expanded opportunistically

The hospitality brands with multiple units and growth strategies use computerized attraction/deterrence models to aid location decisions

Despite all the research, some location decisions are based on ‘gut feelings’ and instinct – especially independent operator’s decisions

Destination marketing Destinations are complex products because they:

exist across a wide spectrum of different geographic levels – continents, countries, regions, cities

have layers of administrative bodies responsible for the development and promotion of tourism, and roles and responsibilities can be confused, diffused and, in some cases, duplicated

comprise physical characteristics (the natural landscape and climate), which obviously cannot be changed in the built environment

present deep-rooted cultural and historical heritages, which influence the character of local peoples and the visitor experience

incorporate all the components of the tourism product – hospitality operations, transport, travel, intermediaries, attractions

and there is no single owner of the tourism product

Destination image The image of a destination is a crucial component in

today’s competitive tourism market

A destination’s image is a mixture of the following:

inherited physical attributes the built environment the cultural and historical heritage myth the people

Destination marketing organizations

Destination marketing organizations (DMOs) can be

Government funded, a private company or a combination of

the public and private sectors. Their primary role is to: carry out marketing research and provide

market intelligence for stakeholders monitor visitor statistics and trends coordinate marketing campaigns and in

particular promotional activity build and maintain destination websites liaise with intermediaries provide tourist information for visitors before

and during visits manage the brand image of the destination

Conclusion

Location decisions are a major investment with long-term consequences Thorough research needs to be undertaken to evaluate the potential demand and

competition in a location Major hospitality companies will use computerized models to evaluate site selection

decisions, whereas entrepreneurs may use their ‘gut instinct’ to choose an appropriate site

The three levels of spatial analysis in researching locations are: geographic market selection, area analysis and site evaluation

There are a wide range of criteria used by hospitality companies to evaluate the market potential of locations

Tourism destinations can be categorized under the headings: capital city, provincial city, gateway, highway, resort, rural and honey-pot

Destinations are complex products with a host of public and private stakeholders Destination image has a major impact on tourist destination selection Hospitality organizations work with DMOs to market the destination effectively

Further reading Butler, R. W. (1980). ‘The concept of a tourist area cycle of

evolution: implications for the management of resources’. Canadian Geographer, 24, pp. 5–12.

Ghosh, A. and McLafferty, F. L. (1987). Location Strategies for Retail and Service Firms. Lexington Books.

Heizer, J. and Render, B. (2008). Operations Management. Pearson Prentice Hall.

Jones, P. (1999). ‘Multi-unit management in the hospitality industry: a late twentieth century phenomenon’. International Journal of Contemporary Hospitality Management, 11 (4) , pp.155–164.

Middleton, V. T. C. and Clark, J. (2001). Marketing in Travel and Tourism. Butterworth-Heinemann.