The original Travel Lodge brand was first established by its founder Scott King, in 1939 by opening the first motels in southern California. During its starting phase, it highlighted itself as a budget motel chain offering functional accommodation at lower rate than other lower chain by providing comfortable beds, free TV and room phones, carpeted floors, in-room coffee pots and pools.
Travel Lodge is fastest growing and most recognized budget Hotel Company in the United Kingdom. Travelodge currently has 466 hotels and 32,477 rooms in the UK, Ireland and Spain. The budget hotel chain has one goal is to have 1,100 hotels in Europe with more than 100,000 rooms in 2025. With 5,714 rooms and 40 hotels in the capital, Travelodge, the fastest growing hotel chain, has taken the title of being the largest brand from the Hilton hotel in London. This company was first lunched as first budget hotel brand in the UK in 1985 and is today one of the major branded hotel companies in the united kingdom with nearly 460 hotels. This chain is employing around six thousands staffs and more than seven million people stayed there in 2010 and more than eight seven booking are being made through online. Room rated start at ?19 per night, which is attracting the huge amount of customers. Travelodge is a brand champion of consumers; focus on driving prices in the hotel industry to encourage more people to use the hotels. Low prices of the chain budget delivered by commitment to operational efficiency and low cost business model. Only this year, Travelodge will offer over ? 2,000,000 rooms at ? 29 or less.
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Travelodge Heathrow Central 3 star hotel is situated on the Bath Road where most big Heathrow hotels are located. It’s actually in the far east of the airport perimeter which is about 2 miles from terminals 1, 2 and 3 in the central area and terminal 4 in the southeast corner of the airport. This situation is actually quite convenient for the West London / Central London as the right side of the A4 London airport. A normal journey by car / taxi in west London takes about 20 minutes and 30-40 minutes to central areas. This location travel lodge was established in 2008 with the aim of providing budget priced accommodation in the Heathrow area. There is licensed bar cafe where breakfast, lunch, snack, dinner and drinks can be purchased within the hotel.
1.1 Porter 5 forces analysis of Travelodge
Michael E. Porter of Harvard Business School developed a five forces framework for industry analysis and business marketing strategy development in 1979, which was aimed to increase the overall industry profitability.
As stated by porter (1980) “there are five forces that determine industry attractiveness and long-run industry profitability”. These five competitive forces are:
The threat of entry of new competitors (new entrants)
The threat of substitutes
The bargaining power of buyers
The bargaining power of suppliers
The degree of rivalry between existing competitors
This forces and their rivalry can be best understood by the following diagram:
Source: Porter (1980)
Force 1: The degree of rivalry
The intensity of the rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry that is dissipated through the head to head competition. The most valuable contribution of Porter’s five forces in the context of this problem may be its suggestion that rivalry, while important, is just one of several forces that determine industry attractiveness.
The degree of rivalry is very high because Heathrow area is the busiest area where around 50 star hotels are operating among them 16 hotels are 3 stars so, but Travelodge is competing with them with its cheapest budget 3 star hotel with high standard infrastructure and service. Premier inn is the one of the largest competitor having more rooms and facilities more than but Travelodge low price strategy and global largest chain playing the great role.
Force2: The threat of entry
Potential and existing competitors influence average industry profitability. Unless the entry of new firm is barred, the rate of profit will fall towards its competitive level. The threat of entry rather than actual entry might be sufficient to make sure that established firm constrains their price to the competitive level. By contrast, existing entry barriers whenever difficult or not economical feasible for an outsider to replicate the position of incumbents (Porter, 1980; Sanderson, 1998).
Threat of new entry is low as brands are very important in the hospitality industry. Travelodge use its name from a strong brand to attract new customers and retain old ones. Moreover, an economy of scale is also a very important factor inthis industry. The profitability of Travelodge is higher than the individual operations. A new entrant cannot compete with established players in terms of quality and price if they can achieve economies of scale. Being Travelodge, a capital intensive industry with a lot of it, tied in fixed costs, makes entry to most difficult. Protection of the Government for the tourism sector is very high and this in turn blends into the hotel industry and it is thus attractive industry in general.
Force3: The threat of substitutes
A threat of substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing industries. This category also relates to complementary products.
The main substitutes for the hotel industry are camping and recreational vehicles for tourists, corporate guest houses for business travellers and other informal means of accommodation with family and friends. Compared to the hospitality industry, these are much cheaper alternatives, so their prices very high values and switching costs very low. This makes the attractiveness of the industry in terms of substitutes, low. But, Travelodge is the one who is offering the high standard service at cheap price so the threat of substitutes is low.
Force4: Buyer’s power
The most important factors affecting the purchasing power are the size and concentration of customers. Other factors, the extent to which buyers are informed and concentration or diversity of competitors. Kippenberger (1998) states that “it is often useful to distinguish the potential buyer in the purchasing power of desire or incentive to use that power, readiness, which comes mainly from the risk of failure, associated with its use.
As far as the cheap price accommodation, there is low buyer’s power in case of Travelodge. Travelodge has numerous customers who are relatively very small in size. Loss of a single customer has little impact on it and finally this drives down the buyers bargaining power. Likewise buyer’s threat of backward integration is almost impossible and so is the company threat is forward integration.
Force5: suppliers’ power
The term suppliers include all the sources for inputs that are needed in order to provide goods or services. Basically the key suppliers of the hotel industries are; labour suppliers and real estate suppliers. All the suppliers in the market are defined as customers’ suppliers those who supply customers like travel agents, airlines companies, and other organisations where as property owners, infrastructure suppliers and housing and decoration are real state suppliers. Beside that labour suppliers have also key role to the company.
Overall, supplier power is low as customers suppliers is low as it is the budget chain hotel and get customers from its chain hotels along that its cheap accommodation is also the main customer attractiveness. About the labour suppliers they have also moderate power because of the huge number of labour suppliers so they is big competition between the suppliers, on the other hand due to the national legal policy, minimum wages has to be paid so unlike other countries, this company can’t hire the labour less than minimum wages.
The number of suppliers for the hotel industry is quite large and each supplier is very small compared to the leading players in the industry. Few powerful players are essential to the suppliers. Substitutability suppliers are also quite possible and affordable. Switching between estate agents is not going to affect significantly the company’s hotel. However, in terms of quality, training centres for workers and producers who provide ICT systems that for property management are relatively difficult to replace. Therefore, in terms of attractiveness of alternative suppliers of the industry is moderately high.
1.2 Porter 3 generic strategies
Porter’s generic strategy matrix, which emphasise the costs leadership, differentiation and focus based on three options for businesses, has dominated competitive firms strategy since Generic strategies were first presented in two books by Professor Michael Porter of the Harvard Business School (Porter, 1980, 1985). According to this model, a company can choose how to compete on the basis of match between the type of competitive advantage and objective market as the main determinants of choice. Porter, generic strategy typology remains a most notably in the strategic management literature. A business can maximize performance either by striving to be the low cost producer in an industry or by differentiating their line of products or services from other companies; either of these two approaches can be accompanied by a focus of organizing efforts in a particular segment market.
Travelodge business purpose is to provide its service for everyone by delivering low cost and maximum value for money accommodation to all customers and highly attractive, efficient and convenient stop-overs or stay-overs. Its overall strategy is cost leadership, this can be realised by its offer room starting from ?19, where as its more than 80% internet booking playing a key role to minimise its operational cost, as a result it has been possible to become cost leadership.
1.3 Value chain analysis of Travelodge
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The ‘margin’ depicted in the diagram is the same as added value. The organisation is split into ‘primary activities’ and ‘support activities.
Activities related to receiving the materials from the supplier, storing them externally sourced materials and handling them within the firm where goods are received from a company’s suppliers and are stored until they are needed on the production/assembly line is called inbound logistics. Travelodge ensures the right components are delivered to the right manufacturing point at the right time and they appoint their right supplier in time with certain terms and conditions, therefore the inbound logistics is good.
This section includes all the activities concern with the production of products and services. In case of Travelodge, it has been divided into three sections as reception, room service and food service. Its food service is delivered thorough its restaurant, it has its own business, there is no connection with residence and food like others star hotel. As far as the customers complaints found in blog, most of them are related to cleaning and security, so Travelodge is operation is not so good it’s just moderate.
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. These are all the activities related to distributing the final product or service to the customers. Travelodge has its unique outbound logistic system where they get customer from its travel agents, its own branches and its cheapest budget hotel policy. Because of its good outbound logistics system, travel is the one of the hotel chain, which didn’t suffer of last economic downturn.
Marketing and Sales
In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. In Travelodge, this area essentially analyses the needs and desires of customers and its responsible for creating awareness among the target group about the company products and services. Travelodge is using the marketing communication like advertising, sales promotion and cheapest budget hotel strategy to attract the customers to their products. By analysis its marketing and sales, it seem to be at good position, their e-marketing is excellent because of that Travelodge is saving its huge amount of money in advertising.
Travelodge subsidiaries are in throughout the world so it marketing of any part of the world to some extent affects company popularity. Recently, Travelodge has an advertising agreement with Google which is expected to enhance the sales. The new strategy has been created to differentiate Travelodge from competitors in hotel sector and to move its marketing focus beyond its cheap price.
New campaign the Sleep Tight will be a collection of cuddly toy animals going under the name Mr Sleep and the Z Squad. The marketing team is doing whatever is necessary to ensure a good night’s sleep and the first advertisement lunched on first may 2010. Travelodge launched a new TV advert in February 2011, featuring its famous Mr Sleep and his pal Big Ted. The 30 second TV ad featured the two teddy bears travelling around the UK, staying at various Travelodge hotels.
This includes all areas of service such as installation, after-sales service, complaints handling, training and so on. There is often required to provide services like pre-installation or after-sales service before or after the sale of the products or service. Travelodge is mostly focusing on its pre-installation service and less effort on after sales service so they are not handling their customer complaints.
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing and purchasing using IT and web-based technologies to achieve procurement aims. Procurement activities are running through a system, like purchasing goods is being done by the competition between the suppliers and IT infrastructure contact with big IT companies.
Technology is an important source of competitive advantage in Travelodge by using them to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. Travelodge is very good for using latest and modern mainly internet technology.
Human Resource Management (HRM)
Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Travelodge has its own HR department where all recruitment selection, training and rewarding system are being done. For cleaning service, Travelodge has a contract with other outside cleaning companies with certain terms and conditions and is supervising their works.
This activity includes and is driven by corporate or strategic planning. Travelodge uses the Management Information System (MIS) and other mechanisms for planning and control such as the accounting department, finance and corporate strategy which make Travelodge’s better company infrastructure.
2.1 Boston Box Matrix analysis
The Boston box is a classic tool of strategic planning and was developed in the early 1970s by Bruce Henderson. Matrix provides a useful tool for analysing an organisation’s portfolio of business units, product lines, offerings or activities. It helps businesses to identify which products to invest in and which not to invest in depending on their relative market share and the growth rate of the markets they serve.
Using the BCG Box, a company classifies all its strategic business units according to two dimensions as horizontal axis; relative market share this serves as measure strength in the market this provides a measure of market attractiveness. Residential rooms are the product of Travelodge, by selling them it has been running its business and now it steps to the stage where company is getting a good profit and investing to expand its service.
By dividing the matrix into four areas, four types of units can be distinguished:
Stars – Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.
Cash Cows – Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit – so that they continue to generate the strong cash flows that the company needs for its Stars.
Question marks – Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about “question marks” – which ones should they invest inWhich ones should they allow to fail or shrink?
Dogs – Unsurprisingly, the term dogs refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.
As Travelodge has high market share with a slow-growing industry and these units typically generating cash in excess of the amount of cash needed to maintain the business therefore falls on cash cow business strategic units. This company is running more than 30 years and successful business in UK hotel industry with relatively little need for investment.
2.3 Product life cycle
The life of a product is the period over which it appeals to customers. The sales performance of any product rises from nothing when the product is introduced to the market reaches a peak and then declines to nothing again. With respect to the revenues generated by a product over a period of time, there are various stages that are achieved by any product. This is called a product’s life cycle. A product life cycle mainly consists of below mentioned four stages.
Product life cycle
Source: Graham R. Massey, (1999)
At the Introduction Stage market size and growth is slight. It is possible that substantial research and development costs have been incurred in getting the product to this stage. In addition, marketing costs may be high in order to test the market, undergo launch promotion and set up distribution channels. It is highly unlikely that companies will make profits on products at the Introduction Stage. Products at this stage have to be carefully monitored to ensure that they start to grow. Otherwise, the best option may be to withdraw or end the product. Travelodge created product awareness & develop a market for the product. No profits were made when it was at introduction stage as development costs have not yet been covered. It took a substantial amount of time to catch on in the market before they enter their growth phases.
The Growth Stage is characterised by rapid growth in sales and profits. Profits arise due to an increase in output economies of scale and possibly better prices. At this stage, it is cheaper for businesses to invest in increasing their market share as well as enjoying the overall growth of the market. Accordingly, significant promotional resources are traditionally invested in products that are firmly in the Growth Stage. After the year of 2000, Travelodge is considered in growth stage, when it was expanding throughout UK and they were investing their profit to open new hotels.
Currently Travelodge is in maturity stage, maturity Stage is, perhaps, the most common stage for all markets. It is in this stage that competition is most intense as companies fight to maintain their market share. Here, both marketing and finance become key activities. Marketing spend has to be monitored carefully, since any significant moves are likely to be copied by competitors. The Maturity Stage is the time when most profit is earned by the market as a whole. Any expenditure on research and development is likely to be restricted to product modification and improvement and perhaps to improve production efficiency and quality.
Travelodge is expected to be in maturity stage after some decades when its market is shrinking, reducing the overall amount of profit that can be shared amongst the remaining competitors. At this stage, great care has to be taken to manage the product carefully. It may be possible to take out some production cost, to transfer production to a cheaper facility, sell the product into other, cheaper markets. Care should be taken to control the amount of stocks of the product. Ultimately, depending on whether the product remains profitable, a company may decide to end the product.
As travel was established before more than 25 years and it has more than 460 hotels in United Kingdom, it is making a good profit and one of the established budget hotel therefore it is in the maturity stage in the life cycle.
2.3 Market segmentation
Segmentation is the term given to the grouping of customers with similar needs by a number of different variables. Once this has been done, segments can be targeted by a number of targeting strategies. Based on Travelodge business goal, competition and customers, they have divided their market into four segments business, leisure, group, and other as described below:
Business travellers represent a large portion of lodging demand in many market areas. Travelodge include people travelling on business representing commercial, industrial and governmental organizations. It is important to understand why business travellers are visiting the market area and how many room nights they generate. Reasons for visiting a particular area might include conducting business with a company recruiting, training, management meetings calling on multiple businesses and stopping over between destinations.
Leisure travellers may visit an area for a vacation, to attend sporting or social events, to shop, or to visit friends and relatives. They might be staying over simply because they are travelling to other destinations. Leisure travellers may be individuals, couples, families, or small groups. Travellers visiting hospitals and universities are typically included in this market segment. Leisure room demand is often seasonal. In larger, Travelodge more urban market areas, leisure room demand may be limited to weekends, summer months and holiday periods.
Group Meeting Travellers
For Travelodge, group market consists of both leisure and business travellers but due to the size of meeting or gathering hall they limited this segment as small group meeting travellers. Leisure groups include bus tours, school activities, athletic events, etc. Tour groups are often brought to an area for sightseeing and attending special events. Local attractions that appeal to leisure tour groups may have records of the numbers and names of tour operators who have visited their attractions. Business group meetings are typically associated with board meetings, training programs, seminars, trade shows, and other gatherings. Often the sponsoring organization will be from the local area. Out-of-town organizations may use logical meeting facilities because they often rotate the sites of their regional meetings. Information on the group meeting market can be obtained through state chapters
Various lodging customers cannot be classified under the categories of business, leisure, or group. These travellers may include construction workers, truckers, utility crews and others. Activity at local truck stops, distribution centres, long term construction projects and other sources of demand could help you estimate the significance of this market segment.
3.1 Creating and Developing Customer loyalty
Generally, customer loyalty can be defined making customers feel that they are the company’s number one priority. Competitive advantage can be achieved through customer loyalty. This is the way to gain the best kind of customers, repeat customers. Repeat customers tend to spend more money and provide the best personal advertising. Customers feel customer loyalty when they consistently purchase a certain product or brand over an extended period of time. As an example, many customers stick to a certain travel operator due to the positive experiences they have had with their products and services.
In Travelodge, customer loyalty is the key objective of customer relationship management and describes the loyalty which is established between a customer and companies, persons, products or brands. This company believes that the individual market segments should be targeted in terms of developing customer loyalty.
The Customer Loyalty Grid is helpful to understand customer loyalty better. This grid is divided into four zones, as shown in the diagram below:
Zone 1: The Zone of Indifference
Zone of indifference includes those services which are unstated but expected. Literally, this includes all those customer needs and wants that are basic to fulfilling the contract between you and them. For example, customers expect to be treated with courtesy and respect, and would probably be puzzled and maybe even insulted if customer asked them if this was a need. It of course is, and if don’t meet this need; it will cause dissatisfaction for example sometimes travel lodge cleaning service and infrastructure are criticised by the customer. If you meet this basic and obvious need, the best you can hope for is indifference.
Zone 2: The Zone of Satisfaction
This is where your customer actually tells what is important to them. Meeting a customer’s needs here will cause satisfaction, whereas not meeting them will cause huge dissatisfaction. For example, Travelodge advertise that it has offer room for ?19 per night, customer think that if even they don’t book before, it not going to hogh price for the room but sometime it is, this cause a customer dissatisfaction. It is an expectation, simply because other organizations that the customer deals with provide this benefit.
Zone 3: The Zone of Delight
This is where your customer hopes for something, asks for it, but really does not expect to provide it. This is opportunity to provide something beyond their expectations and by so doing will create delight. For example, a customer might ask for something that is usually available only in a premium priced product. Not providing it will unlikely cause dissatisfaction. Therefore this is an area for particular attention in building a loyal customer base. This area is not seem to be good at Travelodge.
Zone 4: The Zone of Loyalty
This is an area where hotel expertise in whatever product or service you provide and the customer’s lack of knowledge can really give back. Providing benefits above and beyond what the customer is even aware of can create a loyal customer. This requires you to be really proactive in suggesting to customers new innovations that they can really benefit from. Many customers will be even willing to pay extra for this. In case of Travelodge, it is very careful about the hidden cost of hotel so tries to offer like welcome drinks, some gift for celebrating birthday customer.
At Travelodge, Customer loyalty is the key objective of customer relationship management and describes the loyalty which is established between a customer and companies, persons, products or brands. If this company be careful about all the zone of matrix then of it will create and develop best customer loyalty than currently.
3.2 Network and relationship marketing
Network and Relationship Marketing has evolved as a strategic marketing approach which is oriented towards attaining long-term profitability and value creation by interactions and mutual exchange among customers, suppliers and other stakeholders. It is also can be adopted to enhance the competitiveness and profitability of a value delivery network (supply chain). Better integration and shared mutual values can be developed through relationship marketing across value delivery network. Network marketing is commonly known as multi-level marketing. It is part of the direct selling industry and is run as a business-distribution model that allows a parent company to market its products directly to consumers through a large network of distributors and consumers, thereby bypassing the middleman. Travelodge is mainly focus on relationship marketing, they have a customer record keeping system so they treat regular customer specially. They are promoting relationship marketing by developing the good relationship.
3.3 Viral and Guerrilla marketing
Guerrilla Marketing is an unconventional system of promotions on a very low budget, by relying on time, energy and imagination instead of big marketing budgets. The term has since entered the popular vocabulary to also describe aggressive, unconventional marketing methods generically.
Viral marketing and viral advertising refer to marketing techniques that use pre-existing social networks to produce increases in brand awareness, through self-replicating viral processes, analogous to the spread of pathological and computer viruses. It can be word-of-mouth delivered or enhanced by the network effects of the Internet. Viral marketing is a marketing phenomenon that facilitates and encourages people to pass along a marketing message voluntarily. Viral promotions may take the form of video clips, interactive Flash games, images, or even text messages.
As travel is considered itself as a largest budget hotel in UK and investing millions of pound on marketing so Travelodge don’t think about adopting Guerrilla marketing. But talking about viral marketing Travelodge is to some extent using if we see internet we can see many images and video clips about the service and infrastructures. Viral marketing is the Travelodge authorised company strategy as well but guerrilla marketing is not Travelodge policy.
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