Industry: 5 Forces Model

Porter’s Five Forces for the Lodging Industry

Like most service industries, the lodging industry is characterized as one that has overall moderate to low barriers to entry.  Overall: barriers are low to moderate, depending on facility type; rivalry amongst competitors is high; customer power is low to moderate; supplier power is low to minimal and; threat of substitutes is moderate.  Below is a summary of the forces in relation to the lodging industry.  The summary also contains descriptors for each of the five forces. 

THREAT OF NEW ENTRANTS

Entry barriers are low to moderate depending on facility type

• Some economies of scale
• Moderate to high capital requirements
• Minimal product service differentiation within segments
• Open access to distribution channels
• Few government restrictions
• Low switching costs
• Some resources possessed by entrenched participants such as location cannot be imitated

POWER OF BUYERS

Customer Power low to moderate

• Many customers
• Most don’t make high purchases
• Services are mostly undifferentiated (high end hotels exhibit more differentiation)
• Most customers are concerned about value
• Internet provides information advantage
• May be organized into groups

POWER OF SUPPLIERS

Supplier power low to minimal

• Large amount of suppliers
• Products and services can be substituted
• They sell a large amount of products and services to the industry.
• Cost to switch suppliers is minimal to low.
• Suppliers do not have information advantage
• Suppliers are not well organized

THREAT OF SUBSTITUTES

Substitutes moderate

• Business consumers using teleconferencing
• Online lodging marketplaces such as Airbnb

INDUSTRY COMPETITORS AMONGST EXISTING FIRMS

Rivalry is Strong

• Many competitors in the industry
• Products and services are not easily differentiated
• High fixed costs exists
• High exit barriers exist

Given the factors highlighted above, the attractiveness of the industry is based largely on firms identifying the right market and concept/product service offering and their ability to differentiate themselves by offering unique and competitive product service mix, supported by appropriate servicescape.