The Impact of Service Differentiation and Cost Leadership on Performance: A Case Study of Holiday Inn, Saudi Arabia

Abstract

The availability of various substitutes in the hospitality industry has prompted the stakeholders to develop competitive strategies to retain or expand their market share. Although globalization has increased the demand for hospitality services across the globe, the industry is saturated with multinational organizations that compete against each other. Therefore, it is important for each organization in the industry to rebrand their services to meet consumers’ needs.  In this research paper, the impact of service differentiation and cost leadership will be evaluated in relation to business performance. Holiday Inn is among the leading hospitality firms in the world. The organization engages in service differentiation, corporate social responsibilities, stakeholder management, and cost-leadership programs to expand its market share. These competitive strategies have significantly improved the organization’s financial performance.  By engaging in service differentiation, the firm undertakes consumer-based marketing research to tailor its services to meet emerging consumer needs. Cost leadership enables the organization to offer quality services at a low price by improving its operational efficiency. Cost leadership enables the organization to meet the needs of economic consumers who are price-sensitive. Firms that use this strategy increase their sales volumes, thereby optimizing the economies of scale. Conversely, service differentiation enables organizations to increase the level of customer satisfaction. However, the organization incurs research and execution expenses to meet the clients’ needs. Service differentiation and cost leadership enhances customer loyalty and also attract affluent clients. 

Introduction

Service differentiation and cost control are some of the common branding strategies used by organizations in the hospitality industry to expand their market share and maintain customer loyalty. Based on the product’s life cycle, a firm must rejuvenate its services after the maturity stage. During this phase, the firm experiences stiff competition from rival groups, and the sales volume decline. Moreover, due to demographic shifts, the customers’ preferences also change.  Consequently, firms should rebrand their products and services to meet emerging consumer needs.  Some of the strategic innovations used in the hospitality industry include aggressive pricing, social media marketing, and promotion. In aggressive pricing, firms undertake extensive cost-reduction methods to offer quality and affordable services. A significant percentage of consumers are price-sensitive (Huang, & Cai, 2015). Therefore, they would prefer cheap products and services if other factors such as quality and reliability are held constant. Aggressive marketing allows firms to develop a competitive advantage by setting prices that are slightly below market rates. Consequently, most of the economic consumers would prefer cheaper services. By reducing the expenses and improving quality, organizations can attract new customers, thereby expanding the market share. 

Social media promotions allow the organization to appeal to a broader audience. Currently, a majority of elite consumers use social media to interact with their peers and also acquire information. The development of social media has dramatically reduced the impact of mainstream media commercials. Most companies take advantage of the billions of online consumers to market their products. The popular social media sites such as Facebook, Twitter, and Instagram have millions of interconnected online consumers. By posting promotions on the social media platform, the advert goes viral and reaches a majority of the consumers globally. Moreover, social media marketing is relatively cheap compared to commercial adverts in the mainstream press. 

Service differentiation includes a wide range of initiatives that are taken by an organization to improve its service quality.  A significant aspect of service differentiation includes meeting stakeholders’ needs.  Customers can only be loyal to an organization if it meets their consumer needs. Therefore, it is the responsibility of different enterprises to determine consumer needs and then offer services that conform to them (Huang, & Cai, 2015).  Corporate social responsibility (CSR) is the other aspect of service differentiation. Enterprises engage in different community initiatives and philanthropic activities to enhance their public reputation.  Researches show that participating in CSR improves business performance and also improves customer loyalty. Firms that consider the community and environmental needs are likely to attract more consumers than those which are solely profit-oriented. 

Although some entrepreneurs claim that CRS is an expensive undertaking, empirical studies show that it has benefits to business performance.  For instance, when the organization improves its production systems to minimize wastes and environmental pollution, the production efficiency is increased, thereby reducing the throughput times.  Further, adjusting the workplace environment decreases accidents, thereby reducing operational costs which result from employee absenteeism and high turnover rates.  Also, workers are motivated by a comfortable and safe working environment. According to the studies by Huang, & Cai (2015), the level of employee motivation is proportional to their productivity. Consequently, improving the workplace environment motivates the workers to meet their production targets and improve the overall organization’s performance. 

CRS entails considering the needs of all supply chain and external stakeholders in a given industry. These stakeholders include the customers, the local community, employees, managers, stockholders, suppliers, vendors, subcontractors, consultants, and the government (Huang, & Cai, 2015).  Engaging in community activities such as charitable contributions improves an organization’s social environment. Developing a good relationship with the suppliers and vendors increases their willingness to comply with the organization’s unique needs. Maximizing the profit margins and sales revenues motivate the financiers, investors, and stockholders to increase their funding in the enterprise. Therefore, it is evident that engaging in corporate social responsibilities is part of organizations’ service differentiation strategies which enables them to maintain a competitive edge. 

Overview of What the Research Paper will cover

This research paper will include the analysis of recent literature on cost-leadership, service differentiation, and corporate social responsibility in the hospitality industry. A correlation will then be identified between these strategies and organizational performance. The case study of Holiday Inn expanding its services to Saudi Arabia will also be examined in the report.

Purpose of the Study

The study is necessitated by the research gaps in the value of CSR in the hospitality industry. Many stakeholders believe that service differentiation solely entails improving the quality of the services offered. However, CSR is part of the service differentiation which an organization can use to develop a competitive advantage.

The purpose of this research is to analyze the impact of service differentiation, corporate social responsibility, stakeholder management, and cost-leadership as Holiday Inn plans to expand its services in Saudi Arabia.  Previous literature has shown that these strategies are effective in expanding an organization’s market share and also increase the level of customer satisfaction. Holiday Inn is among the contemporary hospitality companies with a robust corporate social responsibility and a stakeholder management plan which allows the firm to maintain its competitive edge. These factors will be evaluated to determine their suitability in the Saudi Arabian market. Moreover, the consumer potential, competition, economy, threats of new entrants, and the purchasing power of consumers in Saudi Arabia will also be evaluated to determine whether Holiday Inn will benefit from the expansion. 

Justification

Holiday Inn is a multinational hospitality company that has attained its maturity stage. Consequently, the firm needs to rebrand its services, consider expansion to new markets, and develop a competitive advantage to retain or expand its profit margins and sales revenues. Therefore, it is essential for the organization to engage in service differentiation, cost-leadership, and stakeholder management to protect its reputation in the industry. The firm should also evaluate its suitability for expansion in the Saudi Arabian market. The research will determine whether the expansion project is economically justifiable. Different market parameters in Saudi Arabia such as the demand for hospitality services, supplier potential, the bargaining powers of the suppliers and customers, and the consumer potential should be evaluated to determine whether the expansion is justified. 

Study Constraints

The primary constraints which were encountered during the study include limited time and budget. The research applied both primary and secondary sources of data. However, collecting the relevant data was time-consuming and expensive. Moreover, the peer-reviewed literature on Holiday Inn operations is limited. Most of the reliable sources were not readily available online. Thus, the peer-reviewed articles were bought from different vendors. Also, most organizations do not directly disclose their competitive strategies. Therefore, the published information contained limited data on the service differentiation techniques which are used by the firm to maintain a competitive edge. However, the strategies were discerned from the organization’s initiatives over the past years.

Literature Review

Company Overview: Holiday Inn

Holiday Inn is an American brand of hotels that offer a wide range of hospitality services across the globe.  Such services include food, conference meeting halls, timeshare, conventions, and lodging (Smirl, 2016). It was founded on the 1st of August 1952 by Kemmons Wilson at Memphis, United States, and the firm’s headquarters is located in Denham, United Kingdom. Holiday Inn has over 1,145 locations across the world. The regions serviced by the firm include Asia-Pacific, America, Africa, and the Middle East. Holiday Inn was established as a United States motel investment but has exponentially grown to be one of the largest hotel chains in the world.  The organization has more than 214,000 bedrooms and 1173 active hotels globally (Smirl, 2016).  The enterprise uses service differentiation and cost-leadership to maintain its competitive advantage. 

Initially, Holiday Inn dominated the US and European markets in the 1950s to 1970s.  However, in the 1980s, the company encountered stiff competition from other hospitality firms. The industry was saturated with multiple firms, thereby reducing the organization’s profit margin. In 1985, the organization changed its name to Holiday Corporation as a rebranding strategy.  In 1988, the firm was bought by Bass PLC.  Wilson sold his shares in 1990, and the organization was again rebranded “Holiday Inn.”  Bass created holiday Inn Express in 1990 which offered the limited-service segment (Morrison, 2016). In 2003, Bass sold the firm to the International Hotels Group (IHG). Currently, the Holiday Inn brand is owned and managed by Intercontinental Hotels. In 2007, IHG rebranded the organization to improve the level of customer satisfaction. In 2008, IHG rejuvenated the organization’s services by creating a timeshare band with The Family Orange Lake Resorts (Berezina, Bilgihan, Cobanoglu, & Okumus, 2016). Consequently, the hotel’s clients accessed a wide range of recreational facilities, thereby improving the level of customer satisfaction. 

Cost leadership and service differentiation are the two main strategies that Holiday Inn uses to develop a competitive advantage in new markets. Cost leadership entails the use of lean operations to tremendously reduce the unit costs and edge out the competitors in the industry.  According to the research by Berezina, Bilgihan, Cobanoglu, & Okumus (2016), Holiday Inn is among the few international hotels that offer quality services at an affordable cost. The company utilizes its substantial revenues to improve operations and minimize wastes. For instance, improvement of the workplace enhances the employees’ productivity and job satisfaction. Increased job satisfaction reduces the turnover rates, thereby enabling the organization to cut the costs associated with selecting, interviewing, screening, and training new staff. 

Holiday Inn has also demonstrated cost leadership through the use of just in time operations. The organization has a supplier and vendor development programs which create incentives for them to improve the quality and reduce costs. For instance, the vendors provide stocks at high frequencies and in small quantities to minimize the work in process inventories. Thus, the firm saves the costs associated with holding and controlling the idle stockpiles. According to the studies by Khan, Yusuf, Hakeem, & Naumov (2018), Holiday cuts the expenses of capita depreciation by holding minimal inventories. However, the suppliers have the ability to deliver the stock within a very short period of time, thus minimizing the risks of stock out. 

Holiday Inn has a wide range of service differentiation strategies that it uses to maintain its competitive edge. These services can be classified into fifteen main categories. These include the environment, customer service, brand identity, functions, features, reputation, reliability, usability, terms, personal service, self-service, variety, price, and corporate social responsibilities (Khan, Yusuf, Hakeem, & Naumov, 2018).  The hotel has a modern architecture with appealing furnishes that attracts consumers. The hotels’ unique architecture and décor is a tool that attracts clients. 

Holiday Inn has a robust customer service that enables the guests to feel at home. The services are timely and tailored to meet consumer needs. The hotel considers the needs of economic, affluent, and moderate consumers, thus broadening its market scope. Holiday Inn’s brand identity is also a significant competitive edge as it is affiliated to the Intercontinental Hotel Group. The brand enables the firm to attract reputable guests across the globe. Holiday Inn has a solid reputation in the hospitality industry as it hosts several international conferences. Thus, most clients approve its services.  According to the report by Khan, Yusuf, Hakeem, & Naumov (2018), Holiday Inn’s services are convenient and reliable as most of its operations are backed by computer programs. Thus, guests are assured of quality services upon booking the facility. Moreover, the Company optimizes internet technology to allow guests to book the hotel in advance. 

Holiday Inn offers a wide range of services to meet consumer needs.  The major distinct services offers include the high-rise and low-rise, full-service. The full high-rise services appeal to the affluent consumers who value quality and are willing to pay additional charges. Their needs limit the organization to consider this class of consumers. High-rise divisions generate high-profit margins with minimal sales revenues as the volume of clients is low. The firm offsets the low sales volume by increasing the unit costs for the high-rise, full-service plaza hotels. The low-rise, full-service hotels target economic consumers who are price-sensitive (Huang, & Cai, 2015). The global market has a significant proportion of economic consumers. Other than quality, this type of customer evaluates the costs. Consequently, they would prefer cheap and quality services. The firm compromises the quality and prices to meet the needs of economic consumers (Khan, Yusuf, Hakeem, & Naumov, 2018). For instance, cost reduction strategies such as lean operations are used to reduce unit costs and attract more clients. Low-rise, full-service hotels attract several clients, thus enabling the organization to generate high sales revenues. However, due to the low unit costs, the profit margin for the low-rise hotels is low. The organization leverages the high customer volume to offset low-profit margins. 

Organizational Culture at Holiday Inn

Holiday Inn is among the few hospitality companies that use management by an objective (MBO) to appraise its employees. MBO is a performance appraisal technique that involves the employees in the decision-making processes. Powers and authorities in the organization are decentralized to different regions. The regional managers are responsible for developing the organization’s objectives with their team members. Thus, the managers set the goals and workplace policies that are suitable in the region. The developed work targets are then flown to the supervisors who directly interact with the staff. The supervisors discuss the set goals with the managers before flowing then down to the team members. The employees’ supervisor develops an idiosyncratic deal with the workers which specify the responsibilities of each party (Shuford, 2015). Both the employee and the supervisors must agree on the set goals. The supervisor is responsible for dividing the overall team’s objectives into individual responsibilities. The work targets are set to enable the workers to concentrate on specific deliverables in the organization. The set goals are measurable and timely to hold the employees accountable. Moreover, the supervisors consider the workers' skills, working conditions, and experience in assigning the targets. The skilled and experienced workers are assigned high targets relative to the new employees who are still on induction training. Also, the interns are granted lower work targets than the experienced staff. 

Employees offer their views over the set targets. If the supervisor has assigned a worker unrealistic targets, they negotiate for a fair deal.  Typical factors that the supervisors evaluate while negotiating the goals include the employees’ ergonomics. Workers who engage in manual workers experience fatigue and are unlikely to be assigned high targets. Conversely, those who use automated equipment and tool at work are granted high targets as they work under favorable conditions. The employees’ physical structure is also matched with their tasks to enhance productivity (Shuford, 2015). For instance, short employees are given adjustable seats to enable them to reach their working tables. Lifting aids are also used in case the workers are required to move heavy objects. Periodic training and development are conducted in the organization to increase the workers’ competencies (Su & Reynolds, 2019).  Training and development motivate the employees to increase their productivity and also minimize accidents. By training the workers, they become competent and can meet their work targets with ease. The level of customer satisfaction also increases when employees are adequately trained. 

The research by Shuford (2015) indicates that training improves the level of employees’ job satisfaction and job enlargement. It also increases workplace comfort as workers achieve their responsibilities with ease. As the employees’ level of job satisfaction is improved, they are likely to increase their engagement. High job satisfaction reduced the rate of employee turnover which is typical in the hospitality industry. The organization trains and develops the workers to retain them in the firm. 

Positive reinforcement is the other organizational culture in the firm that attracts and retains competent employees across the globe. The reward systems are used to motivate skilled employees who have met the set goals. The use of management by an objective minimizes the supervisory tasks as workers are driven to achieve the set goals. All employees desire promotion in an organization. Studies by Huang, & Cai (2015) show that the reward system is proportional to workers’ productivity. Moreover, other non-monetary incentives such as recognition and acknowledgment are some of the performance appraisal and positive reinforcement measures that are used in the organization.  

Negative reinforcement at Holiday Inn discourages laziness and other unethical employee behaviors in the firm. For instance, the workers who fail to meet the set targets do not earn extra bonuses that their peers enjoy. Moreover, these employees are required to undergo extensive training to improve their professional competencies. Unethical behaviors like bribery, corruption, and absenteeism may result in termination from work (Wang & Chung, 2015). However, before the workers are sanctioned, the management evaluates the causes of underperformance.  Employees can underperform due to several factors such as inadequate training, demoralization, poor working environment, and social stress. Thus, Holiday Inn’s management is concerned with the causes of underperformance before instituting corrective measures (Huang, & Cai, 2015). Intensive training is used when workers lack the required skills to complete their tasks effectively. In case the workers are subjected to poor working conditions, ergonomic and work studies are conducted to improve their situation. Ergonomic studies ensure that the employees’ physical structure, competencies, and skills are compatible with their work. In the case of an incorrect placement, the firm undertakes the necessary transfers to optimize the organization’s productivity. Work studies eliminate unnecessary movements, imbalanced workloads, and idle times.

Employee counseling services are also offered in the organization to enable the workers to solve their social problems. By engaging in employee counseling, the organization reduces its social stress and facilitates their concentration at work (Morrison, 2016). Social advice improved the productivities of the employees who are depressed.  The current society has multiple family problems such as divorce, domestic violence, poverty, disease pandemic, deprivation, and drug abuse which may adversely affect the employees’ emotional well-being (Wilson & Ellison, 2018). Under such conditions, the workers are less productive as they are preoccupied with social challenges.  Also, counseling services are quite expensive, and most people cannot afford them. Consequently, many individuals are depressed but lack a solution to the problem. The organization significantly protects its employees’ welfare by engaging in counseling services. 

The Economy of Saudi Arabia

According to the report by Rehan, Gardy, Demirbas, Rashid, Budzianowski, Pant, & Nizami (2018), Saudi Arabia has an advanced, oil-based economy with a gross domestic product of $707.8 billion. The country has the second-largest oil reserve in the world. Also, Saudi Arabia is the leading oil and petroleum product exporter in the world. Further, the country has a significant natural gas reserve. Thus, it is evident that the nation is a super energy power with its natural resource valued at $34.4 trillion (Gelil, Howarth, & Lanza, 2017). Also, Saudi Arabia has some of the valuable natural resources in the world (Rehan et al., 2018). In 2016, the nation developed the “2030 Saudi Vision” to stop its overreliance on oil products for economic survival (Mitchell, & Alfuraih, 2018). The vision has significantly steered economic development in the country.  Consequently, the service industry has tremendously grown in the nation. 

Hospitality is one of the significant industries in the nation. It generates substantial revenues for the government and has also employed a lot of people.  The service industry contributes 53.2 percent of the nation’s gross domestic product.  The manufacturing sector contributes 44.2 percent to the country’s economy.  Typical sectors in the nation include aircraft repair, crude oil production, ammonia industry plastics, metals, fertilizers, gases, and sodium hydroxide manufacturing (Rehan et al., 2018). Ninety percent of the country’s exports are petroleum products. 

Saudi Arabia Hospitality Market

The hospitality industry in Saudi Arabia is promising given that the government supports its expansion. The sector helps the country to diversify its economy and stop overlying on natural resources. Currently, most hotels in the country are occupied by business delegates. In the nation’s capital Riyadh, the demand for leisure services is about 12 percent (Market Snapshot, 2017). The need for leisure and recreation will increase since the government supports the diversification and markets the country as a tourist destination.  Domestic tourist and religious activities such as Hajjah attracts millions of guests in the country.  The demand for leisure activities in Jeddah and Dammam & Khobar is 34 and 31 percent respectively (EMEA Commercial, 2019). Consequently, the need for hotels and recreational services in these towns are high. 

The projected Increase in hospitality services in Saudi Arabia

Saudi Arabia’s Vision 2030 sets the strategic goals for increasing tourism activities in the country. One of the initiatives includes increasing the number of Umrah guests from 8 to 30 million (Market Snapshot, 2017). The holy mosques in these countries have embraced the expansion projects, and plans are underweight to expand Makkah’s holding capacity. Secondly, the government plans to increase the number of heritage sites in the country by 100 percent.  As the historic sites increase, then the development would enhance both domestic and international tourism in the country.  In addition to the 4 Saudi landmark sites, the government plans to add ten others.  Thirdly, the government plans to increase public spending in leisure, recreation, and cultural activities from 2.9 to 6 percent. The government estimates that its domestic tourism will grow by 7.5 percent in 2020. Board of General Entertainment Authority has been established to oversee the improvements in the country’s entertainment industry. 

According to the report by Market Snapshot (2017), “Riyadh is expected to see the opening of a potential six flags theme park and 2 major malls: Mall of Saudi with 3000,000 m2 of retail and entertainment space, a large snow park and hotels, and The Avenues Riyadh, a USD 1.9 billion shopping complex”. Other tourists’ destination areas in Saudi Arabia include Half Moon Bay (Al Khobar), Istirahas & Urban Resorts (Riyadh) and Obhur & North Jeddah (Jeddah). The number of economy hotel rooms in Saudi Arabia has grown from 800 in 2011 to 1200 in 2016. It is expected that the demand will increase to 7600 by 2021. Consequently, the recent developments in the country’s hospitality industry will increase the demand for hotels.

Tourist attraction sites in Saudi Arabia

The report by EMEA Commercial (2019), indicates that tourism growth in Saudi Arabia is precipitated by corporate and leisure visitors as well as the pilgrims. The three factors have significantly played a significant role in diversifying the country’s economy. Also, some government initiatives such as the Kingdom of Saudi Arabia’s tourism offers have also bolstered growth in the hospitality industry. Moreover, the report indicates that improved entertainment facilities, international events, and luxurious resorts have also improved tourism in the country. Given that the level of domestic tourism is expected to rise, the demand for hotels will substantially increase.  According to the studies by EMEA Commercial (2019), “While cities such as Riyadh, Jeddah, Makkah (Mecca) and Madinah (Medina) continue to lead the way, considerably increasing their hospitality offering, a number of smaller destinations are beginning to rise as attractive opportunity markets, such as Dammam and Jazan.” High profile infrastructure has also been developed in the country. The transport system will facilitate the movement of people from one destination to the other. The wide range of entertainment facilities luxury resorts and historic sites will tremendously motivate the public to engage in tourism activities.

Cohesive summary

Based on the literature review, it is evident that Saudi Arabia has a viable market for hospitality enterprises. The country has a stable economy with high consumer potential. Saudi Arabia has an advanced economy that is dominated by service industries. The inflation rates are low, and the government encourages foreign investments in the service industry. Part of the government’s agenda to diversify the nation’s economy includes the 2030 vision which promotes tourism. The government encourages its citizen to engage in leisure and recreational activities. Improved infrastructure, pilgrimage, and entertainment services will draw both domestic and international tourists in the country. Therefore, Holiday Inn may leverage the existing market by expanding its operations in the state. 

Research Objectives

1.    To determine the impact of service differentiation and cost-leadership in Holiday Inn performance.

2.    To assess the effect of corporate social responsibility in the organization’s performance

3.    To determine the impact of stakeholder management on the organization’s productivity

4.    To determine the correlation between service differentiation and the level of customer satisfaction

5.    To establish the relationship between cost leadership and the level of customer satisfaction

6.    To establish the relationship between corporate social responsibilities and the level of employee engagement

7.    To establish the relationship between corporate social responsibilities and the level of employee motivation

8.    To determine the relationship between corporate social responsibilities and the level of employee turnover in the organization.  

9.    To assess the suitability of Holiday Inn penetrating in the Saudi Arabian market

Research Hypothesis

1.    Service differentiation and cost leadership improve the organization’s performance.

2.    Engagement in Corporate Social responsibilities enhances the organization’s performance

3.    Stakeholder management enhances the organization’s productivity

4.    Service differentiation directly correlates with the level of customer satisfaction and loyalty

5.    Cost leadership directly connects with the level of customer satisfaction and loyalty

6.    Corporate social responsibilities improve employee engagement

7.    Corporate social responsibility positively correlates with the level of employee motivation

8.    Corporate social responsibility directly connects with employees’ job satisfaction and reduces turnover rates. 

9.    Saudi Arabia has sufficient incentives to attract Holiday Inn’s expansion into the country.

Questions to be Included in the Questionnaire

• What is Holiday Inn’s primary competitive strategy?

• How does the organization retain its loyal customer base?

• What are some of the operational challenges that the organization faces?

• What are the organization’s weaknesses and strengths in the Industry?

• What are the organization’s opportunities and threats?

• Which aspects of service differentiation does the organization embrace?

• How does the company meet the needs of its diverse stakeholders?

• What are some of the organization’s CSR initiatives?

Research Methodologies

Data Collection Methods

Different data collection techniques were employed in research studies. The primary sources of data collections that were applied in the studies include direct observation and analysis of Saudi Arabia’s vision 2030 plan. Other techniques such as the use of questionnaires were not used due to financial and time constraints.  Consequently, a significant part of the research was based on secondary literature. These secondary data sources included journals, periodicals, conference proceedings, books, peer-reviewed journal articles, and mainstream media sources (Bell, Bryman, & Harley, 2018).  The secondary sources were essential in the study as they provided existing peer-reviewed content on Holiday Inn’s competitive strategies.

The primary sources of data provided new insights on the topic as undocumented facts from the grounds were accrued.  The secondary resources were significantly used in the literature review to provide the already published information on the subject. These sources were vital as they helped in the formulation of the research questions. By evaluating the existing data, research gaps were identified in the field. Thus, the study helped in bridging the gap and also avoiding research replication. The secondary data were also useful in the formulation of the research questions, objectives, and hypotheses for the study. The literature review provided insights on to eliminate ambiguities in the previously stated research questions and objectives. Based on the preliminary literature review content, the study hypotheses were developed. 

Holiday Inn Case Study

Topic: The Impact of service Differentiation and cost leadership on the organization’s performance and expansion to the Saudi Arabian Market

Holiday Inn is one of the significant hotel chains in the world. However, since the organization has attained its maturity stage, it is essential for it to rebrand its services and penetrate new emerging markets across the globe. Currently, the developing countries are improving their productivity, thereby creating the demand for service industries. The consumption potential in emerging markets has tremendously increased due to the rise of middle-class consumers in these nations. Also, the increased household incomes in developing countries have increased the nation’s consumption and productivity, thereby improving their productivity.

Saudi Arabia is one of the high-income emerging economies with the promising hospitality industry. Traditionally, the organization relied on its natural resources (oil and natural gas) for economic growth. However, due to the threats of resource depletion that results from over-exploitation, it is necessary for the country to diversify its economy. Although Saudi Arabia has the second-largest oil reserve in the world, it is the leading exporter of petroleum products. Ninety percent of the nation’s GDP is contributed by oil exploitation. Saudi Arabia is one of the nations with valuable natural resources that have significantly improved the country’s economic growth. 

Saudi Arabia’s Vision 2030 presents sufficient incentives for domestic and foreign tourists in the nation. The government funds the entertainment, and recreational initiatives to encourage domestic tourism. The demand for leisure activities will improve from 2.9 to 6 percent in 2020, thereby creating the need for hotel services.  The consumption potential of Saudi Arabians is high due to the employment opportunities in the country. Moreover, the nation has several foreign expatriates who are paid generous allowances and salaries. The envisaged expansion of international events, pilgrimage, and recreational services in the country is bound to improve the nation’s hospitality industry. 

Holiday Inn depends on its competitive strategies to penetrate the Saudi Arabian market.  The service differentiation strategy allows the organization to address the customers’ needs and also improve the quality of the services offered. Cost leadership appeals to the needs of economic consumers who desire low-rise full-services.  Service differentiation does not only entail addressing the customers’ needs but all the desires of other supply chain stakeholders such as the employees, stockholders, suppliers, and consultants. Different methods of employee motivation are used in the organization to improve their engagement and productivity. These methods include a merit-based promotion, use of transformational leadership, management by an objective, employee training and development, and ergonomic and work studies. These techniques are used to recognize and reward the top-performing employees and also improve the productivity of those who fail to meet their targets through training and development. 

Cost-leadership enables the organization to minimize the operational cost and use aggressive pricing to attracts and maintain customers in the organization. Lean operations are used to reduce inventory control costs and also enhance the relationship with the suppliers.

The suppliers and vendors provide the desired materials in small quantities to minimize the idle stock in the organization. 

Findings and Implications

Hypothesis 1: Service differentiation and cost leadership improve the organization’s performance.

Since the firm engages in corporate social responsibilities and also differentiates its services from other conventional organizations, it draws more prospective customers.

Hypothesis 2: Engagement in Corporate Social responsibilities improves the organization’s performance

Corporate social responsibilities enhance the organization’s public image, thereby boosting growth

Hypothesis 3: Stakeholder management enhances the organization’s productivity

Stakeholder management improves the firm’s productivity as the employees are motivated and stockholders have incentives to reinvest in the enterprise.

Hypothesis 4: Service differentiation directly correlates with the level of customer satisfaction and loyalty

Service differentiation addresses consumer needs, thereby improving their level of satisfaction

Hypothesis 5: Cost leadership directly correlates with the level of customer satisfaction and loyalty

Cost leadership enhances loyalty as it meets the needs of economic consumers through price reduction

Hypothesis 6: Corporate social responsibilities improves employee engagement

CRS improves employee engagement as their work environments are improved. 

Hypothesis 7: Corporate social responsibility positively correlates with the level of employee motivation

CSR directly relates to employee motivation as the management considers their needs

Hypothesis 8: Corporate social responsibility directly correlates with employees’ job satisfaction and reduces turnover rates. 

CSR increases the level of employees’ job satisfaction as the management recognizes and rewards their efforts, thus reducing the turnover rates

Hypothesis 9: Saudi Arabia has sufficient incentives to attract Holiday Inn’s expansion into the country.

Saudi Arabia provides sufficient incentives for Holiday Inn’s expansion since the government promotes tourism and leisure consumption to diversify the country’s economy and boost tourism. 

Implications

Holiday Inn should expand its services to Saudi Arabia as there are sufficient incentives. Moreover, the firm’s competitive strategies of service differentiation and competitive pricing will also enable it to dominate the market share in the nation. 

Conclusion

Holiday Inn will increase its market share in Saudi Arabia through service differentiation and price reduction, thereby attracting new prospective consumers.  The organization engages in corporate social responsibilities and employee motivation which enhances its productivity.  All nine hypotheses were supported by the research studies, thereby indicating that Holiday Inn should expand to the new market. 

Discussion Questions

1.    What are the Holiday Inn’s Competitive Strategies?

Aggressive pricing and service differentiation

2.    Does Saudi Arabia provides incentives for the organization’s expansion

Yes, the government promotes tourism and leisure activities, thus increasing the demand for hotels

3.    What factors affect customer loyalty in the organization?

Service quality and prices

4.    What is the importance of CSR in the organization?

It improves the firm’s public image, thus enhancing customer loyalty

5.    Should Holiday Inn expand to Saudi Arabia?

Yes, the nation has a strong economy, high purchasing potential, and envisaged an increase in tourism activities.

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