Travelodge: Comprehensive Business Analysis and International Expansion Plan
I. Travelodge's SWOT analysis
Travelodge offers very affordable prices, including rates for family rooms and double rooms with frequent special deals such as early booking deals on special occasions. For a budget hotel, deals and promotions are among the best ways to attract customers and boost revenues. In addition, Travelodge runs programs for its premium customers such as Travelodge Business Account Card. Since this practice is also popular in the hospitality industry, having its own program helps Travelodge to be on par with its rivals. Besides, Travelodge has an extensive presence throughout the UK with more than 500 facilities, making it easy for its loyal customers to find a suitable place to stay anywhere.
As with most budget hotels, Travelodge does not equip its customers with a whole range of products and services. For example, it does not provide room service, porter service or concierge service. The hotels are often described as plain-looking and boring. As travelers place higher value on experience and have more choices, these issues can put Travelodge at a disadvantage, and make guests feel unsatisfactory because Travelodge does not live up to their expectation.
Moreover, to run the hotels to its full capacity, Travelodge discreetly implements the policy of overbooking, and consequently, guests face the risk of being turned down upon arrival even after paying deposits. This causes discomfort and frustration among many customers.
Hospitality is a very competitive sector with many participants offering a wide range of products ranging from 1 star to 5 star hotels. Together with a meager forecast of world economic growth of 2.7%, tourists might become less confident with their expected future income, and choose to stay at cheaper places than Travelodge’s such as hostels, dormitories, etc.
Travelodge has a very limited international presence. It focuses mainly on the UK and Ireland markets. Therefore, most foreign tourists might never hear about Travelodge, hence choose a more familiar brand name which has established their reputation in their home country.
Due to recent terrorist attacks and immigration policy controversies, more tensions arose leading to higher security level across the UK, limiting people’s movement and tourist arrivals, lowering the demand for hotel services.
As environmental protection movement has achieved its momentum in recent years, green and ecotourism has become a new trend. Hotels that are branded as eco-friendly or have very reputable sustainability programs like Travelodge are more likely to receive positive feedback from guests and maintain a positive public image (OECD, 2012). Travelodge can plan to go global to expand its market, reinforce its reputation, and gain more profits.
II. Travelodge’s Target Audience and Positioning Strategies
STP is the most commonly used tool for a company to locate its target customers. STP involves three fundamental stages: segmentation (distinguishing current customers and market into different categories based on their common characteristics), targeting (deciding which group is the company’s potential customers) and positioning (deciding how the company’s products compare to the competitors, its values, and advantages) (Dibb & Simkin, 1991).
Regarding Travelodge’s strategy, first, it can divide its current customers according to their income. Since its beginning, Travelodge has identified itself as a budget hotel, trying to provide reasonably good service at an affordable price. This strategy has attracted customers who are on low budget. Hence, logically, the first target market of the company is low-income customers. According to Srivastava (2012), low-income customers tend to be more loyal since they have fewer sources of information to evaluate their choices and higher switching costs. In addition, this group of customers are very sensitive to price and responds very well with promotions and discounts. Second, regarding age, with its current design and facilities, Travelodge is suitable for more mature people in their late 20s to 50s who prefer a quiet and traditional-looking accommodation. In addition, Travelodge also appeals to couples with children. Families require additional services and amenities to accommodate their children such as baby station, additional beds, kids’ playground, etc.
To determine Travelodge’s positioning, the 4Ps technique is employed to analyse the hotel’s key defining characteristics. For Travelodge’s positioning on the international market, its 4Ps elements are as followed:
Product: Travelodge offers accommodation and related services for guests. Their products include fully-furnished double room and family room with a limited range of services such as Wifi, reception, room services. As a budget hotel, its infrastructure is standard and suitable for short stay. Since businessmen are also among regular hotel occupants, Travelodge should also provide facilities and services that cater to their specific needs.
Price: Travelodge is committed to providing the best services at the cheapest prices, targeting low-income and casual travelers. It also runs competitive promotional programs including special offers for early booking and other special deals. This further lowers Travelodge’s price and gives a boost to its guests’ demands.
Promotion: To appeal customers in a new market, the advertising medium should be suitable for each market. Discounts and special offers almost always work for budget hotel since price is one of the most important factors Travelodge’s target customers consider. Besides, with the rise of the Internet and the globalisation process, digital marketing is the most effective promotional channel, reaching to users globally.
Place: Unlike luxury hotels which can afford to locate at the most strategic and expensive locations, most budget hotels have limited options when it comes to location. For Travelodge, the areas along the roads close to or at the entrance of the city are more suitable.
III. Market Entry Strategies for International Expansion
Entry strategies into a foreign market can be classified into three categories including exportation, know-how and technology transfer, and foreign direct investment. These schemes are broadly defined as equity (establishing wholly owned subsidiary, joint ventures) and non-equity methods (franchise, management service contract (Bailey, 1998). There exist various factors that managers have to consider before making their decisions. For example, according to a research by Claver and Andreu (2007), cultural distance lowers the possibility of choosing equity entry modes, while profitability and financial strengths motivate companies to make greater efforts to integrate into the global economy. Another example is that if customer service is not the company’s main competitive advantage, the company can hire third-party interests to operate the hotel (non-equity method). If the physical infrastructure is the company’s main selling point, and the local market has adequate resources to construct and maintain the infrastructure, the company can try establishing a wholly owned branch (Dev, Brown, & Zhou, 2007).
Market entry strategy
As for Travelodge, like many other budget hotel, it does not operate fancy hotel facilities or provide overly sophisticated personalized services. It main strengths include providing quality service at affordable price, special deals and promotion, hotel management expertise accumulating after over 3 decades of operation, and a well-established reputation in its home market. Therefore, the company can consider franchising as the prioritized entry mode.
If using franchising method, Travelodge can enjoy such benefits as low risks, known set-up costs, accessing readily available knowledge and process, and economies of scales for some activities such as marketing, business consulting, etc. However, the company should be cautioned since at least in the initial stage, profit can be lower than other forms of investment. Also, the company will have less control over the business since it has to standardize its operation and facilities and strictly follows the business model proscribed by the franchise contract. On top of that, finding competent partners at host markets is very critical but can also be very tricky (Salar & Salar, 2014). In order to prepare for franchising, first, Travelodge should streamline and standardize its internal management procedures and its external infrastructure. Second, Travelodge can cooperate with a law firm in the target market to protect its rights and hire a local business consultancy firm to advise and connect it with potential partners.
IV. Product and Service plan and Pricing plan
With regard to Travelodge’s pricing strategy, from the analysis, it is established that Travelodge sticks to the low pricing strategy, matching that of their competitors in the host markets. The pricing should also reflect the peak and off-peak seasonal demands. For example, the price should be higher during summer months since it is the travelling season; room price for weekends is also higher than week days. Products or services that are of lesser demand for typical guests at Travelodge such as in-door dining or additional room services are charged more than average while products and services of high demand are charged more competitively.
As for product and service plan, different from full-service, hi-end hotels, budget hotel – the type of accommodation product that aims to meet the demand of general population and travelers who travel on budget – is characterized by supplying basic services with low price. In other words, budget hotel focuses on comfort and convenience instead of sophistication (Bezerra & Melo, 2003). In line with Travelodge’s product positioning, Travelodge can consider providing these following products and services:
King size bed, pillows, showers, TV with up to 17 channels, white towels, desk, tea and coffee making facilities
£29/night to £50/night
Additional one or two pullout bed
Additional cost of £5 per additional pullout bed
Smaller in size
£25 - £45/ night
Special guest rooms for handicapped people
Specially-designed for handicapped people
£25 - £45/ night
Reception desk and a resting area
Correspond to the number of rooms
£2 per day
04 computers with access to the Internet, printer, scanner
£5 for every 10 pages
cleaning, changing bathroom and bed items
Subject to the service price at the local market
V. Ethics and Sustainability
First, the most common ethical consideration among accommodation providers is price fixing, or hotel “call arounds” , referring to the practice of the front desk managers calling other nearby hotels to inquire or exchange their rates and availability and adjust their short term rates to increase their profits (Frye, 2011). This practice is not only faulty because most of the times the other hotels fail to provide the correct room rate and occupancy rate, but it is also considered illegal business practice under anti-trust law in the UK as well as most of other European countries. Therefore, Travelodge should actively prohibit this practice and educate its employees about the implications of doing so.
Second, false advertising – the act of using inaccurate statements in public advertisement with an aim to influence customers’ action based on incorrect information (Campbell, 1995) – is another concerns among guests. To avoid this practice, the company should carefully scrutinize its advertisement messages to customers, and hold the marketing executives accountable for the authenticity and honesty of its advertisements. Local legal regulation regarding advertisement should also be studied thoroughly and complied.
Moreover, overbooking is also a regular practice adopted by budget hotels, and Travelodge was found guilty of it in the past. This behaviour does not only cause frustration and annoyance among guests, but in the long run can ruin the company’s reputation. In order to eradicate or avoid these issues, Travelodge has to promulgate and implement strict internal regulations to prohibit these activities and promote a positive organisational culture that foster healthy competition.
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