7 Days Inn: Operations Strategy Harvard Case Solution & Analysis

Bargaining power of buyers is high

In the hotel industry in China, bargaining power of buyers is found to be extremely high. The very first reason is the low switching cost for the buyers. It is not a problem for the buyers to switch from one hotel to another because there are so many alternatives and other options available for them. In addition to this, the competition is high in the industry therefore; rivals are always in a search for opportunity to grab customers from each other.

Moreover, customers in this segment have an option to choose between cheap and premium hotels therefore, if a hotel is charging premium pricing then it has to justify its premium pricing properly and effectively or else the customers will switch to another brand. However, it is also a fact that premium hotels are generally not perceived as economical that can be a positive factor for the company. Along with this, cheap hotels are not up-to the mark in terms of quality and service level and thus becomes least desirable for the customers.

In this situation, bringing and implementing the concept of economic hotel will be extremely successful. In addition to this, the company is known to be a niche product oriented company with the sleeping well every day service concept meeting the basic demand of the customers that is accommodation with a higher qualitative service like bed, washrooms and internet access.

Bargaining power of suppliers is low

As far as the suppliers in the hotel industry are concerned, there are no such suppliers in the narrow sense. However, investors as franchisees and shareholders on the New York Stock Exchange can be one form of supplier for the company. These suppliers are the source of capital for the company. In addition to this, the shareholders of the company that are on the New York Stock Exchange have no such bargaining power in terms of shareholders right thus, it is a positive factor for the company.

However, there is always a threat for the company that their investors or franchisees could withdraw the capital that they have invested in the company. Last but not the least, the investors of the company have an access and author to make changes and participate in the decision making process of the company.

Degree of competitive rivalry is low

If the competition in an industry is found to be high then the competitors are found engaged mostly in doing price wars. In addition to this, they are often found engaged in making investment in new and innovative products to differentiate from rest of the industry. As far as the hotel industry in china is concerned, the degree of competitive rivalry is found to be low because there is little or no competition in the hotel industry.

Moreover, the 7 Days inn is known to be one of the top most hotels in the hotel industry in China with having more than 1000 hotels in almost 168 cities of China with having 30 million customers. These factors are extremely positive and treated as a major strength for the company whilst competing against rivals. Moreover, there has been little growth in the industry that has been observed from the past seven years. Furthermore, barriers to exit are also high along with barriers to entry if competitors are on the market.

However, the switching cost of buyers is low in the market thus; they can easily be taken by the competitors. However, the product differentiation of the company that is “sleeping well every day” service is meeting the basic demand of the customers that is having better accommodation facilities along with higher quality service.

Threat of substitution is high

A product is known to be a substitute if it is providing and fulfilling the same needs of a product. It is a product that might be from another industry but serving the same purpose. In the hotel industry the threat of substitutes is found to be high for several reasons. First, the switching cost of buyers is extremely low and thus; the buyers or customers can make an easy switch from one product to another. Secondly, the customers in the hotel industry also have an option to make a choice between cheap and premium priced hotels and that can also be a negative point for the company in terms of threat of substitutes.

Nevertheless, all the premium hotels are not perceived as economical by the customers and the cheap hotels are generally perceived as low in terms of quality and service. Niche product with the “Sleeping well Every Day“ service and the vertical cutting concept is very competitive due to high performance/price ratio (150-170 RMB per room and day). Moreover, highest online booking rate and most visited website in the hotel industry worldwide 30 Million and the company’s own reservation system cannot be easily substitutable............................

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