From Holiday Inns to the InterContinental Hotels Group The history of the Holiday Inn motel chain is one of the great success stories in United States business. Its founder, Kemmons Wilson, while vacationing in the early-1950s, found the motels he stayed in to be small, expensive, and of unpredictable quality. This discovery, along with an unprecedented amount of highway travel due to the new, integrated interstate highway program, triggered a realization: there was an unmet customer need—a gap in the market for quality accommodations. Holiday Inn was founded to meet that need. From the beginning, Holiday Inn set the standard for offering motel features such as air-conditioning and icemakers while keeping room rates reasonable. These amenities enhanced the motels’ popularity, and motel franchising, which was Wilson’s own invention, made rapid expansion possible. By 1960, Holiday Inn hotels could be found in virtually every major city and on every major highway. Before the 1960s ended, more than 1,000 were in full operation, and occupancy rates averaged 80%. The concept of mass accommodation had arrived. Holiday Inn offered a service that appealed to the average traveler, who wanted a standardized product (a room) at an average price—the middle of the hotel room market. But by the 1970s, travelers were beginning to make different demands on hotels and motels. Some wanted luxury and were willing to pay higher prices for better accommodations and service. Others sought low prices and accepted rock-bottom quality and service in exchange for luxury. As the market fragmented into different groups of customers with different needs, Holiday Inn continued to offer an undifferentiated, average-cost, average-quality product. Although Holiday Inn missed the change in the market and failed to respond appropriately to it, the competition did not. Companies such as Hyatt siphoned off the top end of the market, where quality and service sold rooms. Chains such as Motel 6 and Days Inn captured the basic-quality, low-price end of the market. Many specialty chains that appealed to business travelers, families, or self-caterers (people who wanted to cook in their hotel rooms) were in between. Holiday Inn’s position was attacked from all directions. As occupancy rates drastically dropped and competition increased, profitability declined. Wounded but not dead, Holiday Inn began a “counterattack.” The original chain was upgraded to suit quality-oriented travelers. Then, to meet the needs of different types of travelers, Holiday Inn created new hotel and motel chains: the luxury Crowne Plaza, Hampton Inn serving the low-priced end of the market; and the all-suite Embassy Suites. Thus, Holiday Inn attempted to meet the demands of the many niches, or segments, of the hotel market that have emerged as customers’ needs have changed over time. These moves were successful in the early-1990s, and Holiday Inn has since grown to become one of the largest suppliers of hotel rooms in the industry. However, by the late-1990s, falling revenues made it clear that with intense competition from other chains such as Marriott, Holiday Inn was once again losing its differentiated appeal. In the fast-changing hotel and lodging market, positioning each hotel brand or chain to maximize customer demand is a continuing endeavor. In 2000, the pressure on all hotel chains to adapt to the challenges of global competition and to become globally differentiated brands led to the purchase of Holiday Inn, and its incorporation into the InterContinental Hotels Group chain. Today, more than 3,200 hotels around the globe, flying the flags of Holiday Inn, Holiday Inn Express, Crowne Plaza, Candlewood Suites, Staybridge Suites, and luxury InterContinental Hotels and Resorts are positioning to offer the services, amenities, and lodging experiences that will cater to every travel occasion and guest need. In the 2010s, the company is continuing its massive modernization campaign in the United States to evolve the existing full-service Holiday Inns to their next inception. InterContinental Hotels plans to make available a hotel room to meet the need of every segment of the lodging market anywhere in the world. Question : How has competition changed the strategies behind the InterContinental Hotels Group’s business model over time?
CASE STUDY
From Holiday Inns to the InterContinental Hotels Group
The history of the Holiday Inn motel chain is one of the great success stories in United States business. Its founder, Kemmons Wilson, while vacationing in the early-1950s, found the motels he stayed in to be small, expensive, and of unpredictable quality. This discovery, along with an unprecedented amount of highway travel due to the new, integrated interstate highway program, triggered a realization: there was an unmet customer need—a gap in the market for quality accommodations. Holiday Inn was founded to meet that need. From the beginning, Holiday Inn set the standard for offering motel features such as air-conditioning and icemakers while keeping room rates reasonable. These amenities enhanced the motels’ popularity, and motel franchising, which was Wilson’s own invention, made rapid expansion possible. By 1960, Holiday Inn hotels could be found in virtually every major city and on every major highway. Before the 1960s ended, more than 1,000 were in full operation, and occupancy rates averaged 80%. The concept of mass accommodation had arrived. Holiday Inn offered a service that appealed to the average traveler, who wanted a standardized product (a room) at an average price—the middle of the hotel room market. But by the 1970s, travelers were beginning to make different demands on hotels and motels. Some wanted luxury and were willing to pay higher prices for better accommodations and service. Others sought low prices and accepted rock-bottom quality and service in exchange for luxury. As the market fragmented into different groups of customers with different needs, Holiday Inn continued to offer an undifferentiated, average-cost, average-quality product.
Although Holiday Inn missed the change in the market and failed to respond appropriately to it, the competition did not. Companies such as Hyatt siphoned off the top end of the market, where quality and service sold rooms. Chains such as Motel 6 and Days Inn captured the basic-quality, low-price end of the market. Many specialty chains that appealed to business travelers, families, or self-caterers (people who wanted to cook in their hotel rooms) were in between. Holiday Inn’s position was attacked from all directions. As occupancy rates drastically dropped and competition increased, profitability declined. Wounded but not dead, Holiday Inn began a “counterattack.” The original chain was upgraded to suit quality-oriented travelers. Then, to meet the needs of different types of travelers, Holiday Inn created new hotel and motel chains: the luxury Crowne Plaza, Hampton Inn serving the low-priced end of the market; and the all-suite Embassy Suites. Thus, Holiday Inn attempted to meet the demands of the many niches, or segments, of the hotel market that have emerged as customers’ needs have changed over time. These moves were successful in the early-1990s, and Holiday Inn has since grown to become one of the largest suppliers of hotel rooms in the industry. However, by the late-1990s, falling revenues made it clear that with intense competition from other chains such as Marriott, Holiday Inn was once again losing its differentiated appeal.
In the fast-changing hotel and lodging market, positioning each hotel brand or chain to maximize customer demand is a continuing endeavor. In 2000, the pressure on all hotel chains to adapt to the challenges of global competition and to become globally differentiated brands led to the purchase of Holiday Inn, and its incorporation into the InterContinental Hotels Group chain. Today, more than 3,200 hotels around the globe, flying the flags of Holiday Inn, Holiday Inn Express, Crowne Plaza, Candlewood Suites, Staybridge Suites, and luxury InterContinental Hotels and Resorts are positioning to offer the services, amenities, and lodging experiences that will cater to every travel occasion and guest need. In the 2010s, the company is continuing its massive modernization campaign in the United States to evolve the existing full-service Holiday Inns to their next inception. InterContinental Hotels plans to make available a hotel room to meet the need of every segment of the lodging market anywhere in the world.
Question :
How has competition changed the strategies behind the InterContinental Hotels Group’s business model over time?
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