The Ritz-Carlton Hotel Company operates within the upscale & luxury hotel industry. While it could be argued that Ritz-Carlton operates in the more broad and inclusive lodging industry, they offer a highly differentiated product and service and therefore find themselves operating in an exclusive industry alongside very few direct competitors, such as Four Seasons Hotels, HongKong and Shanghai Hotels, and Starwood Hotels & Resorts. Therefore when analyzing this industry I will not be including cheap hotels, motels, lodges, or inns, unless to offer potential substitutes to luxury hotels. In order to assess the attractiveness of the upscale & luxury hotel industry, an analysis of the general environment surrounding the industry must be …show more content…

With regard to the upscale and luxury hotel industry the threat of entry is low due to high barriers of entry. A major barrier to entry into the luxury hotel industry is the presence of economies of scale, or the economic advantage associated with expansion. Growing and expanding luxury hotel chains enjoy economies of scale because every hotel they build and every market they tap in to, results in higher margins. Another barrier to entry is the highly differentiated products and services offered by luxury hotels. Not only do potential firms have to bear the high costs of start-up, but also must overcome the major advantage incumbent firms enjoy due to their differentiation strategies. Brand loyalty to incumbent firms is another barrier to entry, making it nearly impossible for a new firm to enter the industry and command any considerable share of the market. Lastly, threat of entry is low due to the high cost and learning advantages that most incumbent firms benefit from. (Exhibit 2) The next threat to consider is that of rivalry. Within the luxury hotel industry the threat of rivalry can be measured as moderate. Although the industry is occupied by few competitors and deals with highly differentiated products and services, signs of low rivalry, the industry also exhibits high fixed costs and current slow growth, which are signs of high rivalry. Therefore the threat can neither be measured as