Case Scenario: Holiday Inns on Six Continents

The history of the Holiday Inn motel chain is one of the great success stories in United States business. Its founder, Emmons Wilson, vacationing in the early 1950s, found motels to be small, expensive, and of unpredictable quality. This discovery, along with the prospect of unprecedented highway travel that would come with the new interstate highway program, triggered a realization: there was an unmet customer need-a gap in the market for quality accommodations.20 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, Wilson's invention, made rapid expansion possible. By 1960, Holiday Inns could be found in virtually every 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. The service Holiday Inn offered 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.

As the market fragmented into different groups of customers with different needs, Holiday Inn was still offering an undifferentiated, average-cost, average-quality product. Although Holiday Inn missed the change in the market and thus 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. In between were many specialty chains that appealed to business travelers, families, or self-caterers (people who want to be able to cook in their hotel rooms). Holiday Inn's position was attacked from all sides. As occupancy rates dropped drastically with increasing competition, 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 kinds 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 grew 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 in the industry from other chains such as Marriott, Holiday Inn was once again losing its differentiated appeal.21 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 become globally differentiated brands led to the takeover of Holiday Inn and its incorporation into the international Six Continents Hotels chain. Today, around the globe, more than 3,200 hotels flying the flags of Holiday Inn, Holiday Inn Express, Crowne Plaza, Stay bridge Suites by Holiday Inn, and luxury Inter-Continental Hotels and Resorts are positioning themselves to offer the services, amenities, and lodging experiences that will cater to virtually every travel occasion and guest need.22 In the 2000s, the company has undertaken a massive modernization campaign in the United States to take existing full-service Holiday Inns to their next evolution. Holiday Inn plans to have a room to meet the need of every segment of the lodging market anywhere in the world.

Case Discussion Questions

1. Why did Holiday Inn's business model and strategies change over time?

2. What are the strategies behind the Six Continents Hotels current business model? In what ways is it trying to improve its competitive advantage?