Marriott Hotels to Develop E-commerce Strategy

Case Type: operations strategy.
Consulting Firm: Diamond Management & Technology Consultants (now PwC Advisory) 2nd round summer associate interview.
Industry Coverage: Tourism, Hospitality & Lodging; E-commerce, Online Business.

Case Interview Question #00130: You client Marriott Hotels (NYSE: MAR) is a large lodging company and franchisor of a broad portfolio of hotels and related lodging facilities. Their strategy has been to maintain and develop their brands. They have about 10% market share and this makes them one of the largest players in the hotel and lodging industry.

The year is 1999. Your client is concerned with the impact of the Internet. They currently have a web site that allows customers to make reservations at their hotels. They expect to do somewhere between $50 and $90 million worth of business through their website next year. They want you to develop an e-commerce strategy that will prevent them from losing business to their competition and help them maintain and develop their brands. How would you go about it?

Possible Answers:

Interviewee: The case has at least three levels. The first level can be attacked using the basic three C’s framework.

Competition: Think about who the competitors are in this situation. There are two groups, the traditional competitors – other large lodging companies (Hilton Hotels, Hyatt Hotels) and new competitors providing travel services on the web. (By identifying these two groups, you can ask some pointed questions: What are the traditional competitors doing on the web?)

Interviewer: Most of them are in wait and see mode. Everyone has a web page. Some can make reservations on-line , some cannot.

Interviewee: Are there new competitors such as startups that are providing travel-related services?

Interviewer: Yes, they are still young, but growing fast. They provide many services such as rate comparisons and availability searches across competing providers of travel services.

Interviewee: (This answer should prompt deeper investigation) What travel offerings are start-ups selling?

Interviewer: Some are doing hotels, some transportation, some are attempting to combine many services. It is not clear what will happen. These new companies are aggressive and are trying many innovative things that may or may not work.

Interviewee: (At this point you have some good competitor information that will be useful in levels 2 and 3 of the case, but time is short so it is probably a good idea to move on.)

Customers: It is always good to find out how the clients customers are segmented. This is a basic and very fair 3Cs question to ask. In this case the client is large and has customers across the spectrum. The high level segments are business travelers and vacationers. Business travelers are generally less price sensitive than vacationers.

In this case it is a good idea to dive a little deeper by asking more questions based on the information you uncovered so far: Which customer segments are currently using the clients web site?

Interviewer: The web site is currently used primarily by business travelers.

Interviewee: What types of customers are using the competitor’s web sites?

Interviewer: For traditional competitors the client thinks that they are similar to their own. For startups, they don’t know, they are looking to you for these answers. We do know that some new sites are targeted to vacationers, others to business travelers, some to both.

Interviewee: Company/Capabilities: You already have much of the basic information about the company so you probably don’t need to spend much time here gathering more basic information. A good question here would be to better understand the project: What are the clients objectives for their e-commerce strategy?

Interviewer: They aren’t sure, they are looking to you to help understand what is possible. They are worried about competition and want to build their brands.

Interviewee: It may also be good to understand the financial situation of the company:
How does the balance sheet look, do they have the money to do anything?

Interviewer: The finances are sound. The client has the capability to invest but the investment must be justified.

Interviewee: At this point you have done a good 3C’s analysis. Now comes the hard part, what next? This is level 2 of this case. It is not going to be possible to develop a brilliant and comprehensive e-commerce strategy in 20 minutes so a good tactic for attacking a broad strategy question is to develop a short list of options:

The Client has at least 3 options:

Option 1. Stay the course. Continue to enhance the current web site to make it user friendly, provide some incentives for reserving on line, track customer information to learn more about customers. Hope that strength of brands and customer loyalty will maintain market share and revenues. This option will have the lowest impact but makes our client vulnerable to losing business to innovative startups.

Option 2. Focus on cooperating with winning startups and make sure that their brands get good positioning. This would work best if there are clear winners in web travel services. However, if the client is concerned about brand building, this option may not provide the control they would want. They risk being “commoditized” by sites that focus only on price.

Option 3. Develop a comprehensive travel services website that competes with the startups and meets all of the travel the needs of our client’s customers. The client is a leader in the lodging and can leverage experience and brand equity to build a successful Internet business. This strategy is customer focussed and provides the control that the client can use for brand building.

At this point you can further evaluate each option using a cost/benefit or risk/reward framework and follow up with a plan to do additional research and analysis that would allow you to select the right choice for the client. However, it is likely that the interviewer will interrupt and challenge you with questions about an area that they want to examine further. In this case, the interviewer might say:

Interviewer: OK, those are good options, the client is very excited about option 3, they want to be aggressive and build their own Internet business. However, senior management is concerned about the impact that starting a new business will have on their EPS (earnings per share). What should they do to deal with this problem?

Interviewee: Again, listing some options might be a good approach. They could mitigate the risk by partnering. Potential partners could be airlines or existing startup travel services websites with weak lodging offerings.

They might also look to obtain venture financing to fund part of the business. If they are not concerned with losing control of the new business they could spin it off completely and make a small investment that would not require them to consolidate the financials of the new companies.

Depending on how much time you have, you could continue this line of discussion by asking what options the client might prefer and then further developing those options. However, if time is short it is always a good idea to summarize.