• Marriott Starwood Megamerger: Why and What’s the Likely Impact?

    Marriott International has announced that it will acquire Starwood Hotels & Resorts for $12.2 billion, creating the world’s largest hotel chain. This is the largest hotel merger deal since the Blackstone group acquired Hilton hotels for about $26 billion in 2007.

    Why the megamerger now? Starwood stock has been languishing for a while now as investors felt it has not grown fast enough, especially in the affordable hospitality segment. It had explored a sale with Intercontinental Group and Hyatt being possible suitors. Marriott, under CEO, Arne Sorenson has been growing with acquisitions, including the recent purchase of Delta hotels of Canada. It considered Starwood as an opportunity to acquire earlier but found a stock price of $84 to be too expensive. At Starwood’s current price of $72, however, Marriott found it attractive to buy. The combined hotel chain will be in 100 countries with 5,500 properties and 1.1 million guest rooms. Marriott hopes to achieve a cost savings of $200m over two years.

    What is the business rationale for the merger? First, scale is becoming important in the lodging industry. Being able to leverage a larger reservation system to improve occupancy rate and raise Revpar (revenue per available room) is key to profitable growth. Marriott and Starwood are best positioned to combine their strengths in this regard. Second, both these brands can consolidate their loyalty programs and improve loyalty rate and customer lifetime value. Third, the biggest hotel chain will have greater bargaining power over its suppliers and control over its costs. Fourth, because technology is redefining customer experience in the hospitality industry and is capital intensive, the merged company will have a greater ability to shape customer experience.

    What kind of impact will it likely have on travelers and the industry? Like when two big airlines merge, travelers will have the opportunity to benefit from enhanced status when Marriott and Starwood loyalty programs combine.  Customers can search more efficiently for properties under one roof. However, in the past, they might have had choices between competing brands with better prices. Now, they might find the prices of different hotel brands to be coordinated. The combined entity might also retire some brands if it concludes that they are too expensive to maintain as separate brands. The industry will have an 800 pound gorilla that would make it harder for chains like Hyatt and Wyndham to compete. It might offer more opportunities for the companies to innovate around customer experience and business processes.

    Given that the merger needs approvals at several levels, it may be too early to predict what might happen. But it is a watershed event in the hotel industry and we can’t wait to see what lies ahead.

    http://cnb.cx/1lr91RG

  • Amazon Opens a Physical Store. Will it Lead to More Physical Stores?

    Amazon opened its first physical bookstore in Seattle on Nov 2. This is not the first time a pure play online retailer has opened a bricks-and-mortar store. Warby Parker and Bonobos have done it before. But Amazon is the 800 pound Gorilla of online retailing and has steadfastly resisted going offline thus far.

    So why did Amazon bite the bullet and open its physical store? Several factors may explain this development. First, despite the phenomenal growth in online retail, a substantial chunk of sales is still offline. People still love to go to physical bookstores and browse books. Second, it could just be an experiment. Amazon may want to test the waters offline given that many pure play online retailers have been doing it before. Third, it could be firing a salvo at Walmart, the world’s biggest offline retailer and its biggest rival, which has made tremendous strides in online retail. Fourth, it may be changing the way brick-and-mortar stores designed. It has designed its physical store with data collected from its online store based on customer reviews and sales measures. Finally, sales of e-books may be leveling or even falling.

    Whatever the reason, when the world’s most valuable retailer like Amazon enters the physical turf, it promises to elevate omnichannel retailing to a new level. Let the games begin!

  • From Cost Obsession to Customer Orientation: Ryan Air

    Does a focus change from excessive cost obsession to customer friendliness lead to better performance? Ask Ryan Air.

    http://cnnmon.ie/1GI2CLE

  • Game-changing Innovation in the Paint Industry?

    Companies dream of creating game-changing innovations in their spaces. By definition, a game-changing innovation transforms customer behavior, competition and market outcomes in its industry. It dramatically alters the game by delivering substantially superior customer value, replacing existing alternatives. Such superior value can be generated by multifold increase in benefits or a drastic reduction in costs or both. Often such value can only be created through technological breakthroughs or ecosystem advances or both, which are hard to come by. Therefore, game-changing innovations rare.

    In the paint industry, Sherwin-Williams (SW) may have created a game changing innovation. Calling it ‘Paint Shield,’ SW claims that the new paint kills bacteria on surfaces after about two hours of application and that this safeguard may last up to four years. If this is well accepted by the market, it add tremendous value to health care institutions, hotels, schools, cruise ships, day care centers, and homes. In particular, for the U.S. hospitals, it can potentially help save several lives lost to accidental bacterial infections and cut $30 billion in annual costs. This potential impact is only in theory.

    In practice, however, Paint Shield’s success would depend on how effective it holds up against its own claims, how well it is marketed and serviced, and how easily it is embraced in the ecosystem. First, SW has to demonstrate its effectiveness in use by selling, tracking, and documenting its success in big hospitals before moving to market it to all its target audience. SW should also learn from these lead users and adapt its offering. This process can be slow initially but could be extremely rewarding later. The success of Salesforce.com is a classic case of battling against the existing ecosystem to succeed with a disruptive innovation. Second, since not every customer is ready to repaint its doors, walls, and ceilings at any given time, SW has to target those with immediate needs and make compelling initial offers to those prospects to induce them to repaint earlier than needed. Third, it should be prepared to cannibalize its own existing profitable offerings. Unwillingness or slowness to cannibalize has resulted in the downfall of many a heavyweight company. The likes of Xerox, Kodak, Nokia and Blackberry come to mind.

    It is too early predict whether Paint Shield will be a game changer, but it is an exciting development among the humdrum of incremental innovations. Its success will depend on SW’s marketing strategies and actions.

    cnnmon.ie/1GS9zJZ

  • Amazon’s $50 tablet: Why Amazon does not Get it!

    Amazon is going to launch a $50 tablet for the holiday season. It is hoping to lure more people to buy its cheap device and sell its services such as e-books and video rentals. It is also trying to challenge Apple’s stranglehold on the tablet market.

    Amazon’s attempts at offering a low-cost tablet and trying to sell services through it are not new. Remember, Amazon had slashed the price of its Kindle, its e- reader, to $79. It also tried to offer a free year of Amazon Prime (worth $99 at that time) to sell its somewhat pricier Fire smartphone. After both these launches met with lukewarm reception by customers, jokes started flying: the former did n’t exactly ‘kindle’ sales and the latter was a ‘prime’ failure ($170million write-off for unsold inventory).

    So what’s Amazon’s strategy behind the $50 tablet? Will it take off? It appears that Amazon is betting that the ‘razor and blade’ business model of giving the razor cheap and selling blades will eventually work at some low price point–in this case $50. However, for this strategy to work, the razor itself should not offer much of the value, but the blades should. That is, customers should value the services that accompany the device far more than the device. Here is where Amazon does not seem to get it. It is unclear whether Amazon’s services will trump the benefits of an iPad. Also, when people buy a tablet like iPad, they are buying it not only for the host of superior features, such as a sharp camera, ease of use, and synching with music (iTunes), they are also buying into the “cool factor” synonymous with Apple’s products. The cool factor is so aspirational that even many cost-conscious customers would wait to save up to buy an iPad rather than go for the lowest priced tablet. So it might be another uphill and frustrating experience for Amazon.

    Amazon’s announcement could also be a tactical move of taking the wind out of Apple’s upcoming new iPad launch announcement. The idea is to freeze any potential purchases by low-end customers and make them wait until the holiday season to try out Amazon’s ultra-cheap tablet. However, I cannot recall a time when a rival stalled Apple’s sales as the latter announced its next product(s). If tactical maneuver is Amazon’s goal, it appears that the $50 tablet would only remain a cheap trick or at best provide a cheap thrill to Amazon.

  • The Future of Massive Open Online Courses (MOOC)

    About six years after they made a dramatic splash, have MOOCs moved from their promise of education for all to education for employability?

  • How to Increase Social Media Followers and Sales? Ask Uniqlo

    Growing sales is an important goal for every retailer. How do you do it in a foreign country and a huge market where you are relatively unknown? How do you leverage social and mobile media? If you are thinking along the lines of conventional strategies such as run promotions using social media and create a contest, think again. In the Chinese market, Uniqlo, the Japanese fast fashion retailer, used a simple but powerful idea, comprising the following principles.

    • Be relevant to everyday life of shoppers through social and mobile media.
    • Use physical stores to let shoppers try out its clothes, take selfies and pictures against exotic backgrounds, and share with their friends.
    • Create buzz and excitement around the brand through fun associations.

    The results were impressive; WeChat (China’s ubiquitous social mobile app), users doubled and sales of some items rose by as much as 30%.

    Lessons learned? Be relevant, keep it simple, and think different. 

  • How to Recruit the Best High Level Talent with the Right Questions

    Recruiting at a senior level is a hard job. Interviewing a senior, experienced person to discern whether that person is right for the top job is not easy. Most senior people are skilled at giving the desired responses. Surprisingly, a simple question such as “Please tell me your professional story” followed by intermittent questions and active listening may do the trick.

  • Do Companies with Marketing CEOs Create More Shareholder Value?

    With the stock market posting record declines in the last several days, the focus is on shareholder value or market capitalization of companies. A key to improving shareholder value is demand growth, which is typically more conducive under a marketing CEO. A relevant question is: What proportion of CEOs have marketing background? Importantly, do companies whose CEOs have marketing background have greater market capitalization than firms whose CEOs have non-marketing background, such as accounting, finance, operations, and legal/law?

    To answer these questions, I studied Fortune 500 firms in 2006 and 2012-14. The preliminary findings of my study offers fascinating insights. The proportion of marketing CEOs have more than doubled during this period. Curiously, the market capitalization of companies with marketing CEOs are significantly higher than those of firms with non-marketing CEOs (See the video of American Marketing Association’s interview of me https://youtu.be/cDttMnqQBNM). Why and how is this the case? To answer this question, I’m on to my next phase of my study. Stay tuned for more findings. https://youtu.be/cDttMnqQBNM