• 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

  • Service Innovativeness and Firm Value

    Service innovativeness and firm value JMR 2013

    by Thomas Dotzel, Venkatesh Shankar, and Leonard L. Berry

    This article was published in Journal of Marketing Research.

    Service innovativeness, or the propensity to introduce service innovations to satisfy customers and improve firm value at acceptable risk, has become a critical organizational capability. Service innovations are enabled primarily by the Internet or people, corresponding to two types of innovativeness, e- and p-innovativeness. The authors examine the determinants of service innovativeness and its interrelationships with firm-level customer satisfaction, firm value, and firm risk and investigate the differences between e- and p-innovativeness in these relationships. They develop a conceptual model and estimate a system of equations on a unique panel data set of 1,049 innovations over five years, using zero-inflated negative binomial regression and seemingly unrelated regression approaches. The results reveal important asymmetries between e- and p-innovativeness. While e-innovativeness has a positive and significant direct effect on firm value, p-innovativeness does not. P-innovativeness has an overall significantly positive effect on firm value through its positive effect on customer satisfaction, but only in human-dominated industries. Both e- and p-innovativeness are positively associated with idiosyncratic risk, but customer satisfaction partially mediates this relationship for p-innovativeness to lower this risk in human-dominated industries. The findings suggest that firms should nurture e-innovativeness in most industries and p-innovativeness in human-dominated industries.

  • Creating New Markets Through Service Innovations

    by Leonard Berry, Venkatesh Shankar, Janet Parish, Susan Cadwallader, and Thomas Dotzel

    This article was published in MIT Sloan Management Review. 47 (Winter 2006), 56-63.

    Many companies make icremental improvements to their service offerings, but few succeed in creating service innovations that generate new markets or reshape existing ones. To move in that direction, executives must understand the different types of market-creating service innovations as well as the nince factors that enable these service innovations.