Cover Story

Partners in progress

Fluidly interlocking into the fabric of business, alliances are indispensable drivers of growth in the hospitality industry, finds out Neeti Mehra

Kuoni Academy of Travel (KAT) organised a training course for the Mumbai Tourism Police - an example of public private partnerships

"The forces of a powerful ally can be useful and good to those who have recourse to them...but are perilous to those who become dependent on them." Niccolo Machiavelli, political genius and commentator, penned the aforementioned somewhat sinister version of alliances in his epochal 'The Prince'. While Machiavellianism alludes to alliances amongst unequals, the end justifying the means, in the realms of commerce it refers to a symbiotic relationship for mutual benefit between likeminded partners, equals in their own stead.

Historically, alliances resulted from spontaneous cooperation between people. The resultant synergies and innate power of a massive, yet heterogeneous body, with a unified objective furthered the interest of its constituent members. This flagged off its initial popularity in tourism, in a fragmented marketplace (multiple players, unique separately governed destinations), where resources were limited (state controlled budgets, limited resources to reach a global marketplace), and the industry - heavily regulated (traditionally and till date - aviation).

The composite benefits of these associations weren't always visible to the end consumer and government. Having been perceived as a threat to a free economy as cartels, they resulted in taking recourse to anti-trust immunity in extreme cases, an attempt to prove them as pro-consumer and pro-competition.

The scenario here is now replicating global patterns. India, since independence, followed the socialist ideal with state control on resources, both natural and manmade. Most tourism policies were grounded in socio-political leanings and macro economic connotations with development restricted by the license-permit Raj. A tourism policy came into the picture as late as 1982 and a national Action Plan for Tourism, just 10 years later.

An isolationist approach followed by the democratic government, a crippling paucity of funds to fuel growth, and an absence of infrastructure kept demand to the minimal. This somewhat bleak and regulated landscape drove strategic alliances to the forefront, with partners leveraging benefits of access to additional resources and a strong brand to increase network. This was primarily outward, be it airlines through code-sharing or hotels through marketing and franchise agreements, and much later in the day, through tactical alliances.

The opening of the economy stimulated tourism, which was growing till then in spurts and gasps. Today, the world's eyes are focused on India, and rightly so. The World Travel & Tourism Council's (WTTC) projection of travel and tourism growth for 2006-2015 in India is a staggering annualised rate of 8.6 per cent. Logically, the scenario impels one to capitalise on and leverage the strength of a partner, before the dust settles.

The fundamentals of alliances

When this journalist confronted the industry for their reasons to enter into alliances, the common response from all corners was because they represent a quintessential win-win situation with a trickle-down effect to consumers.

"Alliances fall in the category of either strategic alliances at one end of the spectrum (such as a co-branded product and code-sharing which is demanding on resources) or a time-bound tactical promotion at the other end," explains Ratnesh Verma, area director (South Asia) at Hyatt International Hotels & Resorts. Each segment has a valid reason for an alliance, objectives being clearly etched out by the partners, benefiting consumers and bringing economic benefits to the parties.

A critical aspect of an alliance is the partner. Most organisations have a diktat to affiliate with the right partner, a brand which is the right fit with their own growth as well as the time frame to meet mutual objectives, taking cognisance of investments. Sunil Mathur, director of development (Indian Ocean & Middle East) at Cendant Hotel Group International, elucidates, "For a successful alliance, you look for a like-minded business for a partner along with a value proposition to the customer, and the speed and readiness for rolling out to retain competitive edge, so that both sides gain, with measurability of the campaign's outcome."

Alliance partners within tourism share a symbiotic relationship with each key player working in tandem with the other, either within the same vertical or outside. No single supplier (airlines, hotels, tour operators/travel agents, cruise liners, distribution channels) can be a claimant of success without an alliance, strategic or otherwise due to co-dependency. But were alliances the mainstay of all promotional activities and growth strategies? Not necessarily. They came into the picture only when the perceived success rate and profitability of the venture were compelling factors to cement their position.

Hotels traditionally looked at alliances to leverage a brand name. The examples of this were Holiday Inn franchisees or marketing franchise agreements in India, Taj Hotels and Shilla Hotels based in Korea - one of the oldest alliances being the marketing franchise between ITC-Welcomgroup with the Sheraton Corporation that lasted 30 years.

Each homegrown player strengthened its reach across borders, primed to capture a slice of the high spend market - primarily through the franchise route. This has been effectively employed by brands choosing to enter India, without taking recourse to sizeable investments. This strategy is not only popular with hotels but with other segments as well.

Choice Hotels India franchises its Quality Inn and Comfort Inn brands across India with the benefits of a chain affiliation accruing to partners, leveraging the brand's international reservations and optimising their yields. Vilas Pawar, CEO, Choice Hotels India, says, "Today it is difficult to create a brand. Establishing an identity needs a gestation period of about 50-60 years."

In such a scenario, a strategic brand partnership has found its roots within the segment, a popular recourse followed by many realtors foraying into the segment. But for the established brands, strategic marketing alliances with the additional bait of loyalty programmes are the preferred approach. For instance, Bharat Hotel's marketing alliances with the Intercontinental Hotel Group, such as Priority Club Rewards and the Ambassador Programme has ensured an increase in occupancy F&B revenues.

But it stretches to consumer goods too. Hyatt International has developed a strategic marketing partnership with Porsche that encompasses a range of joint marketing activities, in addition to one with Bang & Olufsen to specially design products and provide expertise to Hyatt, reveals Ratnesh Verma. Such alliances create an inspirational value to customers, and invariably, a brand connect and loyalty.

Strategies in the marketplace

The three primary strategies followed in the Indian hospitality industry are franchise agreements, marketing alliances, and representations.

Franchise agreements

The primary motive of a brand franchise agreement is retaining ownership, while receiving a chain advantage. The areas where a company can gain through a franchise agreement is the accessibility of financing, easier start up, existing operating system, business assistance, established customer base, use of nationally recognised name, national marketing, access to discounted vendor relationships, benefit of loyalty programmes worldwide, etc.

K B Kachru, executive vice president (South Asia) at Carlson Hotels Asia Pacific, says, "Alliances in India are with highly experienced and renowned companies who bring with them management expertise and in-depth knowledge of the industry. They help in operating internally as one integrated hotel company while enhancing the distinct characteristics of each brand in the market." This model can be applied across all verticals with a few alterations. Some of the players dominating the market are Cendant Corporation, Choice Hotels India, Carlson Hospitality India, Sarovar Park Hotels & Resorts. Another version of this is the management franchise agreement that is increasingly becoming popular today.

Marketing alliances

These reciprocal relationships are primarily for cross-promotional purposes. It includes joint marketing activities that include joint participation in trade shows, sales events, culinary promotions and niche marketing programmes and sales leads, mutual benefits for loyalty members (for instance the alliances between Taj Hotels and Shilla Hotels & Resorts, Korea and Taj Hotels-Raffles Hotels & Resorts).

Explaining the rational behind this is Ajoy Misra, senior vice president, (sales and marketing) of Indian Hotels Company, who says, "With continuous support from either sides, alliances can help us make forays into markets that would otherwise be uneconomical for us to move into, at least in the next five years. Singapore features as one of the top 10 source markets for us while India witnessed about 24,000 arrivals from South Korea in 2005 - an increase by 24 per cent over last year. All these indicators reflect that our alliance is a way forward in getting more business from these markets." He sees global alliances developing in the future with alliance partners having to move towards providing seamless travel and accommodation solution to their customers. "Merging of loyalty programmes and a wider airline route on which the customers can collect loyalty points is the way forward," he concludes.

Representations

Another visible strategy adopted by hotels is an alliance with a company to represent and market the brand internationally, a strategy followed by the Park Hotels with the Design Hotels, and Taj Hotels with the Leading Hotels of the World. V V Giri, associate vice president & general manager of The Park, Chennai cites, "This affiliation takes our company vision and expands it to the world gateways, giving us a place to market the brand internationally. Our brand mission is to lead by differentiation and Design Hotels fulfills that platform; it helps us reach like-minded travellers who believe in this brand philosophy."

Drivers of change

Globalisation dictates the shape of the future; it reduces artificial barriers and creates the practicalities of business thereby necessitating alliances. The protagonist of this change is primarily the traveller himself who will dictate what alliances should take place in the future. The opportunity to seize and dominate a marketplace, distribution networks, introduce new products, technologies and international management talent, with the specter of competition looming overhead will require alliances to mould their collective fortunes. Rapid growth in the marketplace without ancillary support of third party services and a free economy to spur consolidation will spearhead strategic alliances.

Understanding customers will become critical to establishing competitive advantage. The modalities in place will shift in angle in the age of intense competition and retaining customers will become as important as acquiring them in the first place.

In what ways will a traveller evolve to enter the next decade? In India, firstly, he will move up the value chain, creating a segment that has been there, seen that, and doesn't want the same experience anymore. But at the same time, a whole new mass will be drawn up the same value chain, taking the place of the first time traveller, for which the market and communications, and befitting alliances has already been developed. Research will lead to the better understanding of the target consumers and their behaviour, leading to more precise identification of customer segments and sub-segments, and basing alliances on the basis of this, which will further open opportunities for data mining, between different cross segments and verticals, targeting the same demographic group. Focused strategy and communication, targeted at the right persons and alliances with the right people will precede mass media as an option.

This opens a whole new untapped market - of the luxury, wellness and the experienced traveller, who's looking to combine convenience with comfort. Raymond Bickson, MD of Indian Hotels Company, elaborates, "The globetrotting wealthy traveller today is intensely important. One must understand the intricacies and subtleties for luxury clientele. These travellers influence global issues and look for value for money but one must not mistake them for bargain hunters."

This will reveal new tourism products and marketing strategies to evolve, with worldwide trends moving towards shorter breaks and short haul travel during off-season.

The way forward

The two-edged sword of globalisation has not only made the world accessible but also brings the threat of being obsolete along with it. To stretch marketing rupees, groupings will develop to undertake joint marketing and research efforts. Cross-sector alliances will prove to be effective marketing formats, with access to database and direct marketing tools, with verticals looking at other segments to associate with. This will increase the retail, arts, cultures and others on a bigger framework and canvas than it is today.

Global opportunities will create more openings for health and wellness tourism and medical tourism - a market that the Indian government has already realised as a growing one. Its worldwide medical tourism campaign is proof enough. And not without reason; according to market statistics, the medical tourism market in India is touching US $300 million (with an estimated 1.5 lakh foreign patients visiting India every year) and growing into a US $2 billion business by 2012. The Leela Palaces & Resorts, according to its president, Peter J Leitgeb, is the first five-star hotel group in the world to offer special packages to travellers from the UK at its Kerala property after having tied-up with Globe Health Tours.

Meanwhile, hotels will try to differentiate their products even more, and expand through the management cum franchise route by integrating marketing synergies. Standalone properties are bound to integrate under the umbrella of a known brand. Alliances to differentiate the product, both with consumer brands and retail in addition to marketing alliances worldwide, will become a compulsion for Indian brands to compete against the giant franchises and managed brands.

While evolving into the next decade, it would be the visibility of a brand and its penetration into the marketplace that will be the first step to forge an alliance. Accordingly, a hotel will select the right fit for furthering its growth through the right associations, since one-size no longer fits all. And it would be the right partnership. This, in some cases, might lead to inorganic growth but nonetheless will be a win-win situation for all.