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The Indian Luxury Hotel Industry Industry Analysis Tourism Essay

Paper Type: Free Essay Subject: Tourism
Wordcount: 5421 words Published: 1st Jan 2015

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The Indian Hotel Industry has been divided into seven categories by the Ministry of Tourism, Government of India based on the facilities and features offered in the hotels. Of these the luxury segment has been defined as consisting primarily of Five Star and Five Star Deluxe hotels, catering to the elite class of the society. It offers high quality service at a significant premium over the other types of hotels. Its target market segment is usually business executives and upmarket foreign and domestic tourists (Indian Ministry of Tourism, n.d.). There is a significant overlap between the luxury sector and the heritage hotel segment as a number of the larger heritage hotels like the Oberoi Udai Vilas and the Taj Palace in Udaipur are classified as luxury hotels though they also belong to the heritage category. For the purpose of this study, such large heritage hotels have also been included in the Indian Luxury Hotels sector.

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Current Trends

The net annual sales for the luxury hotels industry amounted to approximately Rs. 5060 crore for the year 2011-12. This represented a more or less constant Year-on-Year growth of 12.47% for the ten years between FY 2001-02 and FY 2011-12 (Indian Ministry of Tourism, n.d.). Not only do the financial figures show the significant size of this industry, but the overall efficiency of this industry is quite high too as is evidenced from the growth in operating profits over the same time period. For the industry, this growth has been a spectacular 24.15% Year-on-Year (Indian Ministry of Tourism, n.d.).

The industry has largely been isolated from the global economic slowdown even though rising inflation levels have meant increased overhead costs for luxury hotels which could still result in lower margins over the coming years. Till now however, this has been largely offset by the large influx of foreign tourists attracted by the weakened Indian rupee. Also the economic meltdown has meant that the domestic travelers have decided to cancel their trips abroad and travel more extensively within the country itself (Narayana, 2011).

Hotel guests from ASEAN Countries have increased 17% over the last year. This may be attributed to the recent proliferation of South-East Asian airlines like AirAsia, Tiger Airways and Silk Air, which have made travel to India more accessible to the populace there (Narayana, 2011).

The manpower utilization ratio for the luxury hotel industry has been rising steadily and currently stands at around 2.71 employees for every available hotel room. Not only are these figures well above the overall industry average of 2.01 employees for every hotel room, but they are among the highest on the global scale as well (FHRAI, 2012). These high values are attributed to Indian hotel owners tending to ‘overspec’ their offerings and can pose a significant cost risk as a rising inflation rate increases the labor costs.

There is also a current tendency in the luxury sector towards the adoption of green initiatives, which have resulted in a drop of about 3.3% in energy costs as percentage of hotel revenue (FHRAI, 2012). Such eco-friendly initiatives also improve the marketability for these properties.

Indian luxury hotels have largely been quick to adopt the latest technological trends. This is evidenced currently through two facets. Firstly, Indian luxury hotels have jumped on the social media marketing bandwagon and have benefitted immensely from its strong reach at almost no cost. These hotels have even managed to develop a connect with the non-elite, aspirational section of the society through the use of their Facebook and Twitter pages which a give a behind-the-scenes look at the daily workings of many of these properties (Abraham, 2012). Secondly, the rise of the Internet has also made logistics a lot easier for these hotels to manage. Online bookings coupled credit card and net banking transactions and an extensive use of customer databases have made it easier for hotels to provide no hassle quality service that can now be customized to each traveler’s individual needs (FHRAI, 2012).

Major Players

The major players in this segment are limited to large private chains and franchisees or joint ventures of large international chains who have decided to enter India in order to take advantage of its growth rate. The players in the former category include The Indian Hotels Company Ltd. (known to the common public as Taj Hotels, Resorts and Palaces), EHI Ltd. (Oberoi group), ITC Hotels, Leela Group of Hotels and The Lalit Hotels, Palaces and Resorts. The international hoteliers who have a presence in the Indian luxury hotel sector include JW Marriot, Starwood, MGF Emmar, Radisson group and Shangri La among others.


The luxury hotel industry faces direct competition from a number of sources, which can include:

Mid-segment hotels that are looking to scale up their offerings. They pose a significant threat because if these hotels can raise their service quality to somewhere near the same level as that provided by the luxury hotels, their cheaper prices will ensure that many of the upper middle class population who may have been aspiring to move up the ladder to the luxury segment no longer feel the necessity to do so. It will additionally be difficult for the luxury chains to battle them on prices since they have their brand image and the promise of a ‘five-star’ experience to maintain. In the long run though, the iconic stature of these hotels should ensure that customer demand for their service never dries up.

A more significant threat comes from industries offering alternative travel experiences. These would include firms offering trips on luxury yachts or high-end adventure tourism like safaris and mountaineering. These are especially attractive to the nouveau rich, a significant portion of who favor ‘Entertainment’ over ‘Pampering’ (Barsky, 2011).

With respect to the domestic travelers, competition also comes from the international luxury hotel and resort chains, which themselves have well established brand names and statures.

Location on the Tangibility Spectrum

The luxury hotel industry can be placed roughly on the right side of the tangibility spectrum as it is an industry whose main offering (i.e. accommodation) as well as various supplemental experiential services (i.e. spas, meditation, etc.) are intangible, though there are some tangible elements that complement these, such as dining, room and laundry services (Appendix 1). Looking at these, this study also places the luxury hotel industry on the overlap between People Processing and Mental Processing quadrants of the Tangibility Matrix. This again implies that it luxury hotels provides a mix of both intangible and tangible benefits for their customers (Appendix 2).

Service Offerings

Customer Expectations of Service in This Industry

The behavior of consumers in a hospitality industry is quite heterogeneous and cannot be measured easily. The behaviors and expectations of the consumer change as they travel more, gain more knowledge to become more confident. “Consumers are more discerning of tourism purchase, irrespective of what they pay, and having high expectation of quality” (Abraham, 2012).

A Consumer visits hotel for a basic reason to get accommodation which is his need; however he expects polite staff, good ambience, and attentive service and so on. If such expectations are not met within timeframe, customer may leave the hotel even if the basic need is being fulfilled.

The customer expectation of service in an Indian luxury hotel may be evaluated in terms of following offerings (Narayana, 2011)-

Unique Oriental Experience

From the cuisine to the décor and staff culture, personalized services to every small detail, everything must be fussed over because the customers come in expecting a unique experience straight from the Orient.

Highest Standards of Luxury

Highest standards in every aspect of hospitality, fulfilling the essence of “Treat me like an honored guest” and “Keep your promises”. These are supplemented by tangible aspects like Deluxe and Premier Rooms, Premium Suites, best Spas and clubs with a unique oriental theme, private and semi-private pools, fleets of Mercedes and BMWs, etc.

Hospitality from the Heart

The staff must go the extra mile to create an indelible memory in the heart of the guest and build a relationship that is strengthened with every visit.

They know their guests well in advance, their birthdays, taste and preferences. A full-fledged itinerary is made for the guests as per their preferences. They have low Room to staff ratio. Suites have their own private butlers.

Possible Levels of Customer Expectations (Ref Exhibit 1)

The level of expectation varies widely depending on reference point the customer holds. The exhibit shows a continuum along which different services expectations have been ordered from high to low. On the left are different types or levels of expectations from high to low. We give name to each of the expectation and try to find what it means in terms of that hotel. The importance of expectation as perceived by the customer will assess the hotel’s performance.

‘Bundle of Benefits’ Typically Received By Customers

Some services are consumed effectively in conjunction with other services. When customers find value in a package of services that are interrelated, price bundling is a good strategy. The effectiveness of the bundling depends on how well the hotel understands the bundles of value that customers perceive and on complementarity of demand for these services. Some bundled packages are Pilgrim Packages, Leisure Travel Packages, Corporate Packages, and Wine Tasting Packages. Also there may be various offers like complementary rooms, Loyalty card: based on stay in number of days, Itinerary based vacations, honeymoon packages.

Typical Service ‘Performance’ of Firms in This Industry

The service performance of firms can be measured using GAPS model with SERVQUAL as instrument. We took depth interview and assessed the five dimensions of service quality to ascertain the level of service and determine which dimensions need improvements.

Random sample of ten customers was selected and questions were asked based on five point (1 to 5) Likert scale expounding all 22 variables of SERVQUAL dimensions. When we tested the results it was found that the facilities experienced were lower than expected in many cases. We asked the customers 17 questions to check their level of expectation and perception.

(Ref Exhibit 4 for complete analysis of SERVQUAL dimensions)


Under the Tangibility dimension, Staff appearance got the highest Cumulative average rating of 5 both for perception and expectation. The overall average rating for the Tangibility was positive with perception was more than the expectation. The reason for customer satisfaction is the splendid infrastructure, the palatial build of the hotel and professional hotel staff.


When we looked into the reliability, the average rating for operating hours, availability of rooms, external environment were the highest with rating 5. The least rating was for on time delivery of service with average 4.2. The service quality of reliability was rated at average -0.023. So overall perceived rating for the dimension was slightly less than expected meaning expectations have not been met fully. This was due to few of the customers were dissatisfied with timely delivery of service.


When we looked at the responsiveness dimension, the highest average rating was for the expectation of quality of food and beverages with 4.9 but perception did not met the expectation. Some of the customers preferring local tastes were not satisfied. The greeting and exclusive welcoming of the guests was highest in perception with rating 5. Overall service quality was rated at 0.054 with perception better than the expectation.


For assurance the highest expectation was 4.9 for security and for perceived the highest was for staff trustworthiness with rating 5. The lowest average rating was for value for money and some for hotel atmosphere where few of the customers sometime get disturbed with the noise outside their room apparently from hotel staff. Overall the perception exceeded the expectation by 0.122.


When we analyzed Empathy it was found that for both the perception and expectation the rating was highest with 4.9 for availability of the staff. The least was for the flexibility of the staff. The perceptions did not meet the expectations fully and had a negative difference of -0.027.

Overall Service quality dimensions based on the SERVQUAL (Ref Exhibit 5)

When we analyze the service performance on all the dimensions of the SERVQUAL, we find that customers’ expectations are met for Tangibility, Responsiveness and Assurance but not for Reliability and Empathy dimensions. We can also refer the graph of Expectation and perception (Ref Exhibit 6).

Service Quality Dimensions & Their Relative Importance

Service quality is one of the most important factors affecting the customer satisfaction and enhancing the performance of the business. The service quality is being analyzed based on the ServQual Model (Ref Exhibit 2). Service quality is the difference between the Perceptions and Expectations where expectations measures what is anticipated ideally and perceptions means actual performance.

Satisfaction measures the gap between the perception and expectations, S = P – E

The ServQual model examines five dimensions of service quality – Reliability, Responsiveness, Assurance, Empathy and Tangibility.

All five service quality dimensions can be applied to firm in this industry. But the order of importance differs from a normal course with Tangibility being most important being followed by Reliability, Responsiveness, Assurance and Empathy. (Ref Exhibit 3)

Customer’s Involvement in the Service Delivery

Customers play an important role in the service delivery and many a times are co-creator of the service. They also contribute to the quality of service offered. The characteristics of the service business where customers are engaged in numerous and varied activities to increase the importance of compatibility management is most suitable for hotel business. This is due to the fact that when service facility supports varied activities all going on at the same time, the activities themselves may not be compatible. Luxury hotels usually attract maximally homogeneous groups of customers through careful positioning and segmentation strategies. The upscale travellers are the primary target segment for such hotels and customers self-select into the hotels. Even in such contexts, conflict may arise; e.g. hotel is hosting a business convention, a NBA team and individual leisure travellers. As the customers frequently interact in the process of service delivery and consumption, so the mix of customers simultaneously experiencing the service needs to manage effectively. This can be done by grouping together compatible customers; e.g. keep meetings and conventions separate from areas of hotel used by individual travelers.

Service Blueprint

A service blueprint for a typical luxury hotel is included in Appendix 3. This is based on our visits to the Oberoi Udai Vilas and the Trident in Udaipur.

Moments of Truths

The moments of truth are the critical customer interactions with the hotel’s staff or physical ambiance which can make or break his or her impression of the service quality of the establishment. For the luxury hotel industry these include:

Zeroth Moment of Truth: Is the actual search for the hotel and subsequent booking online. Only the virtual avatar of the hotel interacts with the guest at this point of time.

First Moment of Truth: When the Guest interacts with the first hotel employee (i.e. the driver) and subsequently arrives at the hotel.

Second (and subsequent) Moments of Truth: This includes all the activities post the Check In, when he/she interacts with the hotel staff during the course of his/her consumption of all the service offerings that the hotel has to offer.

The thing to note about the luxury hotel industry is that since it is so highly dependent upon the perception that a customer forms about the service quality of a particular establishment, any little mistake on the part of the hotel risks the chance of reflecting poorly on its overall service quality. Hence, every customer-staff or customer-ambiance interaction becomes an important moment of truth all by itself. This is also because the establishment is dealing with customers who have the highest levels of demand of any market segment.

Value in Blueprinting and its Advantages for a Service Marketer

The luxury hotel industry can derive a lot of value from Service Blueprinting of the kind that we have done for the course of this study. This can include:

Identification of the key activities that go into delivering the kind of service that the highly demanding guests expect on a daily basis from the hotel. For example, blueprinting will help a service marketer understand that the zeroth moment of truth is perhaps the most important for the hotel, since it allows a potential customer to get information about hotel that can potentially convert him into a future guest.

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Distinguishing between the visible and invisible (frontstage/backstage) staff and their relative importance in delivering high quality service to the customers. Again, from the point of view of the service marketer it is important that equal importance be given to both the staff member who actually pick up and deliver the luggage for a particular guest as well as to the staff member who does the backstage work of actually transporting the luggage after its arrival from the airport. The learning is that if the backstage link breaks down at any stage of the service blueprint, it will reflect poorly on the customer interaction on the frontstage.

Blueprinting also allows the industry to identify stage where fail points may occur and eliminate them. For a service marketer, the experiential aspects of a luxury hotel’s service (i.e. its restaurant, night club, spa, gym etc.) are offerings where in case the training of the staff is not up to the mark or if the backstage preparation is not done properly, it can result in the customers going back with a negative view of the hotel’s overall services. For a luxury hotel, as has already been mentioned, all aspects of service are equally critical because of the nature of the clientele. Thus, elimination of fail points is essential and a blueprint will help a marketer know where these exist and get the people from operations to fix them. He/she can even prepare for contingencies in case preventive or corrective measures cannot be applied right away. For example, if there might be a problem with a suite that a particular guest desires, he can compensate for that by providing another room but with all the extra services that usually go bundled with their desired suite.

Blueprinting also allows a service marketer to properly set up the support services and get the employees trained in handling those aspects of customer interaction that are most likely to affect their perception of service quality. Thus, for a luxury hotel, personal grooming and customer interaction training for all levels of staff will be recognized as essential by a service marketer once he sees the level of front and back stage interaction that they are having with the guests to a hotel.

From a marketing perspective, a blueprint will allow the marketer to know where the greatest strengths of the hotel lies so that he/she can play that up in any promotion or customer communication campaigns that he/she might be helping the firm run. For example, if Udai Vilas recognizes the fact that its ambiance is the main point of attraction and retention for its existing customers, its service marketer will play it up as a strength in future brand communications with potential customers.

Physical Evidence

The servicescape includes the facility’s exterior (landscape, exterior design, signage, parking, surrounding environment) and interior (interior design and decor, equipment, signage, layout, air quality, temperature and ambiance).

Role of Servicescape in the Industry

Servicescape plays a very important role in the hospitality sector as tangibility or physical evidence is of utmost importance and is often the most visible dimension of service quality. When customers visit any luxury hotel, they expect grand service, nice decors and infrastructure, helpful and trained staff, etc. Many of the luxury hotels have brilliant architectural statement and occupy occupied classic buildings with antique furnishing. The servicescape plays a very important role in shaping the service differentiation, customer expectations, facilitating the customers and goals of the employees and thus influencing the nature of the customer experiences. In luxury hotel industry the visitors interact with the physical environment more than the service agent. In fact a customer experiences the servicescape before interacting with the service agent. Moreover, this interaction is omnipresent, i.e. throughout the guest’s stay at the hotel he will continue to interact with the physical aspects of the hotel and thus his perception of service quality will be greatly influenced by it.

There are various physical constituents and environmental cues which help customers form holistic picture of the overall servicescape. The visual cues include lighting, color, personal artifacts and plants, space and function and design and layout.

Three of the important roles of servicescape are –

Segmentation It helps segment the market as per the need of the hotel. By maintaining the grand-looking physical exterior, luxury hotels often weed out those customers who they do not believe are in keeping with the type of clientele that are their actual target market.

Targeting It help luxury hotel brands attract well-defined market segment. A display of opulence in the exterior of a hotel signals its exclusivity in the eyes of the elite members of the society.

Positioning The servicescape helps in the positioning of hotel brands by distinguishing them from each other. Hence the open verdant surroundings of the Oberoi Udai Vilas in Udaipur set it apart from the more business like environment of the Grand Hyatt in Mumbai, even though both are competing in the luxury hotel segment. Hence, the former attracts travelers looking for luxury and relaxation while the latter attracts more senior executives from the industry (Ref Exhibit 7).

Aspects of Servicescape Significantly Influencing Service Delivery

The physical evidence significantly influences the flow of experiences for guests at a luxury hotel. It can modify the meaning that they attach to the service delivery, their satisfaction and their emotional connection with the brand. Hotels thus, employ a number of unique aspects of servicescape that can positively influence their service delivery. These include:

Ambient Conditions: The luxury hotel industry has amassed great expertise in the use of background characteristics of the environment such as temperature, lighting, music, scent and color to influence the behaviors and perceptions of its customers. Luxury brands make it a point to have climate control systems in all parts of the hotels so that the customers have a consistent experience and do not face any physical discomfort during their stay. They also make use of appropriate lighting and music at different locations to suit the moods of the guests. This could range from providing soothing music inside elevators to the varying lighting employed in corridors to remove a sense of ‘sameness’ to them during a guest’s stay. Even the scent and color, especially in the external surroundings of the hotel provide a positive reinforcement to the guests about the place’s service offerings.

Spatial Layout and Functionality: Hotels also make use of spatial layouts so as to ensure the most effective delivery of services to its customers. This is the reason for having lobbies with open atria and a bank of elevators to ensure that guests do not have to keep waiting in the lobby. Also, many hotels have dedicated stairs and service lifts for its employees to ensure their quick and efficient movement from place to place throughout the hotel. Also, the design of the hotels usually takes into account the common activities that the guests are expected to undertake. Hence, the gym and swimming pool are often placed together for fitness enthusiasts while the restaurant, bar and night club are kept together separate from the rooms so that the guests are not disturbed by the noise.

Signs, Symbols, Artifacts: These are primarily used by hotels in forming a positive first impression in the minds of the customers. These include the outer signage at the hotels, which are often done in elaborate fonts to signify the exclusivity of the place. Also, the prominence of the brand logo and its use at various places in the hotel help to reinforce the brand exclusivity in the customers’ minds.

Servicescape as a Source of Competitive Advantage

Hotels can use their physical evidence as a source of competitive advantage in the following ways:

By packaging the entire bouquet of service offerings within a consistent servicescape. This ensures that the guests are able to put a tangible face to the service delivery offered by the firm. This tangibility also helps the customers form the first impression about a hotel and hence a brilliantly designed external façade can be the visual metaphor for a high quality service offered by a firm, which will attract potential customers to it. These physical evidences need not be external facades though, for hotels, they can also include website and travel brochure design because these are often the communications that the firm has with potential customers.

Hotels can use efficiently designed servicescapes to facilitate the delivery of high quality service. As has been mentioned above a well-designed facility with separate service stairs and elevators for the quick movement of hotel staff ensures an error free and prompt service delivery for the guests.

Hotels can also use their servicescapes to function as socializers so that it is easier for the guests to mingle amongst themselves. On the other hand, for the benefit of those guests who wish to escape from it all and spend their vacation in secluded luxury, hotel servicescapes can also be designed in such a way that such guests are not disturbed by others. This can be achieved through providing private cottages or suites with built-in pools for such guests.

As has been mentioned above, hotels can use servicescapes as differentiators, especially in positioning. However, they can also them to highlight offerings that are unique to them. For example, a hotel with a variety of restaurants to choose from may design its landscape in such a way that it reflects the cuisine on offer at each particular one. Also, hotels with large ballrooms can further accentuate them by investing in expensive interior decoration.

Wild Card: Customer Loyalty at Luxury Hotels: Attracting the Right Clientele

Luxury hotels are faced with the problem of customer retention not because of intense competition, though it still has some role to play, but majorly due to the fact that they cater to a relatively smaller and highly specific set of clientele that demand only the highest quality of service and is certainly not averse to moving on to a competitor’s hotel if the services provided to them are not of their desired service quality. Also, with the ramifications of the financial recession of 2008 still being felt in the industry, retention has become an even bigger issue. It is no secret that attracting new customers is both too difficult and too expensive as compared to retaining old ones (Viajayadurai, 2008).

However, for such hotels, the issue of customer retention acquires another unique aspect: that of attracting and retaining a specific type of elite customer. Such customers are necessary not only because they are the only ones to possess the financial wherewithal to be able to afford the services being offered but more importantly because they positively affect the service quality dimension of Tangibility that other guests experience at these hotels. In short, the presence of elite, well-to-do guests is essential for a luxury hotel because it makes other hotel guests feel that they are being served by an exclusive establishment thereby bettering the latter’s perception of the service quality being offered. Moreover, elite guests often have an amplified word-of-mouth effect due to their superior social standing and thus having them consistently visit you as a guest provides for a large scope of future business for luxury hotels (Alfred N.P, 2007).

For the purpose of this study, we conducted an analysis of the methods adopted by the Oberoi Udai Vilas in Udaipur in attracting and retaining the right clientele and the reasons and ramifications of it doing so.

Identifying the Right Customer: The customer profile targeted by Udai Vilas includes the characteristics that one would associate with well-to-do customers


 Values – Luxury, Grandeur, Hospitality and Comfort

 Life style – Plush, extravagant spending, high self-esteem and social recognition

Behavioral Profile

 Consumption level and situation – visit one place once; repeat visits very rare

 Loyalty – Do recommend if satisfied  

Occupation – Business Executives, Managers and Entrepreneurs

Marital Status – Mostly married, esp., just married

Education – Mostly highly educated, Graduates and Post Graduates 

Age – 25+

Reaching the Right Customer: The Integrated Marketing Communication effort of the hotel is aimed at a healthy mix of well-to-do domestic and international guests. Of the total guests arriving in the hotel, 45% are domestic and almost 55% are international travelers. As per (Market Metrix, 2011), luxury hotel guests have had the fastest uptake of Internet and Social Media among all segments of travelers. The study also states that nearly 30% of all luxury guests are inspired to choose a travel destination from friends’ recommendations and another 20% search the web for holiday ideas.

Keeping these statistics in mind, Udai Vilas has maintained a strong online presence through online travel and lifestyle magazines/portals the most significant of which has been the use of Travelzoo, which has over 25 million global subscribers and specializes in providing information on different luxury services, i.e. not something that would be visited often by casual travelers. The hotel also maintains both Facebook and Twitter pages that are updated regularly and provide a platform for past and future customers to engage with the hotel administration who are more than willing to address queries or even settle grievances. The hotel also displays its TVCs on only select lifestyle and travel channels during shows that business and luxury travelers are more likely to be watching. The entire effort is targeted towards attracting the type of guests that Udai Vilas wants.

Efforts towards retaining the Right Customer: Udai Vilas recognizes that even the most affluent gues


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