A Critical Evaluation of the Budget Hotels Sector Globally: Challenges

This report critically evaluates the global budget hotel sector, identifying key challenges and future prospects. It examines issues such as increasing competition from platforms like Airbnb, changing customer expectations driven by technological advancements, difficulties in staff recruitment and retention, and the need for sustainable practices. The report also highlights challenges related to technology adoption, ineffective marketing, poor customer satisfaction, and energy management. It emphasizes the importance of addressing these challenges through strategies like embracing social media, adopting sustainability approaches, and investing in staff training to capitalize on opportunities and ensure the sector's continued growth and relevance in the travel and tourism industry.

Running head: TOURISM AND HOSPITALITY
A critical evaluation of the budget hotels sector globally - challenges and future prospects.
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Summary
The budget hotel sector which is considered as one of the vital sub-sectors of the travel and
tourism industry is facing various challenges in the form of increasing competition, shortage of
qualified staffs, lack of technological advancements, ineffective marketing initiatives and
approaches etc. The budget hotel sector globally must focus on addressing the challenges by
capitalizing on various opportunities such as social media advertising, adopting sustainability
approaches, training of staffs etc.
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Contents
Summary..........................................................................................................................................1
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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Introduction
The travel and tourism sector is a major contributor to the world economy as a result of its wide
scope. The travel and tourism sector comprises of numerous sector which contributes to the wide
popularity of the sector. One of the most vital sub-sectors of the travel and tourism industry is the
budget hotel sector as it provides accommodation to the tourists at competitive prices. The
current report focuses on the challenges which are encountered by the hotels belonging to the
budget sector on a global basis. The report also focuses on the value chain analysis of the budget
hotel sector worldwide in order to identify the activities which can add value and in turn
competitive advantage to the budget hotel sector.
Discussion
The budget hotel industry is considered as one of the fastest growing sector in the world and it is
also considered as an indispensable and integral part of the tourism and hospitality industry. The
budget hotel industry is not displaying any signs of slowing down in the coming years and also
did not get affected even during times of economic recession. As stated by Luo and Yang (2013)
the budget hotel sector is considered as an integral part of the hotel and a crucial component of
the tourism and the hospitality industry. As opined by Sheresheva, Polyanskaya and Matveev
(2016) but, with the introduction of new technological advancements and as a result of lowering
of entry barriers, various competitors and disruptors have entered the scene which has resulted in
the creation of challenges for the budget hotel sector. The challenges which are being faced by
the global budget hotel industry are as follows:
Competition- As stated by Manasakis, Apostolakis and Datseris (2013) competition is one of the
major challenges which are being faced by the budget hotel sector as with the arrival of various
new players in the budget hotel sector, as a result of technological advancements and also due to
lowering of entry barriers, the level of competition has increased in the budget hotel industry
sector. As opined by Ren et al. (2018) various disruptive services such as Airbnb, a marketplace
platform where hosts and guests exchange housing for money is growing at a fast rate with each
passing day and presenting severe challenges to the budget hotel industry because in most of the
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cases they offer cheaper rates to the visitors than budget hotels and also present a different
cultural exposure to the visitors.
Customer expectations- As stated by Musunuri and Bharwani (2014) the change in customer
expectations and preferences also present a significant amount of challenge for the budget hotel
sector as the customer expects highest level of services at the lowest possible prices.
Technological advancements have paved the way for increased customer expectations and
preferences and therefore customers have a higher expectation from budget hotels through the
implementation of technological advancements. As opined by Pohland and Kesgin (2018) the
customers of the budget hotels globally seek personalised experience at a competitive price and
therefore budget hotels globally are facing problems to provide personalized customer
experiences to their guests at such a low and competitive prices and as a result if they need to
provide personalized experiences, they ought to increase their rates, which in turn refrains
customers from selecting budget hotels over platform such as Airbnb. As opined by Pitt et al.
(2016) due to increase in customer expectations with each passing day, the budget hotels
globally are facing tough challenges to keep up with the ever changing customer expectations
and therefore are losing customers to disruptive platforms such as Airbnb.As stated by Rishi and
Joshi (2016) as a result of technological advancement, the perception of customers towards
luxury and satisfaction have changed and therefore, budget hotels are facing challenges in order
to provide the desired level of service and satisfaction to the customers.
Staff retention and recruitment- According to Sharma (2016) the recruitment and retention of
qualified staffs and personnel’s is considered as another vital challenge which engulfs the budget
hotel sector. It has become very vital from the point of view of budget hotels globally to employ
highly qualified and experienced staffs who are expert in providing personalized experience to
the visitors but budgets hotel globally are facing shortage of qualified and experienced staffs who
can provide personalised experiences to the customers of the budget hotels. As opined by
Chandana (Chandi) Jayawardena (2013) in order to provide high quality service and customer
experiences to the customers, budget hotels globally need to recruit qualified and experienced
staffs which involve higher recruitment costs which the budget hotels fail to meet. Therefore due
to the unavailability of the right staffs at the right job the budget hotels on a global basis fails to
deliver the highest quality of service and personalised expectations to their customers which has
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created challenges for the budget hotels on a global basis. As stated by Roy (2013) the budget
hotels also faces tiff challenges regarding retention of their best staffs and personnel’s as they get
attracted by the higher pay scale and amenities which are provided by the luxury hotel sectors
globally. In order to address the shortage of staffs, the budget hotels recruit staffs with lower
recruitment costs, in order to provide services their customers and also to carry out their day to
day operations and therefore, the quality of services offered by the hotels gets affected which
fails to attract customers. As opined by Pentyala (2016) as the demand for automation and level
of expertise is ever increasing in the budget hotel sector, therefore it is becoming increasing
difficult for the budget hotels on a global basis to recruit and retain the right staffs in the right job
owing to budgetary constraints and lack of development programs and opportunities for the
staffs.
Sustainability- The budget hotel sector on a global basis is facing challenges recently owing to
various sustainability issues. The concept of “Going Green” is gaining increasing popularity in
the overall travel and tourism and therefore being a sub-sector in the travel and tourism industry,
the budget hotel sector needs to adopt the policy of sustainability in their day to day operations
and activities in order to capitalize on the trend and attract more customers. As opined by
Sheresheva (2016) it is very important that the management of budget hotels worldwide needs to
re-design their product and service offerings which are green and sustainable in nature and
therefore for that purpose they require fewer environmentally harmful or resource depleting raw
materials but it is generally being observed on a global basis that the budget hotels are unable to
implement sustainability in their daily operations in an effective manner due to a variety of
factors. The first and foremost factor is the costs which are associated with adopting
sustainability policies and activities in their day to day operations as it will require disruption of
the existing policies and practices in order to be replaced by new and effective sustainability
policies and practices which involves higher costs. Another factor is the lack of knowledge and
expertise of the staffs of the budget hotels on a global basis regarding implementation of
sustainability policies and activities. As stated by Yang, Songshan (Sam) Huang and Shen (2017)
another factor is the lack of initiative of the top management of the budget hotels on a global
basis regarding implementation of sustainability policies and activities as it requires change of
the business models of the luxury hotels which discourages the management of the budget hotels
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on a global basis regarding implementation of sustainability approaches and activities and
therefore presents challenges for the budget hotel sector worldwide.
Technology- The increasing dependence and demand for technology among the visitors of the
budge hotel presents a tough challenge for the budget hotels globally. The modern day customers
are becoming increasingly sophisticated regarding their research and they seek the help of
various emerging technological advancements regarding selection of a budget hotels on a global
basis based on the modern amenities and services offered by the budget hotels. For instance the
modern day customers gather reviews from a wide variety of online sources regarding the
services and experiences offered by the hotels and the additional deals and amenities offered by a
particular hotel and accordingly make their choices regarding budget hotels. In the modern
scenario it is observed that due to lack of implementation of advanced technologies, due to lack
of required resources, the budget hotels fails to estimate customer demands and preferences
which results in low attraction of customers. The lack of adoption of technological advancements
also impacts the inner operations of the budget hotels as the presence of back dated technology
prevents the creation of an agile more integrated operating environment in the budget hotel.
Technology has also created challenges for the budget hotels, as technological advancements
have increased the expectation level of the customers as customers seek for more personalized
and luxury experiences from the budget hotels. For instance customer seek for automation in
most of the activities of the hotel such as door unlocking through mobile applications rather than
through key cards and in order to provide the above mentioned level of service and comfort to
their customers, the budget hotels needs to remodel their hotel and operations, which they fail to
do effectively due to lack of required resources.
Improper and in-effective marketing tactics- The budget hotel sector is still outpaced by other
sectors regarding the adoption of cutting edge and advanced technologies and therefore they fail
to capitalize on the opportunities which are offered by latest cutting edge technologies. Due to
non-adoption of advanced technology in their day to day operations and marketing, the budget
hotels on a global basis adopt improper and in-effective marketing tactics which creates
challenges for the budget hotels. As stated by Ahmad, Scott and Abdul-Rahman (2016) due to
lack of improper and in-effective marketing tactics, the budget hotels miss the opportunity to
gain competitive advantage in the market and therefore they face challenges in the market.
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According to Markham-Bagnera (2016) the improper and in-effective marketing tactics adopted
by budget hotels provides opportunities for disruptive platforms such as Airbnb to capture the
market share of the budget hotel markets. Though budget hotels on a global basis have taken
advantage of the internet in order to boost their marketing strategy, they still remain in-effective
to attract their target customers due to lack of implementation of the marketing strategies.
Poor customer satisfaction- As opined by Tigu and Calaretu (2013) the poor customer
satisfaction level of the customers of the budget hotels have become a major challenge for
budget hotels globally. Due to lack of innovation, the budgets hotel sector globally remains
unsuccessful in providing the desired level of customer satisfaction to their customers as
customers seek high level of service and customized experience from the hotels. Due to lack of
innovation practices, the budget hotels fail to determine the desired level of customer preferences
and customer expectations and therefore they fail to provide their customers with their desired
level of service and experiences which results in poor customer satisfaction among the customers
and creating major challenges for the budget hotels globally.
Energy Management- The budget hotels also faces severe challenges regarding management of
energy and conservation of energy in their hotel. As opined by Bandyopadhyay (2016) it is
mostly observed that customers opt for hotels who adopt a sustainable approach in their day to
day observations regarding their consciousness regarding the environment and the climate. As
opined by Timmerman (2013) in order to attract customer it is observed that luxury hotels adopt
sustainable policies and approaches by the adoption of renewable technologies, by the
development of green products and services, by facilitating energy conservation and by adopting
and promoting eco-friendly practices which satisfies the requirements of the customers and they
accordingly gets attracted towards the luxury hotels whereas in case of budget hotels it can be
observed that they fail to adopt energy conservation practices due to the lack of appropriate
budget required to initiate energy conservation and energy preservation. As opined by Lam,
Hoand Law (2015) as the budget hotels globally fails to fulfil the requirement of the customers
regarding energy consciousness, therefore the budget hotels fails to attract their customers which
creates challenges for them.
Value Chain Analysis
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Value Chain Analysis is a technique which helps in visually analysing the business activities of
an organization in order to identify how an organization can create a competitive advantage for
itself in the market. The value chain analysis enables an organization to understand how it can
add value to its activities and subsequently how it can sell its products and services for more than
the cost of adding the values, which helps in the generation of profit margin for an organization.
In the value chain analysis of an organization, the activities of the organization are divided into
primary activities and support activities. As opined by Karolak (2014) the primary activities
which are a part of the value chain analysis are inbound logistics, outbound logistics, operations,
marketing and sales and service. There are various support activities which are evident in the
value chain which helps in providing support to the primary activities of the organization. The
support activities which are a part of the value chain are firm infrastructure, human resource
management, development of technology and procurement. In order to identify their sources for
competitive advantage and to identify areas for improvement for adding values to their value
chain it is very essential to analyse the value chain of the budget hotels on a global basis which
are as follows:
The primary activities in the value chain of budget hotels globally are as follows:
Inbound Logistics- As opined by Tsai (2013) in order to meet the demands of their customers
and to maintain their positions in the market the budget hotels have several suppliers in the
location, where they are located in order to source adequate raw materials for their hotels without
experiencing any sort of issues and also to reduce their dependency on a particular supplier
which increases their bargaining power. The most important sectors where the budget hotels pay
their maximum attention are food, drinks and interior design and motor services. For instance it
is generally observed in budget hotels globally that once the food department of the hotels
receive the food from the suppliers, the catering department take care of the received food by
accordingly storing them at the right place and at the right temperature in order to safeguard the
quality of the food. As opined by Kim and Park (2017) when the raw materials for the budget
hotels are supplied by various suppliers of the budget hotel, they are accordingly checked for
quality and standard purposes which helps in adding value to the food products of the hotels. The
budget hotels globally take special care and attention of their raw materials so that the best
quality product is being served by the hotels to the customers.
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Operations- The operations of the budget hotels globally include all the activities which are
involved with transforming the goods in to offerings for the customers. The operational activities
of the budget hotel globally also includes the housework and care of the hotels. As opined by
Xuhua et al. (2018) the main sources of value in the business operations of budget hotels may
come from high levels of standards of service, a high level of service personalization and
effective integration of information and communication technologies in to various aspects of
service provision. If the budget hotels become successful in achieving the above stated level of
effectiveness, then they would be able to add value in their operations which will help them in
achieving a competitive advantage in the market.
Outbound logistics- According to Slivar and Bayer (2017) in general terms, outbound logistics of
budget hotels refers to the activities which are required to deliver the final products to the
customers. The outbound logistics activities of budget hotels can contribute to the addition of the
vales and subsequently gaining of competitive advantage through providing service provision of
highest standards or by enabling transportation services to the customers moving out of the hotel
and for other various associated activities. As opined by Zaitseva et al. (2017) the outbound
logistics of budget hotels globally includes edifice and franchising of their hotel in order to
attract more customers towards the hotels. The outbound logistics activities for budget hotels
remains concerned about presenting the services to the customers of the hotel which can be both
tangible and intangible in nature.
Marketing and Sales- The marketing and sales activities in the value chain of budget hotels
specifically focuses on marketing communication strategies adopted by the budget hotels
globally and the promotional activities undertaken by the budget hotels in order to reach to their
target customers. The marketing and sales activities of the budget hotels globally also includes
all the advertisement approaches and market research undertaken by the budget hotels in order to
gather information regarding their target customers and to communicate their offerings to their
target customers. The marketing and sales practices of the budget hotels on a global scale
completely rely on the application of the various components of the marketing communication
mix in an integrated manner. The marketing and sales team of the budget hotels are tasked with
the responsibility of soliciting bookings from business and leisure customers, from various travel
agencies, from various conventions and from various online hotel booking portals. The
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marketing and sales team of the budget hotels are also responsible for developing promotional
and advertising content for the budget hotels and using various elements of the promotional mix
in order to promote the offerings of the budget hotels to their customers. The marketing and sales
team of the budget hotels on a global basis also remains responsible for developing online
marketing strategies for the hotels which include collaboration with various online booking
portals, developing social media campaign for the hotels and increasing customer interactions.
As stated by Cherdchamadol and Sriboonjit (2017) the budget hotel can add value to their
marketing and sales activities by initiating a reward program for their customers which will focus
on rewarding the customers of the budget hotels by providing them with additional discounts and
extra deals which would help in retention of customers and attraction of new customers.
Service- The service activity in the value chain of budget hotels on a global basis mainly
includes all type of services offered by the budget hotels globally which includes after sales
service, customer support, consumer compliant and grievance handling, trainings etc. The
service activity of the budget hotels on a global scale handles any types of customer requests,
complaints, grievances and inquiries immediately in order to enhance the satisfaction level of the
customers. As opined by Leng (2013) the service activity of the value chain of budget hotels
globally have the ability to create competitive advantage as the service activities can add values
to the budget hotels by providing the desired level and top quality service to the customers of the
budget hotels which increases the customer satisfaction rate among the customers of the hotels
which further helps in attracting customers towards the budget hotels globally.
The support activities in the value chain of budget hotels globally are as follows:
Infrastructure- The infrastructure is one of the vital support activities which the budget hotels on
a global basis emphasizes in order to fulfil the expectations of their customers and to attract more
customers towards their hotel. As opined by Kasim and Dzakiria (2016) the budget hotels on a
global basis have efficient systems in place in order to manage and control the performances of
the budget hotels and there are various factors which the budget hotels utilizes in order to
maintain its achievement such as cleanliness, atmosphere, quality of products and services,
maintenance and service.
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Human resource Management- In order to serve their customers in the most effective manner,
the budget hotels focuses on providing training to the frontline and management level workers of
the hotel in order to provide them with an exact idea regarding the level and efficiency of service
which are expected by the customers of the budget hotels. As stated by Chandana (Chandi)
Jayawardena (2013) the budget hotels indulge in rewarding their human resources with financial
and non-financial incentives and rewards in order to keep them motivated towards their daily
tasks. The budget hotels on a global basis focus on selecting the right candidate for the right job
in order to deliver customer expectations.
Development of technology- According to Ihab Hanna, Luai and Kamal (2013) the budget hotels
focuses on harnessing technological advancements in order to increase the efficiency of the day
to day activities of the hotels and also to gain competitive advantage in the market. The budget
hotels also focuses on encouraging innovation in their hotel activities and operations in order to
offer more satisfaction to the customers of the hotels owing to innovative product and services
offerings.
Procurement- The procurement activity of the budget hotels on a global basis involves sourcing
raw materials from various suppliers. The procurement policy of the budget hotels on a global
basis contains various guidelines and restrictions regarding the quality and standard of the
product which will be sourced by the budget hotel. As stated by M2 Presswire (2014) the
procurement is an important support activity which can help in creating value for the budget
hotels on a global basis as influences the quality of products and services being offered by the
budget hotels to their customers which in turn helps in creating a reputation for the products and
service offerings of the company which in turn helps in attracting customers towards the budget
hotels on a global scale.
Opportunities for the budget hotels
The opportunities for the budget hotels on a global basis are as follows:
Adopting technological advancements- As opined by Ahmad and Saber (2015) one of the most
effective opportunity which can help budget hotels to address their challenges facing them is by
implementing various technological advancements in their operations which would help them in
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