Strategy and Innovation Report: Peninsula Hot Springs Case Study

This report provides a comprehensive analysis of Peninsula Hot Springs' business strategy, identifying its differentiation focus within Porter's generic strategy framework. Through situational analyses, including PESTLE DI, Porter's five forces, and resource-based view, the report assesses the company's ...Read More

Running head: STRATEGY AND INNOVATION
Strategy and Innovation
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1STRATEGY AND INNOVATION
Executive summary
Peninsula Hot Springs is a well-known and popular tourist attraction in Melbourne, Australia. it
offers a high quality spa and wellness experience to the customers using natural hot springs
water. This report analyzed the current business strategy of the company using Porter’s generic
strategy framework, and it was found that it follows differentiation focus strategy. Situational
analyses have been performed to assess the resource capabilities and competitiveness of
Peninsula Hot Springs using various analytical frameworks, such as, PESTLE DI, Porter’s five
forces and Resource view. Based on the analysis, recommendations have been provided for
further growth of the company.

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Table of Contents
1. Introduction..................................................................................................................................3
2. Current business strategy of Peninsula Hot Springs....................................................................3
3. Situation analysis.........................................................................................................................5
3.1 PESTLE DI analysis..............................................................................................................5
3.2 Porter’s five forces analysis...................................................................................................7
3.3 Resource based view............................................................................................................10
4. Fit between company strategy and its context...........................................................................11
5. Recommendations......................................................................................................................12
6. Conclusion.................................................................................................................................12
References......................................................................................................................................13

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1. Introduction
Peninsula Hot Springs is one of the major tourist attractions in Melbourne. It is an award
winning natural hot springs and spa destination centre in Mornington, which is 90 minutes drive
from Melbourne. The pools and the private baths of this centre are filled with natural thermal
mineral waters, giving the customers an ultimate healthy and luxury experience of relaxation,
rejuvenation and wellness (peninsulahotsprings.com, 2018). It was established in 1997 by two
brothers, Richard and Charles Davidson as a family business on a 42 acre land, surrounding the
hot springs. Over the past two decades the business has grown significantly and its services have
diversified to cater to a larger group of tourists. This report will provide an overview of the
current business strategy of the company and situational analysis will be performed to
understand the market competition and resource capabilities to achieve competitive advantage.
Based on the findings, the relevance of the company strategy will be discussed and some
recommendations will be provided at the end for the future endeavours of the company.
2. Current business strategy of Peninsula Hot Springs
Over the years, the company has focused on delivering the ultimate health and wellness
experience to the customers through relaxation and rejuvenation. It has been expanding and
doing evolutions of its services by developing many new ventures. Business expansion through
product and service differentiation is the principal business strategy of Peninsula Hot Springs. In
other words, it is using differentiation focus strategy as per the Porter’s generic strategy
framework. Its main purpose is to connect the nature with the inner being of the individuals; and
to serve this core purpose, the company has been introducing various new amenities and
services. For instance, it has luxury private bathing and bath house bathing facilities, spa

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dreaming centre, accommodation with partner hotels, and dining facilities for the guests. In
2018, it is going to open bath house amphitheatre, ice cave and deep freeze and amphitheatre
saunas (peninsulahotsprings.com, 2018). However, they have focused on price insensitive
customers, preferring for luxuirous spa experience. Peninsula Hot Springs has also focused in
contributing to the Mornington peninsula economy by collaborating with the local suppliers and
workers.
Figure 1: Porter's generic strategy
(Source: Bertozzi, Ali, & Gul, 2017)
Following the Porter’s generic strategy framework, it can be said that Peninsula Hot
Springs is following the differentiation focus strategy, which caters to a narrow market of the

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customers, preferring luxury spa and health experience, with differentiation as the source of
competitive advantage.
3. Situation analysis
3.1 PESTLE DI analysis
This analysis is performed to analyze the external environment of Peninsula Hot Springs.
PESTLE DI stands for political, economical, social, technological, legal, environmental,
demographic and international environment.
Political  Melbourne and the other states and provinces of Australia have a
stable political environment, which is beneficial for the tourism
development.
 Government imposes minimum restrictions on the business
environment.
 It provides necessary infrastructure for the industries.
Economical  Stable economy and higher per capita GDP
 Economic growth for a record 26 years (Hatfield-Dodds et al., 2015)
 Safe for investment and thus, gives a higher level of confidence and
certainty to the investors
 Abundant natural resources
Social  Coexistence of the Aboriginals with the European descendants
indicating a cultural integration
 Higher standard of living, implying a market for luxury goods

6STRATEGY AND INNOVATION
 Higher educational standard, attracting many immigrants for higher
studies
Technological  Australia is highly technologically advanced country
 It spends a big amount for research and development through two
organizations, namely, The Commonwealth Scientific and Industrial
Research Organization (CSIRO) in Melbourne and the Defense
Science and Technology Organization (DSTO) in Canberra
(Koutsogeorgopoulou & Park, 2017).
 Use of internet technology has increased significantly in all the
sectors, resulting in more convenience for the business owners and the
customers
 Level of innovation has increased significantly in all the sectors and
industries
Legal  Legal framework is supportive for the corporate sector
 Minimum wage has increased according to the revised law
 Environmental laws are followed quite strictly by all the industries
Environmental  Climate change is a big issue worldwide, including in Australia
 Laws have been developed and implemented to protect the climate
 Sustainable living practices, that is, responsible production and
consumption are encouraged by the government
Demographic  Population of Australia stands at approximately 24,770,700 in 2017
December (Abs.gov.au, 2018).
 Most populated states are New South Wales, Victoria and Queensland.

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 A large number of aboriginals are existing in NSW, Queensland, and
WA forming a cheaper workforce (Abs.gov.au, 2017)
International  Australia has a strong international relationship with almost all the
countries in the world, and for education, business and tourism, a large
number of people come to Australia every year, which increases its
population. It also contributes in cultural integration.
 Many international investors invest in the economy in various
industries, thereby strengthening the economy.
3.2 Porter’s five forces analysis
Competitive analysis of Peninsula Hot Springs is performed using Porter’s five forces
framework. It analyses the threat of substitutes, threat of new entrants, bargaining power of
buyers, bargaining power of suppliers and industry or intensity of rivalry.

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Figure 2: Porter's five forces analysis framework
(Source: E. Dobbs, 2014)
Threat of substitutes The concept of this spa centre is very unique. It uses natural
thermal mineral water for its spa and health facilities. The
company has developed a sustainable spa centre around the
natural peninsula hot springs in Mornington and there is no other
centre in Australia that provides natural mineral water for the
health and wellness. Thus, the threat of substitutes is very low
for the company.
Threat of new entrants Although there are many natural resources in Australia, and
many spa centers in Melbourne and its surrounding areas, yet

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none of them can provide the unique feature of providing the hot
springs water. However, other barriers to entry in the spa
business is not much high.
Bargaining power of buyers Number of customers for Peninsula Hot Springs is quite high.
According to its website, annually around 450,000 guests visit
this place. The popularity has been increasing significantly as it
is expanding its facilities. The World Luxury Spa Awards in
2014, 2016 and 2017, and many other recognitions for work
excellence has contributed in its competitive advantage
(Peninsulahotsprings.com, 2018). Thus, the cost of switching is
quite high in terms of natural thermal water and excellent
service. Hence, bargaining power of buyers is low.
Bargaining power of
suppliers
It has a large number of local suppliers for all types of amenities.
Sustainable supplies are preferred and they have accommodation
and dining facilities with different partners. Thus, bargaining
power of the suppliers is high.
Intensity of rivalry Since, no other spa center provides the unique natural hot springs
water, thus, it faces no rivalry in this regard. On the other hand,
regarding the other spa and health facilities, there are many spa
centers that give competition to Peninsula Hot Springs.
However, due to the unique feature, the industry rivalry for
Peninsula Hot Springs is low.

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Thus, it can be said that Peninsula Hot Springs has quite significant competitive advantage in the
industry.
3.3 Resource based view
This analysis will give an overview of the resource and capabilities of Peninsula Hot
Springs.
Resources Capabilities
Tangible The spa facilities and amenities,
such as, the bath house, spa
dreaming centre, soon to be opened
spa amphitheatre, ice cave and deep
freeze and amphitheatre sauna.
Financial (cash, retained earnings),
physical (land, facilities, equipment)
are also tangible resources, in which
the centre has a strong position.
Strong capital stock, locational advantage
and presence of the natural resources have
been increasing the competitive advantage
of Peninsula Hot Springs. These also help
it to expand and invest in innovations.
Intangible Reputation earned due to excellent
service and awards such as World
Luxury Spa (2014, 2016 and 2017),
Victorian Tourism Award 2010 and
inclusion in the Victorian Tourism
Awards Hall of Fame in Health and
Wellbeing
Organizational resources, such as, culture,
structure, relationships, brand name, and
management systems of Peninsula Hot
Springs have earned recognition among
the customers and suppliers.

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(Peninsulahotsprings.com, 2018).
Human Highly trained and educated staff
gives excellent health and wellness
service to the guests.
The center has displayed great individual
knowledge, abilities and skills to provide
the guests the best health and wellness
experience.
4. Fit between company strategy and its context
From the above analysis of the environment and situation of Peninsula Hot Springs, it can
be said that the company has been following the differentiation focus strategy. In other words, it
is selling luxurious spa and wellness services using natural hot spring water but in different
amenities to the customers with higher income and a preference for luxury experience. To attract
more customers, it is expanding its facilities. However, it cannot open branches in different
locations as natural hot springs is not available in favorable condition, which is their source of
competitive advantage. Hence, as there are many other spa centers, which focus on providing
excellent spa services with similar resource and capabilities but with a lower cost, those can
create threats for Peninsula Hot Springs. The other centers can capture some of the price
sensitive customers through cost focus strategy, that is, targeting a narrow market with
preference for lower cost services.
5. Recommendations
Peninsula Hot Springs should try to adopt the cost focus strategy to retain its market
position in future. It has already captured a reputation and loyal customer base, who give
preference for the unique experience of enjoying the spa facilities with natural hot springs water.

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However, the number of price sensitive customers is also quite high, who might not be able to
enjoy the packages of Peninsula Hot Springs due to its price. Hence, if the company reduces its
price for few older services, such as, the bath house facilities, or if it provides discount offers and
coupons, then the customer base would increase.
6. Conclusion
Peninsula Hot Springs is an eminent spa and wellness centre in the coastal area of
Melbourne. The feature of using the natural thermal mineral water and the excellent spa services
has helped it earn a huge reputation across the nation and among the domestic and international
tourists. From the strategy and environmental analyses, it can be inferred that the company has
been following the differentiation focus strategy in terms of services and various facilities. The
external environment, resources and capabilities and competitiveness is quite favorable for the
company for growing its business in the future. However, as there are also price sensitive middle
and lower income groups, who are potential customers, the company should adopt the cost focus
business strategies to increase their market share.

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References
Abs.gov.au. (2017). Estimates of Aboriginal and Torres Strait Islander Australians, June 2016.
Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/mf/3238.0.55.001
Abs.gov.au. (2018). Australian Demographic Statistics, Dec 2017. Retrieved from
http://www.abs.gov.au/ausstats/abs@.nsf/0/D56C4A3E41586764CA2581A70015893E?
Opendocument
Bertozzi, F., Ali, C. M., & Gul, F. A. (2017). Porter’s five generic strategies; A case study from
the hospitality industry. International Journal For Research In Mechanical & Civil
Engineering (ISSN: 2208-2727), 3(2), 09-23.
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Hatfield-Dodds, S., Schandl, H., Adams, P. D., Baynes, T. M., Brinsmead, T. S., Bryan, B. A., ...
& McCallum, R. (2015). Australia is ‘free to choose’economic growth and falling
environmental pressures. Nature, 527(7576), 49.
Koutsogeorgopoulou, V., & Park, T. (2017). Boosting R&D outcomes in Australia.
Peninsulahotsprings.com. (2018). Peninsula Hot Springs | Our Journey. Retrieved from
https://www.peninsulahotsprings.com/our-story/our-journey/