Sirik Deurloo

IMHI 2010

Marketing Strategy
by Mrs Ray Pine

First essay. 28 September 2009

 Hiltons fills Lifestyle Gap with Denizen

In 2006, Hilton Hotels Corporation (US based) bought Hilton International (UK based) to
create the third world largest hotel company, recently renamed as “Hilton Worldwide”. With more than
3000 hotels worldwide and ten brands, Hilton Worldwide (referred as Hilton in this essay) decided to
replace the swirly-H logo to give the company's other brands a more unified identity. However, it will
remain in use for the flagship Hilton brand.
The Hilton portfolio is offering a large choice of hotels from economic to luxury standards and
services. Among the most famous ones in Europe, we can find: Hilton, Conrad, DoubleTree and
Waldorf Astoria...
th
In March 2009, Hilton announced the creation of its 11 brand: Denizen. This new concept
should have been different from the existing luxury brands by its style and atmosphere and should
i
have targeted a niche market of trendy, “globally conscious modern travellers of the world” .
Unfortunately, the marketing strategy in place was not enough to assure the launching...
Firstly, we will explore the competitive strategy used for Denizen by analysing Porter’s generic
strategies. Secondly, we will establish how this case is directly defined as a horizontal integration.

1. Porter’s generic strategies.

1.1 Denizen and the differentiation strategy

As a corporation, the aim of Hilton is to be profitable for its owners and stakeholders. Therefore, its
position within the hospitality industry is vital. Even if an industry may have a low profitability, a firm
with a good positioning may generate high returns on investment. Michael Porter explained that
company or strategy business unit (SBU) can fall into two headings: Competitive Advantage (cost
advantage or differentiation) and Competitive Scope (broad or narrow).

Hilton is clearly in a broad competitive scope by its number of hotels worldwide, its expansion,
innovation and global standardization. With Denizen, Hilton wanted to differentiate itself from the
competition by targeting a new luxury market niche. Among the luxury brands, Conrad are
contemporary hotels, Waldorf Astoria are tradition style architecture and design. However, Denizen
wanted prove its uniqueness by pitching new potential customers: young minded wealthy travelers,
willing to have a hotel with a state-of-the-art technology, vibrant atmosphere and high-end comfort with
a new “play and stay” concept.

As per Christopher Nasseta, Denizen was a long-term investment concept with “exceptional design
and service”, to be expanded globally in main majors cities like Adu Dhabi and London. Porter would
describe Denizen as a differentiation strategy “to ensure that either the company in general or certain
ii
specific elements (…) are perceived to be unique by both client and suppliers”

1.2 1.2 Reasons Hilton why choose differentiation

By trying to be different, Hilton faced two main risks:

iii
Cost risk: To create a brand is costly and time consuming (3 to 5 years ) considering market research,
product design and concept elaboration. But Hilton has the advantage of knowing the industry, of
having an existing development team and of having enough funds and support. Besides, to reduce
costs, Hilton benefits from the economy of scale in purchasing (bulk buying), finance (lower interest
rate) and marketing (spreading the cost). Also, Hilton has mentioned to “be flexible enough for
conversions and adaptive re-use projects” and “at least two third of the initial pipeline should be
iv
conversion opportunities”

Communication risk: A new product launching needs a heavy advertisement to reach consumers’
attention and requires some time before its return. Hilton is known worldwide and uses its recognition
and loyalty program Hilton HHonors to promote its new concepts and openings. Communication to
travelers is efficient and targeted; therefore the impact is much stronger than the one of a smaller
company. Then, Hilton uses its worldwide sales force to promote any changes and increase Hilton
market share.

In fact, Hilton had very limited risks launching Denizen by using proper resources. However, one risk
was not considered: the morality and the theft of trade secret. Ross Klein, previously at Starwood
became Global Head of Luxury and Lifestyle brands and launched Denizen in only 9 months.
Starwood sued Hilton for corporate espionage and won the case. Denizen launch has been stopped
completely.

Nevertheless, let’s us now define which growth strategy Hilton used.

2 Horizontal integration

There are two types of integration, vertical or horizontal.

Vertical is when a company is expanding its activity in other areas than its core-business. Horizontal
integration is when a company develops its core-business. The expansion is achieved by either buying
existing companies or creating a new product.
v
In 1957, Robinson illustrated the five factors of a horizontal integration :
- Technical factors, which could be separated in two sub-divisions:
• Division of labor: to specialize the work force to increase its productivity. A Hilton sales
person can become a Denizen sales person.
• Process integration: to regroup the work force to be more productive. Hilton is doing so by
merging several departments (ie: Finance, HR, Sales) regardless the hotel or hotel brand.
Most Denizen employees would already be part of Hilton, knowing the company structure
and procedures.
- Management factors: management duties are separated in many parts, making the best use of
people’s experience and skills. By launching Denizen, Hilton won’t have to create a new management
team, because existing in the current structure (EMEA, AsiaPac, US offices).
- Financial factors: Denizen would be supported by Blackstone Group, the Hilton Worldwide owner,
to invest in the development of the company.
- Sales Factors: Denizen would benefit from the worldwide Hilton Sales & Marketing force already in
place like international sales offices, hilton.com, Hilton Worldwide communication and all sales teams
already operating. Likewise, the launch would have been easier, shorter and efficient.
- Risk factors: macroeconomic situation cannot be foreseen by anyone. But by creating several
brands and focusing on different type of consumers, Hilton would spread the risk. In the case of
Denizen, “luxury at an accessible price” can become a solution not to lose any market share as there
is a significant need of travelling with restricted budget.

Hilton Worldwide is only focused on its core-business (selling rooms, operating, managing and selling
franchises) and remains one the leader in the industry. Its success is proved by several horizontal
integration like buying hotel groups or creating brands to answer its traveler’s needs and wants.
In the case of Denizen, Hilton growth strategy was the differentiation from the competition using its
current forces. Unfortunately, Denizen hotel, which was supposed to fulfill a niche market of wealthy,
trendy and young-minded travelers, will never be part of the Hilton Worldwide portfolio due to pursuits
by Starwood for corporate espionage. Would the change of identity to Hilton Worldwide that occurred
last week appear as a new marketing strategy to overrule the Denizen failure in the media or would it
vi
be as a “new beginning of the company” ?

REFERENCES:

i
Source: Reuters News, Hilton Hotels launches luxury Denizen brand,
http://www.reuters.com/article/privateEquity/idUSN0948093920090310, Los Angeles, 10 March 2009
ii
Source : CUNHILL, Onofre Martorell, The Growth Strategies of Hotel Chains, New York, 2006
iii
Source : Reuters, Deeana Beasley,
http://www.reuters.com/article/rbssHotels,%20Motels%20&%20Cruise%20Lines/idUSN1629334920090417?p
ageNumber=1&virtualBrandChannel=0, 16 April 2009
iv
Cf attached article
v
Source: Robinson, EAG, The structure of competitive industry, Chicago, 1957
vi
Statement by Chris Nasseta, http://www.hotelsmag.com/article/CA6698435.html, 23 September 2009