Gina Marie G. Eriksen Toril L. Hesselberg Lotte Leidland Pål-Gunnar Molland Silje M. Munkeby Tonje Jørgensen
ZZZ Corporate Accommodation In The Italian Market
Bachelor of International Marketing – Kingston University
Submission date: 03.05.2018
This paper is done as a part of the undergraduate program at BI Norwegian Business School. This does not entail that BI Norwegian Business School has cleared the methods applied, the results presented, or the conclusions drawn.
CONSULTANCY REPORT
INTERNATIONAL BUSINESS PRACTICE
Kingston University Word count: 4930
IN THE ITALIAN MARKET
Disclaimer
This material is based upon student’s work supported by Kingston University. Any opinions, findings, conclusions, or recommendations are those of the authors and do not reflect the views of Kingston University, its employees or its administration.
Executive summary
This report identifies the opportunities for ZZZ Corporate Accommodation for a potential expansion into the Italian market.
Drivers of change in the macro environment relevant for the corporate accommodation market in Italy are related to tax reforms regarding short-term rentals and the fluctuations in the correlation between supply and demand. Moreover, the extensive use of big data combined with CRM systems are changing this industry and the new trend towards sharing economy have opened up a new arena for newcomers to enter into the hospitality industry.
Research findings shows that the cities with most events attracting great numbers of people are Bologna, Venice, Verona and Milan. Further analysis indicated that Verona and Milan are the cities offering the best opportunities for a potential expansion for ZZZ. There are 14 relevant B2B events to focus on in Verona and 11 in Milan with a high enough demand for ZZZ to make a great profit.
The threat of new entrance in these two markets can be considered high, as the barriers to entry are low. The power of suppliers is set to moderately high, as they are not dependent on the industry as a customer. The level of competition in Verona is limited with only one direct competitor currently operating in this market. In Milan, there is a higher presence of agencies offering corporate accommodation.
The suggested price strategy includes marking up the accommodation 40% above costs.
There are approximately 600 apartments for ZZZ’s standard in Verona and 2770 in Milan.
Total days needed to rent in Verona will be 60 days and 66 days in Milan, and the market value is set to be 32.263.700€ in Verona and 32.240.571€ in Milan. The total estimated profit in Verona is 672.000€ and 950.400€ in Milan.
Analysis indicates that both markets hold great opportunities. Due to lack of experience in the Italian market and level of risk attached, a strategic alliance with BTM is recommended when entering Verona, alongside with a cooperation with Veronafiere. Milan will become a long-term goal after 2 financial years, due to lack of experience and a higher competition.
Table of Content
DISCLAIMER ... 3
EXECUTIVE SUMMARY ... 4
1.0 INTRODUCTION ... 7
2.0 BACKGROUND ... 7
2.1CLIENT PROFILE ...7
2.2OBJECTIVES ...7
3.0 RESEARCH METHODOLOGY ... 8
4.0 EXTERNAL INDUSTRY ENVIRONMENT ... 10
4.1DRIVERS OF CHANGE IN THE MACRO ENVIRONMENT ... 10
4.1.1 Political/Legal ... 10
4.1.2 Economic... 11
4.1.3 Technological ... 11
4.1.4 Social ... 11
4.1.5 Environmental ... 11
4.2IDENTIFICATION OF KEY OPPORTUNITIES ... 11
4.3DRIVERS OF PROFITABILITY IN THE CHOSEN MARKETS... 12
4.3.1 Competitive rivalry ... 12
4.3.2 Threat of New Entry ... 13
4.3.3 Threat of substitutes ... 13
4.3.4 Power of buyers ... 13
4.3.5 Power of suppliers ... 13
5.0 COMPETITOR ANALYSIS ... 14
5.1VERONA ... 14
5.2MILAN ... 15
6.0 INTERNAL ANALYSIS ... 17
6.1VRIO ... 17
7.0 SWOT-ANALYSIS ... 17
8.0 KEY OPPORTUNITIES ... 18
8.1VERONA ... 18
8.1.1 Key events ... 19
8.2MILAN ... 22
8.2.1 Key events ... 24
9.0 MAIN FINDINGS ... 27
9.1BOOKING OF ACCOMMODATIONS... 27
9.2LOCATION OF APARTMENTS... 27
9.3COST OF APARTMENTS ... 27
9.4BARRIERS TO ENTRY... 28
9.5ANY OPEN DOORS ... 28
9.6MARKET VALUE ... 28
9.7LEVEL OF RISK ... 28
9.8POTENTIAL ENTRY MODES... 29
9.8.1 Verona ... 29
9.8.2 Milan ... 29
10.0 PRICE STRATEGY ... 29
10.1ESTIMATED PROFIT ... 30
11.0 RECOMMENDATION ... 31
11.1ENTRY MODE VERONA ... 31
11.1.1 Strategic alliance ... 31
11.1.2 Cooperation with exhibition centre ... 32
11.2ENTRY MODE MILAN ... 32
12.0 CONCLUSION ... 32
13.0 LIMITATIONS ... 33
14.0 REFERENCES ... 34
15.0 APPENDICES ... 50
APPENDIXA ... 50
APPENDIXB ... 56
APPENDIXC ... 61
APPENDIXD ... 64
APPENDIXE ... 68
APPENDIXF... 74
APPENDIXG ... 80
APPENDIXH ... 82
APPENDIXI ... 88
APPENDIXJ ... 90
APPENDIXK ... 94
APPENDIXL ... 96
1.0 Introduction
The purpose of the following report is to identify opportunities in the Italian market for a potential expansion for ZZZ. The report includes an external analysis determining the drivers of change and profitability in the hospitality industry, and more specifically, the corporate accommodation market, in order to identify opportunities and threats in the chosen markets. Internal strength and weaknesses are outlined as well.
Further content includes main findings related to key opportunities. Figures and numbers used for description related to level of risk and reward are included, in addition to
dynamics in the competitive environment. Information regarding appropriate events is provided alongside with current supply/demand offered. Collectively, a suggested recommendation is included, based on the analysis and findings.
2.0 Background
2.1 Client Profile
ZZZ is a UK-based company providing corporate accommodation- and entertainment. The company was founded in 2002 and operates to this date in Cannes, Barcelona and London.
The team consists of ten employees with a mission to provide the best possible services to their clients. ZZZs current focus is to evaluate a possible expansion to a new international market (ZZZ, 2018).
2.2 Objectives
Research methodology used to test our objectives in this International Business
Consultancy Project has been carefully selected to collectively provide the best possible solution for ZZZ entering the Italian market.
To provide a solution for our project objective and a satisfying recommendation we need to answer the following;
• The size of the opportunity
• Who runs the exhibitions?
• Who are the competition?
• How do people book accommodation?
• Where can people stay and what is the average cost?
• Are there any barriers to entry?
• Any open doors?
• Explain whether and how ZZZ should enter your
3.0 Research methodology
Secondary research:
To support our choice of potential market entrance, secondary research has been used to analyse the external business environment and the competitive attractiveness of the industry, through a qualitative approach. This helped us evaluate and gain better
knowledge of the conditional probability for ZZZ entering the Italian market. Collection of secondary data has been conducted through an exploratory design, where big data, and other existing data have been vital to analyse the market. This allowed us to gain valuable insight in the market, however, the evidence did not serve enough information to provide validity for a solid recommendation.
Primary research:
To provide our findings with more validity and reliability, primary research was conducted;
SEMI STRUCTURED INTERVIEW
Total emails sent 183
Total response 40
Total phone interviews conducted 5 Table 1: Semi structured interview
Part of our strategy was sending out both English and Italian written emails. By doing so, we hoped for more respondents, as it would be a nice courtesy when approaching Italian exhibitors and organizations. We contacted exhibitors from different countries, exhibition- centers, tourist-board and competitors. Response from both email and phone interviews gave us imperative information for further recommendation (Appendix A).
MAIN FINDINGS FROM PHONE INTERVIEWS
Orkel • Norwegian manufacturing company attending Fieragricola in Verona
• Staying in Venice during events due to fully booked hotels
• They would prefer staying in Verona, but in their experience, it is challenging getting hold of accommodation hosting more than 6 people.
• Do not necessary desire to stay in hotels, but accommodations that understands their purpose of travel; business
Fiera Milano • Due to great availability and access to public
transportation at the exhibition centre, visitors tend to stay in the city centre of Milan.
• Hotels in the exhibition centre area have nowhere near the capacity needed to host all exhibitors attending events.
Veronafiere • Do not hold any reservations rights for their booking service, “first come, first serve”.
• Hotels sold out quickly due to lack of supply
• Most accommodation found in the city centre of Verona, where visitors tend to stay
• Average travel-team 10 people
Halldis • Has focused a lot of their resources in Milan due to number and volume of events. Has established great experience on the Milan market
• Milan market offering 300+ accommodations.
• Looked into Verona due to the high demand during exhibitions and saw it as an important opportunity in domestic expansion
• Currently working on increasing number of
accommodations in Verona and getting a larger foothold before other market players get a hold of it
Tourist-board Verona
• Increased tourism in Verona
• Increased number of private people letting out their properties through Airbnb and such
• Phone-interview a follow-up from the report sent by email.
Table 2: Phone interviews and emails
To sort out whom we wished to contact to gain the most valuable information, a
strategized selection frame was used, providing answers supporting research objectives.
Convenience selection combined with stratified selection was utilized to seek out and contact competitors, exhibitors and visitors, to acquire knowledge about the market conditions (Gripsrud, Olsson and Silkoset, 2016). In addition, tourist-boards were
contacted to access statistics on the current demand and supply, and the exhibition centers to gain information about the clients.
4.0 External industry environment
Corporate accommodation is a niche market within the hospitality industry. Drivers of change in the macro environment have been critically analysed and applied to present the main influences. Analysis of the industry's competitiveness and profitability has also been evaluated to analyse the corporate accommodation industry.
4.1 Drivers of change in the macro environment For additional information, see appendix B.
4.1.1 Political/Legal
Platforms like Airbnb and Booking.com, where owners directly source their properties, have previously not been declared as an income for the owner. This has become a problem for the Italian revenue and perceived as an unfair advantage. New tax reforms regarding short-term rentals, for the owners have therefore been implemented. This will not directly affect the people/firms renting the properties, other than a possible increase in rental costs (Giudice, 2017).
4.1.2 Economic
The hospitality industry is characterized by fluctuating price-levels depending on the correlation between supply and demand. At high demand, the prices in specifically concentrated markets with limited supply will increase significantly. Variation in investments on different markets in this industry can therefore occur (Hotelzon, 2018).
4.1.3 Technological
Big data combined with complex CRM systems have become a fundamental part of the industry, and can be used to forecast demand, determine value for each individual client, when and how to launch marketing promotions, and optimize efficiency (Forbes, 2016).
New and complex IT systems make it easier and more accessible for safe online payment when booking accommodations, saving time and effort for companies, and is an effective way of securing payments (Get Safe Online, 2018).
4.1.4 Social
The sharing-economy is a social phenomenon changing the marketplace, with new options for where to stay, what to do, and how to get around. This has led to increased competition in the industry, making it easier for newcomers to enter the market. The new shift towards a sharing-economy will lead to an increased number of people renting out their properties on platforms like Airbnb, hence an increased number of properties for people to rent.
(European Parliament, 2017).
4.1.5 Environmental
Environmental factors include regulations implemented by governments, overall climate change, waste and pollution. Initiatives forcing the industry becoming greener are mainly subsidized, and the costs would not necessary increase (CCAC, 2018). In addition, CSR is a rising trend, and the importance of showing clients sustainability through corporate activities is imperative in the industry (Sustainability Academy, 2017).
4.2 Identification of key opportunities
Before targeting specific cities, a list of events in Italy was conducted. The cities with most events attracting great numbers of people were Bologna, Venice, Verona and Milan
(Eventseye, 2018). Further analysis of each city and events were looked into, to locate when, where and the number of attendance.
Findings in Venice illustrates several cultural events, mostly B2C, and therefore not relevant for ZZZ. The exception of relevance related to this type of events will be The Venice Film Festival. However, the nature of this event and number of people attending
are not significant enough to create a supply-issue. Venice is therefore assumed to be a poor choice as a first-move in an expansion (Appendix C).
Findings for Bologna showed that larger events, such as the Motorshow, are mainly B2C.
Additional conference-events in Bologna, such as the Marca Bologna Fiere have approximately 7.800 professionals participating. Compared to the Motorshow with 280.000 visitors, these kinds of events are not operating in the same scale that will trigger supply-issues where ZZZ can get a foothold (Appendix C). The key opportunities for ZZZ are therefore Milan and Verona. Further exploitations, figures and numbers illustrating the opportunities enabled are presented later in the report.
4.3 Drivers of profitability in the chosen markets For additional information, see appendix D.
Figure 1: Porter’s Five Forces
4.3.1 Competitive rivalry
Firms competing within the industry of corporate accommodation offer merely the same services, resulting in low differentiation and relative high fixed cost (Zupic, 2017).
Competitive rivalry is argued to be high in markets with low correspondence between supply and demand. This makes the competition in Milan concentrated, while Verona is a unique market due to the low presence of market players, but has the potential of high
competitive rivalry. Overall, competitive rivalry in the industry of corporate accommodations in Italy is considered to be moderately high.
4.3.2 Threat of New Entry
Threat of new entry is considered to be moderately high, due to less complex products and technology, making it is easier to enter the market with similar services. However,
investments are required to differentiate as a premium brand, thus making it challenging for new firms to compete in the same league, creating barriers for a new entry (Zupic, 2017).
4.3.3 Threat of substitutes
Due to technological advancement and increased digitalization, the potential of starting new businesses are high. Popular alternatives in this industry are bed and breakfasts, condominiums, timeshares, Airbnb, hotels and motels (Ionel, 2016). The main substitutes threat for ZZZ are 4-5* hotels when lower strategic groups, such as 1-3* hotels, motels and related substitutes will not be relevant for the matter of ZZZ when corporate consumers prefer staying in accommodations of a certain standard and location.
4.3.4 Power of buyers
There are limited offerings in the corporate accommodation market in Verona today, despite high demand during events. In Milan, there is a wider choice of accommodation offered. However, during larger events, the demand is high (Hotels.com, 2018), hence lowering the bargaining power of the buyers as hotels are fully booked. Moreover, corporate accommodation is a service easy to replicate, with low switching-costs and low price-sensitivity among clients, both factors increasing the bargaining power (Zupic, 2017).
4.3.5 Power of suppliers
ZZZ does not own any properties, hence increased bargaining power of suppliers.
Suppliers are not exclusively dependent on ZZZ and the industry as a customer.
Additionally, the suppliers can provide similar services, when accommodation is key. ZZZ provide their own network of contractors and rely on good relationships with these
suppliers, balancing out dependency. The number of suppliers for contractors is not concentrated, therefore holding a lower bargaining power (Zupic, 2017).
5.0 Competitor analysis
Relevant competitors for ZZZ includes local established market players and digital booking capabilities. Based on the industry analysis, relevant substitutes for the company will be 4 and 5 stars hotels. Booking capabilities with local presence in both Milan and Verona are mainly hotels, but also rental of apartments and houses. The most commonly used platforms are Homeaway, Only-apartments, Hometogo, Myplacerent, Housing Anywhere, Wimdu and Airbnb (VR Partners, 2017).
The new Airbnb service, Airbnb Work, can be considered a direct competitor in both Milan and Verona. In Verona, the current offer is 10 accommodations, and 40 in Milan (Airbnb Work, 2018). Airbnb is well-established in the hospitality industry and has a good foundation and customer base for further development in corporate accommodation.
Nevertheless, ZZZ holds unique features and differentiate in services that Airbnb Work currently does not match.
Relevant local market players renting out properties in Verona and Milan are corporate accommodation agencies. Further explanations of these are as follows:
5.1 Verona
There are no direct competitors in Verona, with exception of Halldis. The exhibition center, Veronafiere, and BTM, specializing in business travel management, are included as they offer hotel reservations. None of them hold any reservation rights to hotels, and is considered a direct competitor. The key findings from the competitor analysis (Appendix E) are illustrated below, in order of priority.
COMPETITORS IN MILAN
• Corporate - and leisure accommodation
• 30 years of experience
• Offers 12 apartments in Verona city center
• Round-the-clock professional assistance
• High quality apartments
• Italian company operating in several European cities
• Hotel bookings through exhibition center
• Does not hold any reservation rights
• Not a direct competitor - offers hotel reservation service
• Does not hold any reservation rights
• Specializes in business travel management
• Verona-based Table 2: Competitors in Verona
5.2 Milan
In Milan, the presence of agencies offering corporate accommodations is significant. The biggest and most prominent competitor is MiCodmc, owned by Fiera Milano. Key findings from the competitor analysis (Appendix E) are illustrated below, in order of priority.
COMPETITORS IN MILAN
• Corporate accommodation
• Joint venture between Fiera Milano and AIM international (since 2015)
• Cooperation with all the exhibitions at Fiera Milano.
• High quality accommodations
• Offers innovative and tailor-made solutions including; venues for business parties, transportation, social programs, catering
services, entertainment, team building programs, customized tours and excursions, airport meet and greet, on site assistance and visa
management.
• Corporate-and leisure accommodation
• Specialized in accommodation relates to business exhibitions in Milan.
• High quality accommodations
• 28 Apartments located in Milan city center (1-4 bedrooms)
• Corporate- and leisure accommodation
• Milan based company
• High quality apartments
• High market share in the Northern Italian market
• 28 apartments in city center of Milan
• Corporate- and leisure accommodation
• 30 years of experience
• International company with headquarters based in Milan
• 315 apartments situated in the prime areas of Milan
• High quality apartments
• Round-the-clock professional assistance team
• Corporate accommodation
• Newly entered Milan market
• Already established in 14 countries - holds great knowledge of the internationalization processes
• Corporate- and leisure accommodation
• Milan based company
• High quality apartments
• They have approximately 40 apartments, housing 220 people.
• Corporate- and leisure accommodation
• Milan based company
• 40 apartments in Milan city center
• Online agency providing booking capabilities in Milan
• Comparable to other platforms such as booking.com and hometogo
• Approximately 50 apartments that matches ZZZ standard in Milan
Table 3: Competitors in Milan
6.0 Internal analysis
6.1 VRIO
For additional information, see appendix I.
The internal resources and capabilities that characterises ZZZ can be seen through the firm's strategy. ZZZ pride themselves on great service levels, with a good eye for details.
They always pre-rental check their accommodations, to confirm with the company's high standards (ZZZ, 2017). Additionally, the firm offers a meet-and-greet service for their customers when they arrive.
It can be argued that the firm have strategic capabilities that are valued by customers, however, the company are currently only differentiating through service. Combined with their experience in the field, and the resources that they hold, ZZZ are capable of
exploiting new innovative approaches to differentiate, in order to move towards a sustained competitive advantage.
ZZZ is a smaller agency with highly experienced and talented individuals. The firm has a strong foothold in their current market with well-established networks and resources along with good reputation, which allows them to negotiate the best deals. They do, however, lack cultural awareness in current foreign opportunities.
7.0 SWOT-Analysis
The following table presents current strengths, weaknesses, opportunities and threats for ZZZ based on the findings in the external and internal analysis.
Strengths:
• Experienced team, skills in relationship-building with well- established networks
• High standard of accommodations
Opportunities:
• Acquire a good CRM system for an optimised tailored customer offering
• Increased number of rental
Internal External
• Service-differentiation with high service level. Customer-driven agency.
• Business structure that allows changes and making processes more effective
apartments due to increased sharing economy
• Limited accommodation offerings in Milan/Verona
• Expand client portfolio
• FDI → Foreign Direct Investment
• Establishing partnership
• Low barriers to entry the Italian market
Weaknesses:
• Lack of local/cultural awareness in Italy
• Differentiation challenges on other aspects of the business besides service.
• Not physically based in locations
Threats:
• Increased cost in short-term rentals due to new tax reforms
• Sharing economy opening up for new actors to enter the market as well as low barriers of entry
• Competitors offering merely same products and services
Table 4: SWOT-Analysis
8.0 Key opportunities
8.1 Verona
Tourism is a rapid growing sector in Verona with over 16 million arrivals in 2016. The city accounts for 25,6% of the accommodation opportunities in the Region of Veneto, and is one of the main tourist destinations in northern Italy, offering a wide range of fairs, shows, architecture, art and ancient roman history (Camera di Commercio Verona, 2017).
In the city of Verona there are 1.512 hotel rooms in 4-5* hotels, and the average
occupancy rate is 78%, according to hotels.com and Raporto Statistico from the Region of Veneto (2018).
The next section of the report will present the events in Verona where 4-5* hotels and direct competitors alone cannot supply the demand for accommodations. 4-5* hotels can accommodate up to 1.814 based on the assumption that 20% share rooms. Competitors offer a total of 22 apartments and can accommodate approximately 88 people, based on the average for each accommodation to be 4 people (Appendix E). Exhibitions with more than 1.902 attendances will therefore illustrate the intersection where supply meets the demand, and where there is an opportunity for ZZZ to enter the marketplace.
Figure 2: Correlation between supply and demand 8.1.1 Key events
In Appendix F, a list of all exhibitions in Verona is presented. There are 14 B2B events (4 at the same time) with enough attendance to meet the demand needed in order for ZZZ to make profit in Verona.
All the events are taking place at Veronafiere, the largest exhibition-center in Verona (Veronafiere, 2018). They are spread throughout the year, with a duration from 2-4 days.
These are annual events, with the exception of Fieragricola, Progetto Fuoco and
Asphaltica. In the tables below the number of visitors and exhibitors attending each event are presented.
Table 5: Exhibitors in Verona
Table 6: Visitors in Verona
In the figure below an illustration of the months of when each of the events are taking place are presented. The exact dates can be found in appendix F.
Figure 3: Events in Verona
Vinitaly and Sol & Agrifood are taking place at the same time, making April the month with the highest demand in Verona, with approximately 200.000 visitors and 4.500 exhibitors attending. Hotels are fully booked one year in advance, with a 98% occupancy rate for April 2019 (Hotels.com, 2018). Businesses are therefore forced to stay out of the city, even as far as Venice (Holiday Verona, 2012).
Figure 4: Occupancy rate April 2019 Verona
The occupancy rates for hotels in the table below (Hotels.com, 2018) are an indicator of the demand during each event, and might increase as these numbers were found in April 2018. The numbers are based on the average travel group to be 10 people (Appendix A).
Exhibition Occupancy rate
Marmomac 2018 95%
Oil & Nonoil 2018 89%
SAVE /MCM/ H&B/ AQ 2018 89%
Fieracavalli 2018 91%
Motorbike Expo 2019 95%
Innovabiomed 2019 95%
Vinitaly 2019 98%
Sol & Agrifood 2019 98%
Fieragricola 2020 N/A
Progetto Fuoco 2020 N/A
Asphaltica 2021 N/A
Table 7: Occupancy rate during exhibitions in Verona (Hotels.com, 2018).
8.2 Milan
Milan is the second most populous and visited city in Italy after Rome, hosting a large number of Italy’s largest exhibitions (Istat, 2017). In addition, Milan is one of the most visited tourist destinations in Europe, with 8.17 million international overnight visitors in 2016.
Table 8: International overnight visitors in millions (Statista, 2018)
Milan is the financial capital and the most important city in Italy for multinational
corporations to operate, and the modern global capital of fashion and design. Additionally, Milan is one of the richest areas in Europe by personal gross income (Wilco, 2014), and the average living cost is higher than in Verona (Numbeo, 2018).
Milan offers approximately 18.252 hotel rooms in 4-5*hotels (PwC, 2016). The average occupancy rate for 2017 was 71%, and the average occupancy rate in 2018/2019 is estimated to be 72% according to Statista (2018).
Table 9: Occupancy rate in Milan (Statista, 2018)
The next section of the report will present the events in Milan where 4-5* hotels and direct competitors alone cannot supply the demand for accommodations. 4-5* hotels can
accommodate up to 21.902, based on the assumption that 20% share rooms. Competitors offer a total of approximately 500 apartments (Appendix E) and can accommodate
approximately 2.000 people, based on the average for each accommodation to be 4 people.
Exhibitions with more than 23.902 attendances will therefore illustrate the intersection where supply meets the demand, and where there is an opportunity for ZZZ to enter the marketplace.
Figure 5: Correlation between supply and demand
8.2.1 Key events
In Appendix G, exhibitions taking place in Milan are presented. There are 11 B2B events with enough attendance to meet the demand needed in order for ZZZ to make profit in Milan.
Fiera Milano is the host of all of the events. They are spread out over the year, and the duration varies from 3-6 days (Fiera Milano, 2018). These are annual events with the exception of MCE, MADE EXPO, The Innovation Alliance, BI-MU. MCE and MADE EXPO are biannual equal-sized events, with one event taking place when the other is not.
Tables below display the number of visitors and exhibitors attending each of these events.
Lineapelle falls below the intersection where supply meets demand. However, the event is taking place around the same time as Milan fashion week and theMICAM in both February and September, hence a high demand.
Table 10: Visitors in Milan
Table 11: Exhibitors in Milan
In the figure below you can see an illustration of the months of when each event is taking place. The exact dates can be found in appendix H.
Figure 6: Events in Milan
The occupancy rates in the table below (Hotels.com, 2018) indicate the demand during each event, and might increase as these numbers were found in April 2018. The numbers are based on the average travel group to be 10 people (Appendix A).
Exhibition Occupancy rate
The MICAM 2018/2019 82%/90%
Lineapelle 2018/2019 82%/91%
BI- MU 2018 82%
SMAU 2018 80%
MADE EXPO 2019 91%
HOMI 2019 89%
Salone del Mobile 2019 95%
MCE/BIE 2020 N/A
The Innovation Alliance 2021 N/A Table 12: Occupancy rate during exhibitions in Milan
9.0 Main findings
9.1 Booking of accommodations
Primary research indicates that for clients managing to get a hold of accommodation in Verona, most bookings are made through hotel’s own webpages and Veronafiere. In Milan, a large number of bookings are made through each exhibitions webpage, as many of the events have an agreement with MiCodmc.
9.2 Location of apartments
Through conducted phone-interviews, the exhibition-centers in both Milan and Verona informed that clients prefer staying in the city centre of the respective cities. However, use of hotels near exhibition centers are utilized if available. The number of hotels in the exhibition areas of both Milan and Verona are limited (Google Maps, 2018). Further information from the exhibition centers indicates delegates arrive 1-2 days before the events and leaves the day after.
Veronafiere is a 10-minute ride by bus from Verona city center, while Fiera Milano is a 25-minute ride with train from Milan city center (Google Maps, 2018). By evaluating accommodation booking agencies such as Airbnb (2018), Booking.com (2018) and Homeaway (2018), we located around 600 apartments by ZZZs standard in Verona and 2.770 in Milan. In the initial stages of the expansion, a suggested number of
accommodations acquired by ZZZ would be 80 in Verona and 100 in Milan.
9.3 Cost of apartments
In Verona, the average cost of a high standard apartment is 116€ and 120€ in Milan (a difference of 3.45%). Average cost during events is highly dynamic and may not be representative due to the demand increases closer to events. By looking at mentioned online booking capabilities, we discovered the average prices to be up 200% during events in Verona (one month prior) hence a price of 350€ per night. To calculate the average cost during events in Milan we added the difference of 3.45% to the cost in Verona, which gave us an average price of 363€ per night during events in Milan. This indicates how the price
can be set when entering the markets. Further, the costs would depend on the size and standard of the apartment. The costs here are linked to apartments with a high standard.
9.4 Barriers to entry
Based on the external analysis there are no significant barriers entering the Italian market.
The most relevant industry changes are related to political/legal aspects regarding tax reforms for owners letting their properties directly. This is currently not affecting ZZZ in an expansion when they do not own any properties in Italy. However, due to a high level of competition in Milan offering the same services as ZZZ, the barriers to entry are
considerably higher there than in Verona. ZZZ does not currently differentiate enough to overcome and get a foothold over this barrier in Milan.
9.5 Any open doors
A search was initiated to identify any open doors by looking at events belonging in the same industry, and if any previously clients were attending or planned to attend any of the events. Based on findings, the event MAPIC can be found in Milan. However, this event is too small to trigger the demand ZZZ needs to sell apartments, as the total number of delegates is approximately 1.500 (Mapic, 2017).
9.6 Market Value
The market value related to the events is estimated to be 32.263.700€ in Verona and 32.240.571€
in Milan. These numbers are based on the average total number of delegates attending each event excluding the number of people staying in 4-5* hotels, figured to be 92.182 in
Verona and 88.817 in Milan. The numbers were then multiplied with the average cost for an apartment in each city, primarily 350€ in Verona and 363€ in Milan. Detailed
information and calculations can be found in appendix J with additional notes.
9.7 Level of risk
The level of risk associated with expanding to a new market is high if the company has limited knowledge about the new market. An alliance will help reducing risk by sharing resources, and a failure will not lead to a full loss in cost. Alliances tend to work better with soft resources e.g. people and knowledge, something ZZZ would need when entering the Italian market (Zupic, 2017). This type of alliance, known as an access alliance, will acquire resources a partner can provide. Drawbacks such as cultural clash and integration problems can occur due to different management styles and business practices. The level of risk can then be measured to be moderate rather than high if ZZZ pursued an organic expansion into the Italian market alone.
9.8 Potential entry modes 9.8.1 Verona
Due to lack of experience in the Italian market and level of risk attached to an expansion, a strategic alliance could be appropriate. In a strategic alliance, the partners share costs and risks related to decisions and investments. To utilize the opportunity in Verona, the level of differentiation is particularly important and the potential differentiation resulted from an alliance will reduce competition. A key factor and advantage from a strategic alliance in Verona is access to new resources. These resources include financial and human capital, knowledge about the market and a valuable network consisting of clients and suppliers.
A joint venture would give similar benefits as an alliance but would also mean a joint ownership. The initial investments required are much higher than in a strategic alliance, and eliminates all individual authority. The risk attached to this long-term solution would be much more significant and detrimental for ZZZ if not succeeded (Protopapa, 2017).
9.8.2 Milan
Entry mode for the Milan market is determined by the analysis of the external business environment and the internal capabilities ZZZ hold. In Milan, the competition is highly prominent as market players holds a strong foothold focusing exclusively on corporate clients. Moreover, the main competitor MiCodmc, has agreements with larger events and holds a competitive advantage. However, there is a huge gap between supply and demand during major events, and the size of the market is significant, available for newcomers managing to compete. Knowledge about the Italian market is crucial to succeed in this market, as well as expanding portfolio both in terms of networks and services. ZZZ does not currently match these requirements alone, and should gain this expertise before entering Milan.
10.0 Price strategy
Selling at a premium is ideal for small businesses providing unique services with high quality (Maguire, 2017). ZZZ providing high standard of accommodation from a bespoken selection, high level of trust and personal relationship with clients can justify a premium price. The suggested price strategy includes marking up the accommodation 40% above average costs during events.
10.1 Estimated Profit (Appendix K)
Average cost: 350€ Verona / 363€ Milan
Average price (based on 40% margin): 490€ Verona/ 507€ Milan.
Total days rented, based on delegates arriving 1 day before the event and staying 1 day after: 60 Verona / 66 Milan.
Number of accommodations acquired: 80 out of 600 Verona / 100 out of 2770 Milan.
Income Verona 490€ x 60 days = 29.400€ 29.400€
Cost Verona 350€ x 60 days = 21.000€ 21.000€
Profit per apartment Verona
8.400€
Total profit of 80
accommodations Verona
672.000€
Income Milan 507€ x 66 days = 33.462€ 33.462€
Cost Milan 363€ x 66 days = 23.958€ 23.958€
Profit per apartment Milan
950.400€
Total profit of 100 accommodations Milan
Total profit Verona + Milan
1.622.400€
Table 13: Estimated Profits
11.0 Recommendation
Based on analysis and findings in this report, ZZZ should seek to implement the following recommendations;
11.1 Entry mode Verona
As a desirable destination with corresponding market opportunities, Verona is
recommended as the city ZZZ should begin their expansion. Corporate accommodation is not widely available in Verona and ZZZ will satisfy an unmet need. This would imply that ZZZ will be the first firm of foreign-domestic entering the market, classified as an “early entry”. Choice of entry mode is primarily based on this being ZZZs first attempt on the Italian market, and to minimize the level of risk. A strategic alliance is therefore suggested.
11.1.1 Strategic alliance
The success of a strategic alliance is primarily dependent on the selection of a good partner. The recommended firm is chosen on the assumption that they will help ZZZ achieve their strategic goals and share the same vision for the purpose of the potential alliance. A cooperative agreement between ZZZ and a company already presence in Verona, named BTM (Business Travel Management) is therefore recommended.
BTM is a Business Travel agency located in Verona. Their core competencies mainly focus on checking every detail of business travel including transport reservations, visa management, insurance and other travel management areas. BTM will be an attractive partner regarding their level of professionalism and service-package. ZZZs corporate accommodation will be a complimentary skill and asset valuable for BTM and vice versa.
BTM follows the same service level as ZZZ regarding 24-hour help desk, exhibitions clients and focus on human relationship as a strategy for client base, suppliers and loyalty.
A strategic alliance with BTM will provide the market with a complete service-package challenging for competitors to match. The level of differentiation from this alliance compared to current market players and competitor presence in Verona will definite be significant and have the potential of acquiring a high-volume client base. Based on the market analysis and macro dynamics there are no legal/economic trade barriers affecting this type of entry strategy.
For further information regarding BTM see appendix L.
11.1.2 Cooperation with exhibition centre
Through Veronafiere’s website, information of hotels available for clients are provided and plays an informative position for business travelers related to the exhibition center. An opportunity for ZZZ would be a cooperation with Veronafiere, where Veronafiere list ZZZ as an accommodation opportunity available for business travelers.
11.2 Entry mode Milan
Competition in Milan is concentrated and considered high, when several companies provide the same services as ZZZ targeting exhibition clients. The events in Milan
increases demand for accommodation to an extent that makes it profitable for ZZZ to enter this market if they can manage to compete. Approximately 21.902 people can stay at 4-5*
hotels in Milan. The mentioned presence of competition can stand for additional 2.000 people. Making events with attendance above 23.902 people relevant for ZZZ. Usually, these events have partnership with companies that provide extensive accommodation solutions and are an indicator of a common approach in this market.
The recommended entry for Milan is based on the success of a partnership with a company like BTM, offering integrated solutions to clients. Milan is therefore recommended to be a long-term goal. By first entering the Verona market, ZZZ will gain experience and relevant position becoming a stronger competitor entering Milan. This strategic approach will allow the company to market themselves and increase brand awareness. An expansion into the Milan market is recommended after at least two financial years in order to establish relevant position. Milan is a large market with higher potential growth rate than Verona in terms of apartments.
12.0 Conclusion
The external and internal analysis indicates an expansion opportunity for ZZZ in the cities of Milan and Verona. Due to concentrated competition in Milan, a first-move in Verona is recommended with future prospects in Milan, preferably after the first two-financial-years.
Suggested entry modes are based on a thorough risk assessment, using differentiation as a main motive and success factor. A strategic alliance with a Verona-based company, BTM, is recommended alongside with a cooperation with the main exhibition center,
Veronafiere. As for the Milan market, a long-term assessment is suggested.
13.0 Limitations
The International Business Consultancy Project for ZZZ has been an extensive project, and therefore led to some limitations. Both primary and secondary research have been made use of and exhausted. Granted that if we had more resources, human capital and a greater time frame, we would be able to provide a more detailed analysis of the market in question and primary research would have been more accessible. Specific areas of the report
requiring a more comprehensive evaluation would be related to price and costs. The numbers and figures used in the report are based on a limited selection and is not a representative number for the market. This would have strengthened the reports validity.
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