International Journal of Contemporary Hospitality Management

Identifying the attributes of blue ocean strategies in hospitality

Jen-te Yang

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Jen-te Yang, (2012),"Identifying the attributes of blue ocean strategies in hospitality", International Journal
of Contemporary Hospitality Management, Vol. 24 Iss 5 pp. 701 - 720
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(2012),"Thinking outside the hotel box: Blue ocean strategies for hotels in Taiwan", Strategic Direction, Vol.
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W. Chan Kim, Rene Mauborgne, (2005),"Value innovation: a leap into the blue ocean", Journal of
Business Strategy, Vol. 26 Iss 4 pp. 22-28 http://dx.doi.org/10.1108/02756660510608521
Norman T. Sheehan, Ganesh Vaidyanathan, (2009),"Using a value creation compass
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Identifying the attributes of blue

ocean strategies in hospitality

Attributes of
blue ocean
strategies

Jen-te Yang
Department of Hotel Management, National Kaohsiung University of
Hospitality and Tourism, Kaohsiung City, Taiwan ROC

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Abstract
Purpose The purpose of this study is to identify the characteristics of a blue ocean strategy (BOS)
in selected hotels in Taiwan.
Design/methodology/approach Semi-structured interviews and the grounded theory approach
were applied in this study. A total of 32 senior and top managers working in the corporate executive
office and the divisions of rooms and marketing were selected from international tourist chain hotels
and resorts for semi-structured interviews.
Findings The results show that the features of BOS are identifying guest value perceptions,
innovating distinctive added-value offerings, developing new market segments, branding and
re-branding, creating a unique hotel ambience, adjusting distribution channels, and establishing
strategic alliances.
Practical implications The study suggests that in the sampled hotels, hoteliers should integrate a
demand-based pricing strategy with a supply-based product-development strategy. Organizational
effectiveness could be further advanced in those hotels by the introduction of revenue management
based on the determination of variations in guest demand, making it possible to offer different pricing
strategies to diverse market segments.
Originality/value The results show that the sampled hotels should be able to create unique
products and services for customers that strengthen their competitive positions in the marketplace of
international tourist hotels in Taiwan. This study advances academic knowledge in the field of
organizational effectiveness, particularly with respect to managing customer demand and capacity in
the hotel industry.

701
Received 16 January 2011
Revised 19 April 2011
15 August 2011
Accepted 17 September
2011

Keywords Blue ocean strategy, Capacity management, Customer relationship management,

Demand management, Hospitality management, Taiwan, Customer orientation, Competitive strategy
Paper type Research paper

Introduction
Mehmetoglu and Altinay (2006) claimed that the hospitality environment has
gradually become more turbulent because of a shift in the complex of variations in
customer demand and purchasing behavior. Moreover, recently, both the global
natural environment and economic conditions have changed considerably. This has
also led to increased complication in the areas of room capacity management. In
particular, Kuos (2009) study postulated that the provision of quality service and
products to tourists is a challenging task for hoteliers. Consequently, the formulation of
a strategy to expedite a hotels establishment of a sustainable successful advantage in
an uncontested marketplace has become crucial.
This research was fully supported by the National Science Council, Taiwan ROC under grant
number NSC96-2416-H-328-001-MY3.

International Journal of
Contemporary Hospitality
Management
Vol. 24 No. 5, 2012
pp. 701-720
q Emerald Group Publishing Limited
0959-6119
DOI 10.1108/09596111211237255

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The hotel industry offers intangible products and services to its customers. For this
reason, the most crucial strategies in the industry involve how to offer better
people-oriented services and how to encourage repeat business. The blue ocean
strategy (BOS), which has been studied in the field of strategic marketing, may offer
important advantages with regard to company survival in the context of the turbulent
business environment of the hotel industry, particularly in Taiwan. The BOS shifts the
focus from competition among companies within the same marketplace to
reconstructing market boundaries and creating new customer demand; that is, it
attempts to develop an uncontested marketplace. Kim and Mauborgne (2005) have
conducted research on BOSs during the last 20 years and have reported on a number of
studies showing that creating and implementing such strategies can move
organizations to the next level of an uncontested marketplace, which, in turn, can
advance organizational effectiveness.
In this study, we aimed to reframe our perspectives on BOSs by applying
hospitality management and marketing theories to this domain. The main purpose of
this study was to identify the characteristics of a BOS that are relevant to the hotel
industry in Taiwan. This study extends the literature on strategic hospitality
management in three distinctive ways. First, this study demonstrates that concepts
from customer relationship management (CRM) and network theory can be integrated
into the implementation of a BOS. Second, this study indicates that revenue
management is appropriately incorporated into a BOS; the differentiation between
lodging offerings and the low opportunity-cost advantages of hotels will thus be
sustained. Third, in the twenty-first century, the turbulent hospitality environment
requires greater understanding of the value-related perceptions of guests to facilitate
the successful development of effective market segments, unique brand expansion, and
strategic alliances with returning guests. Thus, network theory and CRM can
contribute to successful development in the hotel industry.
Fundamental concepts
This section provides a review of the concept of a BOS and of factors critical to
successful implementation of this strategy based on CRM and network theory.
BOSs
In their book, Blue Ocean Strategy, Kim and Mauborgne (2005) use blue ocean as a
metaphor related to the aims and strategies of companies. Underpinning this strategy
is the goal of creating new customer values and new offerings in an uncontested
marketplace. Features of the so-called red ocean strategy include competing in an
existing market space, beating the competition, exploiting existing demand, making
value-cost trade-offs, and aligning a firms activities with its strategic choice of
differentiation or reduced cost. Features of a BOS include creating an uncontested
market space, rendering the competition irrelevant, creating and capturing new
demand, abrogating the value-cost trade-off, and aligning a firms activities with its
strategic choice of differentiation or reduced cost (Kim and Mauborgne, 2005).
Value and innovation are traits associated with the sustainable competitive
advantages of a company. Kim and Mauborgne proposed that a BOS include value and
innovation. A strategy canvas, a diagnostic and action-focused tool, clearly shows the
extant and potential features of products in an industry as well as the extant and

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potential competitors offering such features. This tool also presents a four-action
framework (eliminate, reduce, create, and raise). The first two components involve
attempts by a company to enhance a low-cost advantage within an industry, whereas
the latter two components enable the company to enrich its differentiation advantage.
Indeed, value creation should be unique and hard to imitate.
In this study, we applied the eliminate-reduce-create-raise grid to identify the
characteristics of a BOS that are most important for the future of the international hotel
industry in Taiwan. Understanding company-wide and industry-wide circumstances in
terms of the four-element grid enables hoteliers to create customer value and innovative
product and service offerings for customers; ideally, this will result in an uncontested
marketplace. To achieve the continuous creation of value and innovation, subsequent
implementation of a BOS would build on the theories of CRM and networks.
CRM
Ozgener and Iraz (2006) claimed that CRM involves a strategic focus on people,
processes, and technology. Some literature has specifically focused on people; for
example, Wu and Li (2011) described CRM as a process of collecting customer
information through interactions between internal and external customers. Along
these lines, many reports (e.g. Geddie et al., 2005; Lo et al., 2010) have shown that
effective CRM practices may be beneficial to organizational performance in terms of
customer patronage and satisfaction.
CRM can be incorporated into the implementation of BOSs. A plausible rationale for
this approach is that CRM reinforces customer satisfaction and loyalty (e.g. Osman
et al., 2009; Geddie et al., 2005). Sigala (2005) recommended that such implementation of
CRM strategies and tactics would enable hoteliers to collect the customer information
needed to create new customer values and further develop offerings for them. Thus, the
availability of distinct innovations should result in an increased number of customized
offerings for existing customers as well as the establishment of new market segments.
Network theory
Lo et al. (2010) claimed that establishing a network was necessary to further the
development of CRM. Such a network enables a company to collect and process
customer information obtained from all concerned stakeholders, including employees,
customers, suppliers, and partners. This process can help to ensure the quality of the
customer information collected from different channels. Additionally, Sigalas (2005)
studies of Greek hotels revealed that CRM should focus on both internal and external
customer relationships along with applications of knowledge management, specifically
in relation to knowledge sharing and information and communication technologies.
This process was thought to result in the creation of customized services and the
enhancement of customer experiences.
Saxena (2005) claimed that network theory was connected with CRM. Indeed, the
social relationship between employees and customers is structured as a complex
network. To achieve the three characteristics of network theory, embeddedness,
density, and centrality (Bhat and Milne, 2008), an organization should nurture
collaboration and trust among individuals. Social interactions involve the
interconnection of individuals, employees and customers, in the service of sharing
their experiences through any social means. Such interactions result in the collection of

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Table I.
Profile of the participants

high-quality customer information and the subsequent creation of new offerings for
them. In this way, new customer values and/or market segments may be achieved.
Methodology
Participants
The sample group was selected from 15 international tourist hotel chains and included
chief executive officers, directors (or managers) of the room division, and directors (or
managers) of the marketing division. Participants were drawn from the following
globally and locally managed (or franchised) international tourist hotels in Taiwan:
Ambassador, Four Seasons and Regent, Grand Hyatt, Howard, Landis, Nikko,
Shangri-La, Sheraton, Small Luxury Hotels, and Westin. A total of 32 participants were
invited and interviewed. Hotel chains were selected for inclusion in this study because
of their accessibility and the scope of their daily operations (Yang, 2007, 2010). Profiles
of the participants are provided in Table I. Of the 32 participants, 18 were females and
14 males. Their ages ranged from 30 to 48 years.
No.

Types of hotel

Current positions

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Resort hotel
Resort hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Resort hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Resort hotel
Resort hotel
Commercial hotel
Resort hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Resort hotel
Commercial hotel
Commercial hotel
Commercial hotel
Resort hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel
Commercial hotel

Executive Assistant Manager

Director of Rooms
General Manager
Executive Assistant Manager
Director of Sales
Front Office Manager
Director of Marketing
Front Office Manager
Front Office Manager
Assistant Director of Sales
Director of Sales
Director of Sales
Director of Marketing
Director of Rooms
Night Manager
VIP Lounge Manager
Director of Rooms
Director of Rooms
Assistant Front Office Manager
Front Office Manager
VIP Lounge Manager
Assistant General Manager
Front Office Manager
Senior Sales Manager
Director of Revenue
Director of Sales
Sales Account Mgr
Duty Manager
Director of Marketing
Sales Account Mgr
Senior Sales Manager
Resident Manager

Seniority
22
17
9
10
9
13.5
12
8
10
10
13
13
15
12
8
6.5
10.5
15
8
11
10
19.5
16
16
10
18.5
5
15.5
5
6
10
12

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Interview questions
Open-ended questions were developed to guide semi-structured interviews. The term
blue ocean was clarified before each interview, and the interview guide was delivered
to invited participants approximately ten days before interviews, allowing respondents
to think about the questions in advance. Additionally, interviewees were encouraged to
develop and extend their thinking and to explore the determinants of BOSs. Four
interview questions, drawn verbatim from Kim and Mauborgne (2005), were asked:
(1) Which factors that the [hotel] industry takes for granted should be
eliminated?;
(2) Which factors should be reduced well below the industrys standard?;
(3) Which factors should be raised well above the industrys standard?; and
(4) Which factors that the industry has never offered should be created?.
Interviewees were prompted to elaborate when responses were vague or lacking in
detail.
Data collection
This study proceeded in four steps. First, we designed an interview guide. Second, we
distributed the guide to the participants before their interviews. Third, we collected
data related to the blue ocean concept from participants employed in international
tourist hotel chains. Finally, we analyzed the qualitative data.
We conducted semi-structured interviews to solicit and document hoteliers insights
into BOSs. Each interview lasted approximately 60-90 minutes. This interview
approach, enabling the collection of rich and in-depth data through probing questions,
was used to provide the foundation for a new theory. The study terminology was
explained prior to each interview, and questions were rephrased as necessary.
Interviews were conducted in either the business center of a respondents hotel or in a
restaurant in (or outside of) the hotel. Each interview was tape-recorded upon
agreement of the respondents and transcribed literally. Interview texts were
subsequently coded using the QSR NVivo 7 software.
Data analysis
The purpose of this exploratory study was to achieve a detailed understanding of the
meaning of BOSs and of the context in which they are implemented in the hotel
industry. Thus, the coding and analysis of the data were based on the grounded theory
approach of Glaser and Strauss (1973). Grounded theory analysis allows researchers to
identify those features and variables within complex organizational contexts that are
meaningful in terms of particular issues. As a result, researchers can easily and
comprehensively interpret qualitative data and then further develop the logic and
effectiveness of the results. This study also utilized a specific analytic strategy
developed by Mehmetoglu and Altinay (2006).
Transcripts of the original interviews in Chinese were translated into English by the
researcher. All interview texts were coded using the QSR NVivo 7 software. This
software enables items of interest appearing in the text to be coded, and it is used to
track emerging and developing ideas. Nodes can be moved when merger or separation
is appropriate to ensure that each node is composed of related characteristics.

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The data transcripts were read and re-read till the meanings of the entire transcript
were understood thoroughly (Mehmetoglu and Altinay, 2006). Then, the procedure
used to analyze and interpret the data followed the protocol proposed by Strauss and
Corbin (1998): conceptual ordering (a so-called coding stage) involving the creation of
elaborate nodes, organizing the qualitative data (verbatim interview transcripts)
according to relatedness, writing memos and developing the patterns on the basis of
the nodes, and producing the report. Tree-structured catalogues of branches of the
node tree were formulated in what Mehmetoglu and Altinay (2006) call multiple levels
of analysis (p. 21).
During analysis and interpretation, the data were considered from all angles, and all
plausible underlying meanings were considered. This inside out technique enables
researchers to elaborate meanings from different perspectives. Analyses of the tree
diagram were based on comparisons across all data sources within the relevant nodes.
Furthermore, the coding paradigm was grounded on the relations among nodes the
so-called emerging categories (Mehmetoglu and Altinay, 2006).
Results
This section presents quotations to support the qualitative results, and the findings
section presents the outcomes emerging from a coding hierarchy developed according
to the analytical and inductive approach adopted in the data analysis. The diagram of
the coding hierarchy presented in Figure 1 is illustrated with parent and children
nodes. Qualitative data were collected and analyzed on the basis of the application of
Kim and Mauborgnes (2005) blue ocean concept.
Eliminate
Participants were asked to identify the factors that are taken for granted by the
international five-star hotel industry should be eliminated.
Removal of travel barriers for prospective visitors to Taiwan. Thirteen interviewees
suggested that the Taiwanese government expand tourism policies. In particular, they
noted that the mainland tourism market could be developed by an approach that
minimized travel limitations and/or barriers for those who would like to visit Taiwan.
They referenced the transportation convenience of the three direct links across the
Taiwan Straits as an example of this approach. One of the interviewees emphasized
that changing from one-way to two-way communication after a new government is
formed would allow enactment of a multi-faceted policy for direct charter flights
between Taiwan and China, which would result in an increased number of visitors
from Mainland China. Additionally, joint enterprises involving Taiwan and China
would offer mutual opportunities to expand capital investments.
Remove constraints on foreign capital investment. From the perspective of market
saturation, an open policy between Mainland China and Taiwan might attract
foreigners for capital investment and boost the MICE industry. This would eventually
benefit the lodging industry by prompting an increase in occupancy rates. From the
perspective of supply and demand, execution of this policy would not only contribute
to overall tourism and hospitality earnings, but would also boost employment in the
tourism and hospitality industry. Furthermore, this would encourage investment in the
development of new markets for related businesses. The latter implication was
supported by the following comments:

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strategies

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Figure 1.
Coding hierarchy

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As the occupancy and average room rates increase, our hotel chain is able to further develop
its establishment through such projects as hotel renovations, building new properties,
creating various categories of the brand, and so on. If room demands continuously grow,
there might be a situation in which potential investors establish new properties to meet the
demands (Interviewee 26).
Due to the situation related to room occupancy, in which room supply exceeds customer
demand in Kaohsiung, the hotel business is highly competitive [. . .] This market is quite
different from the demand-supply situation in Taipei. Sometimes, during times when
international events are held in Taipei, rooms are not always available; this results in a
dramatic increase in average room rates (Interviewee 10).

Reduce
This section deals with the identification of factors that should be reduced well below
the industrys present standard. This node consists of three components: bargaining
power, in-room equipment, and guestroom products and services.
Bargaining power. Room supply exceeds customer demand in some regions in
Taiwan, leading to a situation in which travel agencies have more bargaining power
than do hotels. Seven interviewees emphasized that the average daily room rate will
increase only if the market saturation in that specific region is maximized. This means
that room rates could be controlled by customers in that market. On the other hand,
Interviewee 8 noted that the demand for rooms, specifically in Kaohsiung, would
increase if the policy allowing mainland tourists to visit Taiwan was implemented; in
this situation, average room rates would increase. This would result in an
advancement of organizational effectiveness in terms of financial considerations.
In-room equipment and amenities. In response to questions about modifying the
amenities and room-associated products, 13 interviewees noted that guests have
gradually changed their requirements for in-room equipment and amenities over the
past three years. For example, in some newly developed properties, hi-tech equipment
and/or software systems, such as the e-concierge and e-butler, have been installed in
guestrooms. Such systems are multi-functional and integrated. Indeed, the e-concierge
system in the resort hotel where Interviewee 15 worked contains hundreds of videos,
musical pieces, games, and assorted entertainment programs instead of a DVD player.
However, Interviewee 1 differed from Interviewee 15 in this regard in that s/he believed
that any type of equipment provided to guests could be viewed as a fringe benefit
attached to a room even if guests did not require it. Implementation of the green
cleaning policy promoted by one international chain hotel involved the removal of
toilette items from the bathrooms of guestrooms. These items were produced for
repeated use, packed as a travel kit, and sold as a mini-bar item.
Stabilize use of guestroom products and services. With respect to changing the
behavior of guests related to their use of room-associated products and services, eight
interviewees mentioned that hotels had reduced the charges for in-room equipment and
services, such as mini-bar items, telephone service, and laundry services to stimulate
use over the past few years. At Interviewee 1s hotel, information about these reduced
charges was transmitted to the person making the room reservation and printed on a
tent card placed in each room. This card includes a comparison between the telephone
charges in that hotel and those in other hotels in town, underscoring that making

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phone calls in this hotel was the best deal in Taipei. Overall, the execution of all of these
modifications resulted in higher use of the hotels offerings.
Create
The third question asked about factors that should be newly created in the industry.
This subsection was designed to provide evidence of how the provision of room
products and related services has been mis-focused or un-focused. It is important to
match the requirements of guests with the offerings of hotels. This section addresses
four issues: international branding, new market segmentation for attracting mainland
tourists, market integration among regional hotels, and development of hotel packages
associated with cultural tourism.
International branding: establish a regional brand for the Asia-Pacific Rim. This
node refers to the efforts of hoteliers to promote their brand globally. Interviewee 7
suggested that the government cooperate with hoteliers in the international promotion
of tourism and accommodation products and services to increase the number of
inbound tourists. This participant also suggested that the government assist
executives in developing and then internationally advancing a local brand for the
Asia-Pacific Rim.
Interviewee 4, an executive assistant manager in an international hotel chain,
appreciated that service providers in Taiwan were more friendly and passionate than
workers in other foreign countries. These two elements are the most crucial
determinants of outcome in the hotel industry, resulting in the reinforcement of the
quality of service and the enhancement of the fringe benefits available to hotel guests.
Based on these considerations, several hotels in Taiwan should be able to establish
their brands as regional brands in the Asia-Pacific Rim, and the government should
create a series of marketing strategies to attract inbound tourists. This approach would
enable hoteliers to develop and advance international branding.
New market segmentation to attract mainland tourists. Since the new government in
Taiwan took office in 2008, large-scale development in marketing to Mainland China
has progressed, thus expanding the tourism and hospitality industry to stimulate the
current depressed economic environment. Sixteen interviewees emphasized that many
hotels targeted this group of visitors as a large potential market. Twelve of these
interviewees said that they would categorize guests from Mainland China in the same
way as those from other countries (such as Southeast Asia, America) and they would
not make special efforts or offer privileges to attract them. On the other hand, three of
the interviewees took the opposite perspective. For instance, Interviewee 7 mentioned:
To attract mainland tourists to Taiwan, hoteliers have to understand the differences in
lifestyles and cultures between Taiwan and Mainland China, and to offer unique traveling
products for the mainland market. We should also notice that the tourism infrastructure
such as sufficient accommodation and tourist spots in Taiwan is still not completely ready.
Although the two countries opening up their borders to tourism is a very important policy, I
believe that allowing mainland visitors into Taiwan is definitely not a panacea that will save
the domestic tourism market.

Market integration among regional hotels. Given the supply and demand structure of
Taiwans tourism market, opening the market to visitors (especially from Mainland
China) should increase total market demand in Taiwan. This could result in an increase
in the average daily room-rates. Applying pull marketing strategies and an integration

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of the domestic regional market would not only enhance hotel occupancy rates, but
would also increase average daily room-rates, i.e. make rates comparable to those in
other markets such as Hong Kong, Singapore, and London. Interviewee 29 pointed out
that hoteliers engaged in regional marketing must unite to keep room-rates consistent
with those in international hotels in other foreign cities rather than engage in price
competition with one another.
The development of hotel packages to accompany cultural tourism. Five interviewees
working in resort hotels mentioned that the government should assist the hotel sector
to develop tourism packages that integrate local culture and custom with hotel
products and to promote these integrated tourism packages around the world.
Examples of these products might be gold sculpture art in Yilan, dried and driftwood
sculpture art in Hualien and Taitung, and activities that engage local community
culture, such as bamboo weaving.
Raise
This section considers the question of which features should be enhanced above the
industry standard in international hotels in Taiwan. According to the concept of the
value curve (Kim and Mauborgne, 2005), this section can be divided into three nodes:
brand development, market segmentation, and the provision of products and services.
Brand development. Based on the child nodes of brand development, the content of
the interview transcripts can be divided into two categories: branding expansion and
brand differentiation.
First, regarding brand expansion, the collated qualitative data can be divided into
three sub-categories: innovation in the professional brand, readjustment and
positioning of the hotel brand, and the establishment of brand image recognition.
Two interviewees were actively working to develop their own hotel brands, and
their future blueprint is to expand and develop international (or regional) brands. At
this point in time, however, hotels are focused on the domestic market, and
development occurs incrementally, directed at inbound tourists such as those from
Hong Kong and Mainland China. For instance:
Taiwanese tourists are the major guests. Except for Taiwanese tourists, currently [. . .]
visitors from Hong Kong are the top guests in the amount of room occupancy. [. . .] This is
because Hong Kong doesnt have [. . .] pastoral scenery like that in Yilan [. . .] it does not have
hot springs either. So [. . .] after we went to Hong Kong to do the advertisement and
promotion, we found that our accommodation packages have been very highly praised by
visitors from Hong Kong in the last two years (Interviewee 27).

Eight respondents mentioned that after branding, brand restructuring could boost the
tourism business from Mainland China groups. Because of travel agency policies, one
hotel interviewee indicated that the travel agencies that deal with mainland tourists
would prefer to cooperate with domestic hotel chains. This is because the agencies
consider hotels more in the light of pricing advantage or bargaining power to suppress
red ocean strategies.
By integrating brands, the operators of hotel chains can achieve cost advantages by
lowering their costs. This is no longer the time for hotel enterprises to work alone.
They must work through alliances to enhance the future of their businesses. In
addition to the logistics of procurement and human resources planning, resource
integration also includes the integrated packaging of products among all units within

the group, such as urban business hotels with farm resorts, or hot springs with farm
resorts and beach resorts. Products and services are designed according to customers
preferences, and diverse product packaging is offered to customers in the same market
to induce them to return. This packaging of products can create another blue ocean
scenario for the group. For example, Interviewee 13, a corporate director of a marketing
division, said:

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One night at the [Hotel B] in Taipei, he can go out to eat and walk to bookstores. The second
night, he can go to the hot springs in Yangmingshan. This is a new product for the Hong
Kong market. [. . .] This new product is the package that other hotels are not able to offer
because, as we are a hotel chain. [. . .] This year, I have one more new product farm tourism
which is very popular in Hong Kong. Visitors from Hong Kong have no experience of what
a farm vacation feels like. We can use [one of our chain resort hotels] to package it.

Second, regarding brand differentiation, many hotels regularly change room

decorations and welcome gifts to offer guests different experiences. Two
respondents said that their hotels always carefully select welcome gifts to offer their
guests with fresh, diverse products and services every time they stay. One
international commercial hotel changed the special Taiwanese specialties it serves,
such as famous sun cakes from Taichung. Another hot-spring resort hotel provided
catering services for supper (such as snacks or seafood porridges) to differentiate itself
from other hotels, which offered instant noodles. Meanwhile, this hotel provided a
different accommodation experience by offering two meal services, in the belief that
eating outside might be likely to affect perceptions of the quality of the entire traveling
experience. As Interviewee 2, a director of a room department, said:
I insisted [. . .] that the price should include meals. [. . .] Of course, in some ways customers feel
some unreasonable. However, we must do it this way [. . .] because if we insist that the
package will not include meals, then most guests might go out to eat. In that case, we feel that
their current trips may not be very well arranged because outside dining experiences might
be unpleasant, and that would destroy their whole perception of the quality of
accommodation and scenic spots in Wulai. [. . .] In fact, we could also provide the same
things as the other hotels, such as instant noodles. [. . .] But today, we serve top guests. Here,
our catering services offer seafood porridges to our guests. [. . .] We provide French cuisine,
and other hotels provide only local-style meals.

Market segmentation. With regard to market segmentation, some resort hotels add
special features to the room amenities and equipment to satisfy customers needs. As
Interviewee 5 mentioned:
. . . when we first opened, we did not include a meeting package with accommodations.
However, we later received a large number of inquiries about meeting packages with
accommodations. As a result, we had to increase this part of the facilities.

Because Interviewee 5s hotel is a small-scale property, small meeting groups are its
major market target. It is not able to serve large groups. Therefore, unlike the other
hotels, it handles small groups and individual tourists, accommodating group sizes up
to 16 people. The hotels market operations are completely different from those of large
hotels and business hotels.
Expand marketing territories. In total, 80 percent of the interviewees hotels wanted
to expand their marketing territories to increase room occupancy rates. One example of
this was a high-priced luxury resort, whose original main marketing targets were

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guests from Southeast Asia. Within the past three years, to maintain their market
position and to enhance the occupancy rate, they have expanded to include consumer
groups from Hong Kong and Mainland China. Three interviewees working in
commercial hotels and four in resort hotels in Central and Southern parts of Taiwan
stated that since the Japanese senior visitors market has expanded, they have designed
diversified tourism products with travel agencies to accommodate these visitors
long-stay needs. Through an all-in-one package from travel agencies, the customers
of that group can reduce the burden of making their own travel arrangements.
Restructure distribution channels. Four interviewees said that in the past three
years, distribution channels have changed. Hotels used to employ a wholesale travel
agency as a marketing channel; however, these travel agencies always negotiate a low
price from the hoteliers to gain a high level of operating profits. Thus, these hotels
shifted their strategies, and they now contact foreign outbound travel agencies directly,
rather than domestic inbound travel agencies in Taiwan. A marketing manager
respondent mentioned that during the hotels off-season period, they could not sit and
wait for travel agents to allocate guests to the hotel because to do so could expose
regional and international hotels to the predicament of serious price and marketing
competition. For example, as Interviewee 29 mentioned:
Price competition will have a negative effect on the market. Then it is not a blue ocean
strategy, it is a red ocean strategy. [. . .] In reality, Hong Kong and Southeast Asian travel
agencies are probably monopolized by an agency in Taiwan, such as [Agency X] [. . .] Today,
if [Agency X] does not promote our [Hotel C], [Hotel C] would never have space to survive in
the market of international tourist hotels in Taipei. As a result, four years ago, we started
cooperating directly with travel agencies in Hong Kong, and the result of this coordination
was very good. [. . .] This enabled our hotel to create a market without competition. This
might be an example of applying the blue ocean strategy [i.e., to create an uncontested
market].

The provision of products and services. All the respondents agreed that room products
and services can only be increased; they cannot be decreased. The qualitative data
show that hoteliers have attempted to differentiate their provision of products and
services from those of other hotels and to create effective market segmentation. These
offerings can be categorized into innovative in-room amenities, cross-industry strategic
alliances, and customized travel package for tourists from Mainland China.
The results of the study demonstrate that hotel executives could develop the first
two forms of products and services by observation of guests behavior in a hotel and
use of guest comment cards. The details of these new offerings could be conveyed by
advertising materials, e-marketing, and sales calls to hotel end-guests and to those who
are in charge of making a room reservation for corporate customers, thereby providing
information to both existing and potential customers. Hoteliers continually create more
diversified products and services to meet customer needs and preferences.
Innovation in in-room amenities. To add value to hotel offerings, two resort and
three commercial hotels upgraded in-room amenities from local brands to international
brands, such as bathroom accessories/toiletries from local brands to BVLGARI and
Hermes, to increase top customers frequency of using name brands and thus increase
the hotels popularity in the top tier of society. The study indicates that deluxe
amenities include enhanced work-desk lighting, complimentary access to the
high-speed Internet, flat screen LCD television, etc.

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Understand guest preferences. To create freshness for returning guests, some hotels
no longer provide simply the traditional welcoming fruit and birthday cards and cakes.
Hoteliers are working hard to discover and understand their guest preferences: for
example, some hotels change the flavor of tea bags seasonally, whereas others provide
fresh fruit juices in an in-room fridge. In addition to providing a welcoming tea, one
hotel offers seasonal refreshments so that returning customers can have different
experiences. Two other resorts also provide mini-bars as a complimentary service, each
containing four bottles of soft drinks or beer, in addition to offering mineral water.
Differentiate offerings. To differentiate offerings from other hotels, Interviewee 19
showed her attention to the needs of in-house guests:
One night, I saw an in-house guest go out to buy some food and snacks. After this
circumstance occurred, I suggested the provision of a snack for in-house guests. The top
management supported this proposal, and decided to provide a homemade hot porridge in a
room-service style around midnight; thus, this is an added value to the service.

Upgrade in-room electronic equipment. All interviewees mentioned that website service
has gradually shifted from broadband cable to wireless internet. In the past few years,
the price for access to the internet has been falling. Currently, six researched hotels
offer this as a complimentary service. Four city hotels have already established a
wireless network in public areas in hotels to enhance services and to meet guest needs.
This study indicated that in the past two years, in-room electronics equipment has
been gradually updated and upgraded. This includes in-room portable phones, free
mobile phone rental, LCD screen TVs, multi-functional office equipment including fax,
photocopy, print and scan functions, brew coffee machines, and integrated business
desk design. In addition to the above in-room amenities, with respect to hotel facilities,
Interviewee 14 said:
We offered one night with two meals: dinner and breakfast. Early this year, we added a
welcome tea party at the lakeside pool for those who check in at 3 oclock. In addition to this,
we organized a space to establish a small-scale library for guests. The reason for our
providing this facility was because I often saw our guests bringing books for their stays.
Also, we cooperate with [Bookstore Y] and ask them to provide the best-selling 150 books in
the library.

Cross-industry strategic alliances. This study indicated that to create an uncontested

market, a cross-industry strategic alliance could be developed through cooperation
among local governments, travel agencies, leisure facilities such as national parks, the
medical industry, and so on. Two hotels in Taipei have programmed medical travel
packages for the mainland China and Japanese markets. This special tourism package
is affiliated with hospitals, and it includes accommodations, a leisure tour, and medical
treatment.
Many hotels offer accommodation packages affiliated with the local agents of
leisure attractions (such as cable cars, river cruises, and golf clubs). Two hotels have
created alliances with booksellers to promote art and cultural tours. Three hotels offer
a cultural tourism package in cooperation with local cultural bodies, such as the wood
carving tour in Sanyi, Miaoli, and the ceramics street in Shanshia, Taipei County.
Developing customized travel packages. Three hotels marketers said that after the
government had opened the gate for mainland China tourists to visit Taiwan, they
began to target this potential market and to design customized accommodation

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products for this targeted group. The features of this product include creating welcome
posters, training staff to use the Mandarin terms used in China, producing
advertisements in simplified Chinese characters, and adapting public places to the
behavior of Chinese tourists. One researched hotel in southern Taiwan provides a
private dining environment for mainland China tourists, enabling the hotel to meet the
customers different lifestyle requirements. As Interviewee 27 mentioned:
Hotel welcome posters may be made up to ten times bigger. The bigger posters for these
tourists mean they are more welcome. This indicates that the aim of the service is to satisfy
customers needs. [. . .] Due to the differences in lifestyle, in some public areas, they smoke and
talk more loudly in the restaurant. How the service providers politely communicate with these
tourists has become important in minimizing any insults to their pride. [. . .] How to prevent
other customers suffering from this situation may now prove a challenging task for
managers.

Interviewee 31 highlighted that the interior and exterior design of the hotel was
decorated in the traditional palace style architecture, so that they could target guests
from mainland China in particular, by offering them a site inspection of the hotel that
includes a historical-cultural visit. A hotel tour guide recounts Chinese history as a way
of introducing Chinese artifacts and the showcase of exquisite antiques to the in-house
guests. During their stay, the guests are served a hand-made dessert, such as a red
bean muffin, the favorite food of politicians wives.
Discussion and implications
This section applies Mehmetoglu and Altinays (2006) qualitative analysis technique,
in particular to the stage of enfolding the literature. Based on the results and an
integrative approach, some key concepts are examined, such as BOS, market
segmentation and branding, effective revenue management, and network theory. A
concept may be derived from various sub-components of the research parent nodes
eliminate, reduce, create, and raise but these components are intertwined.
Applying BOS
The results of this study indicate that in the concept of the BOS, the hotels studied
emphasized those aspects that create distinctive added-value offerings through CRM
and that created a value-cost trade-off.
Creating added-value offerings through CRM
The creation of new customer values (demand) and new offerings (supply) in an
uncontested marketplace underpins the BOS. The hospitality environment is
characterized by the variability of its nature. In particular, customers needs are
varied, and their preferences change from time to time. There is often a degree of
irregularity in the overall patterns of change. Moreover, Yang et al. (2009) claim that
customers perception of value strongly affects their purchasing behavior (p. 498).
Consequently, understanding customer needs and preferences is crucial, and it requires
that the front-line service providers grasp customers perceptions promptly to motivate
their buying behaviors and satisfy their needs. Product development thus becomes
important. This study indicated that the hotels studied used CRM strategies and tactics
(Geddie et al., 2005; Sigala, 2005) to proceed to their BOS by creating added-value
offerings for their customers.

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To consider and meet diverse customer requirements, many studied hoteliers have
adjusted the use of rooms and have introduced new in-room amenities. Additionally,
the evidence shows that each hotel developed its own distinct features in packages
(combinations of tourist attractions and activities, accommodations, food and beverage
products, and services). Additionally, some hoteliers have developed customized
tourist packages for different market segments. In particular, after the Taiwanese
government opened the gate for mainland China tourists to visit Taiwan, many of the
researched hotels created some ancillary offerings, such as welcome posters and
private dining environments.
Creating a value-cost trade-off
Another foundational concept of a BOS involves the creation of a value-cost trade-off.
This study found that two practices used this concept: adjusting distribution channels,
and establishing strategic alliances. Traditionally, hotels coordinate with wholesalers
when dealing with inbound markets. This study found that one local hotel chain
directly negotiated tourist packages with retail travel shops overseas to benefit from
cost advantages and marketing effects. This approach not only creates a value-cost
trade-off, but also provides new offerings for potential inbound tourists because these
retail shops are the most accessible to end-users (tourists); this approach also
consolidates tourists traveling requirements. In addition to these benefits,
collaboration with retail shops in the distribution channel allows the hotel to align
its entire system of activities with its strategic choice of differentiation or low cost.
This is an example of implementing a BOS.
The application of this direct distribution channel can also be congruent with the
nature of demand, the variety of hotel offerings, and promotional campaigns. This
practice might reconstruct marketing boundaries by, for example, developing strategic
alliances and creating buyer chains. It might achieve results beyond existing customer
demand and might also provide opportunities to explore non-customer needs (Kim and
Mauborgne, 2005).
With respect to the concept of a strategic alliance, the findings of this study showed
that some hotels have used strategic alliances (e.g. a cross-industry collaborations with
national parks, medical services, and recreational entities and the formation of
partnerships in the Asian Pacific region) to implement a BOS with aspects of product
differentiation and low cost trade-offs. Many literature reviews (e.g. Chathoth and
Olsen, 2003; Reid et al., 2008) have noted that joint programs and activities undertaken
by multiple hotels, such as the integration of logistics and marketing, can facilitate
sustainable advantages for each partner hotel.
Market re-segmentation and re-branding
The literature review suggests that room demand in the hotel industry appears to
fluctuate and that demand patterns are sometimes unpredictable (Pullman and
Rodgers, 2010). Variations in demand can be classified into daily, weekly, and seasonal
patterns. Therefore, capacity management becomes significant in the domain of
hospitality strategic operational management (OReilly, 1986; Getz, 1987). Pullman and
Rodgers (2010) describe capacity management as the provision of sufficient room
inventory to satisfy guest demands. Hoteliers have to be aware of these complicated

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variations in demand and must determine what type(s) of market segments need to be
targeted from time to time to maximize the utilization of fixed hotel capacity.
This study showed that modifying the original market segmentation to incorporate
new demand-group categories has become an operational tendency. The findings of
this study show that many hoteliers have attempted to understand time-variable
demands, segmentable markets, and customer buying behavior, and subsequently to
identify potential sources of demand and to develop the most valuable target markets
in each time slot, i.e. adjusting the demand from diverse market segments.
Accordingly, such strategies should result in the optimal utilization of fixed capacity.
ONeill and Mattila (2010) suggested that brand affiliation and recognition
contribute to successful hotel operations by way of consistent service quality and thus
create sustainable success. This study has shown that many hoteliers have applied a
hotel brand strategy as a marketing strategy (Dev et al., 2009) to create their blue ocean
vision. Developing their brands should result in the creation of customer loyalty.
Additionally, the results of this study also reinforce the notion proposed by ONeill
and Mattila (2010) that hotel expansion could take place through the development of
multiple brands within a hotel group. Such branding enables hoteliers to target
different market segments for each brand name. This study has demonstrated an
example of brand expansion strategy in Formosa International Hotels Corporation in
Taiwan. As hoteliers carefully develop each brand identity for each type of hotel, hotels
that offer tiers designed for diverse groups of hotel guests will increase customer brand
loyalty and also extend the corporations market share as a whole (ONeill and Mattila,
2004). Ultimately, building brand affiliation would increase the hotels revenue (ONeill,
2006) and create what Kim and Mauborgne (2005) call values.
The findings of this study did not show any strategic operational concerns about
building brand loyalty. This contradicts the proposition of Hu et al. (2010). This
discrepancy may have arisen because the hoteliers studied perceived the possibility
that guests have available an extensive selection of hotel brands or that guest loyalty
to a specific brand involves only a weak affiliation. Consequently, how hoteliers
struggle to overcome this challenge is important in the BOS. This study also indicates
that the development of reward programs and/or new product and service offerings on
the basis of guest value perception may prove a feasible practice. In addition, some
CRM practices could be recommended to the studied hotels.
Revenue management
Today, revenue management, which focuses on demand pricing strategy, is a strategic
tool for maximizing hotel revenue (Heo and Lee, 2009). Effective revenue management
enables hoteliers to optimize the allocation of perishable room inventory and to offer
diverse prices to different market segments, thereby maximizing total hotel revenue
potential (Chiang et al., 2007). Prior to implementing revenue management, one of the
most essential strategic concerns is capacity management.
This qualitative study found that a majority of the hotels researched emphasized a
supply-based product development strategy. Consequently, these hoteliers should pay
more attention to demand-based pricing strategy, along with the integration of
different segments in time-variable demand. In the context of the BOS, to enrich the
differentiation advantage and achieve low opportunity cost advantage, the studied

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hotel executives should optimize the control of room inventory with niche prices across
diverse market segments.
Network theory
The results provided information about the issues of networking and social interaction.
Surprisingly, the study findings included no evidence of a network. The following
subsection presents speculations about why the management interviewees did not
refer to elements of these theories. For example, one plausible explanation suggests
that all the selected interviewees naturally involved themselves in this kind of social
interaction while at work but did not explicitly mention it during the interviews.
Moreover, one interview transcript reflected the practices of an executive manager who
would observe customers behavior when they stayed at the hotel. Although social
interactions between service employees and customers would result in creating values
for the customers, this sort of episodic observation may not do justice to the overall
concept of networks, which implies that hoteliers should completely understand
customers perceptions and expectations of offerings by establishing long-lasting
relationships though the formation of embedded networks (Kanadampully, 2006). This
understanding would allow the hoteliers to create value and innovative differentiated
offerings to their customers.
Overall, this qualitative study suggests that the strategies used, such as CRM, to
create added-valued offerings, marketing segmentation, brand management, and
revenue management can satisfy the needs and wants of targeted consumers in the
market segment(s) of each hotel and thus match their expectations. Applications of
distribution channels and strategic alliances may enable the hotels studied to sustain
their advantageous market positions. This study indicates that these strategies were
different from those of other competitors. If they were all similar, the ocean would be
red rather than blue. Additionally, the managerial implications of this study suggest
that such BOSs should be amended continuously before competitors can duplicate the
amendments. The strategies could be amended according to changes in the national
environment and in the hospitality sector. A hotel that does not amend its position
accordingly, may find itself operating in a red ocean market. The concept of a BOS was
implemented by the hotels studied to a certain degrees; thus, it seems that
organizational effectiveness could be further strengthened.
Conclusions
In this study, we sought to identify the characteristics of a BOS in selected hotels in
Taiwan. The results of this study showed that the more brand expansion is enacted,
the more able hotels are to create new customer value. Furthermore, creating (or
adding) value to hotel offerings would beneficially reinforce revenue management and
strengthen market positions in the hotel marketplace. In addition to the creation of
value, this study also highlights that although the strong local economy in Taiwan
improved gradually in 2010, hoteliers studied continue to provide new offerings in an
uncontested marketplace. This leads to the evolution of a great number of
modifications to room-associated amenities and to the development of hotel products
and tourist packages for inbound and domestic tourist and guests. Such consideration
of customer perceived value in developing new product offerings should, in turn, result
in greater satisfaction and loyalty on the part of the customers. This study also

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concluded that the prices, products, and relevant marketing strategies that were
implemented by the hotels studied emphasized key concepts of a blue ocean, value and
innovation. These strategies are adapted continuously as the national and hospitality
environments in Taiwan are changing. If a hotel does not revise its policies
accordingly, it may find itself in a red ocean market.
With regard to theory building, this qualitative study bridges the gap between
theory and practice by focusing on the implementation BOSs via application of CRM
and network theories. The practical implications for hospitality settings should be
further developed, and the translation of the data in the matrix into actual practices
should be discussed. The study also indicated that the value characteristics of the
BOSs of the selected hotels are creating added-valued offerings for existing customers
and aligning all hotel products, services, and activities with the strategic choice of
differentiation. The innovation component in this hospitality setting would include
restructuring market segmentations, rebranding, and reformulating pricing strategies
to capture new demand.
Limitations and further research
This report has several limitations that may suggest topics for future investigation.
This study used a qualitative approach involving the application of a grounded theory.
A major concern is the issue of generalization. Thus, a further study may extend the
present results by exploring the extent to which CRM and network strategies
contribute to the implementation of BOSs. Furthermore, a longitudinal study may be
useful for examining this connection. Future studies should also consider the effects of
social interaction and networking on the implementation of BOSs. Additionally, a
study to determine whether knowledge-sharing, CRM, and network theories enable
employees to understand their customers more efficiently will contribute to the
knowledge base. The results of this study are limited by the number of selected
interviewed participants, which was determined in the context of considerations of
data saturation. Future research should explore the feasibility of implementing a BOS
based on the elimination-reduction-creation-raise matrix across an entire hotel chain or
accommodation sector in Taiwan or any other country.
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About the author
Jen-te Yang is an Associate Professor of Hotel Management at National Kaohsiung University of
Hospitality and Tourism, Taiwan, ROC. He completed his doctoral studies in Management at
Edith Cowan University, Western Australia, in 2005. Before Jen-te moved to an academic career
in 2002, he had had extensive working experience in divisions of food and beverage, rooms and
marketing and sales in four international five-star hotels in Australia and Taiwan. Currently, his
research foci are blue ocean strategy, career planning and development, individual behavior,
group behavior, managerial psychology, organizational change, and organizational socialization.
Jen-te Yang can be contacted at: jenteyang@mail.nkuht.edu.tw

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