Being Vertically Expanded

Being Vertically Expanded

In business expansion, there are vertical and horizontal expansions.

Everyone says core competence is the most important, which means you concentrate in what you do best, and leave the rest to others. For example, in banking, you do best in keeping money and counting money, but leave the security part for the experts in security. If a bank were to expand into providing security services, it is said to have expanded horizontally.

In the same scenario, if a bank were to start building houses, as it gives away loans to developers of properties, then it has expanded into downstream or upstream businesses. In such scenario, it is said to have expanded vertically.

Below is a story about a Small Hotel or "Inn" expanding in vertical manner, in this case, by extra services of hotel-airport/bus station transfer. In the ordinary business of renting its rooms, hotel guests come to this hotel on their own and usually by taking taxi. Now, the hotel improves its marketing by extending pick-up service for its guests from airport and bus stations and includes free transportation back to the airport or bus station. Isn't it an innovation? What do you think?

The hotel has always been full house for most of the peak seasons, and over the last three to five years, there had been other hotels and home stays mushrooming in the area due to demand for accommodation. It has been a good five years of money making for all of them, rather, even for the taxi operators too!

With such background, if a question in MBA were to be asked: "Analyse the marketing strategy of this hotel in providing vertical services to its guests" what would be your answers?

I bet most of you would say "It's brilliant!" Such action to provide vertical expanding services would ensure more value for money for hotel guests and more would want to come and stay with them.

The result of what happen is a shocking revelation!

The hotel business took a nose dive! Why? Because the taxi drivers lose their business. With revenge, they gang together to spread bad news about this hotel. Even when the guests are destined to this hotel, the taxi drivers will say that the hotel is run-down, and haunted! There are better hotels nearby, and thus, send their guests to other hotels which give them tips!

Reflection

In business, it is not your core competence, leave it to others. Don't assume everything is about price, or better service. There is a big element in competition, and making small mistake with good intention can be painful.

In such case, it took a lot of bargaining later for the hotel to get back to business. The taxi drivers were initially hurt, but soon enough, they would move else where.

Can you move your hotel like that?