Different from or similar to neighbors? An investigation of hotels' strategic distances

Abstract

This paper examines how conformity and differentiation impacts hotel performance. It evaluates strategic outcomes of hotel entrepreneurs' choice of geographic location, capacity, and quality. Using instrumental variable (IV) estimation, we find that the distribution of similar competitors affects hotel performance and performance risk. Specifically, results show that choosing a similar capacity (conformity) to competitors may lead to higher and more stable performance. The results also reveal that locating geographically close to competitors or choosing a similar quality of product to competitors (both conformity strategies) can increase hotel performance but also increases performance risk. Additionally, when mixing conformity and differentiation strategies in terms of location, capacity, and quality selection, a higher dispersion of differentiation (i.e., highly differentiated in one product dimension while conforming to others in all remaining product dimensions) increases both performance and performance risk. Findings of this study can aid entrepreneurs in improving their strategic decisions and product positioning.