Paradise Hotels Strategic Decisions and Their Appropriateness - Case Study Example

The Individual Report By Student’s name Code+ course name Professor’s name University name City, State Date Table of Contents Introduction 3 Paradise Hotel’s strategic decisions and their appropriateness 3 Positioning 3 Targeted Marketing Strategy 4 Fixed Pricing Plan 4 Operational Strategies/Expansion 5 Downsizing 5 The concept of competitive advantage at Paradise Hotel 6 Contending with industry competition at Paradise Hotel 6 Analysis of the Market (Five Forces) 7 Technical analysis of the trading results. 7 Recommendations for improvement 8 Reducing Opportunities for growth in a Mature Market 8 Need for Branding and Positioning for Competitive Advantage 9 Diversification 9 Enhance the Carrying Capacity and Utility of the Hotel 10 Taking Advantage of New Communication and Logistics Technologies to Enhance Service 10 Enhance Recruitment, Retention, Training and Development Strategies 11 Enhance Value Addition in the Supply Chain 12 Enhance Flexibility to deal with the Highly Turbulent Nature of the Industry 12 Conclusion 13 Reference List 14 Introduction This report is an analysis of Paradise’s Hotel’s strategic planning for a given period. The report will analyze the aspects of positioning, targeted marketing strategies, pricing plans, operational strategies and downsizing. The concept of competitive advantage will be analyzed particularly with how it has been effectively used in order to enhance effectiveness. It will analyze the industry competition the hotel faces and how it has put in place measures to deal with it. The tool of marketing and industry analysis that will be used is the Five Forces Analysis. Lastly the report will make recommendations regarding what needs to be done in order to ensure that strategic decision made by the company enable it to gain sustainable competitive advantage. Paradise Hotel’s strategic decisions and their appropriateness There are various strategic decisions that Paradise Hotel’s management made. One of these strategies includes its positioning as a 5-star hotel. Positioning Belch & Belch (2009) state that positioning is one of the most important strategies that an organization can utilize to gain and sustain a competitive advantage. The management identifies one of its aims as including their desire to offer low-price high-quality serviced rooms. However, such an objective directly contradicts with their initial decision to focus on establishing a 5-Star hotel. A 5-Star hotel rating is ideally a high-quality establishment that demands high-quality service standards and high room rates to compensate for the same. The subsequent strategy to position Paradise Hotel as a low-price price and high-quality service hotelier, as well as its embedment of events hosting, where appropriate although they would have been implemented earlier. Such a decision was further complemented by its decision to target low-end customers whose needs were to get low-priced hotel rooms. Targeted Marketing Strategy The other strategic decision was its marketing strategies. Paradise hotel’s initial plan was to utilize general advertising media such as newspapers. This particular strategy was not viable because the service industry is highly dependent on repeat customers. Such a situation demands a targeted marketing strategy through targeted marketing channels such as direct mail, (Belch & Belch 2009). A targeted marketing strategy can be highly ideal where there are resource constraints, and there is a need to achieve the greatest return on investment of the available resources, (Belch & Belch 2009). Fixed Pricing Plan Thirdly, Paradise Hotel’s management made a pricing decision that included the adoption of a quarterly fixed pricing model for room rates. However, this strategy was not similar to the one adopted by other hoteliers in Melbourne. Its decision to adopt the price skimming pricing strategy was appropriate in order to be flexible in an industry that is highly characterized by seasonality of customers. Such an observation is a manifestation of the fact that no proper industry and market analysis were carried out. Operational Strategies/Expansion Other decisions made by management included operational strategies such as carrying out expansion of the hotel’s facilities such as room and restaurant expansion. In addition, the establishment of additional facilities such as a hotel shop and conference facilities was desirable and appropriate. The additional facilities promoted its diversification of its product offerings as part of its differentiation strategy to gain a competitive advantage. However, the operations and marketing teams would have included additional facilities such as a leisure club, health club, laundry services, a beauty salon, SPA and gym facilities. These facilities would enhance customer satisfaction and the hotel’s revenue streams. Moreover, the decision to increase room size without an accompanying increase in room rates does not seem to be appropriate. In addition, the management decided to embed event hosting as a diversification strategy to increase occupancy rates and enhance its revenue streams. Downsizing Management decided to carryout downsizing by reducing the number of staff in efforts to reduce its operational costs. This downsizing strategy is appropriate as it led to increased profits in subsequent years. However, it is vital to recognize that there are other strategies that can be effective in enhancing service quality without the potential of resulting into overstaffing. These strategies include hiring multiple skilled staff, enhanced staff training and development, (Kim & Oh 2004). The concept of competitive advantage at Paradise Hotel The firm’s competitive advantage refers to those activities and operations that the company performs distinctively better than its competitors, (Kim & Oh 2004). In order to attain a sustainable competitive advantage, the hotel’s clients need to perceive some variance between one organization’s product offering and those of competitors, (Kim & Oh 2004). This difference is, usually, as a result of some resources capability that the company owns and which competitors are unable to access. Alternatively, such a difference may be due to some product and or delivery aspect that customers perceive as providing superior quality and value that those from competitors. Sources of competitive advantage may include distinctively loftier staff skills and capabilities that set them apart from the personnel of competing firms. Moreover, ownership or access to superior resources may assist the company to exercise its capabilities and attain a competitive advantage over competitors. An organization’s competitive advantage is contingent on its internal resources, (Kim and Oh 2004). The competitive advantage that a hotel can possess depends, thus, on how the hotel acquires and utilizes its resources, (Petzer, Steyn & Mostert 2008). Paradise Hotel’s competitive advantage included it excellent location in downtown Melbourne, ability to offer high-quality services to its clientele and product offerings, as well as establishment of additional facilities and amenities. Contending with industry competition at Paradise Hotel An adequate analysis of the five market forces influences the ability of an industry player to deal with competitors and operate profitably. This analysis is crucial as the five forces influence the chargeable room rates, operating costs, and required investment of Paradise Hotel and consequent return on investment. The current hotel industry operating environment is becoming more and more intricate due to elevated competition and rapid advances in technology. In order for any hotel to remain successful and sustain its operations, it is almost a must to adopt and incorporate technology and innovation in order to beat the competition and guarantee a sustainable return on investment. Analysis of the Market (Five Forces) The management carried out an adequate market analysis based on the five forces model. As a result, the management realized that buyer power significantly influences the operating costs, effective room rates and other product prices that Paradise Hotel can charge as does the threat of substitution. However, the fact that Paradise Hotel eventually became the cost leader thereby enabling it to influence and set room rates depending on market variables such as demand levels. Alternatively, the bargaining power of suppliers also influences a firm’s operating costs and level of investment through their effects on the costs of raw materials and other inputs. The intensity of competitor rivalry further influences product prices as well as operating costs such as advertising and number of sales staff. The threat of entry places a limit on prices and shapes the investment required to deter entrants. Technical analysis of the trading results. The following chart depicts the trend analysis of Paradise Hotel’s revenue sources as well as overall expenditures. From the above chart, total revenue surpassed total expenditure in year 3, from whence paradise hotel has registered positive net income. Revenue from food and beverages continues to dominate as Paradise Hotel’s leading revenue contributor, after surpassing revenue from room sales in year 3. However, there is a trend towards the two revenue sources converging with the possibility of room sales surpassing food and beverage sales as a result of the observed rising room occupancy rates and room price rates. Recommendations for improvement Reducing Opportunities for growth in a Mature Market The hotel industry in Australia is reaching its maturity stage with the implication that growth opportunities are on a decreasing trend. The option that remains is to consider diversification of product offerings to achieve a sustained competitive advantage (Prideaux, Moscardo & Laws, 2006). Notwithstanding such implications due to the maturing hotel industry, there are many strategies at the disposal of hotels that can enable them address the effects of elevated competition and declining revenues in the hotel industry. These strategies include pricing, market diversification and competitive marketing strategies, (Petzer, Steyn & Mostert, 2008). Such a recommendation is justified by reason that any hotel that can establish a desirable reputation through high-quality product offerings relative to competitors in its industry gains a competitive advantage. As a result, Paradise Hotel should ensure that it has the necessary systems, as well as develop and implement appropriate strategies to enhance the demand for its product offerings. Need for Branding and Positioning for Competitive Advantage Paradise Hotel should consider branding efforts in order to gain differentiation and ultimate competitive advantage, (Petzer, Steyn & Mostert, 2008). The marketing department should consider the development and dissemination of consistent brand messages that can help them achieve sustainable differentiation, (Cai & Hobson 2004). It is also important to establish appropriate positioning criteria along which the hotel can deliver its service offerings to its clientele. Moreover, the marketing department should focus on the development and implementation of competitive marketing strategies in order to enhance its competitiveness, (Petzer, Steyn & Mostert, 2008). Diversification Diversifying the market as through its various product offerings and facilities can be an effective strategy to enhance demand and achieve high occupancy rates. Furthermore, the marketing team should focus on events such as conference hosting and festivals so as to vary its product mix, (Lee 2007). Enhance the Carrying Capacity and Utility of the Hotel In addition to enhancing customer demand, the operational managers need to manage the hotel’s capacity, or ability to supply their clientele’s demand. Service capacity management can be achieved through the utilization of temporary staff during low seasons. In addition, leasing idle facilities as well as sharing some facilities with other players in the industry,(Lee 2007).A consideration of the employment of multi-skilled employees can effectively mitigate the problem of over-staffing at all periods, (Lee 2007). In addition, the management team can consider designing some of its rooms to be flexible by use of connecting doors, (Lee 2007). These doors can allow the rooms to be used as either separate rooms or as a single bedroom with a separate lounge depending on demand, (Lee 2007). Taking Advantage of New Communication and Logistics Technologies to Enhance Service Tapping into employee and customers’ needs through the use of information can be influential in the development of loyal customers and gaining sustainable competitive advantage, (Piccoli, 2008). Online technologies have significantly impacted on communications, transactions and relationships between the various industry players and with the client, (Khemthong& Roberts 2006). For instance, the use of the Global Distribution Systems (GDS) can assist Paradise Hotel’s marketing team to increase its market reach and enhance visibility. Technology can assist hoteliers to collect customer information that is a fundamental approach in understanding customer needs and wants. Leveraging on the resultant knowledge can enable Paradise Hotel to gain a sustainable competitive advantage, (Koutroumanis, 2011). For instance, Magnini, Honeycutt & Hodge (2003) identify data mining as one way through which hotels can configure successful marketing strategies. These marketing strategies include the creation of direct mail campaigns, planning seasonal promotions, planning the timing and placement of ad campaigns, creating personal advertisements and help in room reservations. Technology can enhance the quality of decision-making and resultant overall efficiency, productivity and decrease paperwork (Enz, 2010). Technology can be employed by Paradise Hotel’s reservation systems to enhance efficiency in service delivery through simplified check-in and check-out processes and customer relationship management (CRM) systems. Adoption of technology can enhance personalized advertising through data mining. Any delay in adopting various technological advancements may hinder the development and sustainability of a competitive advantage, (Piccoli 2008). Enhance Recruitment, Retention, Training and Development Strategies According to Kim& Oh (2004), the challenge of sustaining a competitive advantage can be addressed if hotels adopt arduous recruitment processes that can select staff with the ideal attitudes and skills. In addition, the human resource management team should consider job enrichment and staff development in addition to compensation packages. This strategy is desirable since cost-cutting strategies such as downsizing and economizing cannot assure success in isolation, (Christensen 2005). Christensen (2005) recommends that instead, downsizing and economizing should be carried out hand in hand with continuous innovation. On the other hand, Pease & Rowe (2013) posits that hotels need to transfer their direct sales force to online platforms. The movement towards online platforms is one sure way to reduce on operational costs in terms of payroll expenses. Enhance Value Addition in the Supply Chain Management should consider the establishment and nurturance of mutually sustainable relationships in its entire supply chain. Moreover, collaborations with key partners in the hotel industry such as tour and travel agents, airlines and government departments can go a long way in boosting its occupancy rates and revenue streams. There is a need to focus on value-addition practices comprised of dyadic and network inter-firm activities so as to foster Paradise Hotel’s sustainable competitive advantage. This value addition entails a move to focus more attention on value chain relationships in order to attain a sustainable competitive advantage (Reid & Bojanic, 2010). Enhance Flexibility to deal with the Highly Turbulent Nature of the Industry The hotel industry is a highly turbulent industry that requires flexible and flatter organizational structures that can support the operational, marketing and human resources strategies. Flatter organizational structures enhance quick decision making that is desirable in the service sector due to perishability of services. Enhanced collaborations across all departments can facilitate better and immediate operational as well as strategic decision making. Conclusion Paradise Hotel has positioned itself as a low price and high quality provider and targeted at the low end consumers which has been quite a successful strategy. The fixed quarterly pricing plan was n0ot as effective and hence the adoption of price skimming was adapted to a medium level of success. The expansion of hotel facilities has been highly successful as it has enhanced the marketability of the hotel and made it cost effective in addition to increasing revenues. This has subsequently enhanced the competitive advantage of the hotel due to its better utility facilities and its location in downtown Melbourne. Through an analysis of the industry five forces Paradise Hotel has been found to be in a highly competitive market and hence needs to adapt and be flexible in order to maintain its competitive advantage. The Hotel has to content with reducing opportunities in a mature market by continuously modifying its product offerings in order to offer better quality. It is also recommended that the Paradise Hotel rebrand and reposition itself better by enhancing its utility and carrying capacity of its services. It needs to take advantage of new technologies, enhance recruitment and training, enhance value in the supply chain and diversify in order to have sustainable competitive advantage in a dynamic industry. Reference List Belch, GE & Belch, MA 2009, Advertising and promotion: An integrated marketing communications perspective, 8th ed., McGraw-Hill Irwin, Boston. Cai, LA & Hobson, JSP 2004, ‘Making hotel brands work in a competitive environment,’ Journal of Vacation Marketing, Vol. 10, no. 3, pp. 197–208. Clayton M. Christensen, CM 2005, The innovators dilemma, Collins Business Essentials. Enz, C. A. (2010). Hospitality strategic management: concepts and cases. Hoboken, N.J., John Wiley & Sons. Khemthong, S & Roberts, LM, 2006,‘Adoption of internet and web technology for hotel marketing: a study of hotels in Thailand.’Journal of Business Systems, Governance and Ethics, Vol. 1, no. 2, pp. 47-60. Viewed October 12 2014, http://www.jbsge.vu.edu.au/issues/vol01no2/khemthong.pdf Kim, BY & Oh, H 2004, ‘How do hotel firms obtain a competitive advantage?’International Journal of Contemporary Hospitality Management, Vol. 16, no.1, pp. 65–71. Koutroumanis, D. A. (2011). ‘Technology’s effect on hotels and restaurants: Building a strategic competitive advantage.’Journal of Applied Business and Economics, vol. 12, no. 1, pp. 72-80. Viewed 12 October 2014, http://www.pua.edu.eg/PUASite/uploads/file/Tourism/Fall%202013/THM%20201/ch%2013.pdf Lee, C 2007,Seasonality in the tourism industry: impacts and strategies. Griffith University,Sustainable Tourism CRC, Qld. Viewed October 12 2014, http://www.crctourism.com.au/wms/upload/resources/bookshop/80085%20Lee_TourismIndustSeasonality%20WEB.pdf Magnini, V, Honeycutt, E & Hodge, K 2003, ‘Data mining for hotel firms: Use and limitations,’ Cornell Hotel and Restaurant Administration Quarterly, Vol. 44, no.2, pp. 94-105. Pease, W & Rowe, M 2013, An overview of information technology in the tourism industry, Viewed October 12 2014, Petzer, DJ, Steyn, TFJ & Mostert, PG 2008, Competitive marketing strategies of selected hotels: An exploratory study,Southern African Business Review, Vol. 12, no. 2, pp. 1-22. Viewed October 12 2014, http://www.unisa.ac.za/contents/faculties/service_dept/docs/SABVI122chap1.pdf Piccoli, G 2008, ‘Information technology in hotel management: A framework for evaluating thesustainability of IT-dependent competitive advantage.’Cornell Hospitality Quarterly, Vol 49, no. 3, pp. 282. Prideaux, B., Moscardo, G., & Laws, E. (2006). Managing Tourism and Hositality Services Theory and International Applications. Wallingford, CAB International. Reid, R. D., & Bojanic, D. C. (2010). Hospitality marketing management. Hoboken, N.J., John Wiley & Sons. Read More