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Strategic Management Group Project 1 - Good Hotel


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Strategic Management Group Project 1 - Good Hotel

  1. 1. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 1 Good Hotel: Doing Good, Doing Well? Brief Background Information Good Hotel was refurbished, renovated and launched as one new hotel by Joie de Vivre (JdV), a San Francisco based Hotel Management Company in November, 2008. Good Hotel was known in the industry as the first to be branded as a “hotel with a conscience”- encompassing a positive attitude, environmental sensitivity and philanthropy. A new ownership group planned to run three hotels including Good Hotel under JdV’s management, and tend to terminate JdV’s management contract at the end of May. General Manager of Good Hotel, Pam Janusz was requested to evaluate the performance and to provide a recommendation on whether to continue, expand or discontinue the Good Hotel concept to the new ownership group. The U.S. lodging industries were dominated by 12 leading hotels. In 2009, the lodging industry was suffering from chronic overcapacity. The prolonged industry downturn was expected to drop occupancy levels by 55 percent to 56 percent. Hotel occupancy also had declined by 8.8 percent in 2009, and was forecast to drop by a further 0.2 percent in 2010. GoodHotel’s MissionStatement, Vision Statementand Long-Term Objectives MissionStatement Good Hotel is a hip San Francisco hotel to enrich the quality of life for communities with positive approach to inspire the “good in us all” as being the most eco-friendly hotel with constructed recycle materials. As we practice philanthropy and believe in doing good for the planet, we are committed to operating in an economically, socially and environmentally responsible manner while balancing the interest of diverse stakeholders, promoting sustainable lifestyle and differentiating our guests personal experience. Vision Statement We endeavor to be a leader in hospitality industry that will exceed expectation of our valued customer, passionate employees and owners while striving to be a responsible steward of the environment and sustainable development of society. Long-Term Objectives  To invite our diverse stakeholders to participate in our effort to protect environment  Become certified green.  Achieve LEED certification.  Create a unique corporate culture  Build up an enthusiastic staff  Develop strong customer loyalty  Maintain a profitable and sustainable business
  2. 2. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 2 Case Exhibits Evaluation According to exhibit 2, the impacts of an economic recession affected to lodging industry as declining in both revenues and profits. During 2007-2009 economic downturns, occupancy levels dropped because of declines in the demand for lodging accommodation. As a result, it led to declining in both revenue and profits, and dramatically led to decreasing in net income. It was also because hotel management team were rarely able to reduce operating expenses in response to declining levels of occupancy and revenue. With strategy of minimizing cost by using constructed recycled materials, Good Hotel might be able manage the revenue and expenses during the downturn. As of Exhibit 3, San Francisco tourism were mostly influenced by Caucasian. As of 75 % of Caucasian, 62% were green consumers. Responding to green consumers, Good Hotel can get consumers to thinks of the products as their needs and wants. Also, the consumers can feel that by staying in such eco-friendly hotel like Good Hotel, they are doing their part to make life more sustainable. Also, Good Hotel can focus on Caucasian as targeted customers. Exhibit 4 also describe 39.7% of guests visit for leisure and 35.3% for convention. In addition, 53.9% of guests rely on internet in planning trip. Related to that, Good Hotel and other hotels under JdV’s management rely on word of mouth communication. Good Hotel could advance their internet website that people will recognize at a glance that Good Hotel is an eco-friendly, comfortable and convenient to match customer’s requirement. As most guests travel for leisure, Good Hotel can take a good opportunity to be more creative and supportive for guest’s leisure time. Exhibit 5 told us that during 2008-2010, San Francisco average room rate are decreasing repeatedly. However, the occupancy rate is increasing. With this chance, Good Hotel can take a good opportunity to attract and promote marketing to increase occupancy rate when they already are in low room rate hotel. In Exhibit 7, Good Hotel’s occupancy rate started increasing in 2009 better than competitive peer group.
  3. 3. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 3 SWOT Analysis Themes SWOT Customer & Employee Relation Business Model Features Strength  Good customer service.  High customer satisfaction and loyalty.  Unique hotel design to attract customer  Cater to a wide variety of customer’s needs and wants.  High employee commitment and satisfaction.  Employees are well- trained and aware of the hotel’s safety and green program  Strong Online customer review  Capable management team.  Emphasis on recycling and use eco-friendly materials  Low cost and expenses thanks to recycling.  Good reputation: hotel conscience, positive attitude, environmental sensitive and philanthropy.  Good location: located at a revitalizing corner of SoMa. There are cafes, bus station, light rail, cable car and subway within walking distance.  Competitively priced. Weakness  Not aggressive enough in marketing  Rely heavily on internet booking.  Potential for staff turnover after the change in management  Good Hotel hasn’t achieved LEED certification yet. Opportunity  New Demographic segment LOHAS  Well-known on online media which is being used more and more by travelers.  The growing demand for green lodging fits the theme of the hotel that targets green consumers.  San Francisco is strong in tourism.  Lower operating cost through LEED certificate.  New emerging technology
  4. 4. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 4 Threats  The new management could disband current concept and identity of Good Hotel entirely.  The lodging industry is experiencing one of the longest downturns. Occupancy level and demand are expected to drop further.  Corporate rates for meeting and business travel are already negotiated so even if travel picks up more than last year, it won’t shoe in rates and RevPAR until 2011.  Seasonal factor can affect the occupancy rate.  Strong growing competitors. Industry Analysis As of October 2009, the U.S. lodging suffered from chronic overcapacity with about 4.8 million rooms―approximately one room per 64 U.S. residents. During the period 2008 – 2010, the industry experienced the longest downturn which was expected to drop occupancy level about 55%―the worst since the Great Depression. Since 2009, U.S. hotel rate declined rapidly―8.9% for the year and was estimated to drop another 3.4% the following year. Revenue per Available Room (RevPAR) also experienced a dramatic fall of 17% in 2009 and estimated 3.6% in 2010. Overall, the industry is doing quite badly due to the effect of the financial crisis.To analyze lodging industry in San Francisco, we are going to use Five Driving Forces to determine the nature and strength of the competitive pressures that are involved within the hotel industry. Threat of Entry The threat for potential new entrants is considered weak in this lodging industries in San Francisco and around U.S.A. If there are new entrants to this industries, there are some hurdles that they must overcome. The barriers to new entrant is due to the high capital investments that are required to start and operate a hotel. They also need many efforts to differentiate themselves from those who are already existing, recognized by customers and accomplish customers’
  5. 5. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 5 loyalty. In addition, the new entrants to start business, they need a strong network in order to conquer the challenges of business. Due to those factors, the threat of new entrants is weak for the lodging industry. Powerful Suppliers Hotel business has the advantage of controlling suppliers in their hands. As business is being hospitality and tourism industry, there are many suppliers that are able to supply hotels with the essentials needed to operate the business. For example, hotel face low switching if they want to change the suppliers such as the suppliers of hotel’s furniture and fixtures, and the suppliers of food and beverages. Powerful Buyers In lodging and hotel industry, buyers have a strong bargaining power. First, the cost of switching to a competing hotel is low. In addition, the buyers’ power is strong because the buyers demand for using hotel rooms have decreased while there are greater number of rooms are offered. Another thing that makes the buyers’ power strong is that hotels rely on unpredictable travelers. Threat of Substitutes The threat of substitutes for Good Hotel seem to be strong. It is because there are always good substitutes that are available to be used by consumers. For instance, there are always the availability of cheaper priced lodging places. If substitutes offer consumer comparable features that they would receive at hotel, consumers are more likely to change. Also, the switching costs to use the substitutes are very low for buyers. Rivalry among Competitors This force seem to be strong because the customers’ switching cost is low. They can change their mind to stay at a different hotel at any time. Due to economic downturn, hotels began to notice a declining RevPAR rate. The RevPAR rate offers a convenient way for a company to see how well the fill its rooms as well as how much they are able to charge for using them. In fact, the industries’ RevPAR had declined by 17 percent in 2009 and was expected to continue dropping in 2010 by 3.6 percent. Economic Analysis The period 2008 – 2010 suffered from the effect of the financial crisis. Unemployment rose from 4.7% in November 2007 to peak at 10% in October of 2009. American household wealth has plunged to levels not seen since 1992, with incomes dropping to 1996 levels when adjusted for inflation. Nearly 50 million Americans (16%) are in poverty, up from 12.1% in 2007. The recovery since 2009 has been weak and both GDP and job growth remain erratic and uneven.
  6. 6. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 6 The hospitality and tourism sector is experiencing numerous challenges as a result of the economic crisis during 2007- 2010. This crisis created that the U.S. hotel industry experienced an intense and immediate negative impact on occupancy rate, and revenue because of decreased spending by both corporate and individual consumers. However, it seems like hotels those focused on catering to leisure and green travelers are less affected while those leading lodging industry with much larger capacity seems to suffer from financial disorders due to the crisis. Competitive Analysis The major competitors of Good Hotel include Accor SA, Best Western, Choice Hotels, Hilton Worldwide, InterContinental Hotel Group, Marriott International, WIyndham Worldwide. Among the competitors within San Francisco that also target green consumers, there are big hotels with LEED certifications such as Hotel Carlton, Orchard Garden Hotel, W Hotel. So in order to compete with all those big, high-standard hotels during this recession period, Good Hotel needs to have a strategy to make themselves more attractive to customers. Key Strategic Issue  Good Hotel’s key strategic issue is how to maintain sustainable growth in a market of slowing buyer demand and how to remain superior in a gritty but revitalizing area when there is a high chance that the change in leadership can have a negative impact on employees and performance of the Good Hotel. Themes Employee and Customer Relation Business Model  Suppose that the new manager decides to change the concept of the hotels, the culture of the hotels will be affected and the morale of the employees may drop. The hotels can also lose their regular customers.  If the new manager changes the hotel concept, there is a high chance of increasing in operating costs. As a result, that factor may pull down the organization along with the recession. Strategic Formulation  Our strategy makes use of the strengths and opportunities and reduces the weaknesses at the same.  Maintain and further develop the hotel concept.  Create different activities and services to please the customers and make them feel that it is worth choosing Good Hotel. Also, the hotel can earn extra profit from that. For
  7. 7. Comprehensive Case Analysis Good Hotel: Doing Good, Doing Well? 7 example, the hotel can hold seasonal event like Christmas to attract customers even during winter months with low occupancy rate.  Good Hotel should focus on developing their green programs and their energy-saving activities in order to reach LEED certification  Create a membership system that allows customers to accumulate points in exchange for special gifts, services, or a discount.  Use effective marketing as a tool to alternate solution to increase occupancy rate within a targeted budgeting.  Advance and update the hotel’s website to attract more customers because most customers plan their trip using internet.  Employ other low-cost method of marketing.  Open green campaigns within the community to create deeper relationship with local customers and boost the hotel’s reputation.  Involve the employee more in the hotel’s projects and campaign to increase their commitment and satisfaction.  Try to cut down miscellaneous costs.  Being first movers and invest in new initiatives that might not be fully developed yet. Subordinate issues  Marketing strategy: Good Hotel spend a small amount in marketing, instead, it rely on word of mouth communication and social media. Good Hotel’s operation needs to be more aggressive while economy is in downturn. Advertisement would play a big role in competing in challenging economy environment and to attract both local and foreign guests.  Communication Strategy: Good Hotel went on communicating by email when a huge transition like informing changing ownership of hotel is addressed.  Leadership strategy: Pam is very important person of Good Hotel since she is a general manager. Good Hotel should include Pam more in the process of transition before she walked into receive such a shocking mail.