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booking at a discount rate from a group participating in an international sporting event. Do the promised publicity benefits justify the risk of turning away guests from higher paying segments? Note: If you have taught this case from SM5, please notice that the figures in Exhibit TN-7-A have changed. These changes cascade through the financial computations of this case, and they make the decision to accept the block booking less obvious and allow for a stronger qualitative discussion.
STUDY QUESTIONS 1. What factors lead to variations in demand for rooms at a hotel such as the Accra Beach? 2. Identify the various market segments currently served by the hotel. What are the pros and cons of seeking to serve customers from several segments? 3. What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board? 4. What action should Cherita Howard take and why? ANALYSIS 1. What factors lead to variations in demand at a hotel such as the Accra Beach? • Seasonal cycles. The weather is better at certain seasons of the year than others (July-October is hurricane season in the West Indies). Also, guests from North America and Europe will be more tempted to seek a warm sunny vacation in Barbados when the weather in their own countries is cold and damp. Business activity may drop off during major holiday periods.
and allocation of promotional budget across different regions. fewer people attend conferences. Exhibit 1 of the case shows that occupancy at the Accra Beach Hotel (ABH) is highest January through March (nice weather in the Caribbean. Business conference participants 3. vacationers and individual travelers may come at times of year when business travel is down.• Economic cycles. Thus. another form of segmentation is guest’s home location—Barbadian. Individual business travelers 2. When business is down. horrid weather in North America and northern Europe) and lowest in September (peak of hurricane season). other Caribbean. Individual vacationers 4. Tour group participants At ABH. • Days of the week. and vice versa (Exhibit 4 suggests. Identify the various market segments currently served by the hotel. Segments are often counter-cyclical. some individual vacationers will just look for weekends. 2. Business travelers are more likely to stay Sunday through Thursday nights. Pros of serving several segments. Most customers can be segmented by whether they are part of a group or not and whether they are traveling on business or pleasure. The key marketing implications have to do with channels for reaching individuals versus group organizers. . and Europe. North America. and tourism may also be affected. This gives us four segments: 1. What are the pros and cons of seeking to serve customers from several segments? Different segments at hotel. there is less business travel.
ABH should probably market itself in ways that will eventually reposition the hotel as a business hotel with attractive conference opportunities.however. and may look out of place in a vacation environment. Similarly. they tend to all eat together and thus swamp dining rooms when it is their meal time. spend time on the phone. Business people tend to dress soberly. 548). Tension between different segments and hostile glances may lead to a stressful atmosphere. that is not the case at the ABH). 3. Because business customers pay more and the business is more stable. Filling all available capacity with a single segment may be impossible much of the time. Groups can be noisy (sometimes raucous if they all party together). What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board? . 548). Conclusion: ABH patronage seems to be shifting from vacationers to businesspeople (p. use their cell phones. bring their laptops to the restaurant. Vacationers dress casually and are out to have a relaxing carefree time. so attracting a mix of segments may be essential to success. Cons of Serving Several Segments. Note the comments from vacationers who think it’s “weird” to see suit clad businessmen chatting on their cell phones at the beach (p. Different segments behave in different ways and their needs and expectations may clash. vacationers wanting a quick weekend getaway may fill rooms at weekends when there is no business travel.
will it help/hinder the hotel in obtaining local patronage for meals. • Guest experience impact—Will the presence in the hotel of a large group of sportsmen enhance or detract from the experience of (a) vacationers. bar. • The direct costs associated with that booking (in this case. neutral. The necessary analysis is shown in Exhibits TN-A.400 roomnights at $130. both of which are included in the price. and conferences/group events for customers from the Bridgeport area who don’t need rooms (note that it has state-of-the art conference facilities). It consists of 50 x 28 = 1. and TN–C. TN-B. • The revenues lost due to turning away guests who would have stayed if the hotel were not full due to the presence of the WICB group. Breakfast costs are . less VAT and less the cost of breakfast. and (b) businesspeople staying at ABH? Guest relations’ impact—Will loyal guests be upset if they cannot reserve a room at the hotel during the periods when the cricket home series is playing? Will this weaken their bonds with the hotel? 4. Exhibit TN-A calculates the revenues for the WICB group. What action should Cherita Howard take and why? Financial Analysis. We need to calculate: • The revenues received from the WICB booking.• Financial impact—Will the hotel lose money on the WICB deal? • Marketing impact—How valuable is the publicity that the WICB booking will generate for the hotel? Will it be positive for the hotel’s image. or negative? In addition to the impact on room sales. defined simply as breakfast and laundry).
then deduct the capacity figure of 141. room revenue forgone totals $112.887.519 for breakfast and $1. This may generate bad word-of-mouth and lead to long-term loss of business.407. Adding these to the room revenues foregone yields a total loss of $116. • If the cricket group is noisy and boisterous. Thus.551. the net financial impact of accepting the WICB business is $(154. it would be profitable to accept the booking Other Considerations CONS • If regular guests are turned away. To this figure must be added lost margins on meals from the tuned-away guests. and the difference is excess demand expressed in room-nights. with existing guests fearful that more large sporting groups will be using the hotel in future. there would be a long-term revenue loss for ABH. • Large groups of this nature run counter to the hotel’s shift in positioning toward a hotel for business people. both Business people and tourists.817 for dinner. In other words. Exhibit TN-C shows the calculations.045.045 – 116. In total. not just a one-time loss. net income from the WICB bookings should generate $154. Exhibit TN-B uses Case Exhibit 5 to calculate the excess demand resulting from the WICB booking (assuming that in the absence of WICB. what is the risk that they will find another hotel and not return to the ABH? In that case.887) = $38. The lost revenues are $2. daily bookings would have been the same as last year). recognizing that only 80 percent of regular guests have breakfast and 30 percent have dinner. it may spoil the experience for other guests.calculated at 95 percent of the theoretical maximum because not all will eat it. Multiplying the excess demand for each night by the average revenue for that day from last year gives us the revenue forgone by having to turn away guests. Add the fifty rooms/night demanded by WICB to last year’s sale for that date. . For the twenty-eight days of the WICB bookings.
so filling the hotel for twenty-eight days is a coup. • April and May are not the busiest times of the year (occupancy for those two months during the past two years has ranged from 74.000 are good to have (although not a huge item in a $7 million operating budget). • Incremental revenues of $48. (It won’t. especially throughout cricket loving nations in the English-speaking Caribbean and perhaps in the United Kingdom. . • Many guests and staff who follow cricket will be excited to have the teams staying at the hotel.PROS • This will be great publicity for the hotel. however.0 percent).7 percent to 82. do much to stimulate North American business where few watch cricket and where the matches are unlikely to be televised).