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c a s es i x

Primula Parkroyal Hotel


Marketing a Business and Resort Hotel in Lamaysia1
JOCHEN WIRTZ2
ALIAH HANIM M. SALLEH3

Primula Parkroyal Hotel (PPR), located on the ings measures with the overall objective of im-
east coast of peninsular Malaysia, was under a proving PPRs profitability.
major reshuffle of its board of directors, follow-
ing change of ownership under a new state gov- MANAGEMENT TAKE-OVER AND
ernment in 2000. REFURBISHMENT
The hotel was located on a beach off the South
In August 2000, Mok Pin Chuan, PPRs new China Sea in Kuala Terengganu, the capital of
General Manager who was appointed in May Terengganu, a north-eastern state of peninsular
1999, worked on Primulas 2001 marketing plan. Malaysia. Terengganu is an oil-rich state with a
As input into this marketing plan, he needed to population of about 850,000, comprising mostly
re-examine PPRs key target segments and its Malay Muslims. PPR was one of the first four-
positioning. Uppermost in his mind was to rein- star hotels to be built along the eastern coast of
state the hotels image as the premier quality peninsular Malaysia in the 1980s. However, un-
hotel in Kuala Terengganu, increasing its occu- der the previous ownership of a state government
pancy rates and revenue and adopting cost-sav-

1
2001 by Jochen Wirtz and Aliah Hanim M. Salleh.
This case was prepared as the basis for class discussion rather than to illustrate effective or ineffective
handling of an administrative situation. PPR considered some data in the case as confidential, which was therefore
disguised.
The authors acknowledge the generous support in terms of time, information and feedback on earlier
drafts of this case provided by Mr Mok Pin Chuan, General Manager of Primula Parkroyal Hotel. The authors
also thank Jasmine Ow Min Cheng for her research assistance in gathering much of the data and assisting with
the write-up.
2
Jochen Wirtz is Associate Professor of Marketing, NUS Business School, National University of Singapore.
3
Aliah Hanim M. Salleh is Associate Professor of Marketing, Faculty of Business Management, Universiti
Kebangsaan Malaysia.

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Case 6Primula Parkroyal Hotel 553

agency, it had incurred millions of ringgit (RM)4 furbishing the hotel. Recognizing the need to
in accumulated losses and the state governments motivate its staff to deliver quality services, re-
aim was to turn the hotel into a profit-making building a new staff canteen was the first reno-
concern and help it to boost the states tourism vation work undertaken. Other works included
industry. renovating 72 guestrooms in the double-story
The owner of the hotel was Lembaga wing with access to the beach and refurbishing
Tabung Amanah Warisan Negeri Terengganu 150 deluxe rooms in the hotels 11-story tower
(LTAWNT). LTAWNT is an investment arm of block. A new tea lounge was also opened adjoin-
the state government led by Parti Islam, which ing the reception area and a coffee house facing
won the general election in December 1999. In the beach. The entire swimming pool area was
1996, LTAWNTs representative, PTB Resorts also re-landscaped, befitting a world-class busi-
Sdn Bhd, engaged the Southern Pacific Hotels ness resort hotel.
Corporation (SPHC) to manage the hotel. SPHC However, in 1998, the hotel went through a
won a 12-plus-five-year contract, after success- difficult period during the economic meltdown.
fully outbidding several other large hotel man- PPR posted a negative gross operating profit
agement operating companies from the Asia Pa- (GOP) of RM0.9 million for 1998. In 1999,
cific region. PPRs General Manager at that time, changes in senior management and drastic mea-
Rodney Hawker, asserted that the unique fac- sures were introduced to ensure the survival of
tors favoring SPHCs interest in PPR were the hotel. The efforts paid off and the hotel
Terengganus unspoilt beaches, waterfalls, lakes posted a small GOP of RM0.55 million for the
and untapped potential as an attractive tourist year 2000.
destination in Malaysia. This was seen relative In April 2000, Bass Hotels & Resorts (BHR)
to Penang and Langkawi, both of which were acquired SPHC. BHR is the worlds largest glo-
expected to reach saturation as tourist destina- bal hotel company that owns, operates and fran-
tions. PPR was also the only hotel in Kuala chises more than 3,000 hotels and 490,000
Terengganu, which enjoyed both a resort image guestrooms in some 100 countries and territo-
(with its beach location) as well as a business ries. With the ownership of brands like Inter-
image, being so close to town. Continental, Crowne Plaza, Holiday Inn Hotels
In managing the strategic change of the ho- & Resorts, Holiday Inn Express and Staybridge
tel, SPHC focused on the following key priori- Suites by Holiday Inn and Centras, BHR plays
ties: upgrading the quality of the hotels physical hosts to more than 150 million guests every year.
facilities, re-marketing the hotel, training staff With the acquisition of Inter-Continental, BHR
and changing the work culture. Under the terms manages 59 Parkroyals and Centras in Asia Pa-
of a profit-sharing agreement, Permodalan cific, which Richard Hartman, MD for Asia Pa-
Terengganu Berhad (PTB), the Terengganu cific, and his team were trying to re-flag into BHR
governments investment arm and the new owner brands and integrate the disparate corporate
of PPR, financed an initial RM11 million to be cultures, owners and staff. There were also ne-
used by SPHC for physically upgrading and re- gotiations going on with the respective owners

4 Ringgit is Malaysias currency. The exchange rate was US$1 = RM3.80 in April 2001.

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554 Case 6Primula Parkroyal Hotel

to rebrand the Parkroyals and Centras to either percent for the time till December 2000 (see
Inter-Continental, Crowne Plaza or Holiday Inn. Exhibit 3). PPRs beach location fronting the
South China Sea made it vulnerable to seasonal
HOTEL COMPETITION ROOM SALES fluctuations of demand. During the peak holi-
AND CUSTOMER SEGMENTS day periods of June, July and August, the occu-
Exhibit 1 compares physical facilities, services, pancy rate was expected to reach 62 to 63 per-
room rates and occupancy rates across compet- cent, (with average room rates of RM143), but
ing hotels in Kuala Terengganu. Since rooms can demand could go as low as 31 to 34 percent (with
be sold at steep discounts, SPHC used both oc- average room rates dipping to RM125) in the
cupancy rates and average room rates to mea- off-peak monsoon season of December, January
sure the yield of hotel rooms. and February.
As of 2001, there were seven competing ho-
tels in Kuala Terengganu. Of the total rooms HOTEL OPERATIONS
market of 408,070 available rooms per year, PPRs business was organized into the following
PPRs business plan projected that for 2001, the three departments, which operated as separate
hotel would be able to maintain its market leader profit centers: Room Division, Food and Bever-
position with 25.3 percent share of rooms sold age (F & B) Department, and Telephone De-
and 31.4 percent share of revenue market. This partment. Furthermore, PPR had the following
was followed by the Grand Continental, a new five cost centers: Sales and Marketing, the
competitor (with 16.1 percent and 14.9 percent Kitchen, General Administration, Property
of room and revenue market share, respectively), Maintenance, and Energy.
Permai Park Inn (12.1 percent and 9.2 percent,
respectively) and Seri Malaysia (13.0 percent and Front Office Operations
9.0 percent, respectively). In terms of average Encik Radi managed the hotels Front Office op-
room rates, PPR projected that in 2001 it would erations. This office was responsible for managing
be ranking third with an average rate of room reservations and determining room pricing,
RM126.18, after Glenmarie Kenyir with and for arranging every activity their guests engaged
RM159.26 and Sutra Beach Resort with in throughout their stay. Its functions also included
RM129.86. managing the reception counter and room services,
Room market segments targeted for 2001 porter and concierge services and recreational sup-
comprised the corporate segment (26.2 percent), port. Encik Radi was fully aware that personal in-
individuals (19 percent), government (9.4 per- teractions with his front office staff were the key
cent), conference (25.4 percent) and sports and drivers of guest satisfaction. He strongly felt that
miscellaneous groups (6.6 percent) (see Exhibit his staff needed to be trained to continually im-
2). Out of RM10.8 million in total operating rev- prove service levels.
enue planned for 2001, RM6.24 million was ex- Another key area of concern was to manage
pected to come from room revenues (see Ex- room capacity more effectively. In particular, the
hibit 2). It was expected that 76.8 percent of occupancy rate had to be increased throughout
room revenues would be net contribution, which the year, but especially so during the low sea-
compared to an actual net contribution of 79.5 sons (the monsoon months). Also, since Malay-

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Exhibit 1Comparative Characteristics of Primula Parkroyal versus Competitors Percentage
Sutra Beach Seri Permai Primula Grand Glenmarie Kenyir
Resort Malaysia Park Inn Parkroyal Continental Hotels & Resorts

555
Location 38 km from In town 5 km from 3 km from town center; 2 km from town 65 km from Kuala
town center; town center beach front center, no direct Terengganus Sultan
beach front access to beach Mahmud Airport, beside
Lake Kenyir
No. of Rooms 120 chalets/ 137 rooms 130 rooms 150 deluxe rooms, 27 192 deluxe, family 130 deluxe chalets,
rooms suites and 72 Garden and suite rooms seven executive suites,
Wing rooms one presidential villa, 12
standard rooms
Affiliation/ SPR Gateway Inn Park Plaza Bass Hotels and Resorts Grand Continental DRB Hicom
Owner Management Management International (BHR)/Lembaga Tabung Group
Hotel Amanah Warisan Negeri
Terengganu
Market Private, Groups, Corporate, Corporate, Government, Corporate, Leisure,Travel
Segment Government, Private, Government, Travel Agents/Tour Government, Travel Agents,Tour Groups,
Mix Groups Government Travel Agents/ Groups Agents/Tour Incentive Groups,
Tour Groups Groups Corporate Meeting
Groups
Service Three-star Two-star value- Three-star Four-star beach cum Three-star mid- Four-star up market
Positioning resort, mid for-money town hotel business resort priced business resort hotel
priced budget hotel bed and hotel
chain breakfast
image

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Occupancy 40 percent 55 percent 50 percent 49 percent 47 percent 31.4 percent
Rate
(2001 est.)
Rooms 16,790 30,113 23,908 44,805 32,937 14,899
Case 6Primula Parkroyal Hotel

Sold
(2001 est.)
555
SMA/Case/06
Exhibit 1(continued) 556

Sutra Beach Seri Permai Primula Grand Glenmarie Kenyir


Resort Malaysia Park Inn Parkroyal Continental Hotels & Resorts
Avg Room 129.86 80.00 92.00 126.18 112.00 159.26

556
Rate
(RM
2001 est.)
F&B Merang Sekayu Caf Caf-in-the- Rhusila Coffee House Jala Mas Coffee Tembat Restaurant
Outlets/ Restaurant (la carte Park One Ballroom House Gawi Poolside
Conference R-U Tapai menu except Conference Seven Meeting Rooms Two Ballrooms Restaurant
Case 6Primula Parkroyal Hotel

Facilities Lounge Friday and Hall (250 Pelangi Restaurant Six secondary Lobby Lounge
Conference Sunday) pax) meeting rooms Peluang Room Karaoke
Hall (350 Meeting Meeting Lounge
pax) rooms rooms Banquet/ Conference
Karaoke Hall (220 pax)
Lounge
Physical Tennis Shopping Retail Business Center Swimming pool Golf course
Facilities Court Arcade Stores Swimming Pool Gift shop The Lake Store-
and Souvenir Tea/Coffee- Tea/Coffee- Tennis and Volleyball Iron and ironing Souvenir Shop
Services Shop making making Laundry board Indoor Gymnasium
Swimming facilities facilities Iron and ironing board Tea/Coffee-making Tennis and Squash
Pool Swimming Tea/Coffee-making facilities courts
pool facilities in rooms Outdoor sea sports
facilities
Lake Tours
Individually controlled
air-con

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Tea/Coffee-making
facilities in rooms
IDD telephone

Source: Primula Parkroyals internal reports and authors observations during site visits.
Case 6Primula Parkroyal Hotel 557

Exhibit 2Summary of Room Revenues for JanuaryDecember 2001 (Planned)


2001 Budget
No. of Rooms Available 90,885
No. of Rooms Occupied 47,532
Occupancy (percentage) 52.3
Average Tariff (RM) 131.24

Customer Segment Rooms Occupied Average Tariff Room Revenue


Commercial: % RM RM
Corporate 7,329 15.4 148.33 1,087,110
Corporate Conference 3,271 6.9 123.67 404,524
Others 2,321 4.9 150.32 348,892
Total Commercial 12,921 27.2 142.44 1,840,526
Private:
Rack 236 0.5 235.00 55,460
FITsa 9,040 19.0 147.51 1,333,490
Other Discounts 5,608 11.8 122.32 685,970
Total Private 14,884 31.3 139.40 2,074,920
Others
Govt FITs Govt. 4,090 8.6 134.56 550,350
Conference 12,070 25.4 110.36 1,332,045
Sports 875 1.8 110.25 107,493
Embassies and Others 387 0.8 183.67 71,080
Tour Groups 2,305 4.8 113.66 261,986
Total Others 19,727 41.5 117.75 2,322,954
Total 47,532 100.0 131.24 6,238,400

a
F.I.T. stands for frequent independent travellers.
Source: Primula Parkroyals internal reports.

sians currently occupied 83 percent of the hotels reduction, Encik Ahmad continued to freeze new
room nights, Encik Radi believed that more ef- appointments and replacements with the aim of
forts should be made to attract Malaysian tour reducing staffing costs (i.e., salaries, wages and
groups, rather than tying up high promotional staff-related benefits), which stood at 39.2 per-
expenses in an attempt to bring in more foreign cent of the hotels revenue. PPRs staff strength
tourists. was reduced from some 350 in 1996 to 212 by
March 2001. To achieve dramatic improvements
HUMAN RESOURCES DEVELOPMENT in productivity and improve service quality, then
Encik Ahmad Shaari, the manager of the Hu- morale, skills and work ethics, as well as processes
man Resources Department (HRD), aimed at and practices had to be improved.
instilling a stronger customer-oriented culture To upgrade skills and advance career devel-
among the staff and to continuously improve ser- opment, training programs were conducted at
vice quality and standards, and at the same time, three levels. At the preliminary stage, knowledge
to improve productivity. Consistent with the on the hotels service offerings and training tar-
hotels aim of increasing profitability through cost geted at instilling service orientation and a stron-

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558 Case 6Primula Parkroyal Hotel

Exhibit 3Income and Loss For Rooms Division Up to December 2000 (Profit Center)
P&L RM Percentage
Rooms Income: 4,659,523 100.0
Expenses:
Salaries and Wages 437,500 9.4
Overtime 6,520 0.1
Employee Benefits 204,011 4.4
Subtotal 648,031 13.9
Other Expenses
Guest Supplies 146,243 3.1
Telephone and Fax 17,849 0.4
Replacements 33,725 0.7
Cleaning Supplies 31,669 0.7
Miscellaneous 79,336 1.7
Subtotal 308,822 6.6
Total Expense 956,853 20.5
Net Contribution 3,702,670 79.5

ger work ethic were conducted. Next, customer- service quality, reposition jobs by promoting sev-
complaints handling and related skills training eral staff to supervisory levels, enrich jobs by
were improved. Lastly, for middle management deploying staff for both room service and recep-
and above, specific courses such as those on tion duty, and cut manpower and energy costs
management accounting and industrial relations by merging the coffee house and bar operations
were conducted. and by finding ways to save electricity, fuel and
general maintenance.
FOOD AND BEVERAGE DEPARTMENT Mok pondered over the formulation of the
With 75 staff reporting to him, Encik Ahmad 2001 business plan. The need to improve PPRs
Zahid, the F&B manager was responsible for the profitability amid increased competition in Kuala
kitchen, four F&B outlets, conference facilities Terengganu made it crucial for PPR to re-exam-
and banquet services. In general, F&B contrib- ine its key target market segments and its posi-
uted about 30 to 35 percent of a hotels operat- tioning, and to develop strategies to smoothen
ing revenue. By introducing buffets for break- the severe seasonal demand fluctuations. As fur-
fast, lunch, tea, dinner and supper, PPR man- ther cost-cutting measures had to be pushed
aged to attract non-hotel guests; this pushed through, marketing and communications expen-
PPRs F&B contribution to almost 50 percent of diture had to be minimized and any marketing
total revenue. initiatives had to be designed in the most cost-
Encik Ahmad Zahid continued to upgrade effective manner.

Study Questions
1. What should PPRs positioning be to differentiate it from its competitors?
2. What should be its target markets for the coming year(s)? Should they be the same for peak and off-peak
seasons?

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Case 6Primula Parkroyal Hotel 559

3. How can PPR improve room revenue during all seasons?


4. What are PPRs key challenges to achieve its target positioning and improve room revenues?
5. What actions would you recommend PPR to take over the next 12 months?
The following Web sites may provide useful information for the case analysis:
Asia Travel Hotels and Resorts Reservation Service http://asiatravel.com/malaysia/primula/index.html
Introduction to Terengganu http://terengganu.gov.my/intro.htm
Information on Tourism in Malaysia http://tourism.gov.my/
Malaysia Home Page http://www.visitmalaysia.com
SPHC Home Page http://www.sphc.com.au
Grand Continental Reservation Service http://asiatravel.com/malaysia/grandterengganu/
Glenmarie Kenyir Home Page http://www.glenmarie.com

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