CASE STUDY

- Price policy -

Title:

AVARI RAMADA HOTEL

Mentor: Student:

Prof. D-r. Kiril Savovski Isidora Jovanovska

 Skopje, May - 2013

CASE STUDY: AVARI RAMADA HOTEL

1. Introduction
The Avari Lahore hotel basic characteristics:
 5 star Hotel

 Affiliated with the Ramada Renaissance Hotel chain

 Located at the Shahrah-e-Quaid-i-Azam road

 Managed by Hilton group (1978 - September 1987)

 Avari took over the management in October 1987 and renamed “Avari Lahore Ramada
Renaissance Hotel”

 In the vicinity of:

 Provincial Assembly

 Pakistan Arts Council

 Commercial and Shopping zones

Problem Statement

 Average room rate of Avari Hotel had fallen below its main competitor, Pearl Hotel.
 The assistant sales and marketing manager wants to re-evaluate the current pricing policy
of Avari.

 He wants to find out which is the best among the following alternatives:

 Increase the Price of all rooms by 10 percent.

 Increase all rates other than LBS (luxury business services) and V(volume)LBS
rates.

 Introduce another type of rate which bridged the vast differential between the
group rate and the least expensive individual rate.

SWOT Analysis

Strengths:

 Strategically Located

 Good Quality Service

 Weaknesses:

 Rooms less spacious as compared to Pearl.

 Brand image has not been formed in the minds of potential customers.

Opportunities:

 Formation of a tax free industrial zone in Chunnian

 Flights from Europe and United States were expected to start by the end of 1989
 Threats:

 Competition from Pearl

 New entrants with good international image:

 Sheraton Hotel

 The Holiday Inn

Analysis

• Company(through images):
• Competition

1. Main Rival – Pearl Continental Hotel – spacious rooms and lawns

2. Tax free zone in Chunnian – Hotel Sheraton and Hotel Inn

• Customers

Segmented customer base into:

o Business

o Walk-ins

o Tour Groups

o Others

• Climate

1. High level of industrialisation

 2. Flights from USA and Europe expected to be started

3. Increase demand for hotel rooms in Lahore

• Collaboration

1. Avari affiliated with Ramada Renaissance Hotel Chain

2. Quantity discounts to customers who held company accounts

3. Contracts with multinational and foreign enterprises/firms

4. New Client companies offered contracts

5. Tour Organisers offered whole sale rates

6. Agreement with IATA

7. Contracts with international airlines – 10 rooms per yr. Discount offered – 55 %

MARKET SEGMENTATION

Four Broad Categories

 Business Clients:

LBS –Luxury Business Service

VLBS –Volume Luxury Business Service

 Walk-in :

FITs-Frequent Individual Travelers

 Tour Groups
 Others

TARGET MARKET

POSITIONING

Product Levels

 Core Benefit

 Sleep

 Basic Product
 Attached bathrooms

 Equipped with modern appliances

 Expected Product

 Eating places

 A coffee shop

 A snacks bar

 A regular restaurant

 Augmented Product

 Punjab Terrace Club

 Kohrshed Mahal

 Function Rooms

 Executive Business Centre

2. Analyze

PRICE

Pricing objectives:

• Profit Maximization

• Market share leadership

Setting the price: (Pricing method)

• Going rate pricing: Avari Ramada operates in an oligopolistic market & prices its rooms
on the basis of competition and demand.
• It revises and adjusts its prices, twice a year according to the inflation rate.

Room rates & Pricing Policies

Individual rate

Key pricing strategy concepts:

• Adapting the price: Differentiated pricing

 Numerous types of rates are kept in place.

 Policy of not turning away any guest that comes to the hotel.

 Price discrimination occurs (Company sells a product or service at two or more prices
that do not reflect a proportional difference in costs).

• Third degree price discrimination: Seller charges different amounts to different classes
of buyers.
• Customer segment pricing: Different customer groups pay different prices for the same
product or service.

Contract Rate:

• An enterprise or firm could enter into a contract with the hotel, and thereby negotiate
room prices according to the number of room nights that it was willing to provide the
hotel within a given year.

• Usually, only the multinational and foreign companies entered this category with
good repute, size & past records.

• It would register for either an

• LBS (luxury business service)

• VLBS (volume luxury business service) rate.

Garbage rates:
 It refers to a category of miscellaneous rates that forms a low percentage of the
hotel’s total revenue.

Key pricing strategy concept:

• Promotional pricing: Special customer pricing

Sellers offer special prices exclusively to certain customers.

Suites:

All the suites had different rates:

– Rs 3300 for the junior suite,

– Rs 5500 for the executive suite,

– Rs 7150 for the presidential suite.

 – Bridal Suite was complementary if the wedding or reception was held at the hotel,
otherwise it was charged at its normal price of a double room at the rack rate.

– Floral decorations could also be provided with an additional payment of Rs 500.

For an extra person in any suite, the charge was Rs 180.

Key pricing strategy concept:

• Optional product pricing: It will attempt to increase the amount customer spends, once
they start to buy. Optional 'extras' increase the overall price of the product or service.

• Complementary bridal suite: Sales promotion incentive

PROMOTION

Discount pricing

• Primary promotional tool to increase the hotel’s occupancy rate.

Summer package

• It happens only in lean season (May to September).

• Single rooms are available at Rs 930 and double rooms at Rs 1050.

• For every nine guests in a group, two rooms are given for free.

• Breakfast is complimentary and 10 percent discounts on every meal consumed by hotel

guests is given.

• Purpose: Raise occupancy levels during lean months.

Other promotional activities:

 Relationship marketing:

• To enhance goodwill & build long term relationships.

• Free bed tea to the LBS & VLBS guests.

• Inviting LBS & VLBS account holders to hotel for free meals.

• Upgrading: Offered LBS account holder Junior Suite at the same rate of the LBS double
or single room.

Promotional literature (Direct Marketing): Promotional literature such as leaflets and

newsletters were sent to list of clients to keep them informed about the monthly activities
at the hotel.

3. Conclusion and solutions

Current Situation

• Every year, the target for the average room rate was increased by 10 percent.

• In 1988, the target for the average room rate was Rs 1200 per month and it would be Rs
1320 per month in 1989.

• For 1988, the targeted average occupancy rate was 82 %. In 1989, this target would
increase to 85 %

• Variable costs were 15 percent of the room revenues alone.

Average Room Rate (Rs)

Occupancy Rates (%)
Option 1
Option 2
 Analysis

• ARR for option 1 Rs 1100 and option 2 in Rs 1070.

• But LBS and VLBS are major source of income. Hence not advisable to
increase price.

• With tax free zone, there will be high demand for LBS and VLBS contracts.

Recommendations

• Summer Package: The difference in the average room rates of Avari and
Pearl is as high as Rs 114 in September 1988, with Avari being on the higher
side. During lean season, a small decrease in rate will increase occupancy
significantly.

• By bundling food and room rates, we can encourage more guests to have
their food in Avari, thereby increasing the revenue significantly.

• Customer Loyalty Program: Increasing the loyalty amongst the most

profitable group (LBS and VLBS) by providing them further discounts on
room rents, small mementos, free pickup and complimentary food

 Hire chefs specializing in different cuisines

 International Standards for training of staff