Introduction
Glorious Hotel (Glorious) is a small family run hotel located in the popular ski resort of Leysin Switzerland. The hotel is currently run by the third generation of its founders. The hotel focused on a niche market of skiers who visit Switzerland every winter. Rather than just being a hotel that offered boarding services, it also had a small spa to cate to the needs of the hotel’s visitors. The hotel also had a small bar that also accepts visitors who do not used it boarding services. With a boarding capacity of just 40 rooms, the revenues of the hotel were limited. However, since the hotel focused on the niche market of premium customers, it had a good revenue of US$ 500,000 every year.
Similar to any other firm in the hospitality sector, the business of Glorious has taken a beating during the financial crisis of 2008. The late recovery of the global market following the global financial crisis did not help things for Glorious. Occupancy rates of the hotel have fallen drastically resulting in heavy losses for the company. The brief spurt in its business fortunes in the years 2012 and 2013 was again interrupted due to the persistently strong Swiss Franc. The current report will give some suggestions that can help Glorious to increase its occupancy rates and stay competitive in the market.
Impact of Global Financial Crisis
The global financial crisis of 2008 had an adverse impact on the global business sector (UNIDO 2010). As the incomes of people were falling due to the crisis, they started spending less on a range of discretionary products ranging from cars to vacations. The global hospitality sector in general and the Swiss hospitality sector in particular was not an exception to the slowdown experienced by global businesses. Many major businesses in the hospitality industry have gone bankrupt due to drastic fall in their revenues (Pizam 2009). The luxury and speciality sectors of the hospitality sectors were impacted more than the budget sector as multinational companies started cutting their travel budgets. Glorious too was heavily impacted by the global financial crisis of 2008. The arrival of business executives and tourist for enjoying skiing had fallen dramatically after the crisis. While the hotel enjoyed occupancy rates of 80 to 90 percent during the peak seasons and 40-50 percent during the off peak seasons, it has fallen to 50-60 percent during the peak seasons and 20-30 percent during the off peak seasons. The fall in the occupancy rate lead to a 50 percent fall in the hotel’s revenues from U$ 500,000 to US$ 250,000. Unable to cope with the fall in its revenues, Glorious had to sack 30 percent of its employees during the crisis. The fall in the revenues of Glorious due to the global financial crisis was the first major interruption to its growth in six year preceding the year 2008. Being a family run business without access to any alternate sources of revenue, the company found it stay afloat.
After the crisis, the global hospitality experienced a rebound in the years 2010 and 2011 when the global economy started showing some signs of revival (Kapiki 2011). The Swiss hospitality industry too started to recover quickly after the crisis during the year 2011, but accounted for a low GDP share of 1.9 percent when compared with its 2.1 percent share in the year 1998 (Wehrle and Wehrle 2013). Just when the outlook for Glorious was showing some improvement, the company hit by another major crisis in the form a strong Swiss Franc. The value of Swiss Franc continued to rise as most of the European countries used the Euro as its legal tender money. The continued weakness in the Euro Zone and the slow recovery of the US economy lead to a huge demand for the Swiss Franc among the major countries in the world involved in foreign trade due to its status as a safe haven (Baghdjian 2014). As the value of Swiss Franc continued to rise against most of the western currencies, the number of customers who were visiting the hotel declined as they had to pay more dollars for the conversion into Swiss Franc. Apart from the firms in the hospitality industry, many other businesses in Switzerland in sectors like manufacturing too have heavily suffered due to the strong and rising Swiss Franc. The falling prices of crude oil and the sluggish pace at which the world economy is growing can keep the value of Swiss Franc high for some more days to come.
Strategies for Glorious Hotel
Surviving in a tough economic environment when the global economy was experiencing a continued downturn and the strong local currency was making it difficult for foreign customers to spend more number of dollars to visit the country calls for a drastic change in the strategy followed by the company to survive in the long-term.
The rest of the paper talks about the strategies that need to be followed by Glorious to stay competitive and overcome the crisis.
Target Customers from Other Parts of the World
One of the best way for Glorious to survive during the tough times is to concentrate on the markets that were not impacted by the financial crisis and the following global economic slowdown. Even though most of the western countries have faced problems due to the economic slowdown, some Asian economies like Malaysia, India and China were not impacted by the financial crisis to the same extent as that of the western economies (Business Pandit nd). The robust control over the Indian banking system by its central banker helped the country’s economy to overcome the difficult times easily. India’s economy did not experience a negative growth rate even during the middle of the crisis.
As Glorious was always attracting customers from the western markets, it could now start exploring the option of getting more number of customers from the eastern economies like India that were least impacted by the financial crisis. The management of Glorious should try to reach out to new customers in India and other Asian countries. Glorious should start targeting the customers in East Asia through innovative advertising campaigns. As Glorious was a small company with limited resources it was not possible to give advertisements in mass media channels. The best advertising strategy that could be used by Glorious to reach its new target customers in Asia is through Internet advertising. Highly targeted pay per click Internet advertisements make it easy for Glorious to reach its message for the least possible cost.
Pricing
Despite being a small hotel targeting a niche market, Glorious had always priced its services higher than that of the competition in the market. While the company enjoyed higher profits due to the premium pricing strategy followed by the firm, it needs to change its pricing strategy drastically in the new harsh economic environment. Instead of sticking its policy of charging premium prices, the hotel should offer steep discounts on its services. Discounts should also be given during the peak seasons. The reason for this is that the hotel was still experiencing low occupancy rates even during the peak seasons. Providing its services for a discount will not make its revenues as the small fall in the overall revenue will be compensated by the higher occupancy rate.
Offering its services for a discounted price can make new customers to visit the ski resort who could not have otherwise been able to afford its premium prices. The hotel can also get new customers from poorer countries in Africa. Many firms in the hospitality sector have followed a similar strategy of offering its services for a discounted price to increase their occupancy rate. Hotels chains which were the part of the world’s largest hotel company, Starwood Capital Group too gave steep discounts for its services during the global financial crisis. One industry that most frequently resorts to the practice of selling it services for a cheaper price frequently is the Air Line industry. The main logic behind offering steep discounts on products/services during the times of crisis is that the firms could get some revenues instead of letting the property unoccupied.
Cost Leadership Strategy
According to Porter (1985), a business firm can create a unique competitive advantage for itself by using either differentiation or cost leadership strategies. Differentiation strategy involves providing a highly differentiated service to the customers and charging a higher price for the products/services offered by it. Being a small family run business, Glorious followed the differentiation strategy, focused on a niche segment of customers, and charged a premium prices for the services offered by it. However, the problems that the firm was facing due to the global financial crisis and a strong Swiss Franc forces the company to follow a cost leadership strategy and offer its services for a cheaper price than the competition.
If the company decides to follow a cost leadership strategy, it can strip down a few of its services that it generally used to offer its customers like free newspapers, cable television, and free WiFi access. A number of hospitality firms around the world have followed the cost leadership strategy to attract new customers and expand the target market for its services. In India one of the country’s leading hotel chains owned by the Tata Group launched a new brand of hotel chain called Ginger. Ginger focused on cost leadership and offered a no frills hotel service for a price which was less than half that of the competition. In order to keep the costs lower, the Ginger brand did not offer many services which were common to any hotel like reception and room service.
Tie-up with Travel Portals
Reaching new segments of customers effectively needs more thinking than creative advertising strategy on the part of the Glorious. A small family owned company like Glorious could not effectively reach the new target customers in the Asian markets. The only way in which the hotel could approach reach its new target customer base is through the Internet. The hotel could start the option of booking rooms through its website. However, the company may still not be able to reach its target customers in the Asian market.
Alternatively, Glorious could enter into tie-ups with some of the biggest travel portals in the world. Travel portals have a wider reach than the personal website of the company. Getting listed on travel portals opens a whole new range of opportunities for Glorious to reach its target customer base. The strategy of using third party online travel portals to reach a wider market was followed by a number of small hotels and hotel chains in the world. One of the best examples of hotels using this strategy is the small hotel chains in India. Most of the hotel market in India was unorganized and dominated by large number of smaller firms. As these smaller hotels cannot reach the customers on their own, they get themselves listed on the popular travel portals in the country.
Added Value
Glorious could also start offering higher added value to its customers for the same or discounted price. The firm could add higher value to its customers by clubbing some new services that were not initially part of the package. Glorious could offer some free skiing lessons to amateur skiers during the lean season. This will open a whole new market segment for the hotel as more number of young people will start staying in the hotel for the purpose of learning skiing. Another way in which Glorious could offer added value to its customers is by offering free or discounted local touring packages.
As the hotel has a spa attached to it, it could also offer some spa treatments free of cost. Providing higher value to the customers through innovative thinking will make the services of the hotel affordable to more number of new customers.
Keep a Strict Control over the Costs
When faced with difficult times, no other strategy can give better results to a company than having a tight control over the costs. While Glorious could turn a blind eye to the firm’s costs during the good times, it should have a relook at its cost structure. A thorough cost analysis will help the firm in identifying any unnecessary costs that can be eliminated easily. Reducing the costs of the firm can offset the significant fall of the firm’s revenues.
Promotional Campaign
Since the main target of Glorious is to attract a new group of customers, it should come out with an innovative promotion strategy. An innovative promotional campaign that can reach new target customers effectively can increase the occupancy rate of the hotel. As the promotional budget of Glorious is limited, it should come with a low cost promotional campaign over multiple advertising channels that have potentiality of reaching higher number of target customers.
Glorious should an aggressive advertising campaign by putting pay per click ads on websites related to travel. Instead of putting its ads on the Internet, Glorious should use the services of third party advertising services like Google AdSense and Media.net. Launching an advertising campaign through third party advertising services will keep the campaign costs low while increasing the global reach of the ads.
Join a Hotel Chain
Being part of a big hotel chain makes it possible to get more number of new customers to the hotel. Being a small family run hotel with limited reach, its brand is not known to more people outside Europe. In order to overcome this limitation, Glorious can become part of a big hotel chain in the country. It could choose to either use its own brand name or use the bigger brand name of the hotel chain. If it chooses to use the brand name of the hotel chain, it needs to pay a small part of the hotel’s revenues as royalty to the owner of the hotel chain. On the other hand, if it chooses to retain its own brand name, the hotel chain will charge fixed amount every year for the support it provides to Glorious.
One of the biggest advantages of becoming part of a hotel chain is the economies of scale in its operations. Since the company will not be using its brand if opts for the first option, it needs not spend any money on advertising. The hotel chain will bear all the expenses for advertising the hotel. There will not be any need for the company to maintain a separate website with online booking facility. All of these will result in a significant savings of its scarce financial resources. The royalty amount that Glorious needs to pay to the hotel chain will be compensated in the form of higher revenues. Despite becoming part of a hotel chain, the founding family of Glorious will continue to hold the ownership of the hotel. The company could also start operating on its own in future and market its services through its own Glorious brand. A major disadvantage of becoming part of the hotel chain is the loss of autonomy in deciding all the aspects related to the services offered by the hotel.
Conclusion
The global financial crisis and the subsequent economic decline lead to a loss of misery to businesses around the world. The crisis had a higher impact on sectors which depend on discretionary spending of the customers like hospitality and civil aviation. As people started spending less money on international travel and vacations, many businesses in these sectors have gone bankrupt. The small family owned hotel Glorious too could escape the problems caused by the global economic crisis and a strong Swiss Franc. Limited cash reserves of the family firm that ran the operations of the firm also resulted in the company sacking a significant number of it permanent employees.
The strategies that were suggested above could help Glorious in easily over-coming one of the toughest periods in its history. The management of Glorious should also exhibit exemplary leadership qualities in leading the company during the crisis. Another important thing that needs to be remembered by the management of Glorious is to maintain cordial relations with its employees. As the sacking of a few of its employees could result in a sense of insecurity among the staff, the management should do put its best efforts in allaying the fears of employees and get their complete support in effectively weathering the crisis.
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