Problem Statement
The Eleganzia Group is experiencing a significant decline in room occupancy, stiff competition from renowned group of hotels, decrease in revenues and regular changes in ownership rights. The global economic crisis is evident and Eleganzia Group must make a decision on how to circumvent this crisis. Should Eleganzia Group reduce their rates?
Objectives
The Eleganzia must continue being competitive in the hotel industry while offering quality service to its customers. Specific objectives include upholding customer value, extensive marketing strategy and continuous innovations.
Alternatives
- Include extras in the Half Board package
- Move to Semi-Inclusive package instead of Half-Board room rate and put separate charges for the extras
- Lower prices for rooms to increase occupancy
- Risk diversification through mergers and acquisition of the Eden Hotel in Rome
Consequences of Alternatives (Table 1)
Inclusion of extras in the Half Board package will lead to an increase in the rate of room occupancy since guests will enjoy tennis lessons, soccer, rugby, the spa, and other food and beverages which are not part of the Half Board deal. The semi-inclusive package will also act as a way of wooing customers to the resort since the charges will be a flat rate regardless of the room type.
Reducing the prices for rooms will increase occupancy rate since a large number of guests can afford bearing in mind that the economy is experiencing a global crisis. Increase in room prices by about 7% for five-star rooms and 2% for four-star rooms had detrimental effect on room occupancy which dropped by 2 % in 2009. However, in the peak season, the hotel still had excess demand for five star rooms indicating that the company still has a competitive advantage.
The idea of acquiring Rome’s most prestigious hotel, The Eden, is also very lucrative since it is being sold at a bargain price. This expansion will require a large capital expenditure but in the long run risk diversification is evident. However, an extensive brainstorming is required among the managers to evaluate whether this decision is viable under the prevailing global economic crisis conditions.
Tradeoffs / Analysis of Alternatives (Table 2)
Eleganzia Group comprises of a group of hotels in Italy where customers enjoy holidays in their five star and four star rooms. Inclusion of extras in the Half Board package will increase customer base since it takes into account customer worth and market receptiveness which are in line with the company’s corporate goals. The trade off is that the company will incur additional operating expenses to meet customers’ needs. Introduction of the Semi-Inclusive package may over-ride the whole idea of Half Board package with extras.
Reduction in room prices will increase occupancy during the low season though it will take some time before the company accumulates enough revenue to break even. The trade off is that if targeted customers do not respond to this move, the anticipated increase in room occupancy will not take place and the management efforts may be frustrated.
Moreover, in as much as acquisition of Eden Hotel at bargain is lucrative, the funds needed to incur this capital expenditure may not be forthcoming due to the global economic crisis and this may negatively affect the financial position of the company.
Recommendations
Eleganzia Group should reduce the room prices to attract more customers who would want to enjoy their holiday but are strained by the global economic recession. Furthermore, introduction of extras in the half board and semi-inclusive packages will lure more customers at a reduced cost. The company should also take advantage of the bargain price to acquire Eden Hotel as a measure of diversifying the risk of unforeseen negative market conditions.
Good / Desirable Strategy to Goal Match: 1-3
Compromise / Intermediate Strategy to Goal Match: 4 – 7
Poor / Undesirable Strategy to Goal Match: 8-10
