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Astor Lodge & Suites Inc Case Study

Astor Lodge & Suites Inc Case Study

Criteria for Part A

� � Maximum length 10 pages excluding appendices; cover page and table of contents. Your write-up
can be a mixture of bullet point form and essay style [Times Roman, 12 point font single spacing, 2.5cm

margins]. Answer each question separately.

� � Use headings to highlight which questions you are answering. Structure your answers using sub-
headings if necessary to make it clear that you have used an analytical approach to reach your answers.

The grader will be treating (apparently) random lists of issues with caution.

1.0 Introduction 3
2.0 The U.S. Hotel Industry during the Early 2005 3
3.0 Competitive Positioning for the Astor lodges & Suites 5

3.1 Porter’s Five Forces 6
3.11 Bargaining Potential of Suppliers 6
3.12 Bargaining Power of Buyers 7
3.13 The Intensity Competitive Rivalry within the Market 7
3.14 Threat of Alternatives 8
3.15 The threat of new Entry 9
3.2 SWOT Analysis 10
3.21 Strengths 10
3.22 Weaknesses 10
3.33 Opportunities 11
3.34 Threats 11
4.0 The Operational and Financial Performance of Astor Lodges & Suites 11
5.0 Sales and Marketing Initiatives, Outcomes, and Expenditures for Fiscal Years 2004 and 2005 14
6.0 Proposal for Sales and Marketing Plan and Budget for 2006 16
7.0 References 19

Astor Lodge & Suites Inc Case Study

1.0 Introduction

The Astor Lodge & Suites Company was founded in 1979 and owns over 250 properties
nationwide. It is the owner of 200 Astor Lodges and 50 Astor Lodge & Suites across the United
States. The two major services that the company offers are Aston Lodge Economy Class Hotels

and Aston Lodge & Suites Midscale Class Hotels. The top competing points for the hotel are
service, price, and amenities. The company has six hotel segments including luxury, upper scale,
upscale in the full-service hotels and midscale food and beverage, midscale, and economy in the
category of limited-service hotels (Seoki et al., 2014, 87). This paper aims at exploring the
characteristics/features of the hotel industry of US in the early 2005, identifying and evaluating
the present competitive positioning that is associated with Astor Lodges & Suites Company,
characterizing the financial and operational performance of Astor Lodges, portraying and
assessing the sales and marketing initiatives used in Astor Lodges and offering recommendations
on what should be in the firm’s sales and marketing budget schedule for the financial year 2006.

2.0 The U.S. Hotel Industry during the Early 2005

The period around the late 2004 and early 2005 in the hotel industry across the United
States was characterized by a return on revenues following declines in the previous years. The
lodging industry particularly returned to positive profit growth. It is estimated that a typical hotel
in the country during this period achieved an 11.4 percent increase in profits compared to the
previous years. The improved profitability followed a three-year recession in the hotel industry
that pushed unit-level hotel profits to a 36.2% decline during the period between 2001 and 2003
(Singh et al., 2014, 205). Nevertheless, this improvement in revenues was still low and far from
the previous levels achieved in the late 1990s.
During the early months of 2005, the hotels in the U.S recorded a 7.6% increase in their
total revenue which in turn led to the 11.4% growth in operating profits. Indeed, the larger hotels
with higher rates of rooms experienced the greatest increase in profitability. The resort hotels
realized the greatest increase in profitability with their overall revenue growing by up to 9% and
operating profits growing by about 17%. The combined revenue from the beverage department,

rentals, food department, and other operated departments increased by 6.3%. Food revenues
recorded the highest growth at 6.9% while the rental and other income grew by only 4.3%. Since
the number of rooms occupied only grew by 4.3% it can be argued that some of the additional
revenue sources increase emanated from the increased usage of hotel restaurants, retail shops,
lounges, and recreational facilities in the hotels. Additionally, the cost of running these
departments only grew by 5.9% thus indicating that the supplement revenue sources equally
contributed to the overall increase in hotel profitability (Seoki et al., 2014, 89).
Operating costs constituted 45.9% the bulk of which emanated from labor and related
costs expenses. The 6.3% increase in labor and related costs during this period contributed
greatly to the 6% percentage increase in the total operating costs for the hotels. This implies that
the overall operating costs excluding that of labor grew at a pace higher than the 6%. There are
two components of hotel labor costs; employee benefits and wages and salaries. There was a
noted 8.9% increase in employee benefits and 5.5% in salaries and wages. Consequently,
undistributed operating costs increased by 6.5% (Singh et al., 2014, 209). Due to their nature
(fixed and not greatly influenced by the changes in hotel business volume) they can be viewed as
intentional costs by the management. The highest rise in undistributed operating cost was
experienced in the administrative and general department which grew by 7.3%. Insurance costs
in the hotel industry contrary to other operating expenses started stabilizing during the 2004/5
period. For instance, on average the hotels paid 1.8% less for general liability and property
insurance during the period than previously (Seoki et al., 2014, 89).
Generally, the hotel industry in the U.S in 2005 can be described as being very
fragmented with no one brand or company controlling a majority of the total hotel rooms.
Overall, the major competing points for hotel were amenities, service, and price. Typically, full-

service hotels provided food and beverage outlets such as lounges and restaurant, luggage
service, a concierge, convention/banquet/meeting facilities, and room service. Limited-service
hotels offered rental rooms and include midscale without beverage and food. All hotel segments
have particularly indicated improved performance in terms of average daily rate, revenue per
available room, and occupancy in early 2005.notably, the five major hotel segments indicated
great variance on these measures of performance with the luxury hotel segment recording the
most improvement.

3.0 Competitive Positioning for the Astor lodges & Suites

Competitive positioning focuses on the aspect of differentiation with the aim of winning
the mindshare of the industry or market. Various models can be employed in the determination
of a firm’s competitive positioning in the market. One of these models is porter’s five forces
model, which contributes significantly to the determination of a company’s competitive
positioning in an industry. Besides, this model can be employed in the determination of the level
of attractiveness of a market (Seoki et al., 2014, 56). This framework is founded on the notion
that there exist five forces within a market that determine its attractiveness and competitive
intensity. This model assists in identifying position of power in a business situation as in the case
of Astor Lodges. The model is significant in the comprehension of the strengths/power of a
firm’s current competitive position alongside the strength into which the business may choose to
look. This model is employed b strategic analysts in identifying areas of strengths, improving
weaknesses and avoiding mistakes. The five forces associated with this model are bargaining
power of suppliers, bargaining power of buyers, competitive rivalry within the market, threat of
alternatives and threat of entry of novel/new firms. In addition, the SWOT analysis can be
employed in determining the competitive position of Astor Lodges in the Industry.

3.1 Porter’s Five Forces
3.11 Bargaining Potential of Suppliers
This element is employed in the assessment of the easy with which suppliers can drive up
or increase prices. The strength of suppliers in the market is determined by the number of
suppliers supplying each essential raw material, uniqueness of the supplier’s service or product,
relative strength and size of the suppliers, and the expense of alternating from one supplier to the
other. In relation to this, it can be noted that the bargaining potential of suppliers in the industry
in which Astor Lodges operates is high. The suppliers’ power is associated with presence of
many firm in the industry to which the suppliers can shift their services (Seoki et al., 2014, 58).
Some of the firms that exist in this market are Marriott, La Quinta Inn, Hampton Inn & Suites
and Fairfield Inn. The presence of many companies within the industry subjects companies like
Astor Lodges to intense competition approaches, which are aimed at attracting suppliers. Thus,
firm have to ensure that they offer better contracts or payments to suppliers to avoid losing them
to their rivals.
3.12 Bargaining Power of Buyers
As an aspect of determining a firm’s competitive position, the element of buyers’
bargaining potential involves the evaluation of the ease with which buyers can drive prices
down. The strength of power of buyers in market is determined by the significance of every
buyer to the organization and expenses involved in switching from one firm to the other.
Currently, the bargaining power of buyers in the US hotel industry is high. The buyers obtain
their strength from the fact that this industry is characterized by a monopolistic model, which is
always associated with the ease of entry of new firms in the market (Seoki et al., 2014, 62). As a
result, the industry has many companies, which raises the strength of buyers as they can easily

move from one business to the other. As such, companies such as Astor Lodges should focus on
providing suitable services and product to buyers to avoid losing tem to other businesses.
Specifically, the lodging industry as a monopolistic competitive market possesses the following
 Differentiated products
 Ease of entry for new firms
 Many sellers
Multiple dimensions of competition
3.13 The Intensity Competitive Rivalry within the Market
This principle driver of this aspect is the number of and potential of competitors existing
in the industry of market. In a situation in which the market has many competitors offering
undifferentiated commodities and services, such a market is often associated with low
attractiveness. High number of competitors in the firm often leads to a high intensity of
competitive rivalry. On the other side, the existence of few firms in the market leads to a lower
intensity of competitive rivalry. Being that the hotel industry in which Astor Lodges operates is
associated with the monopolistic model new firms can easily enter it(Seoki et al., 2014, 64).
Taking this aspect into consideration, the US hotel industry has many firms, which has resulted
into a higher intensity of competition among businesses. Firms in this market struggle to beat
each other by winning more consumers. Thus, Astor Lodges should ensure that it focuses on
strategies that make it look unique in relation to its competitors as this can help it attract more
buyers than them.
Competition within the hotel industry in U.S assumes a monopolistic model which
implies that the company can only be able to influence the market position through altering the

kind of product they offer to the market. Customers in such an arrangement are have clearly
defined preferences concerning the products or services that expect from the company (Seoki et
al., 2014, 67). As such, the company will always strive to differentiate their products from others
from their competitors. In this context, it can be argued that a monopolistically competitive hotel
will always manage to exploit the heterogeneity of its brand in order to reap high profits. Astor
lodges & Suites being part of this monopolistic competitive industry has different types of hotels.
Getting the many hotels to act as one proves to be a difficult task for the company’s
3.14 Threat of Alternatives
In a situation in which the industry is associated with the existence of close substitute
services or products, the probability of buyers shifting to alternatives is often higher. On the
other side, when the industry lacks close substitute services or products, the likelihood of buyers
moving to alternatives is always lower (Singh et al., 2014, 61). Taking the two aspects into
consideration, the hotel industry in which Astor Lodges operate is associated with the existence
of alternative in relation to the services offered. Firms in this industry offer tow forms of services
that are close to each other. There are firms that offer full-services by providing beverage and
food outlets like restaurant and lounges, luggage service, convention/meeting facilities, a
concierge and room services. On the other hand, there are organizations that offer limited-
services. Taking the tow aspects into consideration, Astor Lodges & Suites is positioned as a
limited service hotel and falls between the full-service and economy hotels. As such, the
company is not faced with the threat of alternatives as it provides all the services that are offered
in the industry. Moreover, the existence of Astor Lodges between economy and full-service
hotels, implies that it is fighting other common names in this segment as Hampton Inn & Suites,

Fairfield Inn, La Quinta Inn, and Marriott (Singh et al., 2014, 207). It is important to note that
these are not necessarily competitors of the hotel. The top competing attributes for company are
amenities, service, and price.
3.15 The threat of new Entry
Markets that are profitable attract new firms, thereby eroding the profitability that is
associated with such markets. Unless incumbents possess durable and robust barriers to entry,
then the profitability levels associated with such markets will decrease to a competitive rate. In
relation to this, the US hotel industry can be considered profitable. In early 2005, hotels in this
market were noted to have realized a total revenue increase of 7.6%. The increase in total
revenue resulted into the growth or increase in operating profits to 11.4% (Seoki et al., 2014, 89).
As such, new firms can be attracted easily to this market coupled by the fact that the market is
associated with a monopolistic model that allows for easy entry of businesses.

3.2 SWOT Analysis
This model focuses on the strengths, opportunities, threats and weakness that are
associated with the firm and market in which it operates. SWOT analysis offers a suitable
platform on which Astor Lodges’ competitive position can be determined in an effective manner.
3.21 Strengths
 The hotel has a strong leadership dedicated to increasing and attracting more occupants
for the hotel
 The embracing of the online communication platform is a big addition for the hotel in
capturing business travelers

 The location of most of its hotels along major highways, airports, large shopping centers,
and office complexes is a strong business strategy
 Currently the hotel is recording an above average occupancy rate with Astor Lodge &
Suites Inc.
 It is also enjoying a high brand loyalty
 The hotels are recording a high revenue growth rate.
3.22 Weaknesses
 Complaints from most business guests since the hotel is seen as more adopting a business
model inclined to vacationers
 Trends of its main target guests are changing.
 There is a projected increase of 2% in terms of direct cost of rented rooms.
 The hotel experiences low occupancy rates during the weekends.
 It is experiencing fiercer competition.
3.33 Opportunities
 Their prices are lower than the industry averages at $57.52 against the industry average
of $61.50.
 The hotel industry in the country is experiencing a 7.6% growth
 Special offers for guests.
3.34 Threats
 Challenge presented by terrorist acts slowing down travel.
 Competition from large hotel chains such as Hilton.
 Its frontier strategy has not yet been rendered effective.

 Other major competitors have more property, greater presence and big reputation in the
4.0 The Operational and Financial Performance of Astor Lodges & Suites
Finance and operational performance of a company contributes significantly to the
determination of its success in the market. Improvements in group, individuals or organizational
performance cannot be realized in the absence of proper mechanisms of obtaining performance
feedback or results. Feedback refers to having results of a task communicated to work group,
employee or company. For organizations, performance measurement acts as a link between
organizational goals and decisions. As such, managers should ensure that they are involved in
active processes of evaluating their firms’ performances in relation to finances and operations for
them to accomplish their business goals (Seoki et al., 2014, 78). Besides, this undertaking
ensures that managers can make proper decisions on how the companies’ goals can be met.
Performance measurement provides a suitable platform on which suitable methods
improving the company’s weaknesses in the evaluated areas can be established. Performance
measurement focuses on two broad categories that include financial performance and operational
performance (Singh et al., 2014, 109). Financial performance measurement focuses on the
evaluation of the company’s income status while operational performance measurement focuses
on the evaluation of the determinant of a firm’s results. Examples of results’ determinants in a
company are inputs such as flexibility, quality, innovation and resource utilization.
Measurement of the business’ performance often takes into consideration five principle
elements that include money, input/output associations, customers’ emphasis like quality and
human resource. Within the area of operations, the measurement parameters that are often
considered are quality measures, productivity measures, preventive maintenance, lead-time

measures, utilization and performance to schedule (Seoki et al., 2014, 73). In this area, the
specific measurement include cost of quality that is evaluated as budgeted versus exact/actual,
variances that is evaluated as standard absorbed expenses verse actual costs, safety that is
measured based on a common scale, profit contribution that is measured based on a common
scale or measured dollars, and inventory turnover that is measured in terms of actual turnover
versus budgeted turn over.
While measures of firms’ financial performances are always employed in gauging
organizational performance, certain companies have witnessed negative outcomes from
depending solely on such measures. In the real sense, traditional mechanisms of measuring the
performances of firms are better at evaluating the consequences of past actions or activities than
at projecting the performance of the future (Singh et al., 2014, 209). As such, managers should
ensure that they do not depend on a single set of measures for them to realize clear targets. Many
companies still depend on measures of efficiency and cost, when in some situations, such
approaches as quality, services and time would be more suitable approaches. To be effective and
efficient, performance yardsticks need to be subjected to a continuous evolvement so that they
can manage to assess performance properly and target resources at continuous development.
The years 2004 and 2005 were part of the five consecutive year long profit draught for
the Astor Lodges & Suites. Joseph James, the new CEO that the company had acquired
developed a goal in which the company was expected to achieve profit within the following two
years. The company with 250 properties across ten states in the Midwest had recorded a net-loss
of $ 15.7 million (Singh et al., 2014, 209). As a result, four senior vice presidents were requested
to meet and present the effects of the past five years. In addition, Kelly Elizabeth, a very

experienced player in the marketing filed was brought on board to assist in underpinning the
issue and in devising a new strategy to realize profits.
The marketing plan was expected to increase the overall occupancy. It was designed to
attract pleasure travelers. An increase in the marketing plan advertising resulted in significant
increase in media advertising budget to $ 11,360,000 (Seoki et al., 2014, 92). The marketing plan
achieved the projected objective of increasing occupancy and weekend occupancy. However, the
average daily rate did not change. The overall effect is that the lodging revenue and the revenue
part room increased.
The projected annual revenues growth from the lodging segment was 7.4% for the year

  1. This was slightly below the industry average but at the same time higher than the growth
    rate in the segment. The company recorded a net loss for the third year while the industry
    recorded profits. As a result, the company had to close two under-performing lodges and opened
    one suite property. The projected consolidated company occupancy reached to 67.1% with
    average daily rate of $57.52 and revenue per room at $38.60 (Seoki et al., 2014, 94). Properties
    recorded an improved occupancy rate per room in 2004 but slowed in 2005. This is attributed to
    the free-night stay deal. Lodging expenses were projected at $211 million for the year 2005
    including variable costs, utilities, direct labor, and supplies. Other expenses were estimated at
    $62.5million. Corporate expenses were estimated at $44.9 million, a $ 5.9 million increase from
    2004 as a result of increased employee compensation, IT expenses, costs on sales and marketing,
    and health insurance (Singh et al., 2014, 208).
    5.0 Sales and Marketing Initiatives, Outcomes, and Expenditures for Fiscal Years 2004 and


The evaluation of a firm’s marketing and sales initiative is significant in ensuring that
businesses develop suitable decisions on the selection of appropriate sales and marketing
approaches. Marketing and sales initiatives serve as a game plan to the realization of the firm’s
objectives. After the attainment of the company’s objectives, managers should ensure that they
are involved in active evaluation of the sales and marketing initiative that their companies
employed in achieving such goals (Seoki et al., 2014, 94). Such an undertaking is significant in
evaluating and revealing how well a business has exploited the existing marketing opportunities
within an industry using its capital resources and sales/marketing staff. Evaluation of the sales
and marketing strategy can be accomplished using six steps.
The first step involves reviewing the initial/original goals of sales and marketing.
Conducting this step is significant in addressing the changes in the sales/marketing goals that
might have been encountered during the implementation process without the knowledge of the
sales or marketing team. The second step involves the identification of the performance gaps that
exist in the marketing or sales objectives. This process acts a suitable method of examining the
company’s sales or marketing goals after the attainment of their deadlines (Seoki et al., 2014,
92). This objective can be accomplished by reviewing the financial and marketing/sales reports
for the target product or service against their corresponding goals. The third step involves the
evaluation of the effectiveness associated with a promotional approach. Sales/marketing and
promotional campaigns are often developed to impact a firm’s market share. As such, this
undertaking is vital in ensuring that the company acquires adequate knowledge on its market
share and ways to increase such a market share. The fourth step takes into consideration the
reviewing of the sales/marketing staff performance. This goal can be accomplished by reviewing
specific marketing or sales goals for the individual members of staff. Moreover, it can be

attained by focusing on the timescales established for sales/marketing plans against the exact
performance data to verify whether the sales/marketing initiatives were executed in a timely
manner (Seoki et al., 2014, 98). Furthermore, the sales or marketing plan budget should be
reviewed in relation to the actual expense for implementing the sales or marketing plan. Taking
the six aspects into consideration various aspects can be revealed about the sales and marketing
approaches used by Astor Lodges in the financial years 2004 and 2005.
The sales and marketing segment of the hotel has lagged behind the other functions in
terms of establishing substantial profit results from its expenditures. The growth rates can be
rated in three categories hotel industry 7.6%, Astor Lodge & Suites, 7.4%, and limited service
segment at 5.8%. Reports indicate a 50/50 split between leisure and business customers with a
typical business customer estimated to spend about $ 81,000 per year paying $96 per room per
night. A typical leisure customer estimated at $72,600 per year paying $89 per room per night
(Singh et al., 2014, 209).
Currently the hotel is recording an above average occupancy rate with Astor Lodge &
Suites standing at 67.1% against the industry average of 61.3%. All hotel segments have
particularly indicated improved performance in terms of average daily rate, revenue per available
room, and occupancy in early 2005.notably, the five major hotel segments indicated great
variance on these measures of performance with the luxury hotel segment recording the most
improvement with an increase of 3.5% in occupancy and an increase in revenue per available
room of up to 39%. The occupancy was at 61.3%, revenue daily rate was at $53, and average
daily use stood at $86 for the industry (Seoki et al., 2014, 95).
The Aston Lodges & Suites are recording a high revenue growth rate at 7.4% against the
industry rate of 7.6%. This implies a positive financial performance in the recent past compared

with previously. There is also a projected increase of 2% in terms of direct cost of rented rooms
for the company. However, their prices are lower than the industry averages at $57.52 against
the industry average of $61.50. Overall, the hotel industry in the country is experiencing a 7.6%
growth (Singh et al., 2014, 209). The Aston Lodges & Suites registered a direct operating profit
of $ 23.2 million in 2013 which was a 19.4% increase from the year 2012. The hotel average
EBITDA has been growing steadily in an average annual rate of about 6% over the recent years.
Generally, the hotel industry has recorded a $113.7 billion of revenues and $16.7 billion gross
pre-tax profit and $ 4.4 million in hotel rooms in the same period compared with a 1.1 billion in

  1. This can be attributed to the recovery of the U.S economy as well as the growth being
    experienced in the consumer spending. For instance, the consumer spending in the U.S has been
    on the upward trend since the year 2011 with movement to $10912 in 2014 from $10373 in 2011
    (Seoki et al., 2014, 97).

6.0 Proposal for Sales and Marketing Plan and Budget for 2006
Developing an effective sales and marketing budget and plan is significant in ensuring
that companies accomplish their marketing/sales budgets within the required timescales and
finance limits. When manager do not engage in the active development of sales/marketing plans
and budgets, they can face several problems in the realization of their marketing and sales
objectives (Singh et al., 2014, 102). Effective plan and budget development for organizations’
marketing and sales activities play a significant role in ensuring that resources such as time and
money are utilized in an efficient and effective manner, thereby leading to a successful
accomplishment of companies’ objectives. In relation to this, several issues should be considered
in the development of the marketing/sales budget and plan for Astor Lodges.

First, the free-night-stay deal was one of the main causes for reduced revenues for the
hotel. The strategy should have been to replace the free-night-stay with the weekend special deal.
This was expected to increase the hotel’s occupancy rate, offer the deal to families seeking lower
cost, and consequently return a part of lost revenues that had been experienced during the free-
night-stay deal. The replacement would in turn return revenue lost by up to 50% and profits
would have been projected at $ 22,552,680. Since the room rates are lower than the industry
averages as established earlier in the discussion, it would be thoughtful for the company to
increase their pricing. Prices could be increased to $60 for Astor lodges and $ 75 for Astor Lodge
& Suites. As a result, the total profits for the 2006 would have been projected at $ 51,703,080
(Singh et al., 2014, 209). The rationale behind this would be that business customers are not so
sensitive to higher prices since they are looking for booking rooms which the companies pay for.
Concerning advertising, the company should change their media advertising budget allocation.
For instance, they should focus more on attracting weekend leisure customers. The budget
allocation for marketing should, therefore, be targeted to leisure customers. The change in
allocation should be to 60% towards the business customer and 40% towards leisure customers
(Seoki et al., 2014, 98). It is projected that leisure customers would be more likely responsive to
learning about deals. More importantly, a hybrid mix of the three strategies would have been the
most effective direction for the company marketing campaign.
By and large, there was a need to identify what the problem was and in so doing develop
a way forward for the company starting 2004. The main challenge was the failure to make profits
in five consecutive years. Generally, the hotel industry had recorded profits. The Aston Lodges
& Suites failed to realize any profits despite the thriving hotel business during the same period.


7.0 References

Seoki, L, Yoon, K, & Qu, X 2014, ‘Internationalization and financial health in the US hotel
industry’,Tourism Economics, 20, 1, pp. 87-105
Singh, A, Dev, C, & Mandelbaum, R 2014,

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