Astor Lodges and Suites Inc.
the case study have two part, so 10 pages for each part and 10 reference for each part. Please read the case carefully and follow the Marking Guide of High Distinction
Excellent quality in all aspects
Assessment 1 (A1) Case Study: Individual Assessment (35%)
Assessment A1 � Assessable Case
There will be an assessable case study to be prepared before the relevant class and discussed during class. The case study is worth a maximum of 35% towards the course
marks and is composed of two parts A and B.
Table of Contents
Characteristics of the U.S. hotel industry in early 2005?. 2
The current competitive positioning for Astor Lodges and Suites, Inc. 3
Characterizing operational and financial performance of Astor lodges & Suites, Inc. 6
Kelly Elizabeth’s proposal in her fiscal 2006 sales and marketing plan and budget 10
Part B: Competitive Strategy. 13
A study of the Australian Hotel industry. 13
Australian Hotel Industry Analysis and Industry Trends. 13
Maturity growth phase of the hotel industry life cycle. 15
What is the blue ocean strategy approach?. 16
The problem identified in traditional approach to strategy as compared to the blue ocean strategy 17
History of the BOS strategy. 17
Part A: Case Study
Characteristics of the U.S. hotel industry in early 2005?
The major characterization of U.S hotels in the wake of the year 2005 reflects back on the economic and financial trends exhibited in the previous years. This means that the subtle characteristics were influenced by 9/11 terrorist attack on the United States which led to a reduction in economic activities as business people were afraid of the insecurity and uncertainty posed by these attacks. Specifically, it is was projected that the hotel industry had bagged revenues of $113.7billion in 2004. During the same financial year, the industry had further recorded an increase in gross profit which totaled to $16.7 billion pretax profits. It is also reported that at the onset of 2005, the United States had approximately 4.4 million hotel rooms of which one third were independently owned while the remaining two thirds were affiliated with renowned brands (Roger & Robert, 2012). This introduction ushers in a detailed analysis of the hotel industry in the United States in early 2005.
- The hotel industry was highly fragmented. This means that there is no one brand or company controlling majority of the hotel rooms (Ambler, 2010). Nonetheless, there were approximately ten large hotel companies and brands which were categorized and segmented based on their amenities, services and pricing. A research conducted by the Smith Travel Research which is a major U.S based research firm specialized in conducting researches in the lodging industry identified that these three parameters were essential in gaining a competitive advantage. The pricing of the hotel rooms were often calculated as a function of amenities offered to the customers as well as the service levels.
- The second characteristic is hotel segmentation. All the hotels operating in the United States were sub-divided into several segments which included full service hotels. These hotels have outlets for beverages and foods and include other facilities such as meeting, banquet, conventions facilities, restaurants, concierge, room service, luggage service and lounges. The brands in this hotel segment range from luxury hotels; Four Seasons and Ritz-Carlton to upper upscale hotels; Marriott and Hilton to upscale hotels; Radisson and Courtyard by Marriott to mid-scale hotels which offer beverages and foods. The scale category was composed of Ramada Inn and Holiday Inn. The full service branded hotels segment provided 1.6 million hotel rooms. In addition, there is the limited service hotels which, unlike the full service hotels, they primarily focus on renting hotel rooms. The brands under the limited service hotels include mid-scale hotels. These brand neither offers its customers with beverages nor drinks but only hotel rooms. In this category are hotels such as Fairfield Inn and Hampton Inn (Tournois, 2010). The second brand is economy hotels such as Motel and the Red Roof Inn. Cumulatively, the limited service branded hotels accounted for 1.4 million hotel rooms.
- The hotel industry in the U.S recorded an improvement in performance. This characteristic is reflective of the improvements which begun to be noted in the year 2003. The operating statistics showing these improvements are exhibited in the computation of average daily rates, ADR), revenue per available room (RevPAR) and occupancy (Ambler, 2010). The flourishing economy was as a result of the economic shock which led to a decline in the three measures between 2001 and 2002. The hotel segments could now get an average occupancy rate of 61.3% with a daily rate of $86 while the average revenue per available room escalated to $53. In yet another research conducted by the PKF Hospitality Research, it was identified that the hotel industry enjoyed a 7.6% increase in revenue. This lead to a subsequent increase in operating profits by 11.4%. It is projected that the full service branded hotels with higher room rates realized the highest profit margins in the fiscal year 2004. This is a reversal of the trend realized in 2001-2003 when the US hotel industry was hit by a widespread recession which translated into the greatest losses.
- The other characteristic was defined by the guest profiles of the visitors. The statistics released by the American Hotel and Lodgings Association identified that one half of all the visitors to American hotels stayed for business purposes. Most of the users of the hotel rooms were adult males aged between 35 to 54 years old. Most of these clients were employed and serving in managerial positions or as professionals in multinational/global firms where they earned an average annual income approximated at $81,100 (Wreden, 2005). 89% of the guests made reservations and could comfortably pay $96 per room night. The remaining portion of the guest profile was taken up by typical leisure customers earning an approximated average annual income of $71,999. Again, most of the leisure guests made reservations through agencies and could afford to spend $89 per room night. Other statistics conducted in early 2005 identified that 39% of the business travelers spent one night, 24% spent two room nights, and 27% spent three room nights while 10% spent more than 4 nights (Roger & Robert, 2012). Among the leisure travelers category, 45% spent only one night, 28% spent two room nights, 20% spent three nights while 7% spent more than four nights.
The current competitive positioning for Astor Lodges and Suites, Inc.
Given the identification of the major characteristics of the US hotel industry, this sections narrows down into analyzing the competitive position held by Astor Lodges and Suites Inc. The hotel consists of a chain of 250 lodges and suites which are located in the Rocky Mountain States as well as the Western States of the US. Out of these property hotel chains, 200 are Astor Lodges while 50 are Astor Lodges and Suites. Each of these properties can host an average of 120 individuals in the suite units or the individual guest rooms. The company’s revenue projections for the fiscal year 2005 was at $422.6 million (Roger & Robert, 2012). The achievement of the competitive positioning at the Astor Lodge and Suites, Inc. is motivated by the corporate service-mission statement which targets to provide business travelers with comfortable and clean guest accommodation at reasonable prices and in convenient locations. In order to achieve this, the guest rooms are fashioned with a king size bed or a double bed, a data port telephone where customers can make free local calls, cable television and well lit desks. The rooms are also equipped with a hair driers, iron box and an ironing board, a coffee makers and a recliner chair. A comparison of the Astor Lodge and Suites to its key rivals identify that the hotel contains individual guest rooms which also include two-room suites. The individual guest rooms are designed in such a way that they have similar amenities as those contained in Astor Lodges.
The executives at Astor Lodge and Suites, Inc. identify that the company is better positioned in relation to its competitors. It is classified as a limited service hotel which ranges between a full service hotel and an economy hotel. Both the Astor Lodges and Astor Lodge and suites do not offer lounges, meeting rooms, concierge, restaurants, and room service or luggage services. Their selection not to indulge in offering these properties marks their current competitive position as being between economy hotels and mid-scale hotels. In the eyes of the management, this further implies that Astor Lodges and Suites is seen as being positioned against Hampton Inn and Hampton Inn & Suites by Hilton, La Quinta Inn & Suites and Fairfield Inn by Marriott even though it does not merit competing in all the properties offered by full service branded hotels (Roger & Robert, 2012). The competitive position of Astor Lodges & Suites is determined by the physical location of its chain hotels and more so, the decision by the management during site selection. The company prefers locating its properties along major highways consisting of premium sites such as office complexes, suburban industrial, airports, and large regional shopping centers. Areas including downtown locations in urban centers are avoided because such localities are not frequented by the company’s target market who include business travelers.
The current competitive positioning for Astor Lodges and Suites can be analyzed by the help of the Porters five forces analysis. According to Porter, the success of a business in any given industry is dependent on five important factors which include; the suppliers power, buyer power, competitive rivalry, threat of new entry and threat of substitute products or services. In a model which was hypothesized in 1979, it is seconded that the same framework can be used to identify the competitive positioning of Astor Lodges and Suites, Inc. and this will be helpful in enhancing its competitiveness given the fact that the company has been suffering loses for the past four years. This is because the model assesses the competitive strengths and weaknesses inherent in the US hotel industry and by so doing, this could guide the formation of changes in the marketing departments so as to enable the integration between marketing expenditures to corporate financial metrics (Neslin, 2009). The efficiency of the theory in answering this question is supported by the fact that the five forces are helpful in determining the competitive attractiveness and intensity in the hotel industry. By so doing, Astor Lodges and Suites will identify where power lies in given business situations and this will be helpful in our quest to understand the strength of the company’s current competitive position.
Porter’s five forces will also be practical in either supporting or dismissing the company’s decision to integrate the frontier strategy which is focused on attracting more pleasure/leisure travellers to the hotels than the current strategy which has been focused on attracting business travellers. For instance, applying the first force regarding analysing the power of suppliers is important in knowing the agencies to target (Porter, 2008). Statistics regarding the American hotel industry showed that most of the customers made reservations through agencies. As such, the suppliers in the hotel industry is majorly consistent of agents who book up hotels for their clients and make recommendations where necessary. Apparently, Astor Lodges and Suites, Inc. has invested much of its finances in employing national sales representatives who are charged with the responsibility of travelling in the primary markets served by the company and creating awareness among agents so as to increase the brand acceptance of the hotel. This is evident with the increase in the sales budgets for the fiscal 2004 as $4.4 million were used to add two new national sales representatives which some of the cash was used to contract offline and online travel agencies and organizations associated with travels so as to build on the pleasure/leisure travellers business segment.
The buyer power is determined by their willingness and propensity to spend. This is dependent on the available disposable income (Neslin, 2009). The buyer segment is characterized by two major groups of customers which are; business travellers and pleasure/leisure travellers. Whereas business travellers are made up of managers and professional employees who are usually sent on international projects thus they have to spend their nights at a hotel room, leisure travellers are explorers or tourists who visit places just for fun. As a result, it is determinate that business travellers are more willing and ready to spend on accommodation than pleasure/leisure travellers. The only advantage with the pleasure travellers is that they come in pairs and thus they can end up spending more cash on accommodation at a hotel. The mission statement for Astor Lodges and Suites is targeted at focusing on business travellers who currently represents the largest customer segment. Nonetheless, the fiscal plan for the year 2004 aimed at increasing the occupancy of the hotel rooms. According to a plan made by Kelly Elizabeth, Astor Lodges and Suites was to begin making modest emphasis on attracting pleasure/leisure travellers. The argument posted for attracting a new customer segment was that the business travels had become sluggish and the travel industry was facing a go-slow. An increase in marketing campaigns, promotions, and branding of the company was one way of reducing the customers power since it increases demand thus the customers compete on the basis of first served. Additionally, it is noted that the customers visiting hotel lodges and suites have a greater bargaining power and this is one reason why the company offers free nights and trade discounts so as to attract more customers than its customers. The number of customers in the hotel industry are unstable while the switching cost from one hotel to the other is low. The fact that the customers are fewer during off peak seasons translates into their high bargaining power but the trend becomes even during the peak season when hotels can set high prices for the lodges and suites because of the increased demand for rooms.
The competitive rivalry among companies in the hotel industry is dependent on the business segment and classifications of the hotels. There are two major classifications of hotels; limited service and the full service hotels. Astor Lodges and Suites is classified as an intermediate between these two categories. The company can therefore enjoy customers from both segments. This is because it attracts customers from both segments. Those who are afraid of paying the high cost of being accommodated in the full service hotels can find solace at Astor Lodges and Suites while those customers who want better quality services which are much better than the limited service hotels can also be accommodated at Astor Lodges (Roger & Robert, 2012). In the end, the company holds a central position in the competition cycle. As a result, the company has a higher competitive advantage over its rivals in the other two categories. From the research findings, the full service hotels have higher numbers of customers, high revenue margins and high intensity of competition. On the other hand, the limited service hotels which host fewer numbers of customers have low competition, low number of customers and low revenues. The reason for the high pricing in the previous hotel segment is because the full service hotels offer highly differentiated services and products and this reduces the market attractiveness as customers are loyal to one or two hotel lodges and suites. This implies that the competitive position for Astor Lodges and Suites is lucrative as it can be increased through publicity, marketing and promotions so as to attract more customers.
Threat of substitution is high since the customers have the option of either sing full service hotels or the limited service companies. Astor Lodges and Suites is an intermediate company that blends both full service and limited service and this attribute makes it attractive to many customers. The threat of substitution impacts on the current competitive position of the company because the services offered here are standardized. Because of this, Astor Lodges and Suites lacks a stable competitor thus it competes in individual segments in which it is equipped in. Unlike the other companies operating in the hotel industry, the hotel has a lower threat of substitution thus it stands a higher chance of success if it increases its advertisements so as to attract both the pleasure/leisure and business travellers. This argument conforms to the theory posited by Porter when he posits that products or services with close substitutes often faces more risk of substitution as the customers are likely to switch from one alternative to the other when the price of one company increases (Porter, 2008). Such an occurrence is associated with the reduction in the attractiveness of the market as well as the power of suppliers. To this end, Astor Lodges and Suites are better placed to increase their competition in the United States hotel industry since its intermediate segment is a monopoly.
Astor Lodges and Suites is at risk of threats posed by new entrants into the hotel industry. The years after 2004 were marked with an increase in profit margins as the US economy begun to stabilize. The economic crisis that had impacted on the industry between 2001 and 2003 was done away with. The prospects of high profit margins is likely to attract new entrants from both the branded hotel owners to individual hotels and this will erode profitability in the long run (Porter, 2008). The incumbents in the industry do not have strong and durable barriers to trade and additionally, the cost of setting up a hotel business is low thus new companies can crop up. This means that even though the current competitive position for Astor Lodges and Suites is stable, the industry is likely to be faced with a problem if more companies join in the business as such a move will reduce profitability of the industry. In the event that another company decided to operate in the business segment taken by Astor Lodges and Suites then, this hotel segments will no longer be monopolized and this will jeopardize the current marketing strategies being initiated by the various executives at the company.
In order to achieve a properly leveraged competitive position that is more profitable than the current one, the decision making process has to be driven by the need to differentiate its service offer from that of the competitors. Differentiation creates value which might facilitate the growth of the customer segments. It is acknowledged that the company has in the past initiated and created more management positions such as the sales and marketing departments and the advertising department. It has also invested its resources in employing more national sales representatives which is costly. In order to achieve a favourable competitive positioning, Astor Lodges and Suites, Inc. needs to widen its customer segment so as to target both pleasure and business travellers while at the same time changing its marketing strategies so as to embrace the use of technology. This can be done by creating a website for the company so that customers can make online reservations instead of using agents. The company also needs to cut down on the free nights and instead offer discounts so as to encourage customers to stay longer (Roger & Robert, 2012). The best positioning strategy has to be influenced by a comprehensive analysis of the market research which was commissioned to establish the profile for the guest suites. From the research, Astor Lodges and Suites, Inc. will be conversant with their market profiles, their customer segments, competitive analysis and methods of delivering value and this will be helpful towards achieving the sales and marketing goals of the organization.
Characterizing operational and financial performance of Astor lodges & Suites, Inc.
The process of characterizing operational performance is dependent on the occupancy rates, costs per room and prices while that of determining financial performance is enabled by the application of EBITDA which is an initial for Earnings before interest and taxes and direct admin expenses. An analysis of these two parameters creates a link between the expenditures incurred in sales and marketing and other corporate financial metrics. A comprehensive answer to this question is derived by focusing on both the short term and long term impact of sales and marketing activities on value creation at the Astor Lodges and Suites, Inc. Secondly, it is worthwhile making projections on how the variations in cash flow risks can be reduced. The realization of this objective is dependent on the strategies implemented by the sales and marketing department. It is at this point that a link is created between marketing metrics and their financial consequences on revenues and profitability (Roger & Robert, 2012). First of all, company based statistics show that fiscal 2005 marked a period of five consecutive years without realizing any profits at Astor Lodges and Suites, Inc. This is a worrying trend especially to the management and the new CEO who wants to turn things around. A suggestion is therefore made for the company to use growths realizing in earnings before interest, taxes, depreciation and amortization (EBITDA) (Roger & Robert, 2012). This type of growth was more precise when used as a measure for corporate performance as well as determining of incentives to be issued to executives and senior management as compensation. The objective for the company was therefore shifted towards the need to attain an annual growth of 7% EBITDA for the following two consecutive years.
According to the illustration given in the case study, Astor Lodges and Suites, Inc. have previously applied the DuPont Model when managing their profitability. The DuPont model is a traditional tool that measures the performance of a company (Neslin, 2009). Even though the model gives an elaborate framework for linking sales and marketing activities to the financial performance of the firm, marketers at the company have in the past ignored its consequences. As a result, the company has incurred a lot of expenses on rewarding sales persons based on their volume of work and revenue metrics rather than seeking for ways to cut down on the cumulative expenses. In the long run, the national sales representatives deliver high revenues but fail to factor in the need for cash flows. This argument posits that that could have been the reason why Astor Lodges decided to issue free nights as an incentive to attract more customers but disregarded the need to improve its cash flows by capitalizing on customers who stayed for more nights (Neslin, 2009). In the end, the financial reports show that there was maximization of hotel room use but the free nights failed to generate the much desired cash flows for the firm. At the end of the fiscal year, a mismatch is created between accounts receivables and accounts payable thus generating a loss. In the event that the sales and marketing department failed to cut down on its expenditures then the company will continuously make loses since its expenses will be much higher than the revenues generated. This is because the statistics show that the company is characterized with attracting more customers and producing sales than meeting the key financial objective of maximizing profitability margins.
It is therefore the duty of the CEO to ensure that the marketing department does not focus on growing the shares for growth and marketing without reflecting on its impact on the financial performance of the firm. In characterizing the impact of current operational performance at Astor Lodges and Suites, the factors of occupancy rates, prices and cost per room are looked at from a critical perspective. These are the operations that need to be adjusted when a firm needs to increase its corporate finances. For instance, an increase in occupancy rate triggered by aggressive sales and marketing activities is likely to increase the income and revenues collected by the firm. This is only possible if free night offers are not overly utilized as it will translate it expenses. In fact, issuing customers with free nights is an unprofitable way of rewarding loyal customers because assuming that a customer is issued with the offer during a peak season, then the company loses the space that it could have used to accommodate a customer who will pay all the full amount. Therefore it is not guaranteed that an increase in occupancy rate will result into an increase in profitability (Cullen & Parboteeach, 2009). Occupancy rates is calculated as the number of room-nights sold divided by the total available rooms available the result of which is multiplied by 100 as summarized in the formulae below:
- Occupancy rate = [(number of room-nights sold/the total available rooms available) *100]
The second operational performance indicator is the pricing of the rooms. Generally, the pricing of services at the hotels is supposed to be competitive. The prices have to be standard and since Astor Lodges and Suites, Inc. prides in offering affordable accommodation, then the prices are likely stick close to the industrial average. This implies that the range of prices per room for this company have to be between the prices charged by the full service hotels and those charged by the limited service hotels. By so doing, the customers will be enticed into using the hotel regardless of other incentives such as free night offers. The price per room equals to the average daily rate which is calculated by dividing the total lodging revenue by the number of room-nights sold as summarized in the formulae.
- Price/average daily rate = Total lodging revenue/ number of room-nights sold
- Revenue per available room = occupancy * average daily rate
The cost per room is incurred by the company and it is a representation of the function of overhead costs incurred in sales and marketing divided by the total number of rooms. According to the DuPont model, the cost per room is supposed to cater for the expenses incurred in conducting sales and marketing activities. For a company to realize a break even, the direct costs, indirect costs, fixed and variable costs have to balance with the revenues collected from the sale of room-nights. These three operational performance indicators are the most important in the hotel industry. The management has to make sure that they balance with the financial performance of the firm. Financial performance is often determined by the formation of speculative budgets which serve as targets which have to be achieved by the firm (Bronder & Pritzi, 2012). For instance, Astor Lodges and Suites has been performing dismally for the past five years and that becomes the main reason why the firm has to restructure its sales and marketing strategies so as to increase profit while maintaining revenues and expenses. Actually, the strategy being applied by the company is not a cost-cutting strategy but rather a strategy to maximize on the returns from the available hotel rooms by increasing the earnings received by the company before deductions such as interests, taxes, depreciation and amortizations are made.
It is natural that companies in the hotel industry will take any precaution so as to ensure that they strike a balance between sales and marketing expenditures and corporate financial metrics. The process of linking these two functions begins with formulating short term and long term performance goods, expected growth and risks. These components are equated to the rise in the value of the shareholder. This has to be done in such a way that the costs are managed so as to enhance the cash cows which in the long run leads to management of profitability. The other financial metrics apart from managing profitability is managing growth while simultaneously reducing the volatility and vulnerability of cash flows in what is referred to as risk management. Marketing productivity can be ascertained by the use of a chain-of effects framework so as to understand how sales and marketing expenditures interconnects to corporate financial metrics identified (Brodie, Mark & Van-Durme, 2012). Virtually, the relationship is depicted in figure 1, as shown in the appendix. The chain effect begins with the formulation of SMART marketing strategies. More preferably the marketing actions for Astor Lodges and Suites, Inc. have to be tactical such as use of online promotions and advertisements so as to reduce on expenditures or the company could focus on attracting the pleasure/leisure traveller’s customer segment. The tactical actions by the department managers then influence the inauguration of customer cantered elements such as satisfaction. The customer element then impacts on both the marketing assets and the market shares of the company. This is bound to influence the competitive position of the company in the hotel industry. As a result, financial measures such as Return on Investments incurred in sales and marketing expenditures are guaranteed and this impacts on the financial position of the firm by increasing profit margins. The culminate effect is therefore made visible on the firms value as market capitalization. At this point, it is made evident that marketing metrics have an impact on the long term value of established financial measures.
Portraying and assessing sales and marketing initiatives, expenditures, and outcomes for fiscal 2004 and 2005
The outcomes for fiscal 2004 and 2005 are identified as follows beginning with fiscal 2004 where Astor Lodges and Suites, Inc. realized the following results:
The budget company revenues = $11,360,000
Revenue allocated towards media advertising = 2.7% of the total budget revenue
Expenditure for pleasure/vacation travelers = (28% of the revenue for media advert)
Expenditure for business travelers = (72% of the revenue for media advert)
Sales budget = $4.4 million incurred in adding two national sales reps, compensation and travel costs
Fiscal 2005 plan and budget included:
Media advertising = $12,500,000
Media expenditures = 10% increase arising from the frontier advertising
Expenditure for pleasure/vacation travelers = (35% of the revenue for media advert)
Expenditure for business travelers = (65% of the revenue for media advert)
Cost of two additional sales rep = $135,000
Sales budget = $4.7million
Projected occupancy rate = 7.9% higher than previous year
A statement made by the sales and marketing manager shows that the company made an improvement in its revenues as the recorded revenue growth was 6.2% more than the 5.8% growth reported in fiscal 2004. This increase and growth in revenue was realized in spite of the closure of one property owned by the company. The average daily rate per room/suite decreased. The growth in revenues resulted from an increase in occupancy realized by widening the customer segment to cover both business travelers and vacation travelers. In a comprehensive analysis pegged on the comparison of the sales and marketing initiatives between fiscal 2004 and 2005, it is noticeable that Astor Lodges and Suites, Inc. lacks a clear goal on how to create a balance between revenues and profitability. In fact, the company could do much better if it managed its budgets on sales and marketing rather than allocate more cash on marketing while simultaneously leading to an increase in the costs (Cullen & Parboteeach, 2009). In the end, the costs eat into the realized profit margins leaving the company with a loss rather than profit. From the portrayal of the figures as identified by the financial breakdown, it is made clear that Astor Lodges and Suites, Inc. have in the past disregarded the need to create a link between expenditures incurred on sales and marketing and the revenues realized from increasing the number of customers. In spite of the losses that were realized during that fiscal year, it is still arguable that the sales and marketing activities does not guarantee overnight results. It is argued that it is a continuous project that could take much time but in the long run, if it creates the desired brand image and educates the consumers on why they need to spend more nights at the Astor Lodges and Suites, Inc. then it becomes worthwhile to note that fiscal 2006 is a promising year given the change in management, marketing strategies and the management structure (Ailawadi, Donald & Scott, 2003). For instance, a departure from previous practices including the planning process which was carried out by the chief financial officer with the help of the chief accounting officer and vice president. The bottom-up management strategy will also be helpful in collecting the views from the employees and they will be helpful in minimizing expenditures.
Kelly Elizabeth’s proposal in her fiscal 2006 sales and marketing plan and budget
According to her past working profile of 17 years’ experience in sales and marketing, Kelly Elizabeth stands out as a seasoned manager who joined Astor Lodges and Suites, Inc. at a time when the company was undergoing loses. She holds the post of a vice president of sales and marketing and her responsibilities include; marketing and sales. The proposal by Kelly has to entail a detailed plan on how a modest emphasis will be made so as to diversify the service offer and attract both the business travelers and pleasure/leisure travelers alike. This suggestion is made after realizing that the travel industry at times experiences sluggishness especially during terror attacks among other insecurities or disease outbreaks that could lead to cancellation of flights. The implementation of this proposal has to come with a change in the company’s mission statement so that it includes a tagline that generalizes the service offer at Astor Lodges & Suites, Inc. such as “The Place to stay on the Way”. The change has to be accompanied by extensive advertisements showing customers having memorable moments as they enjoy the hotels amenities. Even through the plan comes with an increase in media advertising budget, it will become a cash cow in the near future as less marketing will be needed after the rebranding process is completed. It is projected that this activities will take up 2% of the total revenues collected from the lodges and this is practical in the given case scenario. The physical coverage of the advertisements will have to be restrained within the Western and Rocky Mountain states because that is where the hotels are concentrated.
The second aspect is the investment in internet communication. This proposal is supported by the realization that most of the customers visiting the hotels in America have internet access as they use it to plan their trips. The internet has facilitated the process of making reservations and thus this proposal and addition to the media mix is crucial in achieving the overall goal of increasing revenue (Bartlett & Ghoshal, 2013). This summarizes the objectives of Kelly during the fiscal 2006 into overseeing that the previous year’s budget was reached and that the budget is reduced. This can be broken down into increasing occupancy in the suites and the guest rooms. Attracting more guests both the first-time and recurrent guests, and lastly, Kelly has to focus on increasing the length of visits made by the customers. This has to be done tactically so that the company abolishes free night stays for discounted night stays. Fourth, the need to broaden the market to include areas such as Oklahoma and Texas through the frontier strategy.
References
Ailawadi, K., Donald, L. & Scott, N. (2003). “Revenue Premium as an Outcome Measure of Brand Equity.” Journal of Marketing, 67 (2), 1-17
Ambler, T. (2010). Marketing and the Bottom Line. London, U.K.: Financial Times Prentice Hall.
Bartlett, C. & Ghoshal, S. (2013). Executive Excellence. Strategic Management Journal, 19 (1), pp. 7-8.
Brodie, R., Mark, G. & Van-Durme, J. (2012). “Towards a Theory of Marketplace Equity: Integrating Branding and Relationship Thinking with Financial Thinking.” Marketing Theory Journal, 2 (1), 5-28.
Bronder, C. & Pritzi, R. (2012). Developing Strategic Alliances: A Conceptual Framework for Successful Co-operation. European Management Journal, 10 (4), pp. 412-421.
Cullen, J. B., & Parboteeach, K.P. (2009). Multinational Management: A Strategy Approach. (3rd Ed.). Australia: Thomson South-Western.
Neslin, S. A. (2009). Sales Promotion. Cambridge, MA: Marketing Science Institute.
Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Harvard business Review, January 2008.
Roger, A. K. & Robert, A. (2012). Strategic Marketing Problems: Cases and Comments: Always learning. New York: Pearson Press.
Tournois, L. (2010). Creating customer value: Bridging theory and practice. Marketing Management Journal. 14 (2), pp. 13-23.
Wreden, N. (2005). Profit brand: how to increase the profitability, accountability and sustainability of brands. London: Kogan Page Limited.
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Appendix
Figure 1: The Chain of Marketing Productivity (Rust et al, 2004)
Part B: Competitive Strategy
A study of the Australian Hotel industry
The hotel industry in Australia plays a pivotal role to the Australian economy. It not only provides a source of employment to more than 271,000 people but also, the hotels are significant in promoting trading activities. This is because other businesses trade with the hotels. Third, the hotels provide host to thousands of tourists visiting Australia for vacations. As a result, the industry is supportive towards local sporting activities and community operations in their immediate neighborhoods as they provide valuable services, entertainment, accommodation and meeting places. The statistics for fiscal 2009 identified that 12% of the hotels in Australia were affiliated to multinational chains of hotels. The employment rates among most hotels made attempts to stick to an average number of 34.7 employees. Among the expenditures in this market is that the hotels spend an annual figure summing to $515.6million each year on security while they use a total of $75 million annually in conducting corporate social responsibilities. More than $70 million is spent on staff development and training while wages and salaries take up 21.9% of the total expenses incurred by the hotels. In the year 2010, the Australian Hotels Association through a research conducted by Price Water-House Coopers (PWC) identified that the average rate of occupancy among Australian hotels was computed to be at 72.7% while the average rate for a room was $147.65 (Hitt & Robert, 2009). A primary research and report made by the IBIS World Hotel and Resorts provided an insight into the revenues and demand for hotel services in the Australian economy in the fiscal 2013. Apparently, the report shows that most of the revenue growth and increase in demand among hotels is as a result of international business people and travellers on vacation.
This report matches the earlier statistics reflected in the American economy showing that the hotel rooms mostly have a consistent stream of business travellers while the pleasure/vacation travellers are seasonal depending on the festivities. For instance, during the summer holidays, most of the hotels receive tourists as they are on vacation and can easily board hotel rooms for families and couples (Kim & Mauborgne, 2014). The IBIS World’s Hotels and Resorts research report further showed that the key focus for the in-depth hotel industry research was to analyse key industry statistics such as the industry trends, market size, growth and profitability margins forecasted over an outlook period of five years. It is then using these statistical data that an analysis will be made before a recommendation is made on whether Astor Lodges and Suites, Inc. can make a profitable venture into the Australian hotel industry and markets. The scope of the research was limited towards covering resorts and hotels that have more than 15 rooms. In this sense, resorts and hotels encompassed any business establishment that was legally licenced into operating a public bar or providing accommodation in the suites or rooms, with a shower/bath among other facilities in made available to the customers using the guest rooms. The report further acknowledged that most Australian hotels do not offer cooking facilities to the customers since they run hotels and eateries at their restaurants but instead they provide the customers with coffee makers and tea making machines for purposes of convenience and comfort.
Australian Hotel Industry Analysis and Industry Trends
Currently, Australian hotels and resorts have emerged from the widespread global financial crisis that had completely paralysed the sector. It is during the crisis that revenues had stagnated since the demand for hotel rooms and services had weakened. Both the corporate segments and tourist segments of the market were affected. The hotel industry has also been facing adverse competition from a new and quickly emerging sector known as the serviced apartments sector. This sector provides a form of accommodation which has been specifically attractive to the corporate segment which is the most lucrative. Recapping the years during and after the financial crisis shows that the revenues collected by Australian hotels declined by margins of 8.3% in fiscal 2008 and 3.2% in fiscal 2009. The crisis mostly impacted on the business confidence but was later on rebound by the resurgence of tourism in the country. Inbound tourists replaced the lucrative corporate travellers and as a result, the annual projections for industrial growth in the hotel industry has been projected to increase by margins of 4.1%. The demand for travel and accommodation grew by a percentage of 5 in the year 2013 since the Australian government enacted policies to promote domestic tourism (White, 2009). The number of Australian holidaymakers increased as most of the local residents chose to spend their holiday domestically. The discouragement of outbound tourism was an influential factor in the resurgence of the industry since it was important in increasing the country’s GDP since the rate Australian dollar was depreciating. Accordingly the number of consumers who would have preferred staying at a relative’s home in 2012 reduced as people increasingly begun to appreciate staying in hotels and resorts and this put much pressure on the demand for accommodation in hotels.
Prospects are rife that with the rise in the inbound tourism among other domestic travels, the hotel and resort industry is likely to flourish much more in the near future. This trend is supposed to be realized within a forecasted period running into the 2020. This assumption will be realized if the economy is not affected with major economic meltdowns or increase in inflation rates. Travel accommodation is also likely to grow with a CAGR value of 4% and this is likely to remain at a constant for the next five years (White, 2009). Coupled with the expected increase in demand for hotels in Australia, some budget hotels are making plans on increasing expanding their accommodation capabilities so as to gain more occupancy rates. Among the hotels marked for expansion include the Tune Hotels, Ibis Budget and the Holiday Inn Express. It is speculated that these expansions will not match up to the expected growth since there will be an increase in the need for private accommodation.
There is no definite figure showing the number of hotels in Australia because of the differences in the characteristics observed in these hotels. By the end of the year 2008, Australia had a total of 3,454 hotel businesses which is a drop from 4,252 in 2007 before the financial crisis. It was estimated that the hotel industry made a collective revenue of $11.1 billion in 2013. While the number of hotels has increased to 4,017 which increases the revenue projections made for 2014 to estimates of $14.4 billion. These hotels are concentrated in towns such as New South Wales, Queensland, Victoria and Tasmania. The most traded products across the hotel and resort industry in Australia is dependent on the rating of the hotel. There are hotels that offer gaming facilities, clubs and bars. In spite of the differences, the most dominant factors observed when rating the products and services offered is the quality of the rooms, the services and the facilities available for use by the clients. The ranking of the hotels, unlike in the United States where they are graded based on two classifications; full service or limited service, the Australian industry grade the hotel based on star rankings. The five star hotels and resorts have high room rates and they endeavour in providing a full day (24hour) reception and room service, quality furniture, on-site facilities and quality fittings in each of the rooms. The four star hotels are a replica of the five star hotels with a lower room rate. The ratings are made by the Star Ratings Australia which works as a division of the larger Australian Monitoring Services consistent of RACV, NRMA, RAASA, RACQ, RACT and RACWA (Ohannessian, 2011). The classification is purely dependent on the facilities and the standards of the services provided at these resorts and hotels. Most of the rooms are in the high-end classification majorly composed of four star and five star hotels. Because of these statistics supported by the evidence presented by PWC and IBIS World reports, it becomes evident that the Australian hotel industry is in its mature growth phase of the industry life cycle.
Maturity growth phase of the hotel industry life cycle
Industries just like human beings grow. They begin their life cycle by invention of an idea which is termed as birth, they grow, mature and eventually decline and die. All industries go through these stages of growth but their experiences are different as the industries and products move from one stage to the next. The distinct stages for industry life cycle are classified into; introduction, growth, maturity and decline. The sales begin growing slowly from the introduction stage, then they take off rapidly in the growth phase. They enter maturity where sales begin to be gradual and finally the decline phase. The profits realized by the companies operating in this industry also increases as they enjoy economies of scale which enables them to reduce on the costs of production. An industry that is approaching maturity has a life cycle that curves and becomes flatter (Ohannessian, 2011). This is an indicator that the growth of the industry is slowing down. This is a stage where sales are increasing and companies are earning more from cash cow products and services. The hotel industry in Australia is an intermediary between the growth phase and maturity. This means that the industry is fast paced towards maturity yet it still has both characteristics that are exhibited by industries that are still growing towards maturity. For instance, the industry has shown the following signs which are common among industries in their growth phase. The growth stage demands that the companies operating in them have to invest significant amounts of capital so as to create core values and in return gain competitive advantage. Most of the financial input goes towards marketing so as to inform the customers on the uniqueness of the services offered by a given hotel and this differentiates it from the others in the industry. The growth stage therefore demands that companies invest more funds in launching strategic sales and marketing campaigns as well as investing in the development of their properties so as to provide quality services. Such a move could entail rebranding the hotels, changing the furnishings and fitting while adding newer equipment or technologies that will save on costs while increasing the amiability of the hotels as well as the business premises.
This scenario is imperative of the hotel industry in the United States which is more focused on investing in sales and marketing, employing new national sales representatives, creating sales and marketing departments and improving the quality of services. On the other hand, the Australian hotel and resorts industry is in a transition phase between growth and maturity. This is because the first mover companies set the pace for all the other companies thus speeding the rate of growth towards the maturity phase as it will be discussed in this section of the paper. The need to invest more funds at this phase is to differentiate the services so as to standard out from the competitors who begin to standardize their products and services as the level of competition and marketing intensifies. It is also noted that standardization of services at this phase could lead to the creation of economies of scale and this will facilitate the development of a layout that will promote the attainment of production efficiency. Some of the funds demanded at this stage goes towards allotments for research and development which is mandatory to make changes to the products so as to match up to the expectations of the customers. The R&D processes usually aim at finding and assessing suggestions made by the customers. A firm that succeeds in doing all these gains a growth advantage as the demand for its products increase and sales grow (Zook, 2004). The revenues also increase while the costs might either stagnate or increase because of the high investment costs made through the research and development department as well as the sales and marketing department. The assets for the company also increase while the earning grow and the company benefits by increasing profit margins as its cash flows improve. Marketers refer to this growth stage as being classified under stars since the products and services at this phase have high market share and growth. Market rivalry is at its pick which infers that companies can develop and use the blue ocean strategy at this point. More new entrants join the industry as it reaches the peak and the competition gets even more intense. On the other hand, the customers for these products and services increase as the sales and marketing bids increase. There is a wide acceptance of services and products at this stage as the customers change their preferences and begin to try out new products that are marketed and promoted by the industry. This is the same case scenario exhibited by the hotel industry in the US. The Australian hotel and resort industry is also at this phase but since it is at an intermediate stage between growth and maturity, these factors are balanced and neutralized by the factors identical to the maturity stage. The growth stage for the hotel industry is very long since the services provided in this the different sectors of the economy are basic. The industry cannot die since people will look for accommodation whenever they are travelling for business or leisure. It is very different from technology industry where these stages are rapid and spontaneous. The computer industry has had long growth stage because of the continuous upgrades to its hardware and software, services, product features and adds-on. The curve representing the life cycle for the hotel industries in both US and Australia are represented by shallow curves which infer to the slow growth rates.
A more concentrated application of the industry life cycle theories into the immediate context presented by the hotel industry in Australia shows that the industry is faced by competition from late entrants who have taken away some of the market shares from the incumbents. It is advisable that firms operating in an industry that is at maturity have to remain vigil and ensure that they embrace differentiation while improving on their quality so as to avoid losing their market segments to the new entrants. Apparently, this is a phase that is dominated by firms that have survived competition in the previous phases hence they have adopted to the industry and this has made them larger, financially stable and dominant (Zook, 2004). This stage might have innovations but not as powerful as those experienced in the introduction and growth stages. The increase in innovation means that the firms are focusing on competing against each other and pulling the market share for the industry to their side rather than trying to capture newer market segments. At this point, the firms that end up winning the intensive competition are those leveraged using cost leadership strategies. The hotel industry in Australia is likely to experience a much longer maturity phase as the nature of the market is dynamic and so are the companies operating in it.
What is the blue ocean strategy approach?
A blue ocean is defined as an untapped market segment which creates demand and with the demand, a company curves out a niche which becomes a competitive advantage and increases profitability. Blue oceans mostly emerge from red oceans which is connotes companies that compete each other aggressively as they try to outperform each other so as to gain a much bigger market share in an already existing market. Red oceans result into crowding of the market spaces which then reduces prospects for a company’s growth and profits. The products and services traded in such an industry become commodities since the cut throat competition between these companies turns the ocean ‘market segment’ bloody red. In contrast, blue oceans are created at the verge of intensive competition. The blue oceans emerge from red oceans when innovative companies decide to expand the boundaries of the industry thus making competition irrelevant to them. Imitators arise in the process but since they do not have the required skills and expertise, there is a low window of opportunity for them to stay ahead of companies in the blue ocean. The essence of these two strategies is contrasted sharply by the need to separate losers and winners and thus the blue ocean is created. The companies in the blue ocean are devoid of competition thus they do not use it as benchmark but rather set their own goals and targets. Instead, they create their own path that is driven by the strategic logic of research, development and innovations. Such companies leap away from competition and focus on creating value for both the customers and the buyers thus they dedicate their time and resources towards discovering uncontested markets segments by being innovative (Zook, 2004). The blue ocean strategy appreciates that great innovations can be created using the existent ideas within competitive industries. Such ideas utilize and transform the core values of the firm. The implementation of the strategy is not always about making intensive capital investment into innovations through research and development but changing the mind-set of the customers in which they are made to perceive the organization is a different and more loyal way. This changes the attitude of the customers and creates high levels of loyalty.
The problem identified in traditional approach to strategy as compared to the blue ocean strategy
The proponents for the blue ocean strategy have shown that this theory can be applied better than the traditional strategies. This is because the traditional strategies are centred on surviving competition by creating competitive strategies. Alternatively, they can be classified as the red oceans as they encourage companies to lock head-to-head as they compete in a continuous and costly affair as they seek to maximize on their profits by differentiating their products, creating competitive advantages and increasing their market share. Contrasted against the Red Ocean/traditional strategies, the blue ocean strategy prioritizes value innovation. Value innovation is defined as the simultaneous process designed to enhance the pursuit for differentiation and low cost production (Kim & Mauborgne, 2005). The strategy is systematic and fully sequenced thus it enables organizations to find breakthrough growth that breaks them free from competitors. This is only possible by redefining market boundaries that put customers into the centre of strategic thinking rather than aiming at fighting competitors. The blue ocean strategy is abbreviated as BOS strategy and it defines tools and frameworks that can be used to design, develop and build on the tactics used for strategy management. The top most advantage realized from the BOS framework is that it provides a strategic methodology which integrates change management and strategy formulation to the advantage of an organization.
History of the BOS strategy
This strategy arose from a study conducted by Renee Mauborgne and Professor W. Chan Kim between the years 1880 and 2000 (Kim & Mauborgne, 2005). The research encompassed 30 industries where 150 strategic moves were analysed. This research formed the basis for the publication of the best seller book titled ‘Blue Ocean Strategy’.
Developing and justifying an alternative viable blue ocean strategy approach(s) for Astor Lodges if it were to set up business in Australia
It is unprecedented that the road to creating a viable blue ocean strategy begins with value innovation. This concept forms the cornerstone for developing and justifying an alternative viable blue ocean strategic approach for Astor Lodges and Suites, Inc. The stipulated strategies, would be more so applicable if Astor had to set up its business operations in the Australian market. Apparently, the winning companies in any industry have to develop a unique strategy to approach a new market since those that follow conventional approaches often end up in the red ocean. As a result, they continuously race to build on their defensive position because of the increasing competition and other market pressures (Zook, 2004). The uniqueness in the concept of value innovation is that it equally emphasizes on innovations as a way of creating or adding value to the services offered by the key players in the hotel and resort industry in Australia. The process of developing these strategies begins by asking the question; are there hotels using the Blue Ocean Strategy in their search for uncontested market segments? If so, how do these hotels achieve integrating these strategies into their current organizational policies and business structure? The answers to these questions are embedded in the analysis of the Starwood Hotels and Resorts which has been actively using BOC strategies for the past three years. The company is an example of a pace setter in the industry as the management has decided to undertake a step by step approach towards implementing the theories and the concepts of strategy formation. The company is currently focuses on finding blue lakes and rivers before it submerges itself deeper into the blue ocean. This is because the decision to fully embrace the blue ocean strategy is likely to change the grand plan which means that the organization might have to change its mission and vision statement. The Starwood Hotel and resort decided to use the strategy because they were finding it hard to survive the intense competition while at the same time, the company was being faced with the problem of forming strategies that would increase its performance and profitability.
The integration of the blue ocean strategy begun as a trial and error into creating opportunities. As a result, the company had to train its employees on the blue ocean strategy and how effectively these strategy can be used to focus on customers (Zaheer, & Venkatraman, 2005). The employees were then given three months to try out applying the strategic methodologies learnt. The trial projects were then forwarded to the senior operating officer after which the winning projects were tried out in the hotel and resort’s chains in Malta and Italy. The company realized success and then decided to fully implement BOC in its other chains of hotels and resorts. The pilot project involved conducting market research on non-customers and other people who had not used the Starwood chains of hotel and resorts. It was identified that families prioritized their children when on leisure vacations and thus the company had to develop promotional offers that would attract families based on the preferences made by the children while less consideration was given to the parents. The senior operating officer further directed a second project in which non-customers were the focus for the research. The project is underway but the results collected from the first project has been implemented in most of its chain hotels and resorts. For example, the Starwood Westin Resort has created a ‘heavenly bed’ scheme. The scheme begun after a suggestion by the non-customer market segment which stated that the hotel and resort beds had little or no innovations. A research then ensued where it was identified that the firm could create a blue ocean by replacing its beds so as to create an opportunity for Starwood. The need to enhance the sleep experience of the customers motivated the need to replace the normal beds with heavenly beds so as to attract the non-customer segment into trying out hotels when they are on vacations.
It has been decreed that the project could be expensive in the short run but given the reality that beds are a durable and could be used for many years to come with little renovations and change of bedding and mattresses, then the project is estimated to be both logically, operationally and financially viable. The estimated cost for revamping the sleeping experience of the customers is projected to take half a million dollars but the benefits will surpass the current revenues and profit margins enjoyed by the chains of hotels and resorts. Beginning with the change in the sleeping experience to attract non-customers, the blue ocean strategy concept is quickly being spread to other departments as they are coming up with ideas that will create value for the firm and the customers (Ohannessian, 2011). According to the management, the reasoning behind the use of the blue ocean strategy is not to create novel, innovative and big ideas but to change the thought process of the non-customers into trying out using accommodation at hotels and resorts. The management at Starwood Hotels and Resort alludes that they have several projects which are at different stages of implementation. From this example and following the advice given by the senior manager heading the program at Starwood, then the first process towards developing and justifying an alternative viable blue ocean strategy approach(s) for Astor Lodges if it were to set up business in Australia, is to begin by training the senior managers and vice presidents on how blue ocean strategy ideas can be formulated. The manager further emphasizes on the need for persistence and patience when applying the blue ocean strategy.
The most suitable and viable blue ocean strategies for Astor in the event that it decided to penetrate and enter the Australian market is to first analyse the traditional characteristics of the hotel industry in Australia. These will form a basis for understanding the trend of changes upon which Astor Lodges and Suites, Inc. will form solid strategies that support value creation for both the customer and the organization.
- Offering diverse services that attract more non-customers than customers. The fact that the serviced apartment industry is beginning to boom in Australia should act as a hint on what the customers desire. Serviced apartments are furnished apartments which can be leased over a short period of time or for a long period of time depending on the agree period of rent. These apartments are fashioned with amenities that are important for daily use. Among the furnishings in serviced apartments include; cooking utensils and other soft furnishings that can be used by the tenants instead of bringing their own. The rents charged include cleaning services and they are in most cases cheaper than the renting normal hotel rooms especially for group travellers or families who intend to stay for a longer period of time. More people are switching their preferences towards serviced apartments especially in Australia. Among the benefits for service apartments to the customers is the convenience of travelling and living with the family, personal space and privacy (Denove & Power, 2007). The customers also save by cooking their own meals in the serviced apartments. In order to initiate the blue ocean strategy approach at Astor Lodges and Suites as it sets up its base in Australia, the company will have to redesign their hotels so that they provide a holistic design that will include both the rental hotel rooms and serviced apartments. This idea can be implemented by the use of extended stay hotel ideas where special rooms can be allocated as apartments where customers can receive a 24 hour reception within a hotel setting.
The standards of these extended stay hotel rooms have to be well furnished to suit the standard taste of customers. This means that the serviced apartment model will still retain the balance created by Astor Lodges and Suites, Inc. back in the US. As much as the hotel will still fall between full serviced and limited service hotels, they will be more preferable to customers who find the strategic location of Astor hotels to be convenient for family or corporate travels. The provision of extra amenities such as a living area, kitchen, separate bathrooms and sleeping area will be an incentive to customers wanting to stay for long. This blue ocean strategy will create a lasting impression in the customers while at the same time saving congestion in the rented hotel rooms which could accommodate single corporate travellers or pleasure/leisure travellers seeking for accommodation for a short period of time. This blue ocean strategy will further include few units for corporate housing to accommodate group business travellers. The differentiation of the offers made to customers will exclude some customers from incurring extra costs of paying for corporate amenities such as telephone charges as the corporate travellers tend to communicate more (White, 2009). They will also be charged utility costs, and local taxes. The bottom line for implementing this strategy is that it adds value to both the customers and the company because the company will be able to collect more revenues while creating a lasting attitude in the customers who will fall in love with the convenience of accommodating their families during vacations.
- The second blue ocean strategy is to embrace technology both in reservation of the hotel rooms, inquiries, customer service and advertisements. This recommendation is in line with the six principles of formulating blue ocean strategies since it reconstructs market boundaries by reducing search risks (search risk) (Porter, 2009). The current market boundaries are influenced by intermediaries who stand in as accommodation agencies. These agencies are more pronounced in the US hotel industry than in Australia. They tend to influence the choice made by the customers to use certain hotels and resorts. In return, the agencies will get commissions for every customer directed to a given hotel. This means that the agencies have an impact on the decisions made by the customers. The economic concept of issuing commission to intermediaries cuts on the profit margins as it increases costs. This trend has affected the hotel and industry for a long period of time and implementing strategies to eliminate agencies could be beneficial in reducing costs of accommodation thus widening the market boundaries. The second principles that will be attained by the decision to embrace more technology if Astor Lodges and Suites were to enter the Australian market is driven by the principle encouraging firms to focus on the bigger picture and not on the numbers (planning risk). The implementation of technology will improve on the image of the firm. In fact, customers will appreciate it when they are charged cheaply and can easily access the hotels website, make inquiries, complains and reservations rather than go through intermediaries which risks their money.
Interaction with the customer increases their value because the firm can identify what they want and see if they can improve their services to cater for special need customers. On the other hand, the company will manage costs and improve its bigger picture by creating a strong brand with loyal customers. The third principle that guided the recommendation of this strategy is the need to reach beyond the existing market demand (scale risk). Using technology to market and conduct sales promotions is a part of the technology blue ocean strategy. A research by the MMGY Global/Harrison Group 2012, projected that the challenges that were being faced by potential customer due to the economic climate has been revived by the growth of a powerful motivation among people to travel (Tellis & Golder, 2012). More businesses are enlarging their scope to international markets and this presents an opportunity for Astor Lodges and Suites to go beyond normal industrial practices and motivate people into travelling. The company’s website can be used to promote tourist sites and businesses in Australia so as to attract customers beyond the existing market. The fourth principle that is likely to influence the application of the blue ocean strategy is the desire to understand the strategic sequence (business model risk) (Abraham, 2008). This endeavour will reduce business model risks where Astor will have to cut down on its employees in Australia especially in the management positions. By so doing, more revenues will be collected while costs will be reduced and this will increase the company’s profit margins. The fifth principle will be countered by the desire to overcome past organizational hurdles that were faced by use of analogue technologies (reduce organizational risks). There is much more efficiency that can be realized from the use of technology in decision making. Software programs such as SPSS can be used to churn out precise market reports on the developments in the industry and this will help the organization save lots of money it could have used to conduct physical researches in the Australian market. A culmination of these recommendation is strengthened by the sixth principles curbing management risks. Technology is likely to impact on costs and the delivery of efficient services that will improve value creation.
References
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