The course project provide me an opportunity to define a decision problem that focus on how to better position and market a new develop hotel product offerings into a matured competitive market. The problem emanates from the action of the stakeholders that revokes a signed contract with Royale Regale Properties a consulting group supposed to manage the hotel for ten years and decide moving into franchise with Marriot Hotels. The revocation came amidst the consulting group preparation to host the city festival in launching the hotel products into the competitive market.
To justify stakeholder’s decision, the senior management applies a systematic decision making process of properly defining the problem, clarify objectives, identify alternatives, understanding consequences and constraints. In evaluating the alternatives with concern on costs as cause of revocation, develop three objectives to select the best solution. The objectives focus on operating costs, advertising costs, contract fees and marketing strength becoming twice as important as other objectives. The options focus on management capabilities thus decide on management by contract, moving into franchise, going into partnership with a chain operator or independently manage the hotel by its owners.
The management selects the best option, management by contract, considers consequences dealing with uncertainties, applies the company risk attitude, implements the solution, monitors and plan ahead of decisions linked over time. The senior management decides consulting group hosting the city festival will be a better way to position and market the hotel product offerings, seeks to meet the stakeholders for approval to proceed with proper implementation to assess the effectiveness of the decision.
Introduction – Overview of Decision Problem
This project centers on how to launch Royale Resort Hotels with its new recreational facilities and opulence service into a mature competitive market. The company’s product is the state of art amenities and excellent services to satisfy the leisure and business travelers. The market have the hotel competing with other well-established rivals in the fast changing market place but intend to position itself with its unique features and quality service to differentiate and leverage its competitive edge. The newly developed hotel is centrally located in Stockton city, CA. and ready to be launch into the market in a grand style by hosting the city’s yearly festival slated for July 4, 2013. The hotel is on contract to Regal Properties Group to lead the management team along other hotels managed by the group. Regale Properties has a record of accomplishment of managing hotel chains, based on their experiences is ready to launch the hotel products by officially hosting the festival as a good marketing strategy.
The group resumes its contract six months prior to the grand opening with its management team trained and ready to take off as official sponsor and host of the city festival. Preparations are in top gear with all hotel rooms booked, advertisement and publicity in place, invitations send out to special guests while mementos and brochures already printed. The stakeholders suddenly meet over the turnout of events, revoked their contract with Regal Properties Group to move into franchise with Marriott Hotels to proper position and market the hotel product offerings. Revoking contract has its legal and financial implications. The senior management feels hosting the festival at this time is the best way to position the hotel into the market and fear that changing consulting group now to move into franchise will disrupt present arrangements and not portray a good image for the new hotel. Problem Statement
Since the stakeholders revokes their contract with Regale Properties whose strategy is to host the city’s festival as marketing strategy to launch the hotel product offerings into the market and prefer moving into franchise with Marriott for best reasons known to them. The decision problem becomes “How do we better position and market the hotel product offerings into the mature competitive market?” To better define the problem at hand, we need to identify key decision elements surrounding the problem such as: The general nature of the problem:
There is a sudden revocation of an existing contract with a consulting group (Royale Regale Property) to move into franchise with another group (Marriot Hotels). Royale Regale Property already entered into a deal to launch the hotel into the market by being the official sponsor and host of the city’s festival schedule to open soon. Preparations and arrangements are already in top gear as adverts, publicity are on while invitations already send out to special guests or the events. Reservations and bookings of hotel rooms for guests, attendees are in progress, as the hotel rooms are booked. Hosting the event is imminent to the consulting group and its management team. Not holding the event is tantamount to bad image for the new developed hotel while transitioning to franchise is critical to hosting the festival. What event triggered the situation?
Launching the hotel products into the competitive market so far will have been ideal but the sudden revocation of contract by the stakeholders resulting from their deliberation after the turn out of events prior to the festival gets everyone panicked. Are we imposing constraints on the situation?
There are serious concerns that can pose as constraints regarding the situation at hand. The first concern is the cause of sudden revocation of contract. There is need to ascertain why the contract is revoked. There is need to ascertain when the revocation takes effect, immediately or right after hosting the festival. Confirm the possibility of the management hosting the city’s festival or handing over to new management group. Consider the impact of the contract revocation on the festival and the present management team. Consider the impact of rescinding to host the festival. Consider the response of the city organizers knowing about the recent revocation.
Envisage the fears of all invited guests, visitors and attendees. There are other concerns as to ways to handle the publicity, confirmed bookings and reservations. Consider transition into franchise, cost effect of moving into franchise. Consider the possibility of hosting the event before transition into franchise; ascertain the cost of hosting the events if that might be the cause of revocation. Consider Marriott Hotel taking over the events to transcend into franchise, or consider other options. Engage the senior management to brainstorm how to better position and market hotel products into the competitive market. What are the underlying elements of the problem?
Positioning and marketing the hotel products centers on people, market share and profit. Hosting the festival is a success factor to better position hotel products in the market by creating awareness, penetrates the market to achieve good market share, enhance revenue and yields more profit. Rescinding to host the festival might leads to guests moving to other competitors within the city, special guests, visitors and other invitees might cancel their bookings and reservations, which might lead to loss of revenue as all hotel rooms have been booked. To rescind the hotel as the official sponsor of the festival might damage the image of the hotel as advertisement and publicity are currently running. The hotel image is important in creating a product brand. Dependencies on other decisions
The probability of hosting the festival or moving into franchise to better position the hotel product offerings depends on the outcome of senior management meeting. The success of the festival will better position and market the hotel product offerings. Rescinding to host the festival will damage the hotels image and results in loss of revenue. Moving into franchise after the festivals enhances better positioning and marketing the hotel product offerings. Summary of Key Objectives:
The objectives are sub-divided into fundamental and means objectives. The fundamental objectives will help in evaluating and comparing alternatives while the means objectives will assists in generating alternatives and deepens our understanding of the decision problem. Fundamental Objectives| Means Objectives|
Objective 1To penetrates the competitive market to achieve good market share.| Means Objective AEstablish a brand. Consider how to build quality product offerings.| | Means Objective BEstablish procedures for hiring experience staff and training to give quality services.| | Means Objective CMaximize management capabilities in operating the business. Consider operation through managed contract or franchise affiliation with high-level brand recognition for the owner.| Objective 2Create awareness by communicating the target market.| Means Objective AEstablish marketing committee to decide on identifying the target market and create brand awareness.| | Means Objective BEstablish committee to consider attracting people to the hotel. Consider different methods of communication, advertising and publicity, holding events in which hosting the festival is a factor or move into franchise.| | Means Objective CEstablish committee to consider the cost of designing a media mix, cost of hosting the festival, cost of moving into franchise.| Objective 3Enhance revenue to yields more profit.| Means Objective AEstablish committee to ascertain cost of hosting the festival and cost of moving into franchise.Establish committee to ascertain the average room rate, occupancy percentage and revenue per available room (RevPar).| | Means Objective BEstablish committee to confirm profits accrue from room sales in hosting the festival and revenue loss that might accrue in rescinding to host the festival.| | Means Objective CEstablish franchise fees, operating costs, marketing costs. Committee review event costs with franchise costs to decide which better profits the business.|
Description of Alternatives: Identifying alternatives involves the senior management brainstorming and other group members as committees identify ideas and feasible options to defined problem. The feasible options are: Alternative| Description of Alternatives|
Alternative 1Management rescinds to sponsor the event and cancel the festival.| Canceling the event is not an option. This alternative does not meet the objectives. Refunding costs for booked rooms will result to great loss of revenue. Image of the hotel is at stake.| Alternative 2Management revoked the contract and move into franchise.| Revoking contracts has its legal and cost implications. The impact on not hosting the event is enormous. Staffs are train and prepare to host the event. Adverts, publicity, brochures, fliers, banners printed, the cost affect is enormous. The alternative does not meet the objectives.| Alternative 3Management revokes the contract after the festival and move into franchise.| Hosting the event is the best option.
There is great opportunity in this alternative as adverts, publicity better position the hotel products, create a brand image, attracts people to the hotel, guests will experience quality service. The hotel penetrates the competitive market to have a share.Hotel image creates easy transition into franchise. Reduces operating costs, marketing costs, needs only technical assistance.Helps build a brand that will facilitate franchise negotiations. Hosting the event helps in creating awareness, gives the opportunity to penetrate the market, with hotel rooms fully booked provides profitability to the owner. The alternative fully meets the objectives.| Alternative 4Management revokes the contract approves Marriott to host the festival and transcends into franchise.|
Marriott’s fees will increase. Familiarize with management team and other employees will be time consuming. Setting standards in terms of creating logo, design and style will forestall events date. This will lead to incurring additional operation costs. Hosting the festival and transitioning into franchise can be cumbersome. Retraining and rehiring staff to their standards can be stressful.This alternative is not a good option to take.|
From the outcomes of the senior management meetings and other group deliberations, it is observe that the stakeholders’ concern were more on costs incurred so far in preparations for hosting the festival. Based on the management decision, the objectives to select the best way to market the hotel product offerings is to review operating costs, advertising costs, contact fees and all agreement terms while determining marketing strength is twice as important as other objectives. The contract with Regale Properties is to manage the property for ten years, 3 – 4% total revenue, 2% incentive fees, high lender’s reputation in providing loan, and high penalty impose on party that initiates cancellation. The managed contract gives owner greater control over physical and operational quality of the hotel thereby protects owner’s trademark and reputation.
Franchise agreement will be for twenty years with non- refundable initial fees, fixed monthly fee ranging from 3 -6.5% of room sales, advertising fees, loan assistance, training fees, with owner loss of autonomy and contract terminates when not meet standards. Other options arrived at are maintaining the managed contract with Regale, moving into franchise, going into partnership with a reputable chain operator or independently managed by owners as a liability company. (Retrieve from Allan Stutts, & James Wortman. (2006). Management Contract and Franchise Agreement: Hotel Lodging Management, second edition, p247 – 266). Consequence Table with Original Values:
| Managed Contract| Franchise Affiliation| Partnership| Independently Run by Owners| Operating Costs| $80,000| $200,000| $120,000| $150,000| Advertising Costs| $15,000| $50,000| $20,000| $60,000| Contract Fees| $1.5million| $5million| $1million| No Contract Fees|
Marketing Strength| 2| 1| 3| No Marketing Strength| Scoring Model: The table shows the ranking of all objectives with one as the lowest value, four as the highest value. | Managed Contract| Franchise Affiliation| Partnership| Independently Run By Owners| Operating Costs| 4| 1| 3| 2|
Advertising Costs| 4| 2| 3| 1|
Contract Fees| 2| 1| 3| 4|
Marketing Strength| 3| 4| 2| 1|
Score| 13| 8| 11| 8|
Legend: 4 = Best Option, 3 = third best, 2= Second best, 1 = Worst.| Weighted Scoring Model:
| | Alternatives|
| Weight| Managed Contract| Franchise Affiliation| Partnership| Independently Run by Owners| Operating Cost| 20%| 0.8 | 0.2| 0.6| 0.4| Advertising Cost| 20%| 0.8| 0.4| 0.6| 0.2| Contract Fees| 20%| 0.4 | 0.2| 0.6| 0.8| Marketing Strength| 40%| 1.2 | 1.6| 0.8| 0.4| TOTAL| 100%| 3.2 | 2.4| 2.6| 1.8| Legend: 1 = Lowest Value, 4 = Highest Value.|
Eliminate dominated alternatives
After more deliberations with all appointed committees to deliberate on the necessary objectives by the senior management, the available options to better position and market the hotel product offerings zero down on management team capabilities of managing the hotel products. However, when apply weight to the values, franchise dominates the idea of independently managed by owners hence eliminates the idea. Identifying Tradeoffs Using Even Swaps
Swapping the available options, managed by contract exceeds all other options and appears to be the best alternative. Consequence
Managed by contract appears the best alternative to position and market the hotel products as having a brand name is paramount in having a market share. The contracted group will bear all costs and expenses but attains its profit through gross revenue; the brand image of the chain operator will be of more advantage. The senior management continues to battle with several issues as risks, uncertainties and probabilities to better position the hotel products into the competitive market or move into franchise affiliation. Their objectives are to achieve a good market share, create a brand image and maximize profitability. Some of the consequences envisage are:
* Management holds festival before revoking the contract. Can this help in penetrating the market to have a good market share. Based on relevant information from the senior management, there is high possibility of hosting the event to attain good market share. * Stakeholders rescind to host, sponsor the festival and therefore cancel the festival. Canceling the festival creates bad press that might affect the hotel’s image. With the available facts, it is highly observed that the city festival will not be cancel. * Stakeholders might move into franchise affiliation. Reviewing the budget costs, moving into franchise involves additional fees as training fees, advertising fees and monthly fees. Based on the management analysis, there is likelihood that it might affect the profitability. Thus highlights a risk profile to identify uncertainties and probabilities. Risk Profile:
Uncertainty: Uncertainty 1|
Outcome:| Chance| Consequences: |
Host/Sponsor City festival| 90%| Achieve Good Market Share| Not hosting/Sponsor City Festival| 10%| Achieve no Market Share| Uncertainty: Uncertainty 2|
Outcome:| Chance| Consequences: |
Cancel City Festival| 10%| Lead to bad press|
Not Cancel City Festival| 90%| Lead to Good Press| Uncertainty: Uncertainty 3|
Outcome:| Chance| Consequences: |
Move into Franchise| 80%| Increase Operating Costs| Not Move into Franchise| 20%| Decreases Operating Costs|
Outcome| Gain| Probability| Expected Value|
Host /Sponsor the City Festival| $9, 000 | 90%| $8, 100| Not Cancel City Festival| $9, 000| 90%| $8, 100| Not move into Franchise| $2, 000| 20%| $ 400| Total| | | $16, 600|
Outcome| Gain| Probability| Expected Value|
Not Host /Sponsor the City Festival| $1, 000| 10%| $ 100.00| Cancel City Festival| $1, 000| 10%| $ 100.00| Move into Franchise| $8, 000| 80 %| $6, 400.00 | Total| | | $6, 600|
By using this concept, the management is able to evaluate which of the three alternatives will yield best result while factoring uncertainties that exists. In this case, the high risk has the best expected value. To ascertain the risks and probable of uncertainties, management will have to picture the risk profiles with a decision tree and decide to hedge likeable risk and insure the hotel products against future risks. Decision Tree
90.0% 0.9 9000 8100 Cancel Festival
True 90.0% 0.9
16,600 9000 8100 Franchise
20.0% 0.20 How to better position and market hotel product
offerings How to better position and market hotel product offerings
10.0% 0 1000 100 Cancel Festival
False 10.0% 0 6, 600 1000 100 Franchise
80.0% 0 8000 6400 (Retrieve from Week 5: Group Decision Making – Lecture. http://vizedhtmlcontent.next.ecollege.com/ (NEXT (a4f7ff0b65))/Main/Course Linked Decision
To better position the hotel product offerings, management will have to leave all options open by operating a flexible plan. The immediate problem is to launch the products into the competitive market, communicate the products to the target market and create a brand image. Consequent plans will be to move into franchise after attaining a brand; this will boost sales revenue and automatically improve profits. (Retrieve from John, Ralph & Howard. (1999): Smart Choices). Implementation, Monitoring and Control
To implement the chosen decision, senior management will brief all parties involved with up to date information. The senior management meets with all committee heads to assess the chosen option against foreseeable risks or bias. In this case, senior management feeds back the stakeholders as per the research, outcomes, consequences and benefits of the chosen option. To better clarify issues, opinions of legal experts will be inquire to put management at a desired advantage.
Hosting the festival is imminent in launching the products into the competitive market, thus stakeholders will honor Regale Property Group to host the city festival as the official sponsor for the event date 4 July 2013. The trained team from the operation managers, middle managers and supervisors will oversee the trained personnel to deliver best services to guests by turning guest services into a memorable experience that will bring about a repeat visit. Senior management is to review subsequent plans, ensure proper communications, effective supervision and proper accountability to ensure success of the plan.
Making tough decision problems poses few difficult problems, while applying a systematic approach helps focus on tough elements to resolve problem easily. The decision of revoking the contract to move into franchise poses a tough decision problem on the management but save for the senior management ability to resolve issue by applying a rational approach. The management was able to address the right decision problem, clarify the objectives, develop creative alternatives and ascertain consequences of their decisions. They eliminate poor alternatives, deal with uncertainties, consider their risk – taking attitude and develop flexible plan to deal with linked decisions ahead of time. (Retrieve from Frumi Rachel (2010). A Practical Guide to Making Better life Decisions: Smart Choices). Conclusion
With great success of hosting the city festival holding on Fourth of July, the quality of guest services will attract customers to bring about a repeat visits. Their standard rooms, food services and recreational facilities with quality service exhibit by the trained staff will create the brand to attain expected market share. The quality service and product will leverage the hotel edge in the competitive market. As the hotel becomes well known and attain more sales the precedent to future plans in maximizing profits is
Allan T. Stutts. & James F., Wortman (2006). Management contract and Franchise Agreements: Hotel and Lodging Management, second edition, p.247 – 266 Frumi Rachel (2010). A practical Guide to Making Better Life Decisions: Smart Choices John S. Hammond, Ralph L. Keeney, Howard Rafia (1999). Smart choices, Harvard Business School Press Culled from Week 5: Group Decision Making – Lecture: Decision Tree. http://vizedhtmlcontent.next.ecollege.com/