Amber Inn & Suites Case Study
Amber Inn & Suites, Inc., formed in 1979, operates 200 Amber Inn properties and 50 Amber Inn & Suites properties located in 10 states throughout the Rocky Mountain and western states. On Average, each location has approximately 120 individual guest and suite-style rooms. Under a new president and CEO, the goal is for Amber Inn & Suites to reach profitability within two years after five consecutive years of unprofitability. This company is positioned as a limited-service hotel which does not have the amenities such as a restaurant, lounge, or meeting rooms. This type of hotel is classified under a midscale hotel with food and beverage, such as Holiday Inn and Ramada Inn. Competition
Direct competition to Amber includes other mid-scale hotels in the western and Rocky Mountain states, specifically hotels that are in the same class as Amber which do not possess the extravagant amenities of an on-site restaurant or meeting rooms. For Amber to make its hotel stand out amongst the others is a very difficult task with so many other companies present in this industry. The next level of competition would fall to recreation vehicle parks and camping sites. For the price-conscious individual, this may pose as an easier solution, but does not give someone the comfort of a traditional bed and amenities like television. Also, with a presence in the rocky mountain and western area, weather plays a contributing factor into this scenario.
The indirect competition to Amber Inn & Suites is potential company cutbacks and layoffs. This not only affects their business traveler base, but also could affect if individuals have the luxury to travel and stay in a hotel opposed to a relative or friends residence.
Location is a key factor to the success of Amber, because the company avoids the downtown areas and has chosen to only be located on sites close to major highways close to suburban areas, airports, and large regional shopping centers. This shows that all of its locations are at a convenient location with easy access to and from their sites. Even though profitability has not been able to be reached, the company has still been able to produce three consecutive years of growing revenues. The average occupancy rate is higher than the industry average for the respective class the hotel is in, and Amber has a significant standing amongst business travelers. Weaknesses
The glaring fact of being unprofitable for five consecutive years is definitely the major weakness of this organization. Lodging revenues are rising, but the expenses correlated with these revenues are increasing at a much faster rate. Other weaknesses are the lack of amenities that Amber Inn & Suites offers travelers, which creates a lack thereof to differentiate from other hotels with the same presence. Another item that could be a weakness is a lack of differentiation between the Amber Inn and Amber
Inn & Suites. Opportunities
By having noticeable differences between the two, this could allow for different price structures and allow Amber Inn to enter a new target market giving the organization the ability to expand its chain. Also, with a dominant business traveler occupancy rate, Amber Inn & Suites could start forming frequent visitor relationships with organizations, so those companies refer their business travelers to stay in these sites.
With having so many consecutive years of unprofitability, the thought of bankruptcy or closing of the organization is always a present factor. A company can only go so long of losing money year after year before it is required to throw in the towel. Government regulations on requirements of hotels could also be an imposing factor, because certain regulations could raise general expenses that are required to keep the hotel up to code and to the industry standards.
With the new CEO wanting to produce profitability within two years, the current problem is how to re-position the organization’s strategy and define which customer base to focus on. By starting with which type of customer to target, the organization can be more focused on its tactics.
1. Do nothing. There is not much of a pro to this solution, because by doing no sort of action will either result in the business failing and closing down, or that could cost the marketing senior vice president her position.
2. Reward Program for businesses. By instituting a reward program with businesses, it will allow business travelers to stay at the hotel for a discounted price for Sunday through Thursday lodging through his or her place of employment. Instead of attempting to find the best rate. The company knows that when an employee goes to this city, he or she will stay at the Amber Inn and the company books it for the employee. This will increase the business traveler base, which is already predominant. However, this will decrease the overall revenues for the organization.
3. Increase weekend prices. By increasing lodging prices on the weekends, it will not harm the business traveler base, and increase profits for the personal and vacation/pleasure areas. This could adversely affect the number of guests staying at the hotel on the weekends and drive the weekend revenue stream down.
4. Increase average daily room rate to be more toward industry average. Since the survey says that only 36.6% stayed at the hotel based on price and the fact that majority of business travelers had the rooms paid for by the business, this will increase overall profits. The negative to this option would be the potential loss of that customer base.
5. Increase business traveler advertising. By capitalizing on the best strength of customer base, the hotel has the ability to make its focus be solely on the business traveler, which is where the most occupancy is coming from. If the company decides to shift its focus toward the business traveler it will have to cut advertising cost elsewhere, but could in-turn create a better strategy for the organization. This will decrease costs because of a more finite focus but also keep the greatest customer base that the hotel already possesses.
6. Decrease employee base. By doing this the company will save in SG&A expenses, which will allow the budget to be decreased creating a better profit. However, decreasing the employee base per site, could result in a negative effect on the hotel because it could reduce response time to cleaning rooms and getting each one available for the next guests. Decision Package
If the company can effectively increase the advertising for the business traveler and increase the hotel’s overall average daily room rate, it will be able to capitalize on the area of customers that visit the hotel the most and also increase the revenue per room. By shifting the focus to the business traveler, the company can save advertising costs elsewhere because this will limit the areas that are needed to be advertised to. If the overall advertising budget is decreased and the business traveler rate can increase, then the company is able to capitalize on the most profitable target market available.
Plan of Action
Develop a new budget for advertising with a special emphasis on the business traveler. Attempting which channels are spent on the everyday consumer will help decrease those costs and effectively increase sales. The price increase can happen in gradual stages on a quarterly basis. Given the time from of two years, the organization should structure itself at 75% of the industry average on room rate, which would give Amber Inn a $20 increase per room average. This would allow for a $2.50 increase per quarter.
Overall room occupancy rate may decrease without the personal and leisure guest presence, but the increase in profit and business segment will help adjust those figures. If the occupancy rate decreases slightly, but the revenue is increasing, this will decrease the variable costs associated with maintaining those extra rooms which will allow for less expenses.