AVARI RAMADA HOTEL-Stanford Case Study
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The document discusses strategies to address falling room rates at Avari Ramada Hotel relative to its competitor Pearl Continental Hotel. It analyzes the hotel's clientele, existing pricing policies, facilities, and recent financial performance. Three options are proposed: 1) Raising all room rates by 10%, 2) Increasing rates for all customers except major corporate clients, 3) Introducing new rates between existing group and individual rates and adjusting select room prices. The third option of targeted pricing changes along with improved promotion is recommended to close the revenue gap with the competitor.
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AVARI RAMADA HOTEL-Stanford Case Study
- 1. Pricing Hotel Rooms Avari Ramada Hotel BY SILAMBARASAN P PGPM FLEX (2017-19)
- 2. City Attraction : Monuments & tombs - The Lahore fort - The Badshashi Mosque - Shalimar Garden - Jahangir’s Mousoleum Shahrah-e-quaid-i-azam Mall WHO WE ARE • The Avari Ramada is a Five star hotel affiliated with the Ramada Renaissance hotel chain. • Mr. Byram Avari (Owner) took over the control of Ramada from 1984 (1978-1984 : contract to Hilton Management) • The hotel is situated on the Mall ~ Heart of City • Facing Zoological Gardens • Between Alharma Arts council & WAPDA house • Proximity to Provincial assembly Rich architectural heritage Lahore, Punjab province, Pakistan • Tax free Industry Zone (30miles from Lahore) increased business travel to the city ~ It was generally believe industrial sector would experience an even larger growth • The center of culture & learning has attracted tourists all around the world opportunity :
- 3. INTRODUCTION Facilities in Avari Ramada Total room : 190 nos Function hall : 5 nos Amenities Room type Count Suite 15 Junior Suite 12 Executive Suite 3 Presidential Suite 10 Studio room 150 10% Double bedroom, Others are Single bedroom Room type Count Function room 4 Banquet hall – Kohrshed Mahal 1 Swimming pool Sauna Massage parlor Gymnasium Stenographic Secretarial services Restaurant / Shopping : Five Eating places / Coffee shop – Kims / Snack Bar - Samovar Lounge / A barbecue - garden restaurant / The Fort grill – garden restaurant / Pastry corner
- 4. BUSINESS REVIEW - RAMADA • The Pearl Continental is the another five star hotel and threat to Ramada • Pearl & Avari Ramada are the only Five star hotel in Lahore Current competition • New hotels were emerging in anticipation of the increased business activity at Lahore • By 1992, The Sheraton hotel (Five star) & Holiday Inn would commence its operation Future trend Review : Dec’1988 • For the first time since operation, the average room rate had fallen below that of its main competitor, Pearl continental hotel Action plan : To develop a plan to remedy the situation before the beginning of new year 72% 94% 93% 71% 50% 65% 62% 63% 70% 79% 70% 80% 94% 92% 73% 52% 70% 50% 75% 68% 78% 80% 1020 1015 1051 1011 983 973 992 983 1007 1003 1000930 1009 991 955 896 899 889 873 893 902 1065 100 350 600 850 1100 0% 20% 40% 60% 80% 100% 120% 140% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Avari Pearl Avari (88) Pearl (88) Occupancyrate Averageroomrate Summer
- 5. AVARI CLIENTELE • 61% of Business are coming from 2 category (VEBS, EBS)~Business people 31% 30% 11% 9% 7% 4% 3% 3% 2% 31% 61% 72% 81% 88% 92% 95% 98% 100% 0% 25% 50% 75% 100% 0% 5% 10% 15% 20% 25% 30% 35% Volume Executive Business Services (VEBS) Executive Business services (EBS) Frequent Individual Traveler (FIT) Special Airline Other Tour Summer package Conventions Customer base Tour Business Walk-in Others 1 2 3 4
- 6. PRICING POLICY - EXISTING S.no Category Group Rate Discount Target people Single Double 1 Individual Rate (11%) Rack Rate 1,806 1,986 FIT Comercial Rate 1,641 1,821 10% Business client Preferential Rate 1,478 1,658 20% Individual client 2 Contract Rate (70%) EBS & Group 1,165 1,345 30% Corporates VEBS 1,020 1,200 40% Corporates Special 725 800 45-60% Large companies 3 Garbage Rate (10%) Government officials 903 993 50% Pakistani government officials Net Wholesale Rate 1,020-1,165 1,200-1,345 Tour agent (1500 night/yr.) Journalists Rate 1,445 1,589 20% Journalists Airline Rate 813 894 55% Crews of airlines IATA Rate 903 993 50% Transit passengers 4 Suite (2%) Junior suite 3,300 Executive suite 5,500 Presidential suite 7,150 Bridal suite 1,986 complimentary Extra person in suite 180 Floral decoration 500 5 Summer package (3%0 Rack Rate 903 1,050 50% 6 Others (4%) Others At present, Avari uses several different types of price discrimination. First degree price discrimination is based on customer. • Bulk discounts to Corporate users • Incentive discount to travel agents (Maximum 1,500 nights/year) • Seasonal discount for Journalists, Airlines passengers, Government officials The purpose of price discrimination is generally to capture the market’s consumer surplus Create I Communicate I Capture I Deliver I Value I Target I Profit
- 7. PROMOTION & ADVERTISEMENT Summer package (May~Sep) : - 50% discount - Book for Nine, Get 2 rooms free - Complimentary breakfast - 10% discount on meals Current promotion Discount pricing EBS & VEBS : - Free bed tea during stay - Free meals invite - Upgrading to junior suite E-mail to all hotel clients : - Promotional leaflets - Monthly Newsletter Direct Marketing Consumer promotion Trade promotion Create I Communicate I Capture I Deliver I Value I Target I Profit
- 8. CURRENT SITUATION The marketing manager has observed that Avari’s average room rate was falling below pearl’s Major reasons for dip in revenue for Avari’s during Nov’1988 are : - Occupancy rate for Avari is low in Nov’1988 (Especially in EBS & VEBS category) & high in Special rate - Special rate has adverse effect on the average room rate (Average: 9% / Nov: 45%) - The competitor Pearl has increased the room rent - Less Brand value Some of the strategies used to overcome the situation are : 1) To Raise the price of Rooms by 10 percent 2) Increase all rates other than the EBS & VEBS 3) Introduce another type of rate - Bridge gap between Group rate & Lease expensive individual rate 90% 70% 80% Nov'1987 (Hilton) Nov'1988 (Avari) Nov'1988 (Pearl) 8% 15% 15% 45% 5% 10% 2% 11% 30% 31% 9% 3% 7% 9% FIT EBS VEBS Special Tour Airlines Others Nov'88 Average
- 9. STRATEGIES ~ OPTION:1 To Raise the price of Rooms by 10 percent - It is possible only if Ramada gets the same occupancy rate even after price increase - 61% of existing business are from Business clients (EBS & VEBS). Hence It is impossible to increase price for EBS & VEBS group since they are in ARC (Annual Rate Contract) with hotel for a year • EBS : Offered for corporates who takes 75 ~ 100 nights per year (Discount – 30%) • VEBS : Offered for corporates who takes 200 nights per year (Discount – 40%) - Flat increase will make business clients to look for alternate options. - Flat increase is risky and it will not have any significant savings to the hotel – It may further reduce the occupancy rate
- 10. STRATEGIES ~ OPTION:2 Increase all rates other than the EBS & VEBS - The demand for EBS & VEBS are rising due to the recent formation of industry zone (Tax free zone) and special attention to be given to maintain the EBS & VEBS clients properly as they are the major source of income to the hotel - There are only 39% of clients other than EBS & VEBS, Increasing others except EBS & VEBS will have slight increase in revenue but not as per the expectation - To give more Focus to get business clients (EBS & VEBS) from pearl to increase the revenue of Ramada - Hotel Management has to look for promotion and advertisement to improve the brand value
- 11. STRATEGIES ~ OPTION:3 Introduce another type of rate - Bridge gap between Group rate & Lease expensive individual rate - When we compare the price of Avari rates with competitor, Current rate of Avari is • High price for Single rooms (2.1% average) • Low price for Double rooms (5.9% average) Category Group / Discount Avari Pearl (Competitor) Difference (Avari Vs. Pearl) Avari price compared to competitor Single Double Single Double Single Double Individual Rate (11%) Rack Rate 1,806 1,986 1,786 2,086 1% -5% Single : 2.5% High Double : 4.4% LowCommercial Rate (10%) 1,641 1,821 1,680 1,980 -2% -9% Preferential Rate (20%) 1,478 1,658 1,350 1,650 9% 0% Contract Rate (70%) EBS & Group (30%) 1,165 1,345 1,150 1,450 1% -8% Single : 1.6% High Double : 8.1% LowVEBS (40%) 1,020 1,200 1,000 1,300 2% -8% Special (45-60%) 725 800 Suite (2%) Junior suite 3,300 3,300 Same priceExecutive suite 5,500 5,500 Presidental suite 7,150 7,150 - Reduce the Single room rate by 2% and increase the occupancy rate through branding & promotion to match the revenue gap - Increase the double room rate by 6% (since the hotel has only 10% of double rooms, it will not either increase the profit nor decrease the sales)
- 12. STRATEGIES ~ OPTION:3 - The average sale of Avari’s (including Room, Food, Beverage & Others) § Oct. : 10% high § Nov : -5% low § Dec : 31% high (Projected) Category Avari revenue (Rs '000) Monthly sales Comparison with Month average Annual Month (Avg.) Oct Nov Dec Oct Nov Dec Room 51,407 4,284 4,664 3,990 5,301 9% -6% 25% Food 39,793 3,316 3,920 2,998 4,726 18% -8% 47% Beverage 14,771 1,231 1,254 1,172 1,486 2% -5% 22% Other 10,585 882 842 988 1,000 -5% 13% 12% Total 1,16,556 9,713 10,680 9,148 12,513 10% -5% 31% Increase Revenue New Corporate package(25%↓) with complimentary Breakfast Price discrimination for Weekday & Weekend package Bundling offers (Stay + Food) Flat 30% discount on Food bill to EBS & VEBS Flat 45% discount on Beverages to EBS & VEBS - Rigorous promotion & advertisement in social media, Business magazines