CASE 8 ACCRA BEACH HOTEL OVERVIEW The sales manager at a Caribbean hotel wonders whether to accept a large block booking at a discount rate from a group participating in an international sporting event. Do the promised publicity benefits justify the risk of turning away guests from higher paying segments? Note: If you have taught this case from SM5, please notice that the figures in Exhibit TN-7-A have changed. These changes cascade through the financial computations of this case, and they make the decision to accept the block booking less obvious and allow for a stronger qualitative discussion. STUDY QUESTIONS 1. What factors lead to variations in demand for rooms at a hotel such as the Accra Beach? 2. Identify the various market segments currently served by the hotel. What are the pros and cons of seeking to serve customers from several segments? 3. What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board? 4. What action should Cherita Howard take and why? ANALYSIS 1. What factors lead to variations in demand at a hotel such as the Accra Beach? • Seasonal cycles. The weather is better at certain seasons of the year than others (July-October is hurricane season in the West Indies). Also, guests from North America and Europe will be more tempted to seek a warm sunny vacation in Barbados when the weather in their own countries is cold and damp. Business activity may drop off during major holiday periods.
• Economic cycles. When business is down, there is less business travel, fewer people attend conferences, and tourism may also be affected. • Days of the week. Business travelers are more likely to stay Sunday through Thursday nights; some individual vacationers will just look for weekends. Exhibit 1 of the case shows that occupancy at the Accra Beach Hotel (ABH) is highest January through March (nice weather in the Caribbean, horrid weather in North America and northern Europe) and lowest in September (peak of hurricane season). 2. Identify the various market segments currently served by the hotel. What are the pros and cons of seeking to serve customers from several segments?
Different segments at hotel. Most customers can be segmented by whether they are part of a group or not and whether they are traveling on business or pleasure. This gives us four segments: 1. Individual business travelers 2. Business conference participants 3. Individual vacationers 4. Tour group participants At ABH, another form of segmentation is guest’s home location—Barbadian, other Caribbean, North America, and Europe. The key marketing implications have to do with channels for reaching individuals versus group organizers, and allocation of promotional budget across different regions. Pros of serving several segments. Segments are often counter-cyclical. Thus, vacationers and individual travelers may come at times of year when business travel is down, and vice versa (Exhibit 4 suggests,
however, that is not the case at the ABH). Similarly, vacationers wanting a quick weekend getaway may fill rooms at weekends when there is no business travel. Filling all available capacity with a single segment may be impossible much of the time, so attracting a mix of segments may be essential to success. Cons of Serving Several Segments. Different segments behave in different ways and their needs and expectations may clash. Groups can be noisy (sometimes raucous if they all party together), they tend to all eat together and thus swamp dining rooms when it is their meal time. Vacationers dress casually and are out to have a relaxing carefree time. Business people tend to dress soberly, spend time on the phone, bring their laptops to the restaurant, use their cell phones, and may look out of place in a vacation environment. Note the comments from vacationers who think it’s “weird” to see suit clad businessmen chatting on their cell phones at the beach (p. 548). Tension between different segments and hostile glances may lead to a stressful atmosphere. Conclusion: ABH patronage seems to be shifting from vacationers to businesspeople (p. 548). Because business customers pay more and the business is more stable, ABH should probably market itself in ways that will eventually reposition the hotel as a business hotel with attractive conference opportunities. 3. What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board?
• Financial impact—Will the hotel lose money on the WICB deal? • Marketing impact—How valuable is the publicity that the WICB booking will generate for the hotel? Will it be positive for the hotel’s image, neutral, or negative? In addition to the impact on room sales, will it help/hinder the hotel in obtaining local patronage for meals, bar, and conferences/group events for customers from the Bridgeport area who don’t need rooms (note that it has state-of-the art conference facilities). • Guest experience impact—Will the presence in the hotel of a large group of sportsmen enhance or detract from the experience of (a) vacationers, and (b) businesspeople staying at ABH? Guest relations’ impact—Will loyal guests be upset if they cannot reserve a room at the hotel during the periods when the cricket home series is playing? Will this weaken their bonds with the hotel? 4. What action should Cherita Howard take and why? Financial Analysis. The necessary analysis is shown in Exhibits TN-A, TN-B, and TN–C. We need to calculate: • The revenues received from the WICB booking. • The direct costs associated with that booking (in this case, defined simply as breakfast and laundry). • The revenues lost due to turning away guests who would have stayed if the hotel were not full due to the presence of the WICB group. Exhibit TN-A calculates the revenues for the WICB group. It consists of 50 x 28 = 1,400 roomnights at $130, less VAT and less the cost of breakfast, both of which are included in the price. Breakfast costs are
calculated at 95 percent of the theoretical maximum because not all will eat it. In total, net income from the WICB bookings should generate $154,045. Exhibit TN-B uses Case Exhibit 5 to calculate the excess demand resulting from the WICB booking (assuming that in the absence of WICB, daily bookings would have been the same as last year). Add the fifty rooms/night demanded by WICB to last year’s sale for that date, then deduct the capacity figure of 141, and the difference is excess demand expressed in room-nights. Multiplying the excess demand for each night by the average revenue for that day from last year gives us the revenue forgone by having to turn away guests. For the twenty-eight days of the WICB bookings, room revenue forgone totals $112,551. To this figure must be added lost margins on meals from the tuned-away guests. Exhibit TN-C shows the calculations, recognizing that only 80 percent of regular guests have breakfast and 30 percent have dinner. The lost revenues are $2,519 for breakfast and $1,817 for dinner. Adding these to the room revenues foregone yields a total loss of $116,887. Thus, the net financial impact of accepting the WICB business is $(154,045 – 116,887) = $38,407. In other words, it would be profitable to accept the booking Other Considerations CONS • If regular guests are turned away, what is the risk that they will find another hotel and not return to the ABH? In that case, there would be a long-term revenue loss for ABH, not just a one-time loss. • If the cricket group is noisy and boisterous, it may spoil the experience for other guests, both Business people and tourists. This may generate bad word-of-mouth and lead to long-term loss of business, with existing guests fearful that more large sporting groups will be using the hotel in future. • Large groups of this nature run counter to the hotel’s shift in positioning toward a hotel for business people.
PROS • This will be great publicity for the hotel, especially throughout cricket loving nations in the English-speaking Caribbean and perhaps in the United Kingdom. (It won’t, however, do much to stimulate North American business where few watch cricket and where the matches are unlikely to be televised). • Many guests and staff who follow cricket will be excited to have the teams staying at the hotel. • April and May are not the busiest times of the year (occupancy for those two months during the past two years has ranged from 74.7 percent to 82.0 percent), so filling the hotel for twenty-eight days is a coup. • Incremental revenues of $48,000 are good to have (although not a huge item in a $7 million operating budget).
