Question

Mindy Lee was a software engineer who worked for a company that is known for its inventory management software suite. She specialized in designing interfaces that help a business migrate its inventory data to cloud computing. Mindy has loved the Internet since her school years; she used email and browsers before any other kid in her class. She books all her travel arrangements online, including flights, car rentals and hotel rooms. Mindy has inherited money and invested in a small hotel, the Sunrise, a 140-room independent, limited service midscale property. She has 80% ownership and her silent partner owns the other 20%, allowing Mindy total control in operating decisions. The hotel has a lot of potential, as the area in which it is located is popular with tourists. There are two similar hotels nearby. Over the years, however, it has struggled to gain market share. The previous owner, an old hotelier, had refused to consider a franchise agreement, hoping to compete on service quality and reputation. The average annual occupancy at the Sunrise for the last two years (prior to Mindy’s ownership) was 40%. The average rate for the last two years (prior to Mindy’s ownership) was $130. Mindy doesn’t pretend to know how to run a hotel’s daily operations, but is convinced that she can boost sales by embracing OTAs to sell her rooms. She pins her high hopes on working with Expedia. After her first two quarters (6 months) of being in charge, monthly occupancy has averaged 70%-a significant improvement. The hotel’s CPOR (cost per occupied room) is unchanged, at $40. Her ranking on Expedia has the hotel on the first page for guest searches. Overall hotel ADR however, has dropped significantly to $110, even before Expedia’s 25% margin is factored in. As agreed with the Expedia Market Manager, the hotel is selling its rooms at a lower rate on Expedia vs. their own website (Sunrise.com), for additional exposure. Almost all rooms are now being booked on Expedia. Even regular guests no longer use the Sunrise website.

Using case study format (see rubric), address the situation. Your submission should be 2 pages, double spaced, not including references and cover page. Here are some points to consider / incorporate: Rate parity, positioning vs comp set, distribution costs, conversion to Brand.com, service levels, ADR vs. RevPAR, GOPPAR.

As a consultant, brought in to make recommendations, what do you think Mindy should do, and why?

Answer 1

1. Reduction in cancellation rates:

Reducing the cancellation rates can help the hotel to increase its RevPAR rates to a tremendous scale.

The hostel should provide more non-refundable rooms, which would decrease the chances of getting the buyer cancels it and increase the rooms' occupancy rates in the hotel and improve in the RevPAR rates.

2. Direct bookings for rooms:

Promoting direct bookings for the rooms would decrease OTAs' dependency and, subsequently, the money given away to them as their commission for helping them get the reservations.

The company can promote such direct bookings by developing its website for the hotel and integrating a booking engine.

3. Optimal yield management:

The hotel can use optimum yield management, which would help the company in getting b3tter ADR and, eventually, better RevPAR.

It means giving the room to the right person at the right time at the right place.

It means doing business as per the rates of demand and supply.

4. Balancing occupancy rates and ADR:

The hotel should try to balance the occupancy rates and ADR to yield optimum revenue according to the occupancy rates and get better RevPAR eventually.

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