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Amber Inn & Suites, Inc. is a 250-property hotel chain formed in 1979 (Kerin & Peterson, 2010). The company has locations in 10 western and Rocky Mountain States with an average of 120 individual guest rooms for a sum of 30,000 available rooms (Kerin & Peterson, 2010). Since 2002, the company has been wrestling with a net operating loss every year (Kerin & Peterson, 2010). In addition, the company projects the 2005 fiscal year to be unprofitable with revenue of 422.6 million dollars and a net loss of 15.7 million dollars (Kerin & Peterson, 2010).
The company’s new president and chief executive officer, Joseph James, requested a presentation from senior vice presidents describing initiatives, expenditures, and outcomes for the recent two fiscal years, in addition to planned initiatives and budget needs for fiscal 2006 (Kerin & Peterson, 2010). James’s overall corporate goal was a seven percent annual increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) over the subsequent two fiscal years (Kerin & Peterson, 2010).
Amber Inn & Suites provides business travelers with “clean and comfortable guest accommodations in convenient locations at reasonable prices” (Kerin & Peterson, 2010). The guest rooms have many options such as a double or king-size bed, cable television, telephone with voice mail and free local calls, well-lit desk and wooden chair with upholstered seat, upholstered recliner chair, coffee maker, hair dryer, iron and ironing board (Kerin & Peterson, 2010). The suites have separate sitting and sleeping areas, a sleeper sofa, two televisions, and a refrigerator (Kerin & Peterson, 2010). In addition, some properties offer complimentary breakfast, vending machines on each floor, self-service laundry rooms, outdoor swimming pools, and indoor saunas (Kerin & Peterson, 2010).
The company is positioned as a “limited service hotel between economy hotels and full-service hotels” (Kerin & Peterson, 2010). The company locates its properties on major highways in proximity to industrial and office complexes, airports, and regional shopping centers (Kerin & Peterson, 2010). None of the properties includes a restaurant, lounge, meeting rooms, or room service (Kerin & Peterson, 2010). This places the company between hotels such as Holiday Inn and Motel 6 (Kerin & Peterson, 2010). However, the company does not necessarily compete with these hotels (Kerin & Peterson, 2010).
The company closed two underperforming Amber Inn properties in 2005 (Kerin & Peterson, 2010). Since 2003, three properties have opened and 12 underperforming properties have closed (Kerin & Peterson, 2010). The company’s annual projected revenue growth of 7.4 percent was “slightly below the overall hotel industry average of 7.6 percent, but higher than the limited-service segment growth rate of 5.8 percent” (Kerin & Peterson, 2010).
The company projected consolidated company occupancy of 67.1 percent with an average daily rate of $57.52 (Kerin & Peterson, 2010). The projected revenue per available room was $38.60 (Kerin & Peterson, 2010). The company’s properties showed improvement in occupancy and revenue per available room over fiscal 2004; however, the average daily rate for each was projected to be lower in fiscal 2005 than fiscal 2004 (Kerin & Peterson, 2010). The decline was partly attributed to a “free-night stay” discount promotion implemented in 2005 (Kerin & Peterson, 2010).
The company hired two additional “national” sales representatives in fiscal 2005 for a sum of 67 sales representatives (Kerin & Peterson, 2010). Eleven national sales representatives focused on increasing guest room sales through the hotels on approved lodging lists of corporate travel managers, travel agencies, and the American Automobile Association (Kerin & Peterson, 2010). The remaining 54 sales representatives focused on local businesses, government agencies, universities, and other organizations that require hotel accommodations (Kerin & Peterson, 2010).
Identifying the Root Problem Components
Amber Inn’s paramount problem is deciding to expand their marketing and advertising expenditures to include a more diverse customer base (Kerin & Peterson, 2010). The company promotes rooms and services mainly to business travelers who request hotel accommodations for one to two nights (Kerin & Peterson, 2010). By increasing their customer base, the company will be able to offer amenities to business travelers in addition to families and leisure travelers. The obstacle faced by Amber Inn is a continual decrease in net profits within the last three years in addition to a new management overhaul (Kerin & Peterson, 2010). The new management must consider two options: (1) allocate additional funds in advertising and marketing in order to expand their customer base, or (2) maintain the status quo and dream of a brighter future (Kerin & Peterson, 2010).
Evaluation of Alternatives
The decision agreed by two vice-presidents was to utilize identical media strategies in 2005 and 2006 without adding new sales representatives (Kerin & Peterson, 2010). There were three concerns that required consideration during the presentation. The first concerned dispersing advertising budget between the business customer and the vacation traveler (Kerin & Peterson, 2010). One senior vice-president voiced concerns that too much emphasis was placed on vacation travelers because it detracted from the company’s business model of servicing the business traveler (Kerin & Peterson, 2010). The company has a history of multiple complaints from frequent business travelers and management did not address it earlier. The second concern was the “frontier” strategy from 2005 (Kerin & Peterson, 2010). The strategy listed three objectives: (1) increase occupancy in guest rooms and suites, (2) attract first-time guests, and (3) increase the length of stay per visit (Kerin & Peterson, 2010). The strategy had favorable results but it was too early for a final decision on its success (Kerin & Peterson, 2010). The third concern was hotel promotions. The vice president of advertising recommended substituting the “free-night stay” promotion with “weekend specials”. Preliminary results showed an increase in weekend occupancy over 60 percent (Kerin & Peterson, 2010).
Amber Inn’s fundamental business model is based around business travelers. Based on this principle, pleasure travelers are not being well marketed. The company should allocate a larger budget for marketing to pleasure travelers in order to expand their target market. There is a greater percentage of family travel during the summer months so the company should market to both business and pleasure travelers during this time. Industry reports state that less than 30 percent of families stay more than two nights. The company can capitalize on this opportunity and create additional revenue during the summer months. Incorporating weekend specials into current advertising campaigns will increase occupancy without adding to marketing costs.
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