Restructuring a hotel to meet market demand
A family were running a small hotel business successfully until the economic crisis hit and the demand for hotel accommodation declined. Since then, they have been struggling with keeping their revenues higher than their expenses.
The economic crisis and overall economic downturn has led to generally lower demand for hotel accommodation. Additionally, the hotel has struggled due to its out-of-the-city location, as well as unbalanced supply and demand levels.
The family decided to hire a third party to assist in the restructuring and turnaround of their business. The first step in restructuring was identifying non-essential operational costs that could be cut to quickly improve cash flow. Together with the consultants, the family analysed the current hotel’s situation and identified those operational costs that were not necessary for the hotel’s survival. Some of these were additional services they offered (free room amenities, a free airport shuttle service and so on) and others included underutilised employees and unnecessary energy usage where lights and heating were left on at night.
However, since the hotel was not located within a city, it was often not the first choice for potential customers, so as part of the restructuring they decided to reposition the hotel strategically as a quality four-star hotel. To change the hotel’s image, they created a new website that highlighted all the hotel’s distinctive qualities. They also enhanced social media exposure by creating more attractive and inviting images and descriptions.
Having decided on the positioning, the family and the consultants then assessed the list of costs they had identified. They were able to make significant savings by better utilising employees and by adopting greener low energy policies. However they decided to keep the additional services to fit their new four-star image. The hotel negotiated better rates with the airport shuttle service and found a new supplier for room amenities that offered higher quality products for the same price.
Before the restructuring, the family had not taken advantage of any marketing strategies. The family had not targeted any particular audience, or diversified their advertisements to suit the customer base. Following the restructuring, marketing became a priority. First, they had to determine their target audience by examining what they could offer customers, creating a buyer persona, looking into competitors and doing overall extensive market research. It was important to do thorough research to orient their marketing towards their target audience.
After analysing customer characteristics and spending habits, they were able to identify a target audience for the hotel and gain a better understanding of the customers they wanted to reach. They created a marketing plan which included industry analysis, SWOT analysis, setting the marketing budget, and outlining marketing strategies. Some of the strategies in the new marketing plan were targeting niche market segments with the help of dedicated website landing pages. Others involved encouraging customers to share their feedback on popular third-party platforms, such as Booking.com and TripAdvisor, to boost the hotel’s online reputation and search rankings.
The hotel needed a new pricing strategy as part of the new marketing plan. To overcome the supply-demand gap, the family introduced a dynamic pricing strategy which allowed them to adjust their rates based on current market demand, guest flow and other factors, such as special events occurring nearby. If the demand rose they would charge higher prices, and vice versa. This way, they were able to offer prices that were compelling for customers and fill capacity during periods of low demand.
Along with changing the hotel’s branding and creating different pricing strategies, they also decided to provide clear product differentiation by creating ‘room segments’ based on price and available enhancements. This allowed them to upsell, which meant that they were able to get customers to purchase upgrades – additional services or higher-priced rooms – in order to generate more revenue. All these changes needed to be advertised to potential customers.
Since the restructuring project introduced major changes to the business, a plan for employee communication was essential. The family decided to consult with employees from day one and keep them updated on the process throughout to lower uncertainty. Because the family engaged with them and made them feel comfortable, the employees were more open to the changes and were willing to put in more effort to make them work.